<PAGE> 1
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Blue
Chip Growth Fund versus S&P 500 and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 2
This page intentionally left blank
2
<PAGE> 3
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 1999
3
<PAGE> 4
$10,000 Invested in the MainStay
Blue Chip Growth Fund versus
S&P 500 and Inflation
CLASS A SHARES SEC Returns: 1 Year 21.54%, Since Inception 23.95%
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP GROWTH
PERIOD END FUND S&P 500* INFLATION+
- ---------- ------------------------- -------- ---------
<S> <C> <C> <C>
6/1/98 9450.00 10000.00 10000.00
6/98 9809.00 10406.00 10006.00
9/98 8524.00 9371.00 10043.00
12/98 11000.00 11367.00 10098.00
3/99 11794.00 11934.00 10135.00
6/99 12616.00 12776.00 10209.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 22.75%, Since Inception 26.17%
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP GROWTH
PERIOD END FUND S&P 500* INFLATION+
- ---------- ------------------------- -------- ---------
<S> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00
6/98 10380.00 10406.00 10006.00
9/98 9010.00 9371.00 10043.00
12/98 11600.00 11367.00 10098.00
3/99 12420.00 11934.00 10135.00
6/99 12730.00 12776.00 10209.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 26.75%, Since Inception 29.79%
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP GROWTH
PERIOD END FUND S&P 500* INFLATION+
- ---------- ------------------------- -------- ---------
<S> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00
6/98 10380.00 10406.00 10006.00
9/98 9010.00 9371.00 10043.00
12/98 11600.00 11367.00 10098.00
3/99 12420.00 11934.00 10135.00
6/99 13260.00 12776.00 10209.00
</TABLE>
4
<PAGE> 5
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 6/1/98
reflecting the effect of the 5.5% up-front sales charge, thereby reducing
the amount of the investment to $9,450. The Class B graph assumes an
initial investment of $10,000 made on 6/1/98. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
6/1/98 and includes the historical performance of the Class B shares for
periods 6/1/98 through 8/31/98. Performance data for the two classes vary
after this date based on differences in their loads. Performance does not
reflect the CDSC--1% if redeemed within one year of purchase--as it would
not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 6
Portfolio Management Discussion and Analysis
A multitude of positive indicators combined to propel stocks of large U.S.
companies higher than their 1998 year-end levels during the six months ended
June 30, 1999, extending the remarkable bull market of the past several years.
Domestically, economic growth continued to surge.
In many respects, the first quarter of 1999 was a continuation of recent
history. The majority of the equity market's performance was concentrated in a
handful of large-capitalization growth stocks. Technology issues continued to
outperform, and mergers and acquisitions were a powerful market driver.
During the second quarter of the year, the market's direction changed. Overall,
the S&P 500 Index(1) fared well, with long out-of-favor value stocks
experiencing renewed investor interest, as many companies reported earnings in
line with or exceeding analysts' expectations. Several Internet stocks peaked
and saw dramatic corrections. Smaller-capitalization U.S. stocks outperformed
their larger-cap counterparts for the first time in seven quarters.
Throughout the first half of the year, investors fixed their attention on any
signals of inflation. Commodity prices were one concern, as oil, natural gas,
lumber, and copper prices recovered from the depressed levels they had reached
during the Asian financial crisis of 1998. With extremely low unemployment
threatening to force wage increases, the possibility of rising inflation became
a growing concern for both the stock and bond markets. In April, the Consumer
Price Index jumped, but any rise in this measure of inflation all but
disappeared in May. The stock market regained momentum by the end of the second
quarter when the Federal Reserve Board decided to take a precautionary move by
hiking the targeted federal funds rate 0.25% on June 30, 1999. At the same time,
the Federal Reserve Board announced that it had shifted to a neutral stance on
interest rates, a move that sent stock prices to record highs.
STRONG FUND PERFORMANCE
For the six months ended June 30, 1999, the MainStay Blue Chip Growth Fund
returned 14.69% for Class A shares and 14.31% for Class B and Class C shares,
excluding all sales charges. All share classes significantly outperformed the
average Lipper(2) growth fund, which returned 11.65% for the same period. All
share classes also outperformed the S&P 500 Index, which returned 12.39% for the
period.
The Fund's strong performance was primarily due to effective industry allocation
and security selection. More specifically, the Fund was powered by its
concentration in technology, financial services, and media holdings, with many
of the Fund's investments in these sectors providing positive returns. Also
helping to fuel performance was the high level of mergers and acquisitions. For
example, the Fund benefited from the takeover of Sundstrand, whose price
increased over 50% in February on news that it was being acquired by United
Technologies. During the reporting period Sundstrand had impressive profit
margins, strong cash
- -------
(1) See page 5 for additional information about the S&P 500.
(2) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 7
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98 AND
SIX MONTHS ENDED 6/30/99
[BAR CHART]
<TABLE>
<CAPTION>
Total Return %
------------------------------------------
PERIOD END CLASS A CLASS B AND CLASS C
- ------------------- ------------- -------------------
<S> <C> <C>
12/98 16.40 16.00
6/99 14.69 14.31
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 9 for more information on performance.
flow, and a leading market position in aerospace components.
The Fund also benefited from the takeover of MediaOne Group, the third-largest
owner of cable television systems in the U.S., which is being acquired by AT&T.
Up 58% for the first six months, MediaOne Group was one of the Fund's top
performers during the reporting period. Other strong performers during the
reporting period included Tiffany & Co., up 86%; Sun Microsystems, up 61%; and
Texas Instruments, also up 61%.
Despite the Fund's strong overall results, some of its holdings detracted from
performance. The Fund's worst overall performers were in the pharmaceutical
sector, which suffered a correction. We believe the worst may now be over. For
the six-month period, Eli Lilly declined 19% and Pfizer dropped 13%, compared to
a 20% decline for drug stocks in general. SunGard Data, a computer software and
services company, also fell 13% on fears induced by year-2000 concerns.
STRATEGIC PURCHASES AND SALES
During the first half of 1999, the Fund either established new positions or
increased its holdings in several companies in the biotech and pharmaceutical
industries, such as Amgen and Bristol-Myers Squibb. Most of this buying occurred
in the second quarter, as we moved to take advantage of the correction in drug
stock prices. The Fund also added to its top holdings of Cisco Systems, Home
Depot, and Texas Instruments. All of these purchases had a positive impact on
the Fund's performance.
During the reporting period, we made some strategic sales for the Fund. We sold
the Fund's position in Charles Schwab, due to its lofty valuation and the
entrance of Merrill Lynch to online trading, which could negatively impact
Charles Schwab's business. We also sold the Fund's position in Gillette, since
the stock had reached our price target. Based on our valuation model, Gillette
became less attractive than alternate investments, such as
7
<PAGE> 8
Amgen. Both of these sales had a positive impact on the Fund's performance.
LOOKING AHEAD
Going forward, we anticipate continued debate regarding whether the Federal
Reserve Board's June 30 interest rate hike will be an effective move against
inflation or just the first in a series of steps that will eventually weaken the
economy and financial markets. We believe that many market participants expect
more Federal Reserve rate hikes and higher interest rates ahead.
We are cautiously optimistic on inflation in the near future. While commodity
prices and wages are among the key factors we are watching, we believe that, so
far, technology-driven productivity gains have largely offset rising wages. As
for the growth rate of corporate earnings, we believe first-quarter earnings met
consensus estimates and second-quarter earnings were stronger than expected. We
anticipate a favorable earnings environment for the last half of the year.
Amid all of these question marks, we anticipate increased volatility in the
stock market. We are not convinced that the stock market can continue to
surprise on the upside. We believe positive surprises are unlikely unless the
current rising interest-rate trend reverses and the profit picture remains
robust. Whatever the market brings, the Fund will continue to seek capital
appreciation by investing primarily in securities of large-capitalization
companies, with current income as a secondary investment objective.
Howard Ward
Portfolio Manager
Gabelli Asset Management Company
Past performance is no guarantee of future results.
8
<PAGE> 9
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 28.61% 30.60%
Class B 27.75% 29.79%
Class C 27.75% 29.79%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 21.54% 23.95%
Class B 22.75% 26.17%
Class C 26.75% 29.79%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 158 out of 177 out of
1,067 funds 1,055 funds
Class B 171 out of 193 out of
1,067 funds 1,055 funds
Class C n/a n/a
Average Lipper
growth fund 18.87% 23.33%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $13.35 $0.0000 $0.0000
Class B $13.26 $0.0000 $0.0000
Class C $13.26 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes after this date vary based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A and Class B shares were first offered to
the public on 6/1/98, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 6/1/98 through
6/30/99.
9
<PAGE> 10
MainStay Blue Chip Growth Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (99.2%)+
BANKS (13.0%)
Bank of New York Co., Inc.
(The)......................... 67,600 $ 2,480,075
Mellon Bank Corp. ............. 122,600 4,459,575
Northern Trust Corp. .......... 47,300 4,588,100
State Street Corp. ............ 82,500 7,043,438
SunTrust Banks, Inc. .......... 20,000 1,388,750
------------
19,959,938
------------
BROADCAST/MEDIA (8.4%)
CBS Corp. (a).................. 51,800 2,250,063
Chancellor Media Corp. (a)..... 47,000 2,590,875
Clear Channel Communications,
Inc. (a)...................... 46,700 3,219,381
MediaOne Group, Inc. (a)....... 64,700 4,812,062
------------
12,872,381
------------
COMMUNICATIONS--EQUIPMENT (4.1%)
Cisco Systems, Inc. (a)........ 82,300 5,292,919
Lucent Technologies Inc. ...... 14,200 957,612
------------
6,250,531
------------
COMPUTER SOFTWARE & SERVICES (12.8%)
Automatic Data Processing,
Inc. ......................... 95,400 4,197,600
Ceridian Corp. (a)............. 68,000 2,222,750
Computer Sciences Corp. (a).... 60,000 4,151,250
Electronic Data Systems
Corp. ........................ 35,000 1,979,687
First Data Corp. .............. 55,000 2,691,562
Microsoft Corp. (a)............ 25,000 2,254,688
SunGard(R) Data Systems Inc.
(a)........................... 64,800 2,235,600
------------
19,733,137
------------
COMPUTER SYSTEMS (11.4%)
Dell Computer Corp. (a)........ 42,200 1,561,400
EMC Corp. (a).................. 77,600 4,268,000
International Business Machines
Corp. ........................ 58,600 7,574,050
Sun Microsystems, Inc. (a)..... 59,000 4,063,625
------------
17,467,075
------------
ELECTRONICS (8.1%)
Intel Corp. ................... 74,000 4,403,000
Texas Instruments Inc. ........ 55,000 7,975,000
------------
12,378,000
------------
ENTERTAINMENT (4.6%)
Time Warner Inc. .............. 73,000 5,256,000
Viacom Inc. Class B (a)........ 42,000 1,848,000
------------
7,104,000
------------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
HEALTH CARE--DRUGS (3.6%)
Lilly (Eli) & Co............... 31,000 $ 2,220,375
Merck & Co., Inc. ............. 30,600 2,264,400
Pfizer Inc. ................... 9,400 1,031,650
------------
5,516,425
------------
HEALTH CARE--MEDICAL PRODUCTS (1.7%)
Baxter International Inc. ..... 44,200 2,679,625
------------
HEALTH CARE--MISCELLANEOUS (7.9%)
Abbott Laboratories............ 2,000 91,000
Amgen Inc. (a)................. 65,000 3,956,875
Bristol-Myers Squibb Co........ 38,200 2,690,712
Johnson & Johnson.............. 8,000 784,000
Warner-Lambert Co.............. 66,200 4,592,625
------------
12,115,212
------------
INSURANCE (2.8%)
American International Group,
Inc. ......................... 7,050 825,291
Marsh & McLennan Cos., Inc. ... 47,000 3,548,500
------------
4,373,791
------------
INVESTMENT BANK/BROKERAGE (2.1%)
Merrill Lynch & Co., Inc. ..... 40,200 3,213,488
------------
PUBLISHING (6.0%)
Gannett Co., Inc. ............. 43,000 3,069,125
Knight-Ridder Inc. ............ 30,000 1,648,125
McGraw-Hill Cos., Inc (The).... 8,400 453,075
New York Times Co. (The)....... 94,000 3,460,375
Tribune Co..................... 7,600 662,150
------------
9,292,850
------------
RETAIL (7.1%)
Home Depot, Inc. (The)......... 97,500 6,282,656
Lowe's Cos., Inc. ............. 55,000 3,117,813
Tiffany & Co................... 15,500 1,495,750
------------
10,896,219
------------
SPECIALIZED SERVICES (2.9%)
Interpublic Group of Cos., Inc.
(The)......................... 31,800 2,754,675
Omnicom Group Inc. ............ 21,000 1,680,000
------------
4,434,675
------------
TELECOMMUNICATIONS--LONG
DISTANCE (2.7%)
AT&T Corp. .................... 32,000 1,786,000
MCI WorldCom, Inc. (a)......... 28,000 2,415,000
------------
4,201,000
------------
Total Common Stocks
(Cost $129,194,709)........... 152,488,347
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 11
Portfolio of Investments June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT (2.7%)
State Street Bank and Trust
Company, 4.70%, due 7/1/99,
with a maturity value of
$4,096,535
(Collateralized by $3,285,000
U.S. Treasury Note, 8.50%,
due 2/15/20 market
value--$4,179,584)............ $4,096,000 $ 4,096,000
------------
Total Short-Term Investment
(Cost $4,096,000)............. 4,096,000
------------
Total Investments
(Cost $133,290,709) (b)....... 101.9% 156,584,347(c)
Liabilities in Excess of Cash
and Other Assets.............. (1.9) (2,893,121)
----- -----------
Net Assets..................... 100.0% $153,691,226
===== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) The cost for Federal income tax purposes is $133,360,503.
(c) At June 30, 1999, net unrealized appreciation was $23,223,844, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $24,205,634 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $981,790.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 12
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$133,290,709)............................................. $156,584,347
Cash........................................................ 1,481
Receivables:
Investment securities sold................................ 3,360,449
Fund shares sold.......................................... 1,132,633
Dividends and interest.................................... 80,760
Unamortized organization expense............................ 53,012
------------
Total assets........................................ 161,212,682
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 7,093,357
MainStay Management....................................... 118,608
Transfer agent............................................ 108,742
NYLIFE Distributors....................................... 95,531
Fund shares redeemed...................................... 44,497
Custodian................................................. 9,726
Trustees.................................................. 663
Accrued expenses............................................ 50,332
------------
Total liabilities................................... 7,521,456
------------
Net assets.................................................. $153,691,226
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 26,068
Class B................................................... 88,429
Class C................................................... 1,250
Additional paid-in capital.................................. 131,389,461
Accumulated net investment loss............................. (884,582)
Accumulated net realized loss on investments................ (223,038)
Net unrealized appreciation on investments.................. 23,293,638
------------
Net assets.................................................. $153,691,226
============
CLASS A
Net assets applicable to outstanding shares................. $ 34,798,993
============
Shares of beneficial interest outstanding................... 2,606,808
============
Net asset value per share outstanding....................... $ 13.35
Maximum sales charge (5.50% of offering price).............. 0.78
------------
Maximum offering price per share outstanding................ $ 14.13
============
CLASS B
Net assets applicable to outstanding shares................. $117,235,151
============
Shares of beneficial interest outstanding................... 8,842,920
============
Net asset value and offering price per share outstanding.... $ 13.26
============
CLASS C
Net assets applicable to outstanding shares................. $ 1,657,082
============
Shares of beneficial interest outstanding................... 124,982
============
Net asset value and offering price per share outstanding.... $ 13.26
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 13
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 344,828
Interest.................................................. 66,936
-----------
Total income............................................ 411,764
-----------
Expenses:
Management................................................ 514,702
Distribution--Class B..................................... 284,420
Distribution--Class C..................................... 2,577
Transfer agent............................................ 245,897
Service--Class A.......................................... 33,010
Service--Class B.......................................... 94,807
Service--Class C.......................................... 859
Registration.............................................. 24,755
Shareholder communication................................. 22,948
Recordkeeping............................................. 17,135
Professional.............................................. 16,450
Custodian................................................. 14,905
Organization.............................................. 6,701
Trustees.................................................. 1,388
Miscellaneous............................................. 15,792
-----------
Total expenses.......................................... 1,296,346
-----------
Net investment loss......................................... (884,582)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 818,347
Net change in unrealized appreciation on investments........ 14,294,251
-----------
Net realized and unrealized gain on investments............. 15,112,598
-----------
Net increase in net assets resulting from operations........ $14,228,016
===========
</TABLE>
- -------
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 14
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended June 1, 1998**
June 30, through
1999* December 31, 1998
------------ -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (884,582) $ (314,446)
Net realized gain (loss) on investments................... 818,347 (1,041,385)
Net change in unrealized appreciation on investments...... 14,294,251 8,999,387
------------ -----------
Net increase in net assets resulting from operations...... 14,228,016 7,643,556
------------ -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 13,491,004 17,005,699
Class B................................................. 74,918,136 35,664,242
Class C................................................. 1,452,528 125,295
Cost of shares redeemed:
Class A................................................. (1,739,169) (302,462)
Class B................................................. (6,589,761) (2,156,973)
Class C................................................. (28,103) (20,782)
------------ -----------
Increase in net assets derived from capital share
transactions......................................... 81,504,635 50,315,019
------------ -----------
Net increase in net assets............................ 95,732,651 57,958,575
NET ASSETS:
Beginning of period......................................... 57,958,575 --
------------ -----------
End of period............................................... $153,691,226 $57,958,575
============ ===========
Accumulated net investment loss at end of period............ $ (884,582) $ --
============ ===========
</TABLE>
- -------
* Unaudited.
** Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 15
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------- ------------------------- --------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period.............................. $ 11.64 $ 10.00 $ 11.60 $ 10.00 $11.60 $ 8.60
------- ------- -------- ------- ------ ------
Net investment loss (a)............... (0.07) (0.07) (0.11) (0.10) (0.11) (0.06)
Net realized and unrealized gain on
investments......................... 1.78 1.71 1.77 1.70 1.77 3.06
------- ------- -------- ------- ------ ------
Total from investment operations...... 1.71 1.64 1.66 1.60 1.66 3.00
------- ------- -------- ------- ------ ------
Net asset value at end of period...... $ 13.35 $ 11.64 $ 13.26 $ 11.60 $13.26 $11.60
======= ======= ======== ======= ====== ======
Total investment return (b)........... 14.69% 16.40% 14.31% 16.00% 14.31% 34.88%
Ratios (to average net assets)++/
Supplemental Data:
Net investment loss............... (1.16%) (1.66%) (1.91%) (2.41%) (1.91%) (2.41%)
Expenses.......................... 1.96% 2.34% 2.71% 3.09% 2.71% 3.09%
Portfolio turnover rate............... 28% 21% 28% 21% 28% 21%
Net assets at end of period
(in 000's).......................... $34,799 $19,361 $117,235 $38,478 $1,657 $ 120
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 16
MainStay Blue Chip Growth Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Blue Chip Growth Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek capital appreciation by investing
primarily in securities of large-capitalization companies. Current income is a
secondary investment objective.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National
16
<PAGE> 17
Notes to Financial Statements unaudited
Market System) at the bid price supplied through such system, and (d) by
appraising over-the-counter securities not quoted on the NASDAQ system at prices
supplied by the pricing agent or brokers selected by the Subadvisor, if these
prices are deemed to be representative of market values at the regular close of
business of the Exchange. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which mature
in 60 days or less are valued at amortized cost if their term to maturity at
purchase was 60 days or less, or by amortizing the difference between market
value on the 61st day prior to maturity and value on maturity date if their
original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
REPURCHASE AGREEMENTS. The Fund's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to determine that the value, including
accrued interest, exceeds the repurchase price. In the event of the seller's
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,553 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
17
<PAGE> 18
MainStay Blue Chip Growth Fund
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to Gabelli Asset
Management Company ("GAMCO") (the "Subadvisor"). Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. For the six months ended June 30, 1999 the Manager
earned $514,702.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and GAMCO, the Manager pays the Subadvisor a monthly fee at an annual rate of
0.50% on assets up to $500 million, and 0.40% on assets in excess of $500
million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the
18
<PAGE> 19
Notes to Financial Statements unaudited (continued)
Class B and Class C shares of the Fund, at the annual rate of 0.75% of the
average daily net assets of the Fund's Class B and Class C shares. The
Distribution Plan provides that the Class B and Class C shares of the Fund also
incur a service fee at the annual rate of 0.25% of the average daily net asset
value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $30,910 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $30,654
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $245,897.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A with a net
asset value of $12,015,000. This represents 34.5% of the Class A net assets at
period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $1,163 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$17,135 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, a capital loss
carryforward of $344,621 was available, to the extent provided by regulations,
to offset future realized gains through 2006. In addition, the Fund intends to
elect, to the extent provided by the regulations, to treat $626,970 of
qualifying capital losses that arose during the prior year as if they arose on
January 1, 1999.
19
<PAGE> 20
MainStay Blue Chip Growth Fund
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $109,936 and $28,640, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................. 1,085 6,057 117 1,693 3,538 12
Shares redeemed.......................... (142) (531) (2) (30) (221) (2)
----- ----- --- ----- ----- --
Net increase............................. 943 5,526 115 1,663 3,317 10
===== ===== === ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
</TABLE>
20
<PAGE> 21
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 22
This page intentionally left blank
<PAGE> 23
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee BLUE CHIP GROWTH FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Blue Chip Growth Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA19-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 24
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay
California Tax Free Fund versus
Lehman Brothers Municipal Bond Index
and Inflation--Class A, Class B, and
Class C Shares 3
Portfolio Management Discussion and
Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 10
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 25
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
2
<PAGE> 26
$10,000 Invested in the Mainstay California
Tax Free Fund versus Lehman Brothers
Municipal Bond Index and Inflation
[CLASS A SHARES CHART]
CLASS A SHARES SEC Returns: 1 Year -3.92%, 5 Year 4.42%, Since Inception 5.23%
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX FREE LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ---------------------------- ------------------------- ----------
<S> <C> <C> <C>
10/1/91 9550.00 10000.00 10000.00
12/91 9748.00 10335.00 10051.00
12/92 10516.00 11247.00 10349.00
12/93 11852.00 12628.00 10632.00
12/94 11273.00 11975.00 10908.00
12/95 12984.00 14066.00 11192.00
12/96 13430.00 14689.00 11563.00
12/97 14491.00 16038.00 11758.00
12/98 15263.00 17077.00 11947.00
6/99 14850.00 16709.00 12078.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year -4.67%, 5 Year 4.82%,
Since Inception 5.71%
Class C SEC Returns: 1 Year -0.67%, 5 Year 5.15%,
Since Inception 5.71%
[CLASS B & C SHARES CHART]
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX FREE LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ---------------------------- ------------------------- ----------
<S> <C> <C> <C>
10/1/91 10000.00 10000.00 10000.00
12/91 10207.00 10335.00 10051.00
12/92 11011.00 11247.00 10349.00
12/93 12410.00 12628.00 10632.00
12/94 11804.00 11975.00 10908.00
12/95 13564.00 14066.00 11192.00
12/96 13984.00 14689.00 11563.00
12/97 15050.00 16038.00 11758.00
12/98 15813.00 17077.00 11947.00
6/99 15378.00 16709.00 12078.00
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
10/1/91 reflecting the effect of the 4.5% up-front sales charge, thereby
reducing the amount of the investment to $9,550. The Class B graph assumes
an initial investment of $10,000 made on 10/1/91 and includes the
historical performance of the Class A shares for periods from 10/1/91
through 12/31/94. Performance data for the two classes vary after this date
based on differences in their load and expense structures. Performance does
not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if shares
are redeemed within the first six years of purchase--as it would not apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 10/1/91 and includes the historical performance of Class A
shares for periods 10/1/91 through 12/31/94 and Class B shares for periods
1/1/95 through 8/31/98. Performance data after these dates vary based on
differences in their load and expense structures. Performance does not
reflect the CDSC--1% if redeemed within one year of purchase--as it would
not apply for the period shown. (The $10,000 invested in the Lehman
Brothers Municipal Bond Index begins on 9/30/91.) All results include
reinvestment of distributions at net asset value and change in share price
for the stated period.
* The Lehman Brothers Municipal Bond Index (which does not have a sales
charge) includes approximately 15,000 municipal bonds rated Baa or better
by Moody's with a maturity of at least two years. Bonds subject to the
Alternative Minimum Tax or with floating or zero coupons are excluded. The
Index is unmanaged and results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
3
<PAGE> 27
Portfolio Management Discussion and Analysis
During the first half of 1999, the U.S. economy remained stronger than earlier
estimates. Concerns that troubled foreign economies and an overspent American
consumer would slow the demand for domestic products and services faded into the
background. Following Brazil's currency devaluation and an upsurge in the
Japanese stock market, global economies steadily improved. With low unemployment
and the wealth created by a rising stock market, consumer spending remained
strong.
Although low unemployment raised concerns that companies would need to raise
wages to attract new workers, inflation remained relatively benign. Seeking to
prevent future inflation, in May the Federal Reserve Board announced a bias
toward higher interest rates, and at the end of June it raised the targeted
federal funds rate by 0.25%, leaving the discount rate untouched. Given the
Federal Reserve's advance signals, interest rates increased throughout the first
half of the year, which had a negative impact on prices in most high-grade bond
sectors, including municipals.
The California economy was not hit as hard by the Asian financial crisis as many
experts had predicted. The real estate, financial services, and entertainment
industries continued to show strong results, and while activity at some of the
state's ports has fallen off, the impact on the state economy has not been
substantial.
PERFORMANCE CHALLENGES IN A DECLINING MARKET
For the six-month period ended June 30, 1999, the MainStay California Tax Free
Fund returned -2.71% for Class A shares and -2.75% for Class B and Class C
shares, excluding all sales charges. All share classes underperformed the -1.74%
return of the average Lipper(1) California municipal debt fund during the first
half of 1999.
The Fund underperformed its peers largely as a result of two factors. First, the
Fund was positioned with a long duration(2) throughout the reporting period,
which had a negative impact on performance in a steadily rising interest-rate
environment. Second, the Fund is not allowed to invest in low-quality (or
"junk") municipals, which may have placed it at a disadvantage to some municipal
funds. While the Fund may invest in securities rated in any of the top four
rating categories by Moody's or S&P, during the reporting period we concentrated
primarily on securities in the higher rating categories, believing that the
additional yield on bonds in the lower rating categories available to the Fund
was insufficient to justify the risks involved.
STRATEGIC MANAGEMENT DECISIONS
The Fund's positioning during the first half of 1999 reflected the early
consensus view that rates might decline to maintain economic growth in a
challenging global environment. The decision to maintain a long duration had a
negative impact throughout the reporting period, despite
- -------
(1) See page 7 for additional information about Lipper, Inc.
(2) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
4
<PAGE> 28
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[CLASS A SHARES CHART]
CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- --------------
<S> <C>
12/91 2.07
12/92 7.88
12/93 12.71
12/94 -4.88
12/95 15.18
12/96 3.44
12/97 7.90
12/98 5.33
6/99 -2.71
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 7
for more information on performance.
[CLASS B & C CHART]
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- ------------------
<S> <C>
12/91 2.07
12/92 7.88
12/93 12.71
12/94 -4.88
12/95 14.91
12/96 3.10
12/97 7.63
12/98 5.07
6/99 -2.75
</TABLE>
Past performance is no guarantee of future results. Class B Returns reflect
the historical performance of the Class A shares for periods 12/91 through
12/94. Class C share returns reflect the historical performance of the Class B
shares for periods 12/91 through 8/98. See footnote * on page 7 for more
information on performance.
signals that consumer spending might decrease, slowing economic growth. Had the
savings rate remained in its usual 4% range, our duration strategy might have
proved beneficial, but in June consumers actually spent more than they earned.
The unusual combination of low unemployment and low inflation also supported the
Fund's positioning, but neither the Federal Reserve nor the market believed this
combination could be sustained, which resulted in rising interest rates.
Given recent financial problems in the hospital sector, the Fund remained
underweighted in these securities, which proved beneficial for the Fund's
overall performance. During the reporting period, the Fund was overweighted in
water, sewer, and general obligation bonds with AAA and AA ratings.(3) The
overall credit
- -----
(3) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. Debt rated AA differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
5
<PAGE> 29
quality of the securities in the Fund's investment portfolio was AA as of June
30, 1999, representing a high-quality municipal bond portfolio.
STRONG AND WEAK PERFORMERS
In a rising interest rate environment, most municipal bonds declined in value.
Among the best-performing securities in the Fund's portfolio were higher-coupon,
short-call bonds. California Educational Pooled Colleges 6.3% bonds due 4/1/21
fit this profile. The bonds' high coupon lowered their duration and the price
remained strong because the bonds have prerefunding potential.
Most bonds carry a call provision, generally about ten years after issuance. If
the issuer wants to take advantage of lower interest rates and refinance before
the call date, the bonds can be prerefunded. In a prerefunding, new bonds are
issued and the proceeds are used to purchase Treasury securities that mature
near the same date as the original issue's call date. These securities are
escrowed and used to pay the interest until the first call date, at which time
the principal is paid. Prerefundings may provide large gains for bondholders
because the municipals are in effect tax-free Treasury bonds whose maturity, in
many cases, has been reduced by more than 20 years. Although the Fund's
Foothill/Eastern Corridor Agency bonds are not scheduled to prerefund until
July, the market's knowledge of the imminent prerefunding helped increase the
price of the bonds, which contributed positively to the Fund's performance.
While long-duration bonds tended to underperform during the first half of 1999,
Escondido California Union High School zero-coupon bonds due 11/1/12 provided an
exception. Since we purchased the bonds for the Fund near the bottom of the
market, they provided some price appreciation, which contributed positively to
the Fund's performance.
California Education Facilities for California Institute of Technology 4.5%
bonds due 10/1/27 followed the general negative performance trend for
long-duration bonds. The low coupon and long maturity of these bonds combined
with a purchase at a high point in the market made the bonds one of the Fund's
worst-performing securities. The Fund also suffered by buying California
Statewide Community Housing 7.0% bonds due 9/1/09 at a premium and having them
called at par years before maturity.
LOOKING AHEAD
The Fund continues to have a longer duration than its peers and we anticipate
maintaining this position until new information changes our view of future
inflation. We will continue to concentrate on high-quality securities, seeking
yield advantages and diversification by county, municipal sector, coupon, and
maturity. Whatever the markets may bring, the Fund will seek to provide a high
level of current income exempt from regular federal income tax and California
personal income tax, consistent with the preservation of capital.
James Flood
Edward Munshower
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
6
<PAGE> 30
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND THROUGH 6/30/99
<S> <C> <C> <C>
Class A 0.61% 5.39% 5.86%
Class B 0.33% 5.15% 5.71%
Class C 0.33% 5.15% 5.71%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND THROUGH 6/30/99
<S> <C> <C> <C>
Class A -3.92% 4.42% 5.23%
Class B -4.67% 4.82% 5.71%
Class C -0.67% 5.15% 5.71%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR 5 YEARS LIFE OF FUND THROUGH 6/30/99
<S> <C> <C> <C>
Class A 99 out of 64 out of 38 out of
105 funds 67 funds 44 funds
Class B 103 out of 79 out of
105 funds n/a 79 funds
Class C n/a n/a n/a
Average Lipper
CA municipal
debt fund 1.60% 6.46% 6.46%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.49 $0.2250 $0.0000
Class B $9.47 $0.2118 $0.0000
Class C $9.47 $0.2118 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5% and an
annual 12b-1 fee of .25%. Class B shares, first offered to the public on
1/3/95, are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed within the first six years of
purchase and an annual 12b-1 fee of .50%. Performance figures for this
class include the historical performance of the Class A shares for periods
from inception (10/1/91) up to 12/31/94. Performance data for the two
classes vary after this date based on differences in their load and expense
structures. Class C shares, first offered to the public on 9/1/98, are sold
with no initial sales charge, but are subject to a CDSC of 1% if redeemed
within one year of purchase and an annual 12b-1 fee of .50%. Performance
figures for this class include the historical performance of the Class A
shares for periods from inception (10/1/91) up to 12/31/94 and Class B
shares for periods 1/1/95 up to 8/31/98. Performance data for the classes
vary after these dates based on differences in their load and expense
structures.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A shares were first offered to the public on
10/1/91, Class B shares on 1/3/95, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
10/1/91 through 6/30/99.
7
<PAGE> 31
Mainstay California Tax Free Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (98.6%)+
CALIFORNIA (94.2%)
Alvord California Unified School
District, Series B
5.50%, due 8/1/27.............. $ 800,000 $ 807,560
California Educational
Facilities
Authority Revenue
Pooled College & University
Projects, Series A
5.625%, due 7/1/23............. 1,100,000 1,080,805
Project B
6.30%, due 4/1/21 (b).......... 500,000 524,025
Stanford University, Series N
5.20%, due 12/1/27 (b)......... 1,200,000 1,165,500
University of Southern
California
5.50%, due 10/1/27............. 1,000,000 1,006,250
California Health Facilities
Financing
Authority, Sutter Health
Series A
5.35%, due 8/15/28............. 1,000,000 981,250
California Housing Finance
Agency
Revenue, Home Mortgage
Series C
8.30%, due 8/1/19 (a).......... 20,000 20,155
California Pollution Control
Financing Authority Revenue
San Diego Gas & Electric Co.
Series A
5.90%, due 6/1/14.............. 400,000 432,500
California State Department
Water
Resources Center Valley Project
Revenue, Water System
Series I
6.95%, due 12/1/25 (d)......... 2,000,000 2,093,440
California State University
Revenue & Colleges
Housing Systems
5.90%, due 11/1/21............. 1,800,000 1,903,500
California Statewide Community
Development Corp.
7.00%, due 9/1/09.............. 240,000 257,446
Eden Township Hospital District
Revenue
7.40%, due 11/1/19 (b)(d)...... 770,000 795,363
Escondido California Union High
School District
(zero coupon), due 11/1/12
(d)............................ 1,350,000 680,063
Foothill-Eastern Transportation
Corridor Agency, Toll Road
Revenue, Series A
(zero coupon), due 1/1/27...... 6,700,000 1,432,125
(zero coupon), due 1/1/28...... 1,000,000 201,250
(zero coupon), due 1/1/29...... 545,000 103,550
</TABLE>
- ---------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
Inglewood Redevelopment Agency
Tax Allocation
Series A
5.25%, due 5/1/17.............. $ 500,000 $ 501,875
Laguna Salada Union
School District, Series B
(zero coupon), due 8/1/23...... 700,000 187,250
Los Angeles California Harbor
Department Revenue
8.70%, due 9/1/15 (b)(d)....... 540,000 544,477
Los Angeles County
Transportation Commission
Sales Tax Revenue, Series A
7.40%, due 7/1/15 (d).......... 400,000 408,000
Oakland California General
Obligation
Measure K
5.90%, due 12/15/22............ 1,000,000 1,048,750
Palo Alto California Unified
School
District, Series B
5.375%, due 8/1/18 (b)......... 700,000 701,750
Rancho Cucamonga California
Redevelopment Agency
Tax Allocation
6.75%, due 9/1/20.............. 2,000,000 2,048,620
San Diego County Water Authority
Revenue, Series A
4.75%, due 5/1/20.............. 1,000,000 915,000
San Francisco City & County
Airports Commission
International Airport Revenue
Second Series, Issue 12B
5.625%, due 5/1/21............. 1,000,000 1,016,020
San Joaquin Hills California
Transportation Corridor Agency
Senior Lien Toll Road Revenue
(zero coupon), due 1/1/19
(d)............................ 3,000,000 1,050,000
(zero coupon), due 1/1/22
(d)............................ 3,000,000 892,500
San Marino California Unified
School District, Series B
5.00%, due 6/1/23.............. 1,000,000 957,500
Santa Monica-Malibu Unified
School District
(zero coupon), due 8/1/23...... 2,340,000 623,025
5.25%, due 8/1/13.............. 1,250,000 1,273,437
5.25%, due 8/1/17.............. 1,000,000 1,006,250
-----------
26,659,236
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 32
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
PUERTO RICO (4.4%)
Puerto Rico Commonwealth
Government Development Bank
5.375%, due 7/1/25............. $1,000,000 $ 990,000
Puerto Rico Commonwealth
Highway & Transportation
Authority Highway Revenue,
Series Y
5.50%, due 7/1/36.............. 250,000 253,125
-----------
1,243,125
-----------
Total Long-Term Municipal Bonds
(Cost $28,662,620)............. 27,902,361
-----------
SHORT-TERM MUNICIPAL BOND (3.9%)
Irvine Ranch California Water
District
Certificates Participation
Improvement Project
3.70%, due 8/1/16 (c)......... 1,100,000 1,100,000
-----------
Total Short-Term Municipal Bond
(Cost $1,100,000).............. 1,100,000
-----------
Total Investments
(Cost $29,762,620) (e)......... 102.5% 29,002,361(f)
Liabilities in Excess of
Cash and Other Assets.......... (2.5) (716,076)
----- -----------
Net Assets...................... 100.0% $28,286,285
===== ===========
</TABLE>
- -------
(a) Interest on this security is subject to alternative minimum tax.
(b) Segregated as collateral for futures contracts.
(c) Variable rate security that may be tendered back to the issuer at any time
prior to maturity at par.
(d) Prerefunding securities--issuer has or will issue new bonds and use the
proceeds to purchase Treasury Securities that mature at or near the same
date as the original issue's call date.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(f) At June 30, 1999, net unrealized depreciation was $760,259, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $121,947 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $882,206.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 33
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$29,762,620).............................................. $29,002,361
Cash........................................................ 51,291
Receivables:
Interest.................................................. 362,527
Fund shares sold.......................................... 85,477
-----------
Total assets........................................ 29,501,656
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,021,360
Shareholder communication................................. 42,616
MainStay Management....................................... 8,584
NYLIFE Distributors....................................... 8,201
Custodian................................................. 4,042
Transfer agent............................................ 3,395
Fund shares redeemed...................................... 788
Trustees.................................................. 246
Accrued expenses.......................................... 17,123
Dividend payable.......................................... 109,016
-----------
Total liabilities................................... 1,215,371
-----------
Net assets.................................................. $28,286,285
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 16,903
Class B................................................... 12,424
Class C................................................... 502
Additional paid-in capital.................................. 29,158,539
Accumulated distribution in excess of net investment
income.................................................... (63,961)
Accumulated net realized loss on investments................ (77,863)
Net unrealized depreciation on investments.................. (760,259)
-----------
Net assets.................................................. $28,286,285
===========
CLASS A
Net assets applicable to outstanding shares................. $16,046,856
===========
Shares of beneficial interest outstanding................... 1,690,307
===========
Net asset value per share outstanding....................... $ 9.49
Maximum sales charge (4.50% of offering price).............. 0.45
-----------
Maximum offering price per share outstanding................ $ 9.94
===========
CLASS B
Net assets applicable to outstanding shares................. $11,763,925
===========
Shares of beneficial interest outstanding................... 1,242,393
===========
Net asset value and offering price per share outstanding.... $ 9.47
===========
CLASS C
Net assets applicable to outstanding shares................. $ 475,504
===========
Shares of beneficial interest outstanding................... 50,220
===========
Net asset value and offering price per share outstanding.... $ 9.47
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 34
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 775,382
-----------
Expenses:
Management................................................ 71,998
Transfer agent............................................ 21,951
Shareholder communication................................. 21,780
Service--Class A.......................................... 21,293
Service--Class B.......................................... 14,560
Service--Class C.......................................... 123
Distribution--Class B..................................... 14,560
Distribution--Class C..................................... 123
Professional.............................................. 11,980
Recordkeeping............................................. 6,456
Registration.............................................. 4,069
Custodian................................................. 2,679
Trustees.................................................. 436
Miscellaneous............................................. 9,853
-----------
Total expenses before reimbursement..................... 201,861
Expense reimbursement from Manager.......................... (8,625)
-----------
Net expenses............................................ 193,236
-----------
Net investment income....................................... 582,146
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from:
Security transactions..................................... (107,128)
Future transactions....................................... (30,317)
-----------
Net realized loss on investments............................ (137,445)
Net change in unrealized appreciation on investments........ (1,200,482)
-----------
Net realized and unrealized loss on investments............. (1,337,927)
-----------
Net decrease in net assets resulting from operations........ $ (755,781)
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 35
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 582,146 $ 1,201,368
Net realized gain (loss) on investments................... (137,445) 194,967
Net change in unrealized appreciation on investments...... (1,200,482) 33,522
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (755,781) 1,429,857
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (386,248) (829,959)
Class B................................................. (256,829) (371,405)
Class C................................................. (3,030) (4)
From net realized gain on investments:
Class A................................................. -- (51,770)
Class B................................................. -- (28,842)
----------- -----------
Total dividends and distributions to shareholders..... (646,107) (1,281,980)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 1,863,709 3,054,557
Class B................................................. 2,155,261 4,619,693
Class C................................................. 512,665 250
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 186,145 461,490
Class B................................................. 124,089 228,712
Class C................................................. 1,257 3
----------- -----------
4,843,126 8,364,705
Cost of shares redeemed:
Class A................................................. (4,421,253) (2,614,618)
Class B................................................. (948,270) (1,139,633)
Class C................................................. (30,451) --
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... (556,848) 4,610,454
----------- -----------
Net increase (decrease) in net assets................. (1,958,736) 4,758,331
NET ASSETS:
Beginning of period......................................... 30,245,021 25,486,690
----------- -----------
End of period............................................... $28,286,285 $30,245,021
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (63,961) $ --
=========== ===========
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 36
This page intentionally left blank
13
<PAGE> 37
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------------------
Six months September 1
ended Year ended December 31, through Year ended
June 30, ---------------------------------------------- December 31, August 31,
1999+ 1998 1997 1996 1995 1994* 1994
---------- ------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period........................ $ 9.98 $ 9.93 $ 9.78 $ 9.95 $ 9.10 $ 9.57 $ 10.38
------- ------- ------- ------- ------- ------- -------
Net investment income........... 0.21 0.44 0.48 0.49 0.50 0.17 0.53
Net realized and unrealized gain
(loss) on investments......... (0.47) 0.08 0.27 (0.16) 0.85 (0.47) (0.51)
------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................... (0.26) 0.52 0.75 0.33 1.35 (0.30) 0.02
------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment income.... (0.23) (0.46) (0.48) (0.50) (0.50) (0.17) (0.52)
From net realized gain on
investments................. -- (0.01) (0.12) -- -- -- (0.31)
------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions................. (0.23) (0.47) (0.60) (0.50) (0.50) (0.17) (0.83)
------- ------- ------- ------- ------- ------- -------
Net asset value at end of
period........................ $ 9.49 $ 9.98 $ 9.93 $ 9.78 $ 9.95 $ 9.10 $ 9.57
======= ======= ======= ======= ======= ======= =======
Total investment return (a)..... (2.71%) 5.33% 7.90% 3.44% 15.18% (3.11%) (0.12%)
Ratios (to average net assets)/
Supplemental Data:
Net investment income....... 4.14%++ 4.42% 4.88% 5.0% 5.3% 5.5%++ 5.4%
Net expenses................ 1.24%++ 1.24% 1.24% 1.24% 1.24% 0.99%++ 0.99%
Expenses (before
reimbursement)............ 1.30%++ 1.40% 1.26% 1.3% 1.4% 1.2%++ 1.1%
Portfolio turnover rate......... 49% 104% 108% 79% 107% 24% 96%
Net assets at end of period (in
000's)........................ $16,047 $19,204 $18,199 $18,098 $19,825 $16,667 $17,356
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 38
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------- -----------------------------
Six months Six months September 1**
ended Year ended December 31, ended through
June 30, ---------------------------------- June 30, December 31,
1999+ 1998 1997 1996 1995 1999+ 1998
---------- ------- ------ ------ ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 9.10 $ 9.95 $ 9.95
------- ------- ------ ------ ------ ------ ------
0.19 0.42 0.45 0.45 0.52 0.19 0.13
(0.46) 0.07 0.27 (0.16) 0.81 (0.46) 0.02
------- ------- ------ ------ ------ ------ ------
(0.27) 0.49 0.72 0.29 1.33 (0.27) 0.15
------- ------- ------ ------ ------ ------ ------
(0.21) (0.43) (0.45) (0.45) (0.52) (0.21) (0.14)
-- (0.01) (0.12) -- -- -- (0.01)
------- ------- ------ ------ ------ ------ ------
(0.21) (0.44) (0.57) (0.45) (0.52) (0.21) (0.15)
------- ------- ------ ------ ------ ------ ------
$ 9.47 $ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 9.47 $ 9.95
======= ======= ====== ====== ====== ====== ======
(2.75%) 5.07% 7.63% 3.10% 14.91% (2.75%) 1.51%
3.89%++ 4.17% 4.63% 4.7% 5.1% 3.89%++ 4.17%++
1.49%++ 1.49% 1.49% 1.49% 1.49% 1.49%++ 1.49%++
1.55%++ 1.65% 1.51% 1.6% 1.7% 1.55%++ 1.65%++
49% 104% 108% 79% 107% 49% 104%
$11,764 $11,040 $7,288 $5,089 $1,963 $ 476 --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 39
Mainstay California Tax Free Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
California Tax Free Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on October 1, 1991, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on January 3, 1995
and September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund invests substantially all of its assets in debt obligations issued by
political subdivisions and authorities in the State of California, the
Commonwealth of Puerto Rico, Guam and the Virgin Islands. The issuer's ability
to meet its obligations may be affected by economic and political developments
in the State of California, the Commonwealth of Puerto Rico, Guam and the Virgin
Islands.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, (b) by appraising options and futures contracts at the
last sale price on the market where such options for futures are principally
traded, and (c) by appraising all other securities and other assets, including
debt securities for
16
<PAGE> 40
Notes to Financial Statements unaudited
which prices are supplied by a pricing agent but are not deemed by the
Subadvisor to be representative of market values, but excluding money market
instruments with a remaining maturity of sixty days or less and including
restricted securities and securities for which no market quotations are
available, at fair value in accordance with procedures approved by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing the difference between market value on the 61st day prior
to maturity and value on maturity date if their original term to maturity at
purchase exceeded 60 days.
Events affecting the values of certain portfolio investments that occur between
the close of trading on the principal market for such investments and the
regular close of the Exchange will not be reflected in the Fund's calculation of
net asset value unless the Subadvisor believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin". When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund has entered into contracts for
the future delivery of debt securities in order to attempt to protect against
the effects of adverse changes in interest rates or to lengthen or shorten the
average maturity or duration of the Fund's portfolio.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
17
<PAGE> 41
Mainstay California Tax Free Fund
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Interest income is
accrued daily except when collection is not expected. Premiums on securities
purchased by the Fund are amortized on the constant yield method over the life
of the respective securities, or, if applicable, over the period to the first
call date. Discounts are accreted when required by Federal tax regulations.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.50% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.24%, 1.49% and 1.49% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999 the Manager earned $71,998 and reimbursed the Fund $8,625.
18
<PAGE> 42
Notes to Financial Statements unaudited (continued)
Pursuant to the terms of a Sub-advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.25% of
the average daily net assets of the Fund. To the extent the Manager has agreed
to reimburse expenses of the Fund, the Subadvisor has voluntarily agreed to do
so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B Plan and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.25% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $4,186 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemptions of Class B shares of $5,617
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $21,951.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $2,572,941, which represents 16.0% of the
Class A net assets at period end.
19
<PAGE> 43
Mainstay California Tax Free Fund
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $454 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,456 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $14,194 and $14,025, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------------- -----------------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold....................... 192 218 53 308 465 --
Shares issued in reinvestment of
dividends and distributions..... 19 12 --(a) 46 23 --
---- ---- --- ---- ---- ---
211 230 53 354 488 --
Shares redeemed................... (445) (97) (3) (263) (115) --
---- ---- --- ---- ---- ---
Net increase (decrease)........... (234) 133 50 91 373 --(a)
==== ==== === ==== ==== ===
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
20
<PAGE> 44
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 45
This page intentionally left blank
<PAGE> 46
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee CALIFORNIA TAX FREE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay California Tax Free Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA04-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 47
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Capital
Appreciation Fund versus S&P 500 and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay Funds 23
</TABLE>
<PAGE> 48
This page intentionally left blank
2
<PAGE> 49
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 50
$10,000 Invested in the MainStay
Capital Appreciation Fund
versus S&P 500 and Inflation
CLASS A SHARES SEC Returns: 1 Year 18.90%, 5 Year 24.81%, 10 Year 20.87%
[LINE CHART]
<TABLE>
<CAPTION>
MAINSTAY CAPITAL
PERIOD END APPRECIATION FUND S&P 500* INFLATION+
- ---------- ----------------- -------- ----------
<S> <C> <C> <C>
6/89 9450.00 10000.00 10000.00
6/90 11092.00 11649.00 10467.00
6/91 12103.00 12510.00 10959.00
6/92 15667.00 14187.00 11298.00
6/93 20775.00 16121.00 11637.00
6/94 20775.00 16348.00 11926.00
6/95 26402.00 20611.00 12289.00
6/96 32955.00 25969.00 12627.00
6/97 40434.00 34983.00 12917.00
6/98 52912.00 45531.00 13134.00
6/99 66575.00 55898.00 13277.00
</TABLE>
<TABLE>
<CAPTION>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year 19.80%, 5 Year 25.37%, 10 Year 21.23%
Class C SEC Returns: 1 Year 23.80%, 5 Year 25.54%, 10 Year 21.23%
[LINE CHART]
MAINSTAY CAPITAL
PERIOD END APPRECIATION FUND S&P 500* INFLATION+
- ---------- ----------------- -------- ----------
<S> <C> <C> <C>
6/89 10000.00 10000.00 10000.00
6/90 11737.00 11649.00 10467.00
6/91 12807.00 12510.00 10959.00
6/92 16579.00 14187.00 11298.00
6/93 21984.00 16121.00 11637.00
6/94 21985.00 16348.00 11926.00
6/95 27866.00 20611.00 12289.00
6/96 34616.00 25969.00 12627.00
6/97 42259.00 34983.00 12917.00
6/98 54923.00 45531.00 13134.00
6/99 68542.00 55898.00 13277.00
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown assume
capital gain and dividend distributions are reinvested, and in compliance
with SEC guidelines, include the maximum sales charge (see below) and show
the percentage change for each of the required periods. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time. The Class A
graph assumes an initial investment of $10,000 made on 6/30/89 reflecting
the effect of the 5.5% up-front sales charge, thereby reducing the amount of
the investment to $9,450, and includes the historical performance of the
Class B shares for periods from 6/30/89 through 12/31/94. Performance data
for the two classes vary after this date based on differences in their load
and expense structures. The Class B graph assumes an initial investment of
$10,000 made on 6/30/89. Performance does not reflect the Contingent
Deferred Sales Charge (CDSC)--up to 5% if shares are redeemed within the
first six years of purchase--as it would not apply for the period shown. The
Class C graph assumes an initial investment of $10,000 made on 6/30/89 and
includes the historical performance of the Class B shares for periods from
6/30/89 through 8/31/98. Performance data for the two classes vary after
this date based on differences in their loads. Performance does not reflect
the CDSC--1% if redeemed within one year of purchase--as it would not apply
for the period shown. All results include reinvestment of distributions at
net asset value and change in share price for the stated period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 51
Portfolio Management Discussion and Analysis
For several years, growth stocks have shown extraordinary strength. In April of
1999, however, improving prospects for a world economic recovery turned the
market's focus to value stocks. Cyclical sectors such as energy, oils, steel,
and paper--which tend to rise quickly with economic upturns and fall quickly
when the economy slows--were selling at low valuations and advanced based on
expectations of accelerating earnings. When the Federal Reserve Board announced
in May that it was likely to raise interest rates, highly valued growth stocks
came under considerable pressure.
By mid-June, fears began to ease about the possibility of multiple interest-rate
hikes to control inflation. On June 30, 1999, the Federal Reserve Board raised
the targeted federal funds rate by a quarter of a percent--a move that was well
anticipated by the market. The Federal Reserve also shifted to a neutral stance
on interest rates, which the stock market took as positive news.
FACING CHALLENGES IN A MOVING MARKET
For the first six months of 1999, the MainStay Capital Appreciation Fund
returned 7.69% for Class A shares and 7.24% for Class B and Class C shares,
excluding all sales charges. While the Fund outperformed the S&P 500 Index(1)
and its average Lipper(2) peer fund during the month of June, the comeback was
not enough to offset weaknesses in April and May. As a result, the Fund
underperformed the 13.68% return of the average Lipper capital appreciation fund
for the six months ended June 30, 1999.
The Fund's underperformance resulted largely from the market's movement away
from defensive sectors, such as pharmaceuticals and supermarkets, where the Fund
was overweighted--and the market's preference for sectors that were
underrepresented in the Fund's portfolio, such as capital goods and energy.
It is worth noting that Morningstar(3) rated the MainStay Capital Appreciation
Fund Class B shares five stars overall as of June 30, 1999. The Fund's Class B
shares received four stars for the three-and five-year periods, and five stars
for the ten-year period ended June 30, 1999, from among 3,043, 1,878, and 748
domestic equity funds, respectively.
REPOSITIONING THE PORTFOLIO
During the second quarter of 1999, we reduced the Fund's exposure to defensive
groups. Because of deteriorating fundamentals, we sold Eli Lilly and Monsanto
shares in May and reduced the Fund's positions in Kroger and Safeway
supermarkets in June. Eli Lilly and Safeway were among the portfolio's worst-
performing investments in the second quarter. These sales allowed the Fund to
pursue more productive investments.
We added several stocks to the Fund's portfolio during the reporting period,
including shares of consumer electronics retailer Circuit City and
communications companies Omnicom, ALLTEL, and Time Warner--all of which made
positive contributions to performance.
- -------
(1) See page 4 for more information about the S&P 500.
(2) See page 9 for additional information about Lipper, Inc.
(3) Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking into account fees and
other sales charges, and may change monthly. Its ratings of one (low) to
five (high) stars are based on a fund's three-, five-, and ten-year average
annual returns (if applicable) in excess of 90-day Treasury bill returns
with appropriate fee adjustments, and a risk factor that reflects fund
performance below 90-day Treasury bill monthly returns. The top 10% of the
funds in a rating group receive five stars, the next 22.5% receive four
stars, the middle 35% receive three stars, the next 22.5% receive two
stars, and the bottom 10% receive one star.
5
<PAGE> 52
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
<S> <C>
12/86 -3.56
12/87 -2.18
12/88 2.55
12/89 26.06
12/90 4.12
12/91 68.36
12/92 11.00
12/93 14.01
12/94 -1.52
12/95 35.79
12/96 19.16
12/97 24.10
12/98 39.24
6/99 7.69
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for the periods 12/86 through
12/94. See footnote * on page 8 for more information on performance.
CLASS B AND CLASS C SHARES
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
<S> <C>
12/86 -3.56
12/87 -2.18
12/88 2.55
12/89 26.06
12/90 4.12
12/91 68.36
12/92 11.00
12/93 14.01
12/94 -1.52
12/95 35.11
12/96 18.56
12/97 23.45
12/98 38.15
6/99 7.24
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/86
through 8/98. See footnote * on page 8 for more information on performance.
Significant sales during the first half of the year included McKesson HBOC, a
leading drug distributor, and Waste Management, Inc., a pollution-control
company, both of which suffered from weakening fundamentals. Fortunately, both
stocks were sold before major earnings disappointments were announced. The Fund
also sold shares of Service Corp. International at a loss when an earnings
shortfall caused a major setback for this leading funeral and cemetery company.
As interest rates rose in April and May, we reduced the Fund's financial
holdings to a slightly underweighted position by selling Conseco (insurance),
Fannie Mae (mortgages), and SouthTrust Corp. (bank-
6
<PAGE> 53
ing). The net impact of these sales for the quarter was neutral.
TECHNOLOGY PLAYS A LEADING ROLE
Throughout the first half of the year, the Fund remained overweighted in
technology stocks, which were particularly solid performers. With strong demand
for its Internet-related products and services, Sun Microsystems rose 65% during
the first half of 1999 and had the greatest positive impact on performance for
the Fund. Cisco Systems, EMC Corp., and Microsoft were other technology
companies that contributed positively to the Fund's results, with returns
ranging from 30% to 40% for the first half of the year. Despite technology's
general advance, however, software and service provider Compuware declined
substantially on year-2000 concerns, with a negative impact on the Fund's
performance.
Tyco International Ltd., a diversified manufacturing and service company, also
showed strong performance during the first half of 1999. The company benefited
from its impeccable record of acquisitions and the market's focus on capital
goods stocks.
At the end of June, the Fund was overweighted in consumer staples and health
care, which had a negative impact on performance, as these sectors lagged the
market. Underweighting the basic materials, capital goods, communication
services, and energy sectors also hurt performance, as these groups advanced.
The Fund's overweighted position in technology and underweighted position in
utilities had a positive impact, as the former sector advanced and the latter
underperformed.
LOOKING AHEAD
We believe that consumer confidence, stable interest rates, and a recovering
world economy suggests a positive outlook for U.S. corporate profits. While we
believe inflation will remain a concern, for the moment it appears to be benign.
We believe the economy will continue to grow at a slower pace during the second
half of the year, which may be positive for stocks in general and growth stocks
in particular. Whatever the markets bring, the Fund will continue to seek
long-term growth of capital, with dividend income, if any, as an incidental
consideration.
Rudolph C. Carryl
Edmund C. Spelman
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 54
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 25.82% 26.23% 21.56% 17.12%
Class B 24.80% 25.54% 21.23% 16.88%
Class C 24.80% 25.54% 21.23% 16.88%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 18.90% 24.81% 20.87% 16.62%
Class B 19.80% 25.37% 21.23% 16.88%
Class C 23.80% 25.54% 21.23% 16.88%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 90 out of n/a n/a 27 out of
264 funds 111 funds
Class B 100 out of 31 out of 4 out of 9 out of
264 funds 101 funds 54 funds 40 funds
Class C n/a n/a n/a n/a
Average Lipper
capital
appreciation
fund 20.04% 19.28% 13.55% 11.81%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $52.49 $0.0000 $0.0000
Class B $50.98 $0.0000 $0.0000
Class C $50.98 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be
worth more or less than their original cost. Total returns shown are based
on NAV and assume no deduction for CDSC or applicable sales charges. In
compliance with SEC guidelines, SEC returns include the maximum sales
charge and show the percentage change for each of the required periods.
All returns assume capital gain and dividend distributions are reinvested.
Performance figures reflect certain fee waivers and/or expense
limitations, without which total return figures may have been lower. The
fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
8
<PAGE> 55
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 5.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes after this date vary based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed during the first six years of
purchase and an annual 12b-1 fee of 1%. Class C shares, first offered to
the public on 9/1/98, are sold with no initial sales charge, but are
subject to a CDSC of 1% if redeemed within one year of purchase and an
annual 12b-1 fee of 1%. Performance figures for Class C shares include the
historical performance of the Class B shares for periods from inception
(5/1/86) up to 8/31/98. Performance data for the two classes after this
date vary based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from 5/1/86
through 6/30/99.
9
<PAGE> 56
MainStay Capital Appreciation Fund
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
COMMON STOCKS (95.9%)+
BANKS (1.9%)
Firstar Corp. ............... 566,000 $ 15,848,000
Wells Fargo & Co. ........... 1,183,200 50,581,800
--------------
66,429,800
--------------
BROADCAST/MEDIA (3.6%)
Chancellor Media Corp. (a)... 759,000 41,839,875
Clear Channel Communications,
Inc. (a).................... 788,200 54,336,538
Fox Entertainment Group, Inc.
(a)......................... 595,000 16,027,812
Univision Communications Inc.
(a)......................... 255,000 16,830,000
--------------
129,034,225
--------------
COMMUNICATIONS--EQUIPMENT (7.8%)
Cisco Systems, Inc. (a)...... 2,179,600 140,175,525
Lucent Technologies Inc. .... 1,999,800 134,861,512
--------------
275,037,037
--------------
COMPUTER SOFTWARE & SERVICES (8.2%)
America Online, Inc. (a)..... 176,000 19,448,000
Compuware Corp. (a).......... 2,361,300 75,118,856
Equifax Inc. ................ 796,200 28,414,388
Microsoft Corp. (a).......... 1,202,000 108,405,375
Oracle Corp. (a)............. 1,615,800 59,986,575
--------------
291,373,194
--------------
COMPUTER SYSTEMS (6.7%)
EMC Corp. (a)................ 1,919,200 105,556,000
Sun Microsystems, Inc. (a)... 1,896,200 130,600,775
--------------
236,156,775
--------------
ELECTRONICS--SEMICONDUCTORS (3.0%)
Intel Corp. ................. 1,023,200 60,880,400
Motorola, Inc. .............. 486,300 46,076,925
--------------
106,957,325
--------------
ENTERTAINMENT (1.3%)
Time Warner, Inc. ........... 639,600 46,051,200
--------------
FINANCIAL--MISCELLANEOUS (5.6%)
Associates First Capital
Corp. Class A............... 1,824,300 80,839,294
Citigroup Inc. .............. 1,758,000 83,505,000
Freddie Mac.................. 593,600 34,428,800
--------------
198,773,094
--------------
</TABLE>
- -------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
HEALTH CARE DISTRIBUTORS (1.7%)
Cardinal Health Inc. ........ 940,250 $ 60,293,531
--------------
HEALTH CARE--DRUGS (6.5%)
Elan Corp. PLC ADR (a) (b)... 1,411,800 39,177,450
Merck & Co., Inc. ........... 582,800 43,127,200
Pfizer Inc. ................. 476,100 52,251,975
Schering-Plough Corp. ....... 1,790,200 94,880,600
--------------
229,437,225
--------------
HEALTH CARE--MEDICAL PRODUCTS (4.8%)
Guidant Corp. ............... 1,554,600 79,964,738
Medtronic, Inc. ............. 1,155,900 90,015,712
--------------
169,980,450
--------------
HEALTH CARE--MISCELLANEOUS (2.4%)
Johnson & Johnson............ 854,484 83,739,432
--------------
HOTEL/MOTEL (1.1%)
Carnival Corp. .............. 802,200 38,906,700
--------------
HOUSEHOLD PRODUCTS (1.8%)
Colgate-Palmolive Co. ....... 639,200 63,121,000
--------------
INSURANCE (3.1%)
American International Group,
Inc. ....................... 958,548 112,210,025
--------------
INTERNET SOFTWARE & SERVICES (0.1%)
Digital Island, Inc. (a)..... 135,000 2,421,563
--------------
LEISURE TIME (2.1%)
Harley-Davidson, Inc. ....... 1,395,700 75,891,188
--------------
MANUFACTURING--DIVERSIFIED (4.7%)
Tyco International Ltd. ..... 1,756,317 166,411,036
--------------
PERSONAL LOANS (1.7%)
Providian Financial Corp. ... 652,950 61,050,825
--------------
RETAIL (18.8%)
Bed Bath & Beyond, Inc.
(a)......................... 1,180,800 45,460,800
CVS Corp. ................... 1,509,100 77,152,737
Circuit City Stores, Inc. ... 797,500 74,167,500
Dollar General Corp. ........ 1,602,401 46,469,629
Home Depot, Inc. (The)....... 1,391,700 89,677,669
Kohl's Corp. (a)............. 1,158,700 89,437,156
Kroger Co. (a)............... 2,704,000 75,543,000
Nordstrom, Inc. ............. 877,400 29,392,900
Safeway Inc. (a)............. 1,290,000 63,855,000
Staples, Inc. (a)............ 2,454,150 75,925,266
--------------
667,081,657
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 57
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SPECIALIZED SERVICES (4.0%)
Cendant Corp. (a)............ 2,292,328 $ 46,992,724
IMS Health Inc. ............. 1,404,800 43,900,000
Omnicom Group Inc. .......... 643,800 51,504,000
--------------
142,396,724
--------------
TELECOMMUNICATIONS--LONG DISTANCE (3.2%)
MCI WorldCom, Inc. (a)....... 1,318,280 113,701,650
--------------
TELEPHONE (1.8%)
ALLTEL Corp. ................ 894,600 63,963,900
--------------
Total Common Stocks
(Cost $1,768,677,973)....... 3,400,419,556
--------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.6%)
COMMERCIAL PAPER (4.6%)
American Express Credit Corp.
4.92%, due 7/7/99........... $24,430,000 24,409,940
5.05%, due 7/12/99.......... 17,585,000 17,557,835
Ford Motor Credit Co.
5.65%, due 7/1/99........... 25,085,000 25,085,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
General Electric Co.
4.99%, due 7/9/99........... $34,000,000 $ 33,962,251
General Electric Capital
Corp.
4.95%, due 7/7/99........... 10,850,000 10,841,030
Morgan Stanley Dean Witter
Co.
4.97%, due 7/16/99.......... 15,865,000 15,832,082
Prudential Funding Co.
5.01%, due 7/19/99.......... 34,780,000 34,692,767
--------------
Total Short-Term Investments
(Cost $162,380,905)......... 162,380,905
--------------
Total Investments
(Cost $1,931,058,878) (c)... 100.5% 3,562,800,461(d)
Liabilities in Excess of Cash
and Other Assets............ (0.5) (18,104,134)
----- --------------
Net Assets................... 100.0% $3,544,696,327
===== ==============
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At June 30, 1999, net unrealized appreciation was $1,631,741,583, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $1,654,086,367 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $22,344,784.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 58
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,931,058,878)........................................... $3,562,800,461
Cash........................................................ 3,300
Receivables:
Investment securities sold................................ 32,595,000
Fund shares sold.......................................... 9,273,209
Dividends................................................. 791,837
Other assets................................................ 5,070
--------------
Total assets........................................ 3,605,468,877
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 46,724,133
Fund shares redeemed...................................... 9,210,750
NYLIFE Distributors....................................... 2,482,090
MainStay Management....................................... 1,479,468
Transfer agent............................................ 547,565
Trustees.................................................. 24,403
Custodian................................................. 13,179
Accrued expenses............................................ 290,962
--------------
Total liabilities................................... 60,772,550
--------------
Net assets.................................................. $3,544,696,327
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 89,818
Class B................................................... 600,176
Class C .................................................. 2,646
Additional paid-in capital.................................. 1,809,824,261
Accumulated net investment loss............................. (18,376,739)
Accumulated undistributed net realized gain on
investments............................................... 120,814,582
Net unrealized appreciation on investments.................. 1,631,741,583
--------------
Net assets.................................................. $3,544,696,327
==============
CLASS A
Net assets applicable to outstanding shares................. $ 471,469,213
==============
Shares of beneficial interest outstanding................... 8,981,800
==============
Net asset value and offering price per share outstanding.... $ 52.49
Maximum sales charge (5.50% of offering price).............. 3.05
--------------
Maximum offering price per share outstanding................ $ 55.54
==============
CLASS B
Net assets applicable to outstanding shares................. $3,059,739,389
==============
Shares of beneficial interest outstanding................... 60,017,602
==============
Net asset value and offering price per share outstanding.... $ 50.98
==============
CLASS C
Net assets applicable to outstanding shares................. $ 13,487,725
==============
Shares of beneficial interest outstanding................... 264,559
==============
Net asset value and offering price per share outstanding.... $ 50.98
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 59
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 6,411,313
Interest.................................................. 2,510,692
------------
Total income............................................ 8,922,005
------------
Expenses:
Management................................................ 11,852,617
Distribution--Class B..................................... 10,728,918
Distribution--Class C..................................... 25,293
Service--Class A.......................................... 530,755
Service--Class B.......................................... 3,576,306
Service--Class C.......................................... 8,431
Transfer agent............................................ 2,931,622
Shareholder communication................................. 213,900
Recordkeeping............................................. 177,844
Custodian................................................. 138,128
Registration.............................................. 102,148
Professional.............................................. 92,253
Trustees.................................................. 49,855
Miscellaneous............................................. 50,965
------------
Total expenses before waiver............................ 30,479,035
Fees waived by Manager...................................... (3,180,291)
------------
Net expenses............................................ 27,298,744
------------
Net investment loss......................................... (18,376,739)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 109,537,844
Net change in unrealized appreciation on investments........ 144,298,997
------------
Net realized and unrealized gain on investments............. 253,836,841
------------
Net increase in net assets resulting from operations........ $235,460,102
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 60
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (18,376,739) $ (25,136,058)
Net realized gain on investments.......................... 109,537,844 127,423,848
Net change in unrealized appreciation on investments...... 144,298,997 738,696,408
-------------- --------------
Net increase in net assets resulting from operations...... 235,460,102 840,984,198
-------------- --------------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. -- (16,348,271)
Class B................................................. -- (118,109,099)
Class C................................................. -- (53,596)
-------------- --------------
Total distributions to shareholders................... -- (134,510,966)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 515,605,112 605,025,203
Class B................................................. 429,170,453 625,714,322
Class C................................................. 11,751,852 1,433,793
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 15,045,166
Class B................................................. -- 115,889,976
Class C................................................. -- 44,608
-------------- --------------
956,527,417 1,363,153,068
Cost of shares redeemed:
Class A................................................. (470,068,895) (528,505,344)
Class B................................................. (326,254,159) (477,612,621)
Class C................................................. (428,559) (3,507)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 159,775,804 357,031,596
-------------- --------------
Net increase in net assets............................ 395,235,906 1,063,504,828
NET ASSETS:
Beginning of period......................................... 3,149,460,421 2,085,955,593
-------------- --------------
End of period............................................... $3,544,696,327 $3,149,460,421
============== ==============
Accumulated net investment loss at end of period............ $ (18,376,739) $ --
============== ==============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 61
This page intentionally left blank
15
<PAGE> 62
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -------------------------------------------------
1999+ 1998 1997 1996 1995
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................. $ 48.74 $ 36.60 $ 30.56 $ 25.90 $ 19.11
-------- -------- -------- -------- -------
Net investment income (loss) (a)....................... (0.12) (0.14) (0.16) (0.08) 0.03
Net realized and unrealized gain (loss) on
investments.......................................... 3.87 14.42 7.48 5.05 6.81
-------- -------- -------- -------- -------
Total from investment operations....................... 3.75 14.28 7.32 4.97 6.84
-------- -------- -------- -------- -------
Less distributions:
From net realized gain on investments................ -- (2.14) (1.28) (0.31) (0.05)
-------- -------- -------- -------- -------
Net asset value at end of period....................... $ 52.49 $ 48.74 $ 36.60 $ 30.56 $ 25.90
======== ======== ======== ======== =======
Total investment return (b)............................ 7.69% 39.24% 24.10% 19.16% 35.79%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)....................... (0.46%)++ (0.34%) (0.48%) (0.3%) 0.2%
Expenses........................................... 1.20%++ 1.23% 1.09% 1.1% 1.1%
Net Expenses (after waiver)........................ 1.01%++ 1.04% 1.09% 1.1% 1.1%
Portfolio turnover rate................................ 16% 29% 35% 16% 29%
Net assets at end of period (in 000's)................. $471,469 $394,848 $216,292 $126,958 $44,434
</TABLE>
- -------
<TABLE>
<S> <C>
The Fund changed its fiscal year end from August 31 to
* December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 63
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------------- --------------------------
Six Months September 1 Six Months September 1**
ended Year ended December 31, through Year ended ended through
June 30, ----------------------------------------------- December 31, August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998
---------- ---------- ---------- ---------- -------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 19.11 $ 19.93 $ 19.47 $ 47.54 $36.15
---------- ---------- ---------- ---------- -------- -------- -------- ------- ------
(0.29) (0.45) (0.34) (0.22) (0.08) (0.03) (0.12) (0.29) (0.10)
3.73 14.11 7.39 5.01 6.79 (0.65) 1.13 3.73 13.63
---------- ---------- ---------- ---------- -------- -------- -------- ------- ------
3.44 13.66 7.05 4.79 6.71 (0.68) 1.01 3.44 13.53
---------- ---------- ---------- ---------- -------- -------- -------- ------- ------
-- (2.14) (1.28) (0.31) (0.05) (0.14) (0.55) -- (2.14)
---------- ---------- ---------- ---------- -------- -------- -------- ------- ------
$ 50.98 $ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 19.11 $ 19.93 $ 50.98 $47.54
========== ========== ========== ========== ======== ======== ======== ======= ======
7.24% 38.15% 23.45% 18.56% 35.11% (3.40%) 5.36% 7.24% 37.66%
(1.21%)++ (1.09%) (1.00%) (0.8%) (0.4%) (0.5%)++ (0.6%) (1.21%)++ (1.09%)++
1.95%++ 1.98% 1.61% 1.6% 1.7% 1.8%++ 1.8% 1.95%++ 1.98%++
1.76%++ 1.79% 1.61% 1.6% 1.7% 1.8%++ 1.8% 1.76%++ 1.79%++
16% 29% 35% 16% 29% 11% 31% 16% 29%
$3,059,739 $2,753,012 $1,869,664 $1,342,578 $856,221 $499,133 $472,497 $13,488 $1,600
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 64
MainStay Capital Appreciation Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Capital Appreciation Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek long-term growth of capital. Dividend
income, if any, is an incidental consideration.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter
18
<PAGE> 65
Notes to Financial Statements unaudited
securities not quoted on the NASDAQ system at prices supplied by the pricing
agent or brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase was 60 days
or less, or by amortizing the difference between market value on the 61st day
prior to maturity and value on maturity date if their original term to maturity
at purchase exceeded 60 days.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
19
<PAGE> 66
MainStay Capital Appreciation Fund
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.72% of the Fund's
average daily net assets. The Manager has voluntarily established fee
breakpoints, which may be discontinued at any time, of 0.65% on assets in excess
of $200 million and 0.50% on assets in excess of $500 million. For the six
months ended June 30, 1999 the Manager earned $11,852,617 and waived $3,180,291
of its fees.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.36% of
the average daily net assets of the Fund. To the extent that the Manager has
voluntarily established fee breakpoints, the Subadvisor has voluntarily agreed
to do so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $231,932 for the six months ended
June 30, 1999. The Fund was also advised that
20
<PAGE> 67
Notes to Financial Statements unaudited (continued)
the Distributor retained contingent deferred sales charges on redemptions of
Class B and Class C shares of $1,429,127 and $3,610, respectively, for the six
months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $2,931,622.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $49,019 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$177,844 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities and short-term securities, were $618,827
and $513,084, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
21
<PAGE> 68
MainStay Capital Appreciation Fund
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................... 10,282 8,774 240 14,362 15,214 33
Shares issued in reinvestment of
distributions............................... -- -- -- 321 2,531 1
------ ------ --- ------- ------- --
10,282 8,774 240 14,683 17,745 34
Shares redeemed............................... (9,400) (6,669) (9) (12,493) (11,731) --
------ ------ --- ------- ------- --
Net increase.................................. 882 2,105 231 2,190 6,014 34
====== ====== === ======= ======= ==
</TABLE>
- -------
+ Unaudited.
* First offered on September 1, 1998.
22
<PAGE> 69
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
23
<PAGE> 70
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee CAPITAL APPRECIATION FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Capital Appreciation. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA05-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 71
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay
Convertible Fund versus First Boston
Convertible Securities Index and
Inflation--Class A, Class B, and Class C
Shares 3
Portfolio Management Discussion and
Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 16
Notes to Financial Statements 22
The MainStay Funds 29
</TABLE>
<PAGE> 72
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
2
<PAGE> 73
$10,000 Invested in the MainStay
Convertible Fund versus First Boston
Convertible Securities Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 0.66%, 5 Year 10.84%, 10 Year 12.49%
<TABLE>
<CAPTION>
FIRST BOSTON CONVERTIBLE
PERIOD END MAINSTAY CONVERTIBLE FUND SECURITIES INDEX* INFLATION+
- ---------- ------------------------- ------------------------ ----------
<S> <C> <C> <C>
6/89 9450.00 10000.00 10000.00
6/90 9577.00 10386.00 10467.00
6/91 10610.00 10969.00 10959.00
6/92 13330.00 13259.00 11298.00
6/93 16809.00 16004.00 11637.00
6/94 18323.00 16263.00 11926.00
6/95 21164.00 18948.00 12289.00
6/96 24161.00 21554.00 12627.00
6/97 27149.00 24552.00 12917.00
6/98 30459.00 28173.00 13134.00
6/99 32444.00 31939.00 13277.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year 0.77%, 5 Year 11.21%, 10 Year 12.81%
Class C SEC Returns: 1 Year 4.77%, 5 Year 11.47%, 10 Year 12.81%
<TABLE>
<CAPTION>
FIRST BOSTON CONVERTIBLE
PERIOD END MAINSTAY CONVERTIBLE FUND SECURITIES INDEX* INFLATION+
- ---------- ------------------------- ------------------------ ----------
<S> <C> <C> <C>
6/89 10000.00 10000.00 10000.00
6/90 10135.00 10386.00 10467.00
6/91 11227.00 10969.00 10959.00
6/92 14106.00 13259.00 11298.00
6/93 17788.00 16004.00 11637.00
6/94 19389.00 16263.00 11926.00
6/95 22332.00 18948.00 12289.00
6/96 25334.00 21554.00 12627.00
6/97 28316.00 24552.00 12917.00
6/98 31548.00 28173.00 13134.00
6/99 33367.00 31939.00 13277.00
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 6/30/89
reflecting the effect of the 5.5% up-front sales charge, thereby reducing
the amount of the investment to $9,450, and includes the historical
performance of the Class B shares for periods from 6/30/89 through
12/31/94. Performance data for the two classes vary after this date based
on differences in their load and expense structures. The Class B graph
assumes an initial investment of $10,000 made on 6/30/89. Performance does
not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if shares
are redeemed within the first six years of purchase--as it would not apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 6/30/89 and includes the historical performance of the
Class B shares for periods from 6/30/89 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* The First Boston Convertible Securities Index generally includes 250 to 300
issues--convertibles must have a minimum issue size of $50 million; bonds
and preferreds must be rated B- or better by S&P; and preferreds must have
a minimum of 500,000 shares outstanding. Eurobonds are also included if
they are issued by U.S.-domiciled companies, rated B- or higher by S&P, and
have an issue size of greater than $100 million. Securities in the Fund
will not precisely match those in the index and so, performance of the Fund
will differ. An investment cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
3
<PAGE> 74
Portfolio Management Discussion and Analysis
Convertible securities are typically correlated with the small- and mid-cap
stock and high-yield bond markets. In the first half of 1999, a rebounding
global economy, solid domestic economic growth, tame inflation, and strong
earnings moved most stocks higher. While stocks of the largest of the
large-capitalization companies continued to enjoy high prices and strong
performance, the valuation disparity between these stocks and the rest of the
market narrowed somewhat in April, when value stocks and the small-cap market
dramatically outperformed. In the second quarter of 1999, the Russell 2000
Index(1) rose 15.55%.
During the first half of the year, the difference in yield between high-yield
bonds and Treasury securities narrowed enough for the high-yield market to show
a positive total return even as interest rates rose. With both the equity and
income portions of the convertible equation showing positive results, the first
half of 1999 was a strong period for most investors in convertible securities.
RESULTS AHEAD OF THE AVERAGE PEER FUND
For the six months ended June 30, 1999, the MainStay Convertible Fund returned
12.77% for Class A shares and 12.42% for Class B and Class C shares, excluding
all sales charges. All share classes outpaced the average Lipper(2) convertible
fund, which returned 11.01% during the first half of 1999, and the First Boston
Convertible Securities Index,(3) which returned 8.43% for the same period.
The primary reason for the Fund's strong performance during the six months ended
June 30, 1999, was its individual security selection. One of the Fund's largest
holdings was United Globalcom, an international cable systems operator, which
rose 250% after offering a portion of its European operations to the public and
receiving a substantial investment from Microsoft. Unisys, another of the Fund's
large holdings, advanced on continuing demand for its systems integration,
maintenance, and network services, and the company's securities contributed
positively to the Fund's performance.
TAKING PROFITS, FACING CHALLENGES
Our investment disciplines include setting specific price targets for the Fund's
investments. As a result, we took profits for the Fund in a number of securities
that participated in the market rise caused by the Federal Reserve Board action
and general economic trends. In April, evidence of an improving global economy
caused cyclical stocks to rise and we used the opportunity to sell half of the
Fund's International Paper holdings at a substantial gain, with a positive
impact on performance. We also sold the Fund's holdings in United Globalcom and
reduced its position in Xilinx, Inc. at a profit when their stock prices rose in
June.
The Fund's other top-performing securities in the first half of 1999 were
Lodgian and BEA Software. Lodgian is a hotel company that had suffered last
summer due to high leverage, but steadily recovered as liquidity concerns
abated. BEA Software specializes in software that helps corporations integrate
different computer
- -------
(1) The Russell 2000 Index is an unmanaged index that measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which, in turn,
is an unmanaged index that includes the 3,000 largest U.S. companies based
on total market capitalization. The Russell 2000 Index represents
approximately 10% of the total market capitalization of the Russell 3000
Index. Total returns reflect reinvestment of all dividends and capital
gains.
(2) See page 7 for additional information about Lipper, Inc.
(3) See page 3 for additional information about the First Boston Convertible
Securities Index.
4
<PAGE> 75
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
Period End Total Return %
- ---------- --------------
<S> <C>
12/86 1.03
12/87 -8.58
12/88 9.78
12/89 6.74
12/90 -6.70
12/91 48.47
12/92 13.11
12/93 24.47
12/94 -1.34
12/95 23.72
12/96 12.13
12/97 11.36
12/98 1.23
6/99 12.77
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for periods 12/86 through 12/94.
See footnote * on page 7 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
Period end Total Return %
- ---------- --------------
<S> <C>
12/86 1.03
12/87 -8.58
12/88 9.78
12/89 6.74
12/90 -6.70
12/91 48.47
12/92 13.11
12/93 24.47
12/94 -1.34
12/95 23.02
12/96 11.39
12/97 10.67
12/98 0.53
6/99 12.42
</TABLE>
Past performance is no guarantee of future results. Class C returns reflect the
historical performance of the Class B shares for periods 12/86 through 8/98.
See footnote * on page 7 for more information on performance.
applications. Strong performance over two quarters helped investors set aside
earlier year-2000 concerns, and the value of the Fund's position rose sharply,
contributing positively to performance.
System Software Associates, on the other hand, is an enterprise resource
planning company that suffered from year-2000 concerns. Although this security
had a negative impact on the Fund's performance in the first half of the year,
we believe the company's prospects will improve as we round the end of the
century. Sun Healthcare is a nursing-home company that had a negative impact on
performance when the com-
5
<PAGE> 76
pany was more severely impacted by a change in government reimbursement policies
than we had anticipated.
SHIFTING ALLOCATIONS
During the first half of 1999, our security selection process led us to
increase the Fund's weighting in the energy sector, mainly in exploration and
production companies and oil-services stocks. Given drilling and production
slowdowns over the past year, we believed natural-gas prices would trend
higher, and much higher if we were to experience a normal or chilly winter. In
either case, we believed exploration and production and service companies would
be the prime beneficiaries.
The Fund continued to move away from highly valued momentum issues during the
reporting period. Generally speaking, as the price of a convertible security
rises, the security tends to take on greater risk and perform more like an
equity security than a bond. During the first half of the year, many convertible
issues rose well above their conversion price, leading us to believe that
neither the stock nor the convertible securities would offer investors much
downside protection.
LOOKING AHEAD
In selecting investments for the Fund, we prefer to look for securities that may
participate in rising markets and may decline less than the market when it
falls. Given the high valuations of premier large-capitalization growth stocks
at the end of the reporting period, we anticipate continued migration to small-
and mid-cap issuers for the next several months. Since our experience has shown
that these are the companies most likely to issue convertible securities, we
believe there may be positive prospects on the horizon. Whatever the markets may
bring, the Fund will continue to seek capital appreciation together with current
income.
Thomas Wynn
Portfolio Manager
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
6
<PAGE> 77
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 6.52% 12.11% 13.13% 10.38%
Class B 5.77% 11.47% 12.81% 10.14%
Class C 5.77% 11.47% 12.81% 10.14%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 0.66% 10.84% 12.49% 9.90%
Class B 0.77% 11.21% 12.81% 10.14%
Class C 4.77% 11.47% 12.81% 10.14%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 33 out of n/a n/a 18 out of
56 funds 29 funds
Class B 37 out of 22 out of 7 out of 4 out of
56 funds 27 funds 17 funds 7 funds
Class C n/a n/a n/a n/a
Average Lipper
convertible
securities
fund 8.78% 13.96% 11.59% 9.15%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $13.81 $0.2637 $0.0000
Class B $13.82 $0.2125 $0.0000
Class C $13.82 $0.2125 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 5.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes vary after this date based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a CDSC of up
to 5% if shares are redeemed within the first six years of purchase and an
annual 12b-1 fee of 1%. Class C shares, first offered to the public on
9/1/98, are sold with no initial sales charge, but are subject to a CDSC of
1% if redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of Class B shares for periods from inception (5/1/86) up to 8/31/98.
Performance data for the two classes vary after this date based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
5/1/86 through 6/30/99.
7
<PAGE> 78
MainStay Convertible Fund
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (76.2%)+
BONDS (41.1%)
ADVERTISING (0.6%)
Interpublic Group Cos., Inc.
1.87%, due 6/1/06 (c)........ $4,000,000 $ 3,625,000
------------
AUTO PARTS (1.8%)
Mark IV Industries, Inc.
4.75%, due 11/1/04........... 350,000 309,750
4.75%, due 11/1/04 (c)....... 4,150,000 3,672,750
MascoTech, Inc.
4.50%, due 12/15/03.......... 9,200,000 7,475,000
------------
11,457,500
------------
BANKS (1.5%)
Mitsubishi Bank Limited
International Finance
(Bermuda) Trust
3.00%, due 11/30/02.......... 8,350,000 9,414,625
------------
CABLE (1.1%)
Merrill Lynch & Co., Inc.
0.25%, due 5/10/06........... 6,500,000 6,662,500
------------
COMPUTERS & OFFICE EQUIPMENT (2.9%)
Applied Magnetics Corp.
7.00%, due 3/15/06 (c)....... 6,575,000 1,956,062
Cirrus Logic, Inc.
6.00%, due 12/15/03.......... 200,000 138,000
Citrix Systems, Inc.
(zero coupon), due 3/22/19
(c).......................... 500,000 223,750
Comverse Technology, Inc.
4.50%, due 7/1/05............ 2,000,000 3,747,500
Conexant Systems, Inc.
4.25%, due 5/1/06 (c)........ 1,000,000 1,406,250
Integrated Process Equipment
Corp.
6.25%, due 9/15/04........... 2,300,000 1,779,625
LSI Logic Corp.
4.25%, due 3/15/04 (c)....... 2,000,000 3,250,000
PLATINUM Technology
International, Inc.
6.25%, due 12/15/02.......... 3,000,000 2,996,250
Xerox Credit Corp.
Series E
2.875%, due 7/1/02........... 2,500,000 3,068,750
------------
18,566,187
------------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
DOMESTIC OILS (0.4%)
Texaco Capital, Inc.
3.50%, due 8/5/04 (d)........ $2,550,000 $ 2,588,250
------------
DRUGS (2.5%)
Alza Corp.
5.00%, due 5/1/06............ 5,000,000 6,950,000
Centocor, Inc.
4.75%, due 2/15/05........... 2,000,000 2,220,000
Chiron Corp.
1.90%, due 11/17/00 (c)...... 2,000,000 1,937,500
Roche Holdings, Inc.
Series DTC
(zero coupon),
due 4/20/10 (c)(e)........... 8,600,000 4,869,750
------------
15,977,250
------------
ENERGY (0.6%)
PennzEnergy Co.
4.95%, due 8/15/08........... 3,910,000 3,988,200
------------
FINANCE (0.2%)
Belgelec Finance S.A.
1.50%, due 8/4/04 (c)........ E 1,173,480 1,151,477
Cityscape Financial Corp.
6.00%, due 5/1/06 (f)(g)..... $ 500,000 1,875
------------
1,153,352
------------
FINANCIAL SERVICES (1.9%)
Berkshire Hathaway, Inc.
1.00%, due 12/2/01........... 2,805,000 5,957,119
Salomon Smith Barney Holdings,
Inc.
0.25%, due 6/15/06........... 5,950,000 6,619,375
------------
12,576,494
------------
FOOD, BEVERAGES & TOBACCO (0.3%)
Chock Full O' Nuts Corp.
7.00%, due 4/1/12............ 1,700,000 2,156,875
------------
HEALTH CARE (2.7%)
Elan Finance Corp. Ltd.
(zero coupon),
due 12/14/18 (c)(e).......... 9,100,000 4,652,375
PhyCor, Inc.
4.50%, due 2/15/03........... 6,800,000 5,117,000
Veterinary Centers of America,
Inc.
5.25%, due 5/1/06............ 4,562,000 3,284,640
Wellpoint Health Networks,
Inc.
(zero coupon), due 7/2/19.... 6,000,000 4,230,000
------------
17,284,015
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 79
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
BONDS (CONTINUED)
INDUSTRIAL (0.9%)
Thermo Instrument Systems,
Inc.
Series RG
4.00%, due 1/15/05........... $6,750,000 $ 5,585,625
------------
LEISURE (0.9%)
Learning Co.
5.50%, due 11/1/00........... 6,000,000 5,895,000
------------
PAPER & FOREST PRODUCTS (0.4%)
Thermo Fibertek, Inc.
4.50%, due 7/15/04 (c)....... 3,000,000 2,520,000
------------
PERSONNEL SERVICES (0.3%)
Personnel Group of America,
Inc.
5.75%, due 7/1/04............ 2,000,000 1,695,000
------------
PUBLISHING (4.6%)
Jacor Communications, Inc.
(zero coupon), due 2/9/18
(e).......................... 15,000,000 8,362,500
News America Holdings, Inc.
(zero coupon), due 3/11/13
(e).......................... 5,850,000 4,285,125
World Color Press, Inc.
6.00%, due 10/1/07........... 17,950,000 16,985,187
------------
29,632,812
------------
REAL ESTATE (0.7%)
Macerich Co. (The)
Series BREG
7.25%, due 12/15/02 (d)...... 2,340,000 2,199,600
7.25%, due 12/15/02 (c)...... 2,591,000 2,435,540
------------
4,635,140
------------
RESTAURANTS & LODGING (0.0%) (b)
Boston Chicken, Inc.
(zero coupon),
due 6/1/15 (e)(g)............ 18,100,000 90,500
------------
RETAIL (1.4%)
Amazon.com, Inc.
4.75%, due 2/1/09 (c)........ 3,500,000 3,395,000
Home Depot, Inc.
3.25%, due 10/1/01........... 1,260,000 3,524,850
Office Depot, Inc.
(zero coupon), due 11/1/08
(e).......................... 2,250,000 1,895,625
------------
8,815,475
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
SEMICONDUCTORS (3.9%)
Amkor Technologies, Inc.
5.75%, due 5/1/03............ $7,950,000 $ 7,959,938
Cypress Semiconductor Corp.
6.00%, due 10/1/02........... 6,798,000 6,636,547
S3, Incorporated
5.75%, due 10/1/03........... 6,765,000 5,733,338
Sanmina Corp.
4.25%, due 5/1/04 (c)........ 2,000,000 2,195,000
Taiwan Semiconductor Mfg Co.,
Ltd.
(zero coupon), due 7/3/02
(e).......................... 2,000,000 2,620,000
------------
25,144,823
------------
SERVICES (1.4%)
CUC International, Inc.
3.00%, due 2/15/02........... 5,350,000 5,136,000
Metamor Worldwide, Inc.
2.94%, due 8/15/04........... 4,950,000 4,015,687
------------
9,151,687
------------
SOFTWARE (2.4%)
Baan Co. N.V.
4.50%, due 12/15/01 (h)...... 2,750,000 2,523,125
BEA Systems, Inc.
4.00%, due 6/15/05........... 6,050,000 7,244,875
Safeguard Scientifics, Inc.
5.00%, due 6/15/06 (c)....... 4,000,000 4,100,000
System Software Associates,
Inc.
7.00%, due 9/15/02........... 4,650,000 1,627,500
------------
15,495,500
------------
STEEL, ALUMINUM & OTHER METALS (1.0%)
Coeur d'Alene Mines Corp.
7.25%, due 10/31/05.......... 10,150,000 6,191,500
------------
TECHNOLOGY (1.9%)
Adaptec, Inc.
4.75%, due 2/1/04............ 5,600,000 5,404,000
ASE Test Ltd.
1.00%, due 7/1/04 (c)........ 6,850,000 6,884,250
------------
12,288,250
------------
TELECOMMUNICATION EQUIPMENT (0.9%)
DSC Communications Corp.
7.00%, due 8/1/04............ 4,000,000 4,160,000
World Access, Inc.
4.50%, due 10/1/02........... 2,500,000 1,709,375
------------
5,869,375
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 80
MainStay Convertible Fund
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (3.9%)
Bell Atlantic Financial
Services, Inc.
4.25%, due 9/15/05 (c)....... $4,900,000 $ 5,028,625
Gilat Satellite Networks Ltd.
6.50%, due 6/3/04 (h)........ 2,725,000 3,750,881
Global TeleSystems Group
5.75%, due 7/1/10............ 1,700,000 2,692,681
ITC Deltacom, Inc.
4.50%, due 5/15/06 (c)....... 3,000,000 3,682,500
Nextel Communications, Inc.
4.75%, due 7/1/07 (c)........ 3,250,000 3,952,813
NTL, Inc.
7.00%, due 12/15/08 (c)...... 675,000 1,069,875
Telefonos de Mexico, S.A.
4.25%, due 6/15/04 (h)....... 4,500,000 4,646,250
------------
24,823,625
------------
Total Convertible Bonds
(Cost $263,408,121).......... 263,284,560
------------
Shares
-----------
PREFERRED STOCKS (35.1%)
AUTO PARTS (0.7%)
Tower Automotive Capital Trust
6.75%........................ 91,000 4,618,250
------------
BIOTECHNOLOGY (0.2%)
Alkermes, Inc.
6.50%........................ 25,000 1,175,000
------------
BUILDING MATERIALS (0.4%)
Owens Corning Capital L.L.C
6.50% (c).................... 50,000 2,387,500
------------
CABLE (2.7%)
United International Holdings,
Inc.
4.00%, Series A (i).......... 22,000 16,962,000
------------
CAPITAL GOODS (0.2%)
Owens-Illinois, Inc.
4.75%........................ 25,000 1,093,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
CHEMICALS (0.4%)
Merrill Lynch & Co., Inc.
6.25%, Series IGL (j)........ 38,800 $ 792,975
Monsanto Co.
6.50%........................ 50,000 2,006,250
------------
2,799,225
------------
COMPUTERS & OFFICE EQUIPMENT (1.1%)
Unisys Corp.
$3.75, Series A.............. 104,003 6,773,195
------------
COMPUTER SOFTWARE & SERVICES (4.0%)
Microsoft Corp.
$2.196, Series A............. 255,000 25,484,063
------------
CONSUMER SERVICES (0.7%)
Carriage Services Capital
Trust
7.00% (c).................... 80,000 4,450,000
------------
CONTAINERS (0.4%)
Sealed Air Corp.
$2.00, Series A.............. 43,000 2,687,500
------------
DOMESTIC OIL & GAS (0.9%)
Apache Corp.
6.50% (k).................... 150,000 5,550,000
------------
ENERGY (1.0%)
Chesapeake Energy Corp.
7.00% (c).................... 30,000 780,000
Unocal Corp.
6.25%........................ 105,900 5,903,925
------------
6,683,925
------------
ENTERTAINMENT (1.1%)
Seagram Co. Ltd.
7.50%........................ 140,000 6,938,750
------------
FOOD (0.6%)
Suiza Capital Trust II
5.50%........................ 103,000 3,914,000
------------
FOOD, BEVERAGES & TOBACCO (0.9%)
Chiquita Brands International,
Inc.
$2.875, Series A............. 98,500 3,398,250
$3.75, Series B.............. 49,900 2,095,800
------------
5,494,050
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 81
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
HEALTH CARE (0.2%)
Owens & Minor Trust I
5.375%, Series A............. 34,300 $ 1,243,375
Sun Financing I
7.00% (c)(l)................. 240,000 90,000
------------
1,333,375
------------
HOME BUILDING (0.1%)
Kaufman & Broad Home Corp.
8.25%........................ 100,000 812,500
------------
INTERNATIONAL OILS (0.3%)
Pogo Trust I
6.50%, Series A.............. 35,000 1,765,312
------------
MACHINERY (0.2%)
Ingersoll-Rand Co.
6.75%........................ 44,100 1,323,000
------------
MINING (0.1%)
Freeport McMoRan Copper &
Gold, Inc.
7.00% (m).................... 18,000 337,500
------------
NATURAL GAS PIPELINES (1.0%)
El Paso Energy Capital Trust I
4.75%........................ 130,600 6,464,700
------------
OIL SERVICES (1.6%)
Weatherford International,
Inc.
5.00%........................ 187,300 7,164,225
5.00% (c).................... 80,000 3,060,000
------------
10,224,225
------------
PAPER & FOREST PRODUCTS (2.1%)
International Paper Co.
5.25% (d).................... 252,600 13,640,400
------------
PUBLISHING (1.2%)
Tribune Co.
2.00%........................ 20,000 2,495,000
6.25% (q).................... 183,000 5,146,875
------------
7,641,875
------------
RAILROADS (0.7%)
Canadian National Railway Co.
5.25%........................ 88,500 4,734,750
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
REAL ESTATE (3.7%)
Archstone Communities Trust
$1.75, Series A.............. 46,700 $ 1,389,325
Equity Office Properties Trust
5.25%, Series B.............. 95,000 4,061,250
General Growth Properties,
Inc.
7.25% (n)(o)................. 460,000 11,040,000
Lodgian Capital Trust I
7.00% (c)(p)................. 273,000 7,098,000
------------
23,588,575
------------
RECREATION & ENTERTAINMENT (1.5%)
Comcast Corp.
$3.35 (q).................... 112,400 9,736,650
------------
RESTAURANTS (0.2%)
Wendy's Financing I
5.00%, Series A (r).......... 25,000 1,512,500
------------
RETAIL (0.9%)
CVS Auto Exchange Trust
6.00%........................ 37,100 3,380,738
K-Mart Financing I
7.75%........................ 45,000 2,632,500
------------
6,013,238
------------
SPECIALIZED SERVICES (0.6%)
Cendant Corp.
7.50%........................ 112,500 3,874,219
------------
STEEL, ALUMINUM & OTHER METALS (2.1%)
Bethlehem Steel Corp.
$3.50 (c).................... 240,000 8,640,000
Timet Capital Trust I
6.625%....................... 35,000 927,500
WHX Corp.
$3.75, Series B.............. 123,200 3,957,800
------------
13,525,300
------------
TELECOMMUNICATION EQUIPMENT (0.1%)
Loral Space & Communications
Ltd.
6.00%, Series C.............. 15,800 801,850
------------
TELECOMMUNICATION SERVICES (2.6%)
Adelphia Communications Corp.
5.50%, Series D.............. 17,000 3,274,625
Global TeleSystems Group, Inc.
7.25% (c)(s)................. 25,000 1,662,500
Metromedia International Group
7.25%........................ 44,000 1,534,500
Omnipoint Corp.
7.00% (t).................... 50,000 2,725,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 82
MainStay Convertible Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
Winstar Communications, Inc.
7.25%, Series F (c).......... 7,650 $ 7,554,375
------------
16,751,000
------------
TRANSPORTATION (0.3%)
Union Pacific Capital Trust
6.25%........................ 39,300 2,073,075
------------
UTILITY (0.3%)
National Grid Group, PLC
6.00%........................ 75,000 1,790,625
------------
Total Preferred Stocks
(Cost $218,066,275).......... 224,955,877
------------
Total Convertible Securities
(Cost $481,474,396).......... 488,240,437
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
CORPORATE BONDS (0.3%)
BANKS (0.2%)
Westfed Holdings, Inc.
15.50%, due 9/15/99 (f)...... $4,500,000 1,170,000
------------
COMPUTERS & OFFICE EQUIPMENT (0.1%)
Businessland, Inc.
5.50%, due 3/1/07............ 1,936,000 677,600
------------
FINANCE (0.0%) (B)
Cityscape Financial Corp.
Series A
12.75%, due 6/1/04 (f)....... 1,000,000 120,000
------------
HOUSING (0.0%) (B)
UDC Homes, Inc.
Series C (zero coupon), due
11/1/00 (g)(u)............... 18,799 2
------------
Total Corporate Bonds
(Cost $5,291,663)............ 1,967,602
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (17.0%)
BANKS (0.2%)
Bank of New York Co., Inc.
(The)........................ 30,000 $ 1,100,625
------------
BUILDING MATERIALS (0.4%)
Masco Corp. .................. 78,800 2,275,350
------------
CHEMICALS (0.4%)
RPM, Inc. of Ohio............. 177,078 2,512,294
------------
COMPUTERS & OFFICE EQUIPMENT
(1.9%)
BMC Software, Inc. (a)........ 60,000 3,240,000
Comdisco, Inc. ............... 170,000 4,356,250
Oracle Corp. (a).............. 30,000 1,113,750
Trikon Technologies, Inc.
(a).......................... 3,387,828 440,418
Unisys Corp. (a).............. 79,204 3,084,006
------------
12,234,424
------------
DOMESTIC OIL & GAS (0.7%)
Enron Oil & Gas Co. .......... 160,600 3,252,150
Tesoro Petroleum Corp. (a).... 90,100 1,435,969
------------
4,688,119
------------
DOMESTIC OILS (0.4%)
Santa Fe Energy Resources,
Inc. (a)..................... 313,360 2,389,370
------------
DRUGS (0.9%)
Bristol-Myers Squibb Co. ..... 20,000 1,408,750
Merck & Co., Inc. ............ 20,000 1,480,000
Pfizer, Inc. ................. 10,000 1,097,500
Teva Pharmaceutical Industries
Ltd. ADR (v)................. 36,500 1,788,500
------------
5,774,750
------------
ELECTRIC UTILITIES (0.1%)
EL Paso Electric Co. (a)...... 43,500 388,781
------------
ELECTRICAL EQUIPMENT (1.4%)
Analog Devices, Inc. (a)...... 65,000 3,262,187
Flextronics International Ltd.
(a).......................... 52,500 2,913,750
General Instrument Corp.
(a).......................... 20,000 850,000
Jabil Circuit, Inc. (a)....... 50,000 2,256,250
------------
9,282,187
------------
ENERGY (0.9%)
Burlington Resources, Inc.
(a).......................... 20,000 865,000
Montana Power Co. (The)....... 20,000 1,410,000
OGE Energy Corp. ............. 37,500 890,625
Union Pacific Resources Group,
Inc. ........................ 165,500 2,699,719
Veritas DGC, Inc. (a)......... 9,700 177,631
------------
6,042,975
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 83
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCE (1.0%)
Everest Reinsurance Holdings,
Inc. ........................ 90,600 $ 2,955,825
S&P 500 Depository Receipt.... 25,000 3,423,048
------------
6,378,873
------------
FOOD (0.0%) (B)
SUPERVALU, Inc. .............. 3,500 89,906
------------
GAS UTILITIES (0.1%)
Keyspan Energy Corp. ......... 18,112 477,704
------------
HEALTH CARE (1.2%)
Beverly Enterprises, Inc.
(a).......................... 250,400 2,018,850
HEALTHSOUTH Corp. (a)......... 350,000 5,228,125
Veterinary Centers of America,
Inc. (a)..................... 43,200 585,900
------------
7,832,875
------------
HOME BUILDING (0.0%) (B)
Centex Corp. ................. 7,500 281,719
------------
HOUSEHOLD PRODUCTS (0.2%)
Amway Japan Ltd. ADR (v)...... 227,148 1,135,740
------------
INSURANCE (0.9%)
American International Group,
Inc. ........................ 49,394 5,782,185
------------
INTERNET (0.4%)
PSInet, Inc. ................. 50,000 2,412,500
------------
MEDICAL EQUIPMENT (0.3%)
Abgenix, Inc. (a)............. 84,000 1,669,500
Boston Scientific Corp. (a)... 6,000 263,625
------------
1,933,125
------------
NATURAL GAS PIPELINES (0.4%)
Coastal Corp. (The)........... 12,000 480,000
Columbia Energy Group......... 4,300 269,556
MCN Energy Group, Inc. ....... 100,000 2,106,250
------------
2,855,806
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
OIL SERVICES (1.1%)
Amerada Hess Corp. ............ 36,800 $ 2,189,600
Baker Hughes, Inc. ............ 20,000 670,000
BJ Services Co. (a)............ 45,000 1,324,688
Cooper Cameron Corp. (a)....... 10,000 370,625
Halliburton Co. ............... 50,000 2,262,500
------------
6,817,413
------------
PAPER & FOREST PRODUCTS (0.1%)
Repap Enterprises, Inc.
(a)(w)........................ 9,294,809 533,881
------------
POLLUTION & RELATED (0.0%) (b)
Browning Ferris Industries,
Inc. ......................... 6,000 258,000
------------
REAL ESTATE (1.3%)
Equity Office Properties
Trust......................... 62,000 1,588,750
Highwoods Properties, Inc. .... 101,300 2,779,419
Meditrust Corp. ............... 6,000 78,375
Simon Property Group, Inc. .... 89,200 2,263,450
Spieker Properties, Inc. ...... 43,000 1,671,625
------------
8,381,619
------------
RECREATION & ENTERTAINMENT (0.1%)
Alliance Gaming Corp. (a)...... 110,898 415,867
------------
RESTAURANTS (0.2%)
Wendy's International, Inc. ... 36,000 1,019,250
------------
RETAIL (0.4%)
Amazon.com, Inc. (a)........... 3,100 387,887
Bed Bath & Beyond, Inc. (a).... 30,000 1,155,000
Borders Group, Inc. (a)........ 70,000 1,106,875
------------
2,649,762
------------
SEMICONDUCTORS (0.5%)
Xilinx, Inc. (a)............... 54,516 3,121,041
------------
STEEL, ALUMINUM & OTHER METALS (0.2%)
National Steel Corp. Class B... 60,000 502,500
Worthington Industries,
Inc. ......................... 36,700 603,256
------------
1,105,756
------------
TELECOMMUNICATION SERVICES (1.2%)
Adelphia Communications Corp.
Class A (a)................... 40,000 2,545,000
Amdocs Ltd. ................... 100,000 2,225,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 84
MainStay Convertible Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
Intermedia Communications,
Inc. (a)..................... 50,000 $ 1,500,000
Rogers Communications, Inc.
Class B (w).................. 108,000 1,725,694
------------
7,995,694
------------
TEXTILE & APPAREL (0.0%) (b)
Burlington Industries,
Inc. ........................ 28,200 255,563
------------
TOBACCO (0.1%)
Philip Morris Companies,
Inc. ........................ 13,500 542,531
------------
Total Common Stocks
(Cost $107,320,229).......... 108,965,685
------------
PREFERRED STOCKS (0.8%)
COMPUTERS & OFFICE EQUIPMENT (0.1%)
Trikon Technologies, Inc.
8.125%, Series H (x)......... 201,554 302,332
------------
MINING (0.7%)
Freeport-McMoRan Copper &
Gold, Inc. Series Silver
(y)(z)....................... 330,000 4,661,250
------------
Total Preferred Stocks
(Cost $6,309,328)............ 4,963,582
------------
<CAPTION>
Number of
Contracts
-----------
<S> <C> <C>
PURCHASED PUT OPTIONS (0.6%)
CABLE (0.4%)
United International Holdings,
Inc.
Expire July 1999
Strike Price $85.00.......... 750 1,303,125
Expire July 1999
Strike Price $75.00.......... 1,350 995,625
------------
2,298,750
------------
COMPUTERS & OFFICE EQUIPMENT (0.0%) (b)
Applied Magnetics Corp.
Expire July 1999
Strike Price $6.00........... 1,071 307,912
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Contracts Value
-----------------------------
<S> <C> <C>
ENERGY (0.1%)
Unocal Corp.
Expire August 1999
Strike Price $48.00.......... 472 $ 395,300
------------
PERSONNEL SERVICES (0.1%)
Metamor Worldwide, Inc.
Expire July 1999
Strike Price $32.00.......... 412 327,046
------------
PUBLISHING (0.0%) (b)
Jacor Communications, Inc.
Expire August
Strike Price $79.00.......... 72 72,454
------------
RETAIL (0.0%) (b)
Amazon.com, Inc.
Expire August 1999
Strike Price $135.00......... 150 148,125
------------
STEEL, ALUMINUM & OTHER METALS (0.0%) (b)
Coeur d'Alene Mines Corp.
Expire August 1999
Strike Price $7.00........... 343 81,462
------------
Total Purchased Put Options
(Cost $4,007,747)............ 3,631,049
------------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.5%)
COMMERCIAL PAPER (0.8%)
American Express Credit Corp.
4.92%, due 7/7/99............ $5,000,000 4,995,900
------------
INVESTMENT COMPANY (3.7%)
Merrill Lynch Premier
Institutional Fund
5.15%........................ 24,161,668 24,161,668
------------
Total Short-Term Investments
(Cost $29,157,568)........... 29,157,568
------------
Total Investments
(Cost $633,560,931) (aa)..... 99.4% 636,925,923(bb)
Cash and Other Assets, Less
Liabilities.................. 0.6 4,002,296
----------- ------------
Net Assets.................... 100.0% $640,928,219
=========== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 85
Portfolio of Investments unaudited (continued)
- -------
<TABLE>
<S> <C>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Eurobond-bond denominated in U.S. dollars or other
currencies and sold to investors outside the country
whose currency is used.
(e) LYON--Liquid Yield Option Note: callable, zero coupon
securities priced at a deep discount from par. They
include a "put" feature that enables holders to redeem
them at a specific date, at a specific price. Put
prices reflect fixed interest rates, and therefore
increase over time.
(f) Issue in default.
(g) Issuer in bankruptcy.
(h) Yankee bond.
(i) Restricted security.
(j) STRYPES-Structured Yield Product Exchangeable for IMC
Global, Inc. common stock.
(k) Depository Shares-each share represents 0.02 shares of
preferred stock.
(l) TIPS-Trust Issued Preferred Stock.
(m) Depository Shares-each share represents 0.05 shares of
step-up preferred stock.
(n) PIERS-Preferred Income Equity Redeemable Stock.
(o) Depository Shares-each share represents 0.025 shares of
7.25% Preferred Income Equity Redeemable Stock, Series
A.
(p) CRESTS-Convertible Redeemable Equity Structured Trust
Security.
(q) PHONES-Participation Hybrid Option Note Exchangeable
Security.
(r) TECONS-Term Convertible Security.
(s) Depository Shares-each share represents 0.01 shares of
preferred stock.
(t) Depository Shares-each share represents 0.05 shares of
preferred stock.
(u) Fair valued security.
(v) ADR-American Depository Receipt.
(w) Canadian security.
(x) PIK ("Payment in Kind")-interest or dividend payment is
made with additional securities.
(y) Depository Shares-each share represents 0.025 shares of
a share of silver denominated preferred stock.
(z) Dividend equals U.S. dollar equivalent of 0.04125 oz.
of silver per share.
(aa) The cost for Federal income tax purposes is
$640,037,170.
(bb) At June 30, 1999 net unrealized depreciation was
$3,111,247, based on cost for Federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $54,785,712 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $57,896,959.
(E) Security denominated in Euro.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 86
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$633,560,931)............................................. $636,925,923
Cash........................................................ 7,290
Receivables:
Investment securities sold................................ 23,820,660
Dividends and interest.................................... 3,651,232
Fund shares sold.......................................... 469,644
Unrealized appreciation on foreign currency forward
contracts............................................... 188,555
------------
Total assets........................................ 665,063,304
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 16,911,419
Fund shares redeemed...................................... 1,220,280
NYLIFE Distributors....................................... 502,695
MainStay Management....................................... 386,078
Custodian................................................. 106,102
Transfer agent............................................ 83,560
Trustees.................................................. 5,462
Accrued expenses............................................ 218,049
Dividend payable............................................ 4,701,440
------------
Total liabilities................................... 24,135,085
------------
Net assets.................................................. $640,928,219
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 27,634
Class B................................................... 436,210
Class C................................................... 43
Additional paid-in capital.................................. 619,693,989
Accumulated undistributed net investment income............. 269,550
Accumulated undistributed net realized gain on
investments............................................... 17,855,526
Accumulated net realized loss on foreign currency
transactions.............................................. (908,280)
Net unrealized appreciation on investments.................. 3,364,992
Net unrealized appreciation on foreign currency forward
contracts................................................. 188,555
------------
Net assets.................................................. $640,928,219
============
CLASS A
Net assets applicable to outstanding shares................. $ 38,170,451
============
Shares of beneficial interest outstanding................... 2,763,398
============
Net asset value per share outstanding....................... $ 13.81
Maximum sales charge (5.50% of offering price).............. 0.80
------------
Maximum offering price per share outstanding................ $ 14.61
============
CLASS B
Net assets applicable to outstanding shares................. $602,698,299
============
Shares of beneficial interest outstanding................... 43,620,991
============
Net asset value and offering price per share outstanding.... $ 13.82
============
CLASS C
Net assets applicable to outstanding shares................. $ 59,469
============
Shares of beneficial interest outstanding................... 4,303
============
Net asset value and offering price per share outstanding.... $ 13.82
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 87
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 7,130,800
Interest.................................................. 9,920,036
------------
Total income............................................ 17,050,836
------------
Expenses:
Management................................................ 2,352,929
Distribution--Class B..................................... 2,306,507
Distribution--Class C..................................... 51
Service--Class A.......................................... 48,112
Service--Class B.......................................... 768,860
Service--Class C.......................................... 17
Transfer agent............................................ 695,408
Custodian................................................. 99,650
Dividends on securities sold short........................ 95,091
Shareholder communication................................. 95,082
Professional.............................................. 67,704
Recordkeeping............................................. 45,904
Registration.............................................. 17,287
Trustees.................................................. 9,822
Miscellaneous............................................. 92,887
------------
Total expenses.......................................... 6,695,311
------------
Net investment income....................................... 10,355,525
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 54,174,701
Securities sold short..................................... 9,727,046
Option transactions....................................... (30,652,324)
Foreign currency transactions............................. (908,280)
------------
Net realized gain on investments and foreign currency
transactions.............................................. 32,341,143
------------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... 39,514,255
Securities sold short and options written................. (6,695,426)
Foreign currency forward contracts........................ 1,365,977
------------
Net unrealized gain on investments and foreign currency
transactions.............................................. 34,184,806
------------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 66,525,949
------------
Net increase in net assets resulting from operations........ $ 76,881,474
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 88
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
------------- -------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 10,355,525 $ 25,482,513
Net realized gain on investments.......................... 54,174,701 36,017,831
Net realized gain (loss) on short sale transactions....... 9,727,046 (9,323,900)
Net realized loss on option transactions.................. (30,652,324) (7,713,320)
Net realized gain (loss) on foreign currency
transactions............................................ (908,280) 1,539,153
Net change in unrealized appreciation (depreciation) on
security transactions................................... 39,514,255 (42,953,272)
Net change in unrealized appreciation (depreciation) on
securities sold short and options written............... (6,695,426) 7,606,045
Net change in unrealized appreciation (depreciation) on
forward foreign currency contracts...................... 1,365,977 (2,226,953)
------------- -------------
Net increase in net assets resulting from operations...... 76,881,474 8,428,097
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (753,131) (2,145,731)
Class B................................................. (9,592,146) (25,154,338)
Class C................................................. (443) (7)
From net realized gain on investments:
Class A................................................. -- (2,062,425)
Class B................................................. -- (32,356,830)
Class C................................................. -- (20)
------------- -------------
Total dividends and distributions to shareholders..... (10,345,720) (61,719,351)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 1,994,863 7,399,467
Class B................................................. 12,405,265 36,028,870
Class C................................................. 62,758 1,293
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 372,458 3,886,678
Class B................................................. 4,689,597 51,651,324
Class C................................................. 8 18
------------- -------------
19,524,949 98,967,650
Cost of shares redeemed:
Class A................................................. (10,488,866) (30,109,058)
Class B................................................. (133,845,889) (222,144,381)
Class C................................................. (4,923) (907)
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (124,814,729) (153,286,696)
------------- -------------
Net decrease in net assets............................ (58,278,975) (206,577,950)
NET ASSETS:
Beginning of period......................................... 699,207,194 905,785,144
------------- -------------
End of period............................................... $ 640,928,219 $ 699,207,194
============= =============
Accumulated undistributed net investment income at end of
period.................................................... $ 269,550 $ 259,745
============= =============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 89
This page intentionally left blank
19
<PAGE> 90
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------
Six months
ended Year ended December 31,
June 30, -------------------------------------
1999+ 1998 1997 1996 1995
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 12.49 $ 13.53 $ 13.81 $ 13.45 $ 11.67
------- ------- ------- ------- -------
Net investment income...................................... 0.26 0.57 0.60 0.57 0.59
Net realized and unrealized gain (loss) on investments..... 1.31 (0.38) 0.91 1.02 2.14
Net realized and unrealized gain (loss) on foreign currency
transactions............................................. 0.01 (0.02) 0.03 0.02 (0.00)(b)
------- ------- ------- ------- -------
Total from investment operations........................... 1.58 0.17 1.54 1.61 2.73
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............................... (0.26) (0.57) (0.60) (0.62) (0.55)
From net realized gain on investments.................... -- (0.64) (1.22) (0.63) (0.40)
------- ------- ------- ------- -------
Total dividends and distributions.......................... (0.26) (1.21) (1.82) (1.25) (0.95)
------- ------- ------- ------- -------
Net asset value at end of period........................... $ 13.81 $ 12.49 $ 13.53 $ 13.81 $ 13.45
======= ======= ======= ======= =======
Total investment return (a)................................ 12.77% 1.23% 11.36% 12.13% 23.72%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.................................. 3.87%++ 3.74% 4.10% 4.4% 4.9%
Expenses............................................... 1.34%++ 1.40% 1.45% 1.5% 1.5%
Portfolio turnover rate.................................... 219% 347% 273% 296% 243%
Net assets at end of period (in 000's)..................... $38,170 $42,376 $64,246 $56,621 $26,836
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C Shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
(c) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 91
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------------------------------------------- -------------------------
Six months September 1, Six months September 1,
ended Year ended December 31, through Year ended ended through
June 30, ----------------------------------------- December 31, August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998**
---------- -------- -------- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 11.67 $ 12.83 $ 13.92 $ 12.49 $ 12.64
-------- -------- -------- -------- -------- -------- -------- -------- -------
0.21 0.46 0.51 0.48 0.51 0.19 0.50 0.21 0.26
1.32 (0.37) 0.91 1.02 2.14 (0.71) 0.70 1.32 0.47
0.01 (0.02) 0.03 0.02 (0.00)(b) -- (0.01) 0.01 0.02
-------- -------- -------- -------- -------- -------- -------- -------- -------
1.54 0.07 1.45 1.52 2.65 (0.52) 1.19 1.54 0.75
-------- -------- -------- -------- -------- -------- -------- -------- -------
(0.21) (0.46) (0.51) (0.54) (0.47) (0.21) (0.49) (0.21) (0.26)
-- (0.64) (1.22) (0.63) (0.40) (0.43) (1.79) -- (0.64)
-------- -------- -------- -------- -------- -------- -------- -------- -------
(0.21) (1.10) (1.73) (1.17) (0.87) (0.64) (2.28) (0.21) (0.90)
-------- -------- -------- -------- -------- -------- -------- -------- -------
$ 13.82 $ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 11.67 $ 12.83 $ 13.82 $ 12.49
======== ======== ======== ======== ======== ======== ======== ======== =======
12.42% 0.53% 10.67% 11.39% 23.02% (4.09%) 8.95% 12.42% 6.06%
3.12%++ 2.99% 3.47% 3.8% 4.3% 4.8%++ 3.5% 3.12%++ 2.99%++
2.09%++ 2.15% 2.08% 2.1% 2.1% 1.9%++ 1.9% 2.09%++ 2.15%++
219% 347% 273% 296% 243% 77% 269% 219% 347%
$602,698 $656,831 $841,540 $797,243 $427,461 $180,304 $160,407 $ 60 $ --(c)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 92
MainStay Convertible Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Convertible Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek capital appreciation together with
current income.
High yield bonds may involve special risks not commonly associated with
investment in higher rated debt securities. These bonds may be more susceptible
to real or perceived adverse economic and competitive industry conditions than
higher grade bonds. Also, the secondary market on which high yield bonds are
traded may be less liquid than the market for higher grade bonds.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National
22
<PAGE> 93
Notes to Financial Statements unaudited
Association of Securities Dealers National Market System, (c) by appraising
over-the-counter securities quoted on the National Association of Securities
Dealers NASDAQ system (but not listed on the National Market System) at the bid
price supplied through such system, (d) by appraising over-the-counter
securities not quoted on the NASDAQ system at prices supplied by the pricing
agent or brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange, (e) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, (f) by appraising options and futures contracts at the
last sale price on the market where such options or futures are principally
traded, and (g) by appraising all other securities and other assets, including
debt securities for which prices are supplied by a pricing agent but are not
deemed by the Subadvisor to be representative of market values, but excluding
money market instruments with a remaining maturity of sixty days or less and
including restricted securities and securities for which no market quotations
are available, at fair value in accordance with procedures approved by the
Trustees. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase was 60 days
or less, or by amortizing the difference between market value on the 61st day
prior to maturity and value at maturity date if their original term to maturity
at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on
23
<PAGE> 94
MainStay Convertible Fund
forward contracts reflects the Fund's exposure at period end to credit loss in
the event of a counterparty's failure to perform its obligations.
Foreign currency forward contract open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract
Amount Amount Unrealized
Sold Purchased Appreciation
------------ ---------- ------------
<S> <C> <C> <C>
Foreign Currency Sale Contract
Japanese Yen vs. U.S. Dollar, expiring 8/19/99............ Y617,600,001 $5,328,732 $ 188,555
===========
</TABLE>
- -------
Y Japanese Yen.
SECURITIES SOLD SHORT. The Fund may engage in short sales as a method of
hedging declines in the value of securities owned. When the Fund enters into a
short sale, it must segregate the security sold short, or securities equivalent
in kind and amount to the securities sold, as collateral for its obligation to
deliver the security upon conclusion of the sale. A gain, limited to the price
at which the Fund sold the security short, or a loss, unlimited as to dollar
amount, will be recognized upon termination of a short sale if the market price
on the date the short position is closed out is less or greater, respectively,
than the proceeds originally received. Any such gain or loss may be offset,
completely or in part, by the change in the value of the hedged investments.
PURCHASED AND WRITTEN OPTIONS. The Fund may write covered call and put options
on its portfolio securities. Premiums are received and are recorded as
liabilities. The liabilities are subsequently adjusted to reflect the current
value of the options written. Premiums received from writing options which
expire are treated as realized gains. Premiums received from writing options
which are exercised or are canceled in closing purchase transactions are added
to the proceeds or netted against the amount paid on the transaction to
determine the realized gain or loss. By writing a covered call option, a Fund
foregoes in exchange for the premium the opportunity for capital appreciation
above the exercise price should the market price of the underlying security
increase. By writing a covered put option, a Fund, in exchange for the premium,
accepts the risk of a decline in the market value of the underlying security
below the exercise price.
The Fund may purchase call and put options on its portfolio securities. The Fund
may purchase call options to protect against an increase in the price of the
security it anticipates purchasing. The Fund may purchase put options on its
securities to protect against a decline in the value of the security or to close
out covered written put positions. Risks may arise from an imperfect correlation
between the change in market value of the securities held by the Fund and the
prices of options relating to the securities purchased or sold by the Fund and
from the possible lack of a liquid secondary market for an option. The maximum
exposure to loss for any purchased option is limited to the premium initially
paid for the option.
24
<PAGE> 95
Notes to Financial Statements unaudited (continued)
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. Disposal of these
securities may involve time-consuming negotiations and expenses, and prompt sale
at an acceptable price may be difficult.
The issuers of the securities will bear the costs involved in registration under
the Securities Act of 1933 and in connection with the disposition of such
securities. The Fund does not have the right to demand that such securities be
registered. The Fund may not invest more than 10% of its net assets in illiquid
securities.
Restricted security held at June 30, 1999:
<TABLE>
<CAPTION>
ACQUISITION 6/30/99 PERCENT OF
SECURITY DATE SHARES COST VALUE NET ASSETS
-------- ----------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
United International Holdings, Inc.
4.00%, Series A
Convertible Preferred Stock...... 8/1/97 22,000 $2,996,957 $16,962,000 2.7%
========== =========== ====
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily except
when collection is not expected. Discounts on securities purchased for the Fund
are accreted on the constant yield method over the life of the respective
securities or, if applicable, over the period to the first call date. Premiums
on securities purchased are not amortized for this fund.
Income from payment-in-kind securities is recorded daily based on the effective
interest method of accrual.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made.
25
<PAGE> 96
MainStay Convertible Fund
The investment income and expenses (other than expenses incurred under the
Distribution Plan) and realized and unrealized gains and losses on Fund
investments are allocated to separate classes of shares based upon their
relative net asset value on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred. Dividends on short
positions are recorded as expenses of the Fund on ex-dividend date.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.72% of the Fund's
average daily net assets. For the six months ended June 30, 1999 the Manager
earned $2,352,929.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.36% of
the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
26
<PAGE> 97
Notes to Financial Statements unaudited (continued)
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $9,220 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $857,403
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $695,408.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $10,171 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$45,904 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
The Fund intends to elect to treat for Federal income tax purposes approximately
$8,917,658 of qualifying realized capital losses and $122,805 of qualifying
foreign exchange losses that arose during the prior year as if they arose on
January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $1,357,338 and $1,463,561,
respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets
27
<PAGE> 98
MainStay Convertible Fund
and other factors. Interest on any revolving credit loan is charged based upon
the Federal Funds Advances rate. There were no borrowings on the line of credit
at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999+ DECEMBER 31, 1998
--------------------------------- ----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......................... 149 941 4 545 2,621 --
Shares issued in reinvestment of
dividends and distributions........ 29 364 --(a) 301 4,032 --
---- ------- -- ------ ------- ---
178 1,305 4 846 6,653 --
Shares redeemed...................... (808) (10,265) --(a) (2,202) (16,303) --
---- ------- -- ------ ------- ---
Net increase (decrease).............. (630) (8,960) 4 (1,356) (9,650) --(a)
==== ======= == ====== ======= ===
</TABLE>
- -------
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand.
28
<PAGE> 99
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
29
<PAGE> 100
This page intentionally left blank
<PAGE> 101
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee CONVERTIBLE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Convertible Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA06-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 102
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay High
Yield Corporate Bond Fund versus First
Boston High Yield Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 9
Financial Statements 22
Notes to Financial Statements 28
The MainStay Funds 38
</TABLE>
<PAGE> 103
This page intentionally left blank
2
<PAGE> 104
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 105
$10,000 Invested in the MainStay High Yield
Corporate Bond Fund versus First Boston
High Yield Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -1.28%, 5 Year 10.46%, 10 Year 10.60%
[Class A Shares]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD FIRST BOSTON HIGH
PERIOD END CORPORATE BOND FUND YIELD INDEX* INFLATION+
- ---------- ------------------- ----------------- ----------
<S> <C> <C> <C>
6/89 $ 9550 $ 10000 $ 10000
6/90 8726 9811 10467
6/91 9482 11350 10959
6/92 12151 14207 11298
6/93 14497 16617 11637
6/94 15900 17336 11926
6/95 17872 19503 12289
6/96 20538 21448 12627
6/97 23787 24594 12917
6/98 26491 27295 13134
6/99 27385 27063 13277
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year -2.37%, 5 Year 10.60%, 10
Year 10.80%
Class C SEC Returns: 1 Year 1.63%, 5 Year 10.86%, 10
Year 10.80%
[Class B Shares]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD FIRST BOSTON HIGH YIELD
PERIOD END CORPORATE BOND FUND INDEX* INFLATION+
- ---------- ------------------- ----------------------- ----------
<S> <C> <C> <C>
6/89 $ 10000 $ 10000 $ 10000
6/90 9137 9811 10467
6/91 9929 11350 10959
6/92 12724 14207 11298
6/93 15180 16617 11637
6/94 16649 17336 11926
6/95 18657 19503 12289
6/96 21342 21448 12627
6/97 24532 24594 12917
6/98 27166 27295 13134
6/99 27880 27063 13277
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/30/89 reflecting the effect of the 4.5% up-front sales charge, thereby
reducing the amount of the investment to $9,550, and includes the
historical performance of the Class B shares for periods from 6/30/89
through 12/31/94. Performance data for the two classes vary after this date
based on differences in their load and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 6/30/89. Performance
does not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if
shares are redeemed within the first six years of purchase--as it would not
apply for the period shown. The Class C graph assumes an initial investment
of $10,000 made on 6/30/89 and includes the historical performance of the
Class B shares for periods from 6/30/89 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* The First Boston High Yield Index is a market-weighted index that includes
publicly traded bonds rated below BBB by Standard & Poor's and Baa by
Moody's. The Index assumes reinvestment of all distributions and interest
payments and does not take into account brokerage fees or taxes. Securities
in the Fund will not precisely match those in the Index and so, performance
of the Fund will differ. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 106
Portfolio Management Discussion and Analysis
During the first six months of 1999, the high-yield market benefited from
attractive valuations that drew capital from insurance firms, pension plans,
and mutual funds. The result was increasing market liquidity, which was
favorable for high-yield investors. Earlier concerns about a slowdown in
economic growth appear to have faded, but default rates have increased,
reaching 4% of issuers over the twelve months ended June 30, 1999.
RETURNS AHEAD OF THE AVERAGE PEER FUND
For the first six months of 1999, the MainStay High Yield Corporate Bond Fund
returned 7.13% for Class A shares and 6.75% for Class B and Class C shares,
excluding all sales charges. All share classes outperformed the average
Lipper(1) high current yield fund, which returned 3.56% during the first half of
the year. It is worth noting that Morningstar(2) rated the MainStay High Yield
Corporate Bond Fund Class B shares five stars overall as of June 30, 1999. The
Fund's Class B shares received four stars for the three-year period and five
stars for the five- and ten-year periods ended June 30, 1999, from among 1,543,
1,102, and 366 taxable bond funds, respectively.
The Fund performed strongly due to positive events affecting issuers and
strategic security selection, particularly among issues with single-B
ratings.(3) The Fund's top-performing securities benefited from favorable
developments. UIH Australia/Pacific, Inc., the Fund's largest position, rose
when its parent company, United International Holdings, Inc., announced an
initial public offering. Pending or completed acquisitions positively impacted
several holdings, including @Entertainment (being acquired by UIH), American
Telecasting (being acquired by Sprint), and Nine West (acquired by Jones Apparel
Group). Despite the Fund's limited equity exposure, its stock positions in
United International Holdings, Quest Diagnostics, and Sappi also contributed
positively to the Fund's performance for the six-month reporting period.
STRATEGIC DECISIONS
Early in the year, the Fund faced an illiquid high-yield market, with investors
divided in their assessment of which portions of the high-yield market provided
the best value. Many investors believed higher-quality high-yield issues
provided the best opportunities, while many others focused primarily on lower-
rated credits. Believing this division was a function of liquidity rather than
an impending recession, we decided to overweight the Fund in single-B issues,
which offered considerably higher yields at the time. Concentrating on credits
with strong asset coverage and increasing free cash flow, the strategy
contributed positively to the Fund's performance. As default rates continued to
rise, however, we moved to a more neutral position by replacing lower-quality
issues with higher-quality high-yield credits. At the end of June, we believed
stronger credits offered more attractive yields on a risk-adjusted basis.
- -------
(1) See page 8 for additional information about Lipper, Inc.
(2) Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking fees and sales charges
into account, and may change monthly. Its ratings of one (low) and five
(high) stars are based on a fund's three-, five-, and ten-year average
annual returns with fee adjustments, and a risk factor that reflects fund
performance relative to three-month Treasury bill monthly returns. The top
10% of funds in a broad asset class receive five stars, the next 22.5%
receive four stars, the middle 35% receive three stars, the next 22.5%
receive two stars, and the bottom 10% receive one star.
(3) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
5
<PAGE> 107
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
PERIOD TOTAL
END RETURN %
- ------ --------
<S> <C>
12/86 5.01
12/87 0.19
12/88 16.89
12/89 -5.04
12/90 -7.85
12/91 32.27
12/92 21.65
12/93 21.65
12/94 1.50
12/95 20.28
12/96 16.33
12/97 12.20
12/98 2.07
6/99 7.13
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for periods 12/86 through 12/94.
See footnote * on page 8 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
PERIOD TOTAL
END RETURN %
- ------ --------
<S> <C>
12/86 5.01
12/87 0.19
12/88 16.89
12/89 -5.04
12/90 -7.85
12/91 32.27
12/92 21.65
12/93 21.65
12/94 1.50
12/95 19.71
12/96 15.58
12/97 11.55
12/98 1.31
6/99 6.75
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/86
through 8/98. See footnote * on page 8 for more information on performance.
Although duration(4) is not a primary consideration, the Fund generally
maintained a market-neutral duration throughout the reporting period to avoid
imbedding any bet on interest rates into the Fund's portfolio. Our neutral
stance did not impact relative performance, but duration may become more
important over time, as interest-rate volatility continues to impact the
high-yield market.
SHIFTING POSITIONS AND SECTOR WEIGHTINGS
We continued to add to the Fund's position in MedPartners, a prescription
benefit management services company, which had a positive impact on performance.
Other significant health care holdings that contributed to the Fund's
outperformance in the first half of the year were Magellan, Quest Diagnostics,
Medaphis, and Team Health. Although
- -------
(4) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
6
<PAGE> 108
health care was the worst-performing high-yield sector for the first half of the
year, careful security selection and down-playing long-term care helped the
Fund's overweighted position have a positive impact on performance.
During the reporting period, we added to the Fund's already overweighted
position in the cable and media sectors by adding to the Fund's holdings in UIH
and NTL, Inc. At the same time, we eliminated the Fund's wireless holdings by
selling CS Wireless, People's Choice TV, and American Telecasting. During the
first half of the year, we also added to the Fund's overweighted position in
utilities, with purchases of AES Eastern.
The Fund had an underweighted position in cyclicals, which are securities that
tend to rise quickly with economic upturns and fall quickly when the economy
slows. This underweighted position detracted from performance during the first
half of the year, as the paper and metals sectors outperformed. Given strong
economic growth, we have added to the Fund's cyclical exposure with significant
purchases, including: R&B Falcon, an oil services company; Lyondell Chemicals, a
producer of commodity chemicals; Doman Industries, a forest products concern;
and Kelley Oil and Gas, an exploration and production company.
As domestic high-yield securities became increasingly attractive during the
first half of the year, we reduced the Fund's exposure to emerging markets and
developed foreign markets outside Europe. We sold much of the Fund's position in
First Pacific, a Hong Kong conglomerate, and reduced the Fund's position in
Tokai Bank. Both positions contributed positively to the Fund's performance for
the six months ended June 30, 1999.
LOOKING AHEAD
Our outlook for the high-yield market remains constructive as we continue to
see values that we believe are attractive. As of June 30, 1999, we believed
high- yield bonds presented attractive investment opportunities, with yields
that were more than twice those available on ten-year Treasury bonds. Whatever
the economy or markets may bring, the Fund will continue to seek maximum
current income through investment in a diversified portfolio of high-yield debt
securities, with capital appreciation as a secondary objective.
Steven Tananbaum
Donald Morgan
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 109
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 3.37% 11.49% 11.11% 10.37%
Class B 2.63% 10.86% 10.80% 10.14%
Class C 2.63% 10.86% 10.80% 10.14%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A -1.28% 10.46% 10.60% 9.99%
Class B -2.37% 10.60% 10.80% 10.14%
Class C 1.63% 10.86% 10.80% 10.14%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 19 out of n/a n/a 5 out of
291 funds 113 funds
Class B 30 out of 6 out of 6 out of 5 out of
291 funds 100 funds 55 funds 34 funds
Class C n/a n/a n/a n/a
Average Lipper high
current yield fund -1.45% 8.52% 9.23% 8.87%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $7.72 $0.3504 $0.0000
Class B $7.71 $0.3222 $0.0000
Class C $7.71 $0.3222 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 4.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes vary after this date based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a CDSC of up
to 5% if shares are redeemed within the first six years of purchase and an
annual 12b-1 fee of 1%. Class C shares, first offered to the public on
9/1/98, are sold with no initial sales charge, but are subject to a CDSC of
1% if redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (5/1/86) up to 8/31/98.
Performance data for the two classes vary after this date based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
5/1/86 through 6/30/99.
8
<PAGE> 110
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
LONG-TERM BONDS (82.2%)+
ASSET-BACKED SECURITIES (1.7%)
ELECTRIC UTILITIES (1.5%)
AES Eastern Energy, L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17 (c)....... $ 19,080,000 $ 18,746,100
9.67%, due 1/2/29 (c)....... 20,000,000 19,600,000
Midland Funding Corp. I
Series C-91
10.33%, due 7/23/02......... 12,935,210 13,600,662
Series C-94
10.33%, due 7/23/02......... 2,683,195 2,821,232
--------------
54,767,994
--------------
EQUIPMENT FINANCING (0.2%)
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04 (c)(d)... 9,712,841 9,907,098
--------------
Total Asset-Backed Securities
(Cost $65,480,220).......... 64,675,092
--------------
CONVERTIBLE BONDS (3.8%)
CELLULAR TELEPHONE (0.8%)
Metro Pacific Capital Ltd.
2.50%, due 4/11/03 (c)(e)... 4,600,000 4,772,500
2.50%, due 4/11/03 (e)...... 22,314,000 23,150,775
--------------
27,923,275
--------------
CONGLOMERATES (1.0%)
First Pacific Capital Ltd.
2.00%, due 3/27/02 (e)...... 25,500,000 25,563,750
Hutchison Delta Finance Ltd.
7.00%, due 11/25/01 (e)..... 9,250,000 10,545,000
--------------
36,108,750
--------------
DRUGS (0.0%) (B)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02.......... 2,205,000 1,675,800
--------------
ELECTRONICS (0.1%)
Checkpoint Systems, Inc.
5.25%, due 11/1/05.......... 5,000,000 3,681,250
--------------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (0.1%)
Triarc Consumer Products
Group, L.L.C.
(zero coupon), due 2/9/18... $ 11,960,000 $ 2,930,200
--------------
MINING (0.1%)
Battle Mountain Gold Co.
6.00%, due 1/4/05 (e)....... 2,270,000 1,691,150
TVX Gold, Inc.
5.00%, due 3/28/02.......... 3,750,000 3,018,750
--------------
4,709,900
--------------
PAPER & FOREST PRODUCTS (0.2%)
Sappi BVI Finance Ltd.
7.50%, due 8/1/02 (e)....... 9,880,000 9,324,744
--------------
RESTAURANTS & LODGING (0.1%)
MeriStar Hospitality Corp.
4.75%, due 10/15/04......... 3,663,000 2,802,195
--------------
TECHNOLOGY (1.2%)
Cirrus Logic, Inc.
6.00%, due 12/15/03......... 61,705,000 42,576,450
6.00%, due 12/15/03 (c)..... 5,000,000 3,450,000
--------------
46,026,450
--------------
TELECOMMUNICATION SERVICES (0.2%)
Technology Resources
Industries Berhad
(zero coupon), due
10/31/04.................... 5,690,000 4,267,500
2.75%, due 11/28/04 (e)..... 4,200,000 3,402,000
--------------
7,669,500
--------------
Total Convertible Bonds
(Cost $142,203,233)......... 142,852,064
--------------
CORPORATE BONDS (58.1%)
ADVERTISEMENTS (0.2%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05.......... 9,035,000 9,306,050
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 111
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
AEROSPACE (1.0%)
Newport News Shipbuilding,
Inc.
8.625%, due 12/1/06......... $ 17,175,000 $ 18,033,750
9.25%, due 12/1/06.......... 4,300,000 4,450,500
Pacific Aerospace &
Electronics, Inc.
11.25%, due 8/1/05.......... 15,970,000 11,977,500
Sequa Corp.
9.375%, due 12/15/03........ 2,100,000 2,110,500
--------------
36,572,250
--------------
AIRLINES (0.1%)
Valujet, Inc.
10.25%, due 4/15/01......... 5,750,000 4,887,500
--------------
AUTO MANUFACTURING (0.2%)
Titan Tire Corp.
7.00%, due 2/11/00 (d)...... 6,542,838 6,493,767
--------------
BANKS (2.8%)
B.F. Saul Real Estate
Investment Trust, Series B
9.75%, due 4/1/08........... 29,600,000 27,528,000
Fuji JGB Inv. L.L.C. Pfd.
Series A
9.87%, due 12/31/49
10.8073%, beginning 6/30/08
(c)......................... 8,530,000 7,421,100
Local Financial Corp.
11.00%, due 9/8/04.......... 19,985,000 20,684,475
RB Asset, Inc.
Series A
8.00%, due 1/15/06
8.50%, beginning 1/15/02
(f)......................... 778,200 750,012
Tokai Preferred Capital Co.
L.L.C.
9.98%, due 12/29/49
11.0914%, beginning 6/30/08
(c)(e)...................... 54,085,000 49,758,200
--------------
106,141,787
--------------
BROADCAST/MEDIA (0.1%)
Spanish Broadcasting System,
Inc.
Series B
11.00%, due 3/15/04......... 3,000,000 3,210,000
--------------
BUILDING MAINTENANCE & SERVICES (0.4%)
Building One Services Corp.
10.50%, due 5/1/09 (c)...... 15,270,000 14,582,850
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
BUILDING MATERIALS (0.2%)
RH Cement Finance, PLC
16.80%, due 3/10/00 (c)..... $ 6,000,000 $ 6,000,000
--------------
BUILDINGS (0.1%)
Standard Pacific Corp.
8.50%, due 4/1/09........... 2,495,000 2,370,250
--------------
CABLE (6.7%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03... 43,290,000 27,705,600
Diamond Cable Communications,
PLC
(zero coupon), due 9/30/04
13.25%, beginning 9/30/99... 8,000,000 8,390,000
NTL, Inc.
Series A
(zero coupon), due 4/15/05
12.75%, beginning 4/15/00... 18,485,000 17,814,918
Series B
(zero coupon), due 4/1/08
9.75%, beginning 4/1/03..... 17,640,000 12,083,400
(zero coupon), due 2/1/06
11.50%, beginning 2/1/01.... 3,209,000 2,799,852
(zero coupon), due 10/1/08
12.375%, beginning
10/1/03..................... 13,500,000 9,213,750
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01... 14,430,000 10,389,600
Series D
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01... 174,115,000 125,362,800
United International
Holdings, Inc.
Series B
(zero coupon), due 2/15/08
10.75%, beginning 2/15/03... 57,625,000 37,888,438
--------------
251,648,358
--------------
CASINOS (2.1%)
Capital Gaming International,
Inc.
12.00%, due 5/28/01......... 907,839 91
El Comandante Capital Corp.
11.75%, due 12/15/03........ 14,359,051 12,492,374
International Game Technology
7.875%, due 5/15/04 (c)..... 10,075,000 9,898,688
8.375%, due 5/15/09 (c)..... 7,290,000 7,153,312
Louisiana Casino Cruises,
Inc.
11.00%, due 12/1/05 (c)..... 6,155,000 6,170,388
Penn National Gaming, Inc.
10.625%, due 12/15/04....... 11,910,000 11,910,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 112
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CASINOS (CONTINUED)
President Casinos, Inc.
12.00%, due 9/15/01
(c)(d)...................... $ 10,097,000 $ 10,097,000
13.00%, due 9/15/01......... 20,097,000 18,137,543
Treasure Bay Gaming & Resorts
10.00%, due 11/1/03......... 1,755,226 1,579,704
Trump Castle Funding, Inc.
13.875%, due 11/15/05 (g)... 299 254
--------------
77,439,354
--------------
CELLULAR TELEPHONE (0.6%)
CCPR Services, Inc.
10.00%, due 2/1/07.......... 14,250,000 15,229,688
Dolphin Telecom, PLC
(zero coupon), due 5/15/09
14.00%, beginning 5/15/04
(c)......................... 14,500,000 6,887,500
International Wireless
Communications Holdings,
Inc.
(zero coupon),
due 8/15/01 (d)(h).......... 10,000,000 1,000,000
PageMart Nationwide, Inc.
(zero coupon), due 2/1/05
15.00%, beginning 2/1/00.... 700,000 616,000
--------------
23,733,188
--------------
CHEMICALS (1.2%)
Agriculture Minerals &
Chemicals, Inc.
10.75%, due 9/30/03......... 22,910,000 22,709,538
Borden Chemicals & Plastics
L.P.
9.50%, due 5/1/05........... 4,365,000 4,168,575
Lyondell Chemical Co.
9.875%, due 5/1/07 (c)...... 2,580,000 2,638,050
10.875%, due 5/1/09 (c)..... 15,740,000 16,369,600
--------------
45,885,763
--------------
COMPUTERS & OFFICE EQUIPMENT (0.5%)
American Business
Information, Inc.
9.50%, due 6/15/08.......... 10,295,000 8,441,900
Micron Technology, Inc.
6.50%, due 9/30/05 (c)...... 13,000,000 10,010,000
--------------
18,451,900
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CONSTRUCTION & ENGINEERING (0.6%)
Cathay International Ltd.
13.00%, due 4/15/08 (c)..... $ 46,250,000 $ 18,500,000
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(i)... 13,438,000 5,274,415
--------------
23,774,415
--------------
CONSUMER DURABLES (0.7%)
Selmer Co., Inc.
11.00%, due 5/15/05......... 22,680,000 24,210,900
11.00%, due 5/15/05 (c)..... 1,500,000 1,601,250
--------------
25,812,150
--------------
CONSUMER NON-DURABLES (0.0%) (b)
Icon Health & Fitness
Holdings, Inc.
Series B
(zero coupon), due 11/15/04
15.00%, beginning
11/15/99.................... 13,000,000 1,560,000
--------------
COSMETICS (0.7%)
Jafra Cosmetics
International, Inc.
11.75%, due 5/1/08.......... 30,400,000 26,144,000
--------------
DOMESTIC OIL & GAS (1.2%)
Denbury Management, Inc.
9.00%, due 3/1/08........... 17,100,000 15,261,750
Houston Exploration Co. (The)
Series B
8.625%, due 1/1/08.......... 6,525,000 6,394,500
Queens Sand Resources, Inc.
12.50%, due 7/1/08.......... 25,920,000 15,811,200
TransAmerican Energy Corp.
Series B
11.50%, due 6/15/02 (h)..... 18,771,000 2,182,129
13.00%, due 6/15/02 (h)..... 44,135,000 5,130,694
--------------
44,780,273
--------------
DRUGS (0.9%)
Express Scripts, Inc.
9.625%, due 6/15/09 (c)..... 6,105,000 6,181,312
ICN Pharmaceuticals, Inc.
8.75%, due 11/15/08 (c)..... 28,955,000 28,448,288
--------------
34,629,600
--------------
ELECTRIC UTILITIES (0.4%)
ESI Tractebel Acquisition
Corp.
Series B
7.99%, due 12/30/11......... 15,800,000 15,038,124
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 113
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
ENERGY (1.6%)
Caithness Coso Funding Corp.
9.05%, due 12/15/09 (c)..... $ 11,390,000 $ 11,361,525
CMS Energy Corp.
8.00%, due 7/1/01........... 21,300,000 21,321,300
8.375%, due 7/1/03.......... 17,000,000 16,949,357
Conproca, S.A.
12.00%, due 6/16/10
(c)(e)...................... 11,570,000 10,875,800
--------------
60,507,982
--------------
FINANCE (1.0%)
CB Richard Ellis Services,
Inc.
8.875%, due 6/1/06.......... 18,405,000 17,760,825
Cityscape Financial Corp.
Series A
12.75%, due 6/1/04 (i)...... 57,665,000 6,919,800
ContiFinancial Corp.
7.50%, due 3/15/02.......... 800,000 560,000
8.375%, due 8/15/03......... 6,000,000 4,200,000
Ocwen Asset Investment Corp.
11.50%, due 7/1/05.......... 7,895,000 6,868,650
--------------
36,309,275
--------------
FOOD, BEVERAGES & TOBACCO (0.8%)
Buenos Aires Embotelladora
Sociedad Anonima
Series B
12.00%, due 8/3/05 (c)...... 3,871,000 3,290,350
Colorado Prime Corp.
12.50%, due 5/1/04.......... 28,535,000 7,490,437
Standard Commercial Corp.
8.875%, due 8/1/05.......... 21,995,000 18,145,875
--------------
28,926,662
--------------
HEALTH CARE (7.9%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02.......... 590,000 584,100
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95 (x)..... 46,825,000 36,940,664
Fountain View, Inc.
Series B
11.25%, due 4/15/08......... 12,905,000 10,840,200
Genesis Health Ventures, Inc.
9.75%, due 6/15/05.......... 10,005,000 8,154,075
Hanger Orthopedic Group, Inc.
11.25%, due 6/15/09 (c)..... 6,825,000 6,927,375
Magellan Health Services,
Inc.
9.00%, due 2/15/08.......... 39,000,000 33,345,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
HEALTH CARE (CONTINUED)
Medaphis Corp.
Series B
9.50%, due 2/15/05.......... $ 56,521,000 $ 41,825,540
MedPartners, Inc.
7.375%, due 10/1/06......... 31,131,000 26,539,177
MultiCare Companies, Inc.
9.00%, due 8/1/07........... 16,953,000 11,867,100
Quest Diagnostics, Inc.
9.875%, due 7/1/09 (c)...... 32,085,000 32,325,638
10.75%, due 12/15/06........ 46,174,000 52,869,230
Team Health, Inc.
12.00%, due 3/15/09 (c)..... 16,560,000 16,974,000
Triad Hospital Holdings, Inc.
11.00%, due 5/15/09 (c)..... 7,185,000 7,310,737
Unilab Corp.
11.00%, due 4/1/06.......... 8,000,000 8,720,000
--------------
295,222,836
--------------
HOME BUILDING (0.8%)
Amatek Industries Pty Ltd.
12.00%, due 2/15/08 (c)..... 20,000,000 19,200,000
14.50%, due 2/15/09
(c)(f)(j)................... 9,235 9,235,000
--------------
28,435,000
--------------
HOUSEHOLD PRODUCTS (0.3%)
Diamond Brands, Inc.
(zero coupon), due 4/15/09
12.875%, beginning
4/15/03..................... 13,360,000 2,672,000
Diamond Brands Operating
Corp.
10.125%, due 4/15/08........ 6,115,000 4,953,150
Juno Lighting, Inc.
11.875%, due 7/1/09 (c)..... 4,560,000 4,605,600
--------------
12,230,750
--------------
HOUSING (0.0%) (b)
UDC Homes, Inc.
Series C, (zero coupon)
due 11/1/00 (h)(v).......... 108,500 11
--------------
INDUSTRIAL (0.6%)
Morris Materials Handling,
Inc.
9.50%, due 4/1/08........... 18,285,000 7,039,725
Republic Engineered Steels,
Inc.
9.875%, due 12/15/01........ 15,155,000 15,723,312
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03.... 2,585,000 1,227,875
--------------
23,990,912
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 114
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
INSURANCE (0.3%)
Willis Corroon Group, PLC
9.00%, due 2/1/09 (c)....... $ 13,515,000 $ 13,025,081
--------------
LEISURE (0.4%)
Bally Total Fitness Holding
Corp.
Series B
9.875%, due 10/15/07........ 9,883,000 9,586,510
Series D
9.875%, due 10/15/07........ 5,695,000 5,524,150
--------------
15,110,660
--------------
MACHINERY (0.2%)
Harnischfeger Industries,
Inc.
7.25%, due 12/15/25
(h)(i)...................... 755,000 468,100
8.70%, due 6/15/22 (h)(i)... 12,155,000 7,536,100
--------------
8,004,200
--------------
MEDIA (3.5%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02... 103,295,000 49,323,363
14.50%, due 5/15/09
(c)(k)...................... 190 193,800
Series AIUT
14.50%, due 5/15/09
(c)(l)...................... 53,680 54,753,600
Comcast Corp.
9.50%, due 1/15/08.......... 1,490,000 1,560,775
Maxwell Communications Corp.,
PLC
Facility A (h)(i)(m)........ 9,973,584 1,097,094
Pratama Datakom Asia B.V.
12.75%, due 7/15/05 (c)..... 22,550,000 5,412,000
Telemundo Holdings, Inc.
Series B
(zero coupon), due 8/15/08
11.50%, beginning 8/15/03... 13,140,000 6,635,700
Tri-State Outdoor Media
11.00%, due 5/15/08......... 3,000,000 3,052,500
Young America Corp.
Series B
11.625%, due 2/15/06........ 12,965,000 9,075,500
--------------
131,104,332
--------------
MEDICAL EQUIPMENT (0.6%)
DJ Orthopedics L.L.C.
12.625%, due 6/15/09 (c).... 21,505,000 21,128,663
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
MINING (0.8%)
Great Central Mines Ltd.
8.875%, due 4/1/08.......... $ 30,897,000 $ 29,352,150
--------------
NATURAL GAS PIPELINES (0.2%)
Western Gas Resources, Inc.
10.00%, due 6/15/09 (c)..... 6,800,000 6,936,000
--------------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
Kelley Oil & Gas Corp.
14.00%, due 4/15/03 (c)..... 9,960,000 10,134,300
--------------
OIL SERVICES (0.7%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05.......... 5,210,000 2,448,700
RBF Finance Co.
Series B
6.95%, due 4/15/08.......... 895,000 720,475
11.375%, due 3/15/09 (c).... 23,025,000 23,830,875
--------------
27,000,050
--------------
PAPER & FOREST PRODUCTS (0.3%)
SD Warren Co.
Series B
12.00%, due 12/15/04........ 12,095,000 12,941,650
--------------
PUBLISHING (0.7%)
General Media, Inc.
10.625%, due 12/31/00....... 27,091,000 25,736,450
--------------
REAL ESTATE (2.3%)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07.......... 61,860,000 52,903,290
LNR Property Corp.
Series B
9.375%, due 3/15/08......... 19,830,000 18,640,200
10.50%, due 1/15/09......... 8,005,000 8,005,000
Meditrust Co. (The)
Series MTN
7.77%, due 8/16/02.......... 7,515,000 6,930,273
Olympia & York Maiden Lane
Finance Corp.
10.375%, due 12/31/49
(e)(h)(i)................... 4,000 2,785
--------------
86,481,548
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 115
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RECREATION & ENTERTAINMENT (2.0%)
Affinity Group Holding, Inc.
11.00%, due 4/1/07.......... $ 2,935,000 $ 2,960,681
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05
(h)(i)...................... 42,087,000 420,870
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04........ 34,830,000 34,220,475
Marvel Enterprises, Inc.
12.00%, due 6/15/09 (c)..... 26,815,000 27,083,150
Sports Club Company, Inc.
(The)
11.375%, due 3/15/06........ 1,545,000 1,552,725
Town Sports International,
Inc.
Series B
9.75%, due 10/15/04......... 2,455,000 2,344,525
9.75%, due 10/15/04 (c)..... 5,415,000 5,171,325
--------------
73,753,751
--------------
RESTAURANTS & LODGING (4.2%)
Advantica Restaurant Group,
Inc.
11.25%, due 1/15/08......... 43,776,582 42,134,960
Avado Brands, Inc.
11.75%, due 6/15/09 (c)..... 11,190,000 11,022,150
FelCor Suites, L.P.
7.625%, due 10/1/07......... 625,000 581,250
Florida Panthers Holdings,
Inc.
9.875%, due 4/15/09......... 21,565,000 20,163,275
FRI-MRD Corp.
(zero coupon), due 1/24/02
14.00%, beginning 7/31/99
(c)(d)...................... 19,000,000 18,596,250
15.00%, due 1/24/02
(c)(d)...................... 53,990,000 53,922,512
Starwood Hotels & Resorts
Worldwide, Inc.
7.375%, due 11/15/15........ 9,500,000 8,170,029
--------------
154,590,426
--------------
RETAIL (0.4%)
G&G Retail, Inc.
11.00%, due 5/15/06
(c)(n)...................... 8,070 7,464,750
Jo-Ann Stores, Inc.
10.375%, due 5/1/07 (c)..... 1,425,000 1,403,625
Just For Feet, Inc.
11.00%, due 5/1/09 (c)...... 4,450,000 2,870,250
K Mart Corp.
8.375%, due 7/1/22.......... 3,779,000 3,782,760
--------------
15,521,385
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
SEMICONDUCTORS (0.2%)
Amkor Technologies, Inc.
9.25%, due 5/1/06 (c)....... $ 7,805,000 $ 7,609,875
--------------
SHOES (0.1%)
Iron Age Corp.
9.875%, due 5/1/08.......... 2,475,000 1,955,250
--------------
STEEL, ALUMINUM & OTHER METALS (1.2%)
Easco Corp.
Series B
10.00%, due 3/15/01......... 20,150,000 20,250,750
Generac Portable Products
L.L.C.
11.25%, due 7/1/06 (c)...... 2,105,000 2,347,075
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05......... 18,682,000 19,826,273
--------------
42,424,098
--------------
TECHNOLOGY (0.4%)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00.... 12,790,000 3,821,012
Entex Information Services,
Inc.
12.50%, due 8/1/06.......... 9,355,000 5,753,325
Unisys Corp.
11.75%, due 10/15/04........ 5,500,000 6,105,000
--------------
15,679,337
--------------
TELECOMMUNICATION EQUIPMENT (0.2%)
EV International, Inc.
Series A
11.00%, due 3/15/07......... 7,160,000 5,656,400
Telex Communications, Inc.
10.50%, due 5/1/07.......... 2,560,000 1,945,600
--------------
7,602,000
--------------
TELECOMMUNICATION SERVICES (4.3%)
Energis, PLC
9.75%, due 6/15/09 (c)...... 7,575,000 7,669,688
Globalstar L.P. Capital Corp.
11.50%, due 6/1/05.......... 51,830,000 33,689,500
HighwayMaster
Communications, Inc.
Series B
13.75%, due 9/15/05......... 32,595,000 13,363,950
ICG Communications, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03.... 19,905,000 10,947,750
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03... 25,325,000 14,435,250
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 116
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05.......... $ 21,190,000 $ 8,264,100
15.00%, due 8/1/05 (o)...... 10,985 4,503,850
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02... 34,725,000 19,098,750
RCN Corp.
(zero coupon), due 7/1/08
11.00%, beginning 7/1/03.... 3,420,000 2,111,850
(zero coupon), due 10/15/07
11.125%, beginning
10/15/02.................... 14,140,000 9,509,150
T/SF Communications Corp.
Series B
10.375%, due 11/1/07........ 12,820,000 12,820,000
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning
7/31/01..................... 33,715,000 22,926,200
--------------
159,340,038
--------------
TEXTILE & APPAREL (0.5%)
Norton McNaughton, Inc.
12.50%, due 6/1/05.......... 17,280,000 15,573,600
TPE International Finance Co.
B.V.
8.0681%, due 5/15/02
(e)(h)(i)(p)................ 4,800,000 1,440,000
--------------
17,013,600
--------------
TRANSPORTATION (0.6%)
Equimar Shipholdings Ltd.
9.875%, due 7/1/07.......... 1,000,000 665,000
Pacer International, Inc.
11.75%, due 6/1/07 (c)...... 22,620,000 21,941,400
--------------
22,606,400
--------------
Total Corporate Bonds
(Cost $2,356,922,392)....... 2,169,136,251
--------------
FOREIGN BONDS (3.8%)
CELLULAR TELEPHONE (0.2%)
Dolphin Telecom, PLC
(zero coupon), due 6/1/08
11.625%, beginning 6/1/03... E 18,215,000 9,016,862
--------------
COMPUTERS & OFFICE EQUIPMENT (0.4%)
Netia Holdings II B.V.
13.50%, due 6/15/09 (c)..... 13,600,000 14,586,707
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
MEDIA (0.7%)
Central European Media
Enterprises Ltd.
Series BR
8.125%, due 8/15/04......... DM 25,287,000 $ 9,943,714
Diamond Holdings, PLC
10.00%, due 2/1/08.......... L 10,000,000 16,216,110
Maxwell Communications Corp.,
PLC
Facility B (h)(i)(m)........ 1,131,066 196,118
--------------
26,355,942
--------------
MINING (0.1%)
Greenstone Resources Ltd.
9.00%, due 2/28/02.......... C$ 6,000,000 1,824,265
--------------
PUBLISHING (2.4%)
IPC Magazines Group, PLC
(zero coupon), due 3/15/08
10.75%, beginning 3/15/03... L 40,680,000 30,378,547
9.625%, due 3/15/08......... 13,970,000 17,258,808
Regional Independent Media
Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03... 43,235,000 40,805,417
--------------
88,442,772
--------------
Total Foreign Bonds
(Cost $155,585,909)......... 140,226,548
--------------
LOAN ASSIGNMENTS & PARTICIPATIONS (4.8%)
AUTO PARTS (0.1%)
Global Motorsport Group, Inc.
Bank debt, Tranche B
8.50%, due 10/31/05
(d)(m)(p)................... $ 4,975,000 4,975,000
--------------
CASINOS (0.3%)
Isle of Capri Casinos, Inc.
Bank debt, Tranche A
7.792%, due 4/23/04
(d)(m)(p)................... 9,357,143 9,357,143
--------------
CHEMICALS (0.3%)
Kronos International, Inc.
Bank debt
5.4391%, due 9/15/00
(d)(m)(p)................... DM 21,512,495 11,173,283
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 117
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
CONGLOMERATES (0.3%)
First Pacific Capital Ltd.
Bank debt
6.8125%, due 1/23/00
(d)(p)...................... $ 10,160,000 $ 9,855,200
--------------
CONSUMER PRODUCTS (0.4%)
E & S Holdings Corp.
Bank debt, Term A
7.4975%, due 9/30/03
(d)(m)(p)................... 1,824,873 1,471,195
Bank debt, Term B
7.9975%, due 9/30/04
(d)(m)(p)................... 3,073,537 2,452,652
Bank debt, Term C
8.4975%, due 8/30/05
(d)(m)(p)................... 1,552,958 1,277,867
Bank debt, Term D
8.9975%, due 3/30/06
(d)(m)(p)................... 44,085 36,868
Revolver
7.4038%-9.25%, due 9/30/03
(d)(m)(p)................... 11,283,051 7,877,238
--------------
13,115,820
--------------
FOOD (0.2%)
New World Pasta Co.
Bank debt, Term B
8.25%, due 1/28/06
(c)(d)(p)................... 7,448,000 7,522,480
--------------
FOOD, BEVERAGES & TOBACCO (0.4%)
Domino's Pizza, Inc.
Bank debt, Tranche B
8.8125%, due 12/21/06
(d)(m)(p)................... 4,908,780 4,914,916
Bank debt, Tranche C
9.0625%, due 12/21/07
(d)(m)(p)................... 4,908,780 4,914,916
Triarc Consumer Products
Group, L.L.C.
Bank debt, Term B
8.6563%, due 3/12/06
(d)(p)...................... 1,739,826 1,733,301
Bank debt, Term C
8.9063%, due 3/12/07
(d)(p)...................... 4,245,174 4,229,255
--------------
15,792,388
--------------
HEALTH CARE (0.7%)
Triad Hospital Holdings, Inc.
Bank debt, Tranche B
8.97%, due 1/1/05
(d)(m)(p)................... 25,550,000 25,550,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
INSURANCE (0.1%)
Willis Corroon Corp.
Bank debt, Tranche C
7.75%, due 2/19/08
(d)(m)(p)................... $ 2,910,000 $ 2,899,087
Bank debt, Tranche D
8.00%, due 8/19/08
(d)(m)(p)................... 145,500 144,954
--------------
3,044,041
--------------
PAPER & FOREST PRODUCTS (0.1%)
Stone Container Corp.
Bank debt, Term E
8.50%, due 10/1/03 (d)(p)... 3,910,674 3,905,786
--------------
RECREATION & ENTERTAINMENT (0.2%)
Affinity Group, Inc.
Bank debt, Tranche B
8.625%, due 6/30/06
(d)(m)(p)................... 8,656,500 8,656,500
--------------
RESTAURANTS & LODGING (0.3%)
Blackstone Hotel Acquisitions
Co.
Bank debt
9.3504%, due 6/30/03
(d)(p)...................... L 8,390,000 12,299,338
--------------
TRANSPORTATION (1.4%)
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12
(d)(m)(p)................... FF 211,478,211 27,430,214
Bank debt, Tier One
7.03%, due 12/31/12
(d)(m)(p)................... L 19,116,644 24,860,075
--------------
52,290,289
--------------
Total Loan Assignments & Participations
(Cost $179,690,227)......... 177,537,268
--------------
U.S. GOVERNMENT (1.0%)
UNITED STATES TREASURY BOND (1.0%)
5.25%, due 2/15/29........... $ 40,600,000 36,476,664
--------------
Total U.S. Government
(Cost $37,516,672).......... 36,476,664
--------------
YANKEE BONDS (9.0%)
CABLE (1.2%)
Australis Holdings Pty Ltd.
(zero coupon), due 11/1/02
15.00%, beginning 11/1/00
(h)......................... 10,074,000 75,555
CF Cable TV, Inc.
11.625%, due 2/15/05........ 6,750,000 7,349,488
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 118
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
CABLE (CONTINUED)
Comcast UK Cable Partners
Ltd.
(zero coupon), due 11/15/07
11.20%, beginning
11/15/00.................... $ 23,220,000 $ 21,159,225
Rogers Cablesystems Ltd.
10.125%, due 9/1/12......... 7,715,000 8,264,694
11.00%, due 12/1/15......... 7,185,000 8,280,713
--------------
45,129,675
--------------
CELLULAR TELEPHONE (1.7%)
Dolphin Telecom, PLC
(zero coupon), due 6/1/08
11.50%, beginning 6/1/03.... 905,000 457,025
Millicom International
Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01.... 51,010,000 37,492,350
Rogers Cantel, Inc.
8.30%, due 10/1/07.......... 17,000,000 16,787,500
9.375%, due 6/1/08.......... 10,000,000 10,362,500
--------------
65,099,375
--------------
CHEMICALS (1.0%)
Brunner Mond Group, PLC
11.00%, due 7/15/08......... 15,940,000 9,564,000
Marsulex, Inc.
9.625%, due 7/1/08.......... 6,355,000 6,370,887
Octel Developments, PLC
10.00%, due 5/1/06.......... 19,625,000 20,213,750
--------------
36,148,637
--------------
DOMESTIC OILS & GAS (0.3%)
Husky Oil Ltd.
8.90%, due 8/15/28
11.1875%, beginning
8/15/08..................... 12,800,000 12,392,000
--------------
MEDIA (0.5%)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04......... 7,285,000 5,828,000
Rogers Communications, Inc.
8.875%, due 7/15/07......... 12,185,000 12,245,925
--------------
18,073,925
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
MINING (0.2%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27.......... $ 15,020,000 $ 8,411,200
Glencore Nickel Pty Ltd.
9.00%, due 12/1/14.......... 910,000 782,600
--------------
9,193,800
--------------
PAPER & FOREST PRODUCTS (0.4%)
Doman Industries Ltd.
12.00%, due 7/1/04 (c)...... 14,420,000 14,059,500
--------------
STEEL, ALUMINUM & OTHER METALS (1.2%)
Ivaco, Inc.
11.50%, due 9/15/05......... 37,636,000 39,047,350
Murrin Murrin Holdings
Property Ltd.
9.375%, due 8/31/07......... 4,000,000 3,540,000
--------------
42,587,350
--------------
TELECOMMUNICATION SERVICES (0.9%)
Call-Net Enterprises, Inc.
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04... 23,695,000 13,091,487
9.375%, due 5/15/09......... 20,040,000 19,088,100
--------------
32,179,587
--------------
TESTING SERVICES (0.1%)
Intertek Testing Services
Ltd.
12.00%, due 11/1/07
(c)(d)(g)................... 5,382,614 5,066,385
--------------
TRANSPORTATION (1.5%)
Cenargo International, PLC
9.75%, due 6/15/08.......... 11,880,000 10,989,000
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (i)..... 44,576,800 11,645,689
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08......... 49,015,000 19,544,731
Pegasus Shipping (Hellas)
Ltd.
Series A
11.875%, due 11/15/04....... 31,410,000 14,134,500
--------------
56,313,920
--------------
Total Yankee Bonds
(Cost $405,209,828)......... 336,244,154
--------------
Total Long-Term Bonds
(Cost $3,342,608,481)....... 3,067,148,041
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 119
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
COMMON STOCKS (3.6%)
APPLIANCES & FURNITURE (0.0%) (b)
Central Rents, Inc. (a)(c)... 10,500 $ 420,000
--------------
BROADCAST/MEDIA (0.9%)
Spanish Broadcasting System,
Inc. (a)(c)................. 53,115 31,869,000
--------------
BUSINESS SERVICES (0.0%) (b)
Iron Mountain, Inc. (a)...... 4,869 139,375
--------------
CABLE (0.0%) (b)
CS Wireless Systems, Inc.
(a)(c)...................... 5,180 62
--------------
CASINOS (0.1%)
Capital Gaming International,
Inc. (a).................... 66,333 663
Equus Gaming Co. L.P. Class A
(a)......................... 114,320 200,060
Harrah's Entertainment, Inc.
(a)......................... 101,600 2,241,550
Isle of Capri Casinos, Inc.
(a)......................... 207,925 1,429,484
Lakes Gaming, Inc. (a)....... 89,725 981,367
Louisiana Casino Cruises,
Inc. (a).................... 12,000 324,000
--------------
5,177,124
--------------
CELLULAR TELEPHONE (0.1%)
Celcaribe, S.A. (a)(c)....... 751,212 1,878,030
Tele Sudeste Celular
Participacoes S.A. ADR
(q)......................... 3,922 113,738
Telesp Celular Participacoes
S.A. ADR (q)................ 7,844 209,827
--------------
2,201,595
--------------
DOMESTIC OIL & GAS (0.2%)
Union Pacific Resources
Group, Inc. ................ 528,775 8,625,642
--------------
FOOD, BEVERAGES & TOBACCO (0.3%)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (a)................. 1,264,157 4,424,549
Dr. Pepper Bottling Holdings,
Inc.
Class A (a)................. 200,000 5,800,000
TLC Beatrice International
Holdings Inc. (a)........... 25,000 1,000,000
--------------
11,224,549
--------------
GAS UTILITIES (0.5%)
KeySpan Corp. ............... 703,300 18,549,538
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
HEALTH CARE (0.5%)
Beverly Enterprises, Inc.
(a)......................... 312,000 $ 2,515,500
General Healthcare Group
Ltd. (a)(r)................. 821 38,824
Quest Diagnostics, Inc.
(a)......................... 611,340 16,735,433
--------------
19,289,757
--------------
PAPER & FOREST PRODUCTS (0.1%)
TimberWest Timber Trust
(The) (s)(t)................ 423,000 3,120,460
--------------
PUBLISHING (0.1%)
Affiliated Newspapers
Investments, Inc. (a)....... 28,000 2,964,500
--------------
REAL ESTATE (0.4%)
Highwoods Properties,
Inc. ....................... 162,730 4,464,904
Metropolis Realty Trust, Inc.
(a)......................... 278,000 11,537,000
--------------
16,001,904
--------------
RECREATION & ENTERTAINMENT (0.1%)
Alliance Entertainment Corp.
(a)......................... 288,988 1,343,075
Loews Cineplex Entertainment
Corp. (a)................... 196,500 2,136,938
--------------
3,480,013
--------------
RETAIL (0.0%) (b)
Loehmann's Holdings, Inc.
Series B (a)................ 43,750 43,750
--------------
TELECOMMUNICATION SERVICES (0.3%)
Call-Net Enterprises, Inc.
Series B (a)(s)............. 1,580,200 9,928,964
Embratel Participacoes S.A.
ADR (q)..................... 19,480 270,285
Tele Centro Sul Participacoes
S.A. ADR (q)................ 3,913 217,172
Tele Norte Leste
Participacoes S.A. ADR
(q)......................... 19,492 361,820
Telesp Participacoes S.A. ADR
(q)......................... 19,593 568,197
--------------
11,346,438
--------------
TEXTILE & APPAREL (0.0%) (b)
Hosiery Corp. of America,
Inc. (a).................... 17,400 696,000
--------------
Total Common Stocks
(Cost $99,325,466).......... 135,149,707
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 120
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
PREFERRED STOCKS (5.1%)
BROADCAST/MEDIA (2.3%)
Paxson Communications Corp.
12.50% (g).................. $ 39,761 $ 36,281,798
Spanish Broadcasting System,
Inc.
14.25% (c)(g)............... 33,475 36,320,375
14.25% (g).................. 13,232 14,356,720
--------------
86,958,893
--------------
CELLULAR TELEPHONE (0.6%)
Nextel Communications, Inc.
13.00%, Series D (g)........ 20,124 21,834,540
--------------
EQUIPMENT FINANCING (0.6%)
GPA Group, PLC (a)(d)........ 41,600,000 21,216,000
--------------
OIL SERVICES (0.3%)
RBF Finance Co.
13.875% (c)(g)(u)........... 11,745 12,097,350
--------------
PAPER & FOREST PRODUCTS (0.1%)
Paperboard Industries
International, Inc.
5.00%, Class A (c)(d)(s).... 219,308 3,389,413
--------------
REAL ESTATE (0.4%)
Crown American Realty Trust
11.00%, Series A............ 294,930 13,898,576
--------------
RECREATION & ENTERTAINMENT (0.0%) (b)
Alliance Entertainment Corp.
Series A (a)................ 447 447,000
--------------
RETAIL (0.0%) (b)
Loehmann's Holdings, Inc.
$0.056, Series A (g)........ 2,297 1,149
--------------
TECHNOLOGY (0.0%) (b)
Metawave Communications Corp.
Series D (a)(c)(d).......... 259,831 1,714,885
--------------
TELECOMMUNICATION SERVICES (0.8%)
ICG Holdings, Inc.
14.25% (g).................. 28,503 28,360,485
--------------
Total Preferred Stocks
(Cost $184,483,715)......... 189,918,291
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
WARRANTS (0.2%)
CABLE (0.2%)
@Entertainment, Inc.
expire 7/15/08 (a).......... $ 261,160 $ 3,133,920
expire 2/1/09 (a)(c)........ 94,880 1,612,960
People's Choice TV Corp.
expire 6/1/00 (a)........... 300 3
Supercanal Holding, S.A.
Series A
expire 11/14/99 (a)(c)(d)... 6,822,324 545,786
UIH Australia/Pacific, Inc.
expire 5/15/06 (a).......... 24,315 24,315
--------------
5,316,984
--------------
CASINOS (0.0%) (b)
Belle Casino, Inc. (a)(c).... 5,500 55
Isle of Capri Casinos, Inc.
expire 5/3/01 (a)........... 36,808 36,808
--------------
36,863
--------------
CELLULAR TELEPHONE (0.0%) (b)
Occidente y Caribe Celular,
S.A.
expire 3/15/04 (a)(c)....... 28,380 482,460
--------------
CONGLOMERATES (0.0%) (b)
IFA Capital, Inc.
Series H
expire 11/14/99 (a)(c)...... 8,000 80
--------------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)...... 18,825 188
--------------
HOUSEHOLD PRODUCTS (0.0%) (b)
Chattem, Inc.
expire 8/16/99 (a)(c)....... 9,500 532,000
--------------
POLLUTION & RELATED (0.0%) (b)
ICF Kaiser International,
Inc.
expire 12/31/99 (a)......... 28,000 280
--------------
PUBLISHING (0.0%) (b)
General Media, Inc.
expire 12/21/03 (a)......... 34,486 345
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 121
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
WARRANTS (CONTINUED)
TELECOMMUNICATION SERVICES (0.0%) (b)
HighwayMaster Communications, Inc.
expire 9/15/05 (a)(c)....... $ 27,095 $ 271
ICO Global Communications
Holdings Ltd.
expire 8/1/05 (a)........... 21,190 42,380
Telehub Communications Corp.
expire 7/31/05 (a)(c)....... 33,715 134,860
--------------
177,511
--------------
TESTING SERVICES (0.0%) (b)
Intertek Testing Services
Ltd.
expire 12/31/99 (a)(d)...... 691 221,120
--------------
Total Warrants
(Cost $7,831,579)........... 6,767,831
--------------
Principal
Amount
-------------
SHORT-TERM INVESTMENTS (8.9%)
COMMERCIAL PAPER (8.9%)
American Express Credit Corp.
4.92%, due 7/7/99........... $ 20,000,000 19,983,600
5.05%, due 7/12/99.......... 21,440,000 21,406,917
Chevron USA, Inc.
5.10%, due 7/16/99.......... 27,575,000 27,516,403
Ford Motor Credit Co.
5.08%, due 7/15/99.......... 35,600,000 35,529,670
5.65%, due 7/1/99........... 5,000,000 5,000,000
General Electric Capital
Corp.
4.95%, due 7/7/99........... 9,185,000 9,177,422
5.25%, due 7/9/99........... 22,000,000 21,974,333
General Electric Co.
4.99%, due 7/9/99........... 8,720,000 8,710,331
Halifax, PLC
5.48%, due 7/1/99........... 20,000,000 20,000,000
KFW International Finance
Corp.
5.55%, due 7/1/99 (x)....... 33,000,000 33,000,000
5.70%, due 7/1/99........... 9,970,000 9,970,000
Merrill Lynch & Co., Inc.
5.00%, due 7/19/99.......... 30,000,000 29,925,000
Salomon Smith Barney
Holdings, Inc.
5.00%, due 7/21/99.......... 39,355,000 39,245,681
5.25%, due 7/7/99........... 17,425,000 17,409,753
Wells Fargo & Co.
5.06%, due 7/14/99.......... 34,925,000 34,861,184
--------------
Total Commercial Paper
(Cost $333,710,294)......... 333,710,294
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
SHORT-TERM BONDS (0.0%) (b)
TEXTILE & APPAREL (0.0%) (b)
Alpargatas S.A.I.C.
11.75%, due 8/18/98
(c)(w)...................... $ 800,000 $ 144,000
--------------
Total Short-Term Bonds
(Cost $656,350)............. 144,000
--------------
Total Short-Term Investments
(Cost $334,366,644)......... 333,854,294
--------------
Total Investments
(Cost $3,968,615,885) (y)... 100.0% 3,732,838,164(z)
Cash and Other Assets,
Less Liabilities............ (0.0)(b) (1,323,149)
------------- --------------
Net Assets................... 100.0% $3,731,515,015
============= ==============
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Restricted security.
(e) Eurobond -- bond denominated in U.S. dollars or other
currencies and sold to investors outside the country
whose currency is used.
(f) CIK ("Cash in Kind") -- interest payment is made with
cash or additional securities.
(g) PIK ("Payment in Kind") -- interest or dividend payment
is made with additional securities.
(h) Issuer in bankruptcy.
(i) Issue in default.
(j) 9,235 Units -- each unit reflects $1,000 principal
amount of 14.50% Senior Subordinated Notes plus rights
to acquire ordinary and preferred shares at a future
date.
(k) 190 Units -- each unit reflects $1,000 principal amount
of 14.50% Senior Notes plus 3 warrants to acquire 10.95
shares of common stock at $28.60 per share at a future
date.
(l) 53,680 Units -- each unit reflects $1,000 principal
amount of 14.50% Senior Notes plus 3 warrants to
acquire 10.95 shares of common stock at $28.60 per
share at a future date.
(m) Multiple tranche facilities.
(n) 8,070 Units -- each unit reflects $1,000 principal
amount of 11.00% Senior Notes plus 0.07956 warrant to
acquire 1 share of common stock at $0.01 per share at a
future date.
(o) 10,985 Units -- each unit reflects $1,000 principal
amount of 15.00% Senior Notes plus 1 warrant to acquire
19.85 shares of common stock at $13.20 per share at a
future date.
(p) Floating rate. Rate shown is the rate in effect at June
30, 1999.
(q) ADR -- American Depository Receipt.
(r) British security.
(s) Canadian security.
(t) Stapled Unit -- each unit consists of 1 common share,
100 preferred shares and 1 Subordinated Note receipt.
(u) 11,745 Units -- each unit reflects 1 Senior Preferred
Share plus 1 warrant to acquire 35 shares of common
stock at $9.50 per share at a future date.
(v) Fair valued security.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 122
Portfolio of Investments unaudited (continued)
(w) The company defaulted on the payment of principal to
its creditors on maturity date.
(x) Partially segregated as collateral for loan
participations and assignments.
(y) The cost for Federal income tax purposes is
$3,973,711,022.
(z) At June 30, 1999, net unrealized depreciation was
$240,872,858, based on cost for Federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $124,916,284 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $365,789,142.
L -- Security denominated in British Pound Sterling.
C$ -- Security denominated in Canadian Dollar.
E -- Security denominated in Euro.
FF -- Security denominated in French Franc.
DM -- Security denominated in German Deutsche Mark.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 123
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$3,968,615,885)........................................... $3,732,838,164
Cash........................................................ 657,955
Deposit with broker......................................... 1,256,625
Receivables:
Investment securities sold................................ 72,847,630
Dividends and interest.................................... 67,915,977
Fund shares sold.......................................... 8,885,730
Unrealized appreciation on foreign currency forward
contracts................................................. 6,966,421
--------------
Total assets........................................ 3,891,368,502
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 122,206,386
Fund shares redeemed...................................... 5,497,286
NYLIFE Distributors....................................... 2,883,032
MainStay Management....................................... 1,744,422
Transfer agent............................................ 371,731
Custodian................................................. 80,251
Trustees.................................................. 29,556
Accrued expenses............................................ 699,593
Unrealized depreciation on foreign currency forward
contracts................................................. 165,322
Dividend payable............................................ 26,175,908
--------------
Total liabilities................................... 159,853,487
--------------
Net assets.................................................. $3,731,515,015
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 402,102
Class B................................................... 4,393,427
Class C................................................... 43,749
Additional paid-in capital.................................. 3,901,279,820
Accumulated distribution in excess of net investment
income.................................................... (2,373,103)
Accumulated undistributed net realized gain on
investments............................................... 55,991,540
Accumulated undistributed net realized gain on foreign
currency.................................................. 1,121,186
Net unrealized depreciation on investments.................. (235,777,721)
Net unrealized appreciation on foreign currency and foreign
currency forward contracts................................ 6,434,015
--------------
Net assets.................................................. $3,731,515,015
==============
CLASS A
Net assets applicable to outstanding shares................. $ 310,513,820
==============
Shares of beneficial interest outstanding................... 40,210,221
==============
Net asset value per share outstanding....................... $ 7.72
Maximum sales charge (4.50% of offering price).............. 0.36
--------------
Maximum offering price per share outstanding................ $ 8.08
==============
CLASS B
Net assets applicable to outstanding shares................. $3,387,271,981
==============
Shares of beneficial interest outstanding................... 439,342,663
==============
Net asset value and offering price per share outstanding.... $ 7.71
==============
CLASS C
Net assets applicable to outstanding shares................. $ 33,729,214
==============
Shares of beneficial interest outstanding................... 4,374,860
==============
Net asset value and offering price per share outstanding.... $ 7.71
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 124
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 9,582,108
Interest.................................................. 178,723,908
------------
Total income............................................ 188,306,016
------------
Expenses:
Distribution--Class B..................................... 12,583,531
Distribution--Class C..................................... 82,092
Management................................................ 11,033,386
Service--Class A.......................................... 375,370
Service--Class B.......................................... 4,194,508
Service--Class C.......................................... 27,364
Transfer agent............................................ 2,288,467
Custodian................................................. 290,359
Shareholder communication................................. 288,029
Professional.............................................. 255,541
Recordkeeping............................................. 197,114
Registration.............................................. 66,601
Trustees.................................................. 54,949
Miscellaneous............................................. 6,919
------------
Total expenses before waiver............................ 31,744,230
Fees waived by Manager...................................... (795,476)
------------
Net expenses............................................ 30,948,754
------------
Net investment income....................................... $157,357,262
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 89,777,137
Foreign currency transactions............................. 1,121,186
------------
Net realized gain on investments and foreign currency
transactions.............................................. 90,898,323
------------
Net change in unrealized depreciation on investments:
Security transactions..................................... (14,639,664)
Foreign currency and foreign currency forward contracts... 7,684,939
------------
Net unrealized loss on investments and foreign currency
transactions.............................................. (6,954,725)
------------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 83,943,598
------------
Net increase in net assets resulting from operations........ $241,300,860
============
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $15,517.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 125
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 157,357,262 $ 321,932,272
Net realized gain (loss) on investments................... 89,777,137 (31,587,296)
Net realized loss on securities sold short................ -- (466,913)
Net realized gain (loss) on foreign currency
transactions............................................ 1,121,186 (2,190,133)
Net change in unrealized appreciation (depreciation) on
securities transactions................................. (14,639,664) (239,041,166)
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency forward
contracts............................................... 7,684,939 (1,911,179)
-------------- --------------
Net increase in net assets resulting from operations...... 241,300,860 46,735,585
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (13,772,010) (25,394,563)
Class B................................................. (141,259,640) (291,897,896)
Class C................................................. (1,027,368) (193,731)
From net realized gain on investments and foreign currency
transactions:
Class A................................................. -- (1,191,922)
Class B................................................. -- (13,960,446)
Class C................................................. -- (38,713)
In excess of net investment income:
Class A................................................. -- (223,928)
Class B................................................. -- (2,573,493)
Class C................................................. -- (1,679)
In excess of net realized gain on investments:
Class A................................................. -- (313,008)
Class B................................................. -- (3,664,390)
Class C................................................. -- (9,968)
-------------- --------------
Total dividends and distributions to shareholders..... (156,059,018) (339,463,737)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 115,749,571 187,918,095
Class B................................................. 306,463,810 778,004,123
Class C................................................. 29,400,780 9,786,436
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 8,048,684 19,432,795
Class B................................................. 76,906,882 209,916,586
Class C................................................. 432,487 169,443
-------------- --------------
537,002,214 1,205,227,478
Cost of shares redeemed:
Class A................................................. (98,319,401) (150,819,881)
Class B................................................. (383,639,744) (783,310,124)
Class C................................................. (6,364,300) (55,072)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 48,678,769 271,042,401
-------------- --------------
Net increase (decrease) in net assets................. 133,920,611 (21,685,751)
NET ASSETS:
Beginning of period......................................... 3,597,594,404 3,619,280,155
-------------- --------------
End of period............................................... $3,731,515,015 $3,597,594,404
============== ==============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (2,373,103) $ (3,671,347)
============== ==============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 126
This page intentionally left blank
25
<PAGE> 127
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -------------------------------------------------
1999+ 1998 1997 1996 1995
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period............... $ 7.54 $ 8.16 $ 8.27 $ 7.92 $ 7.44
-------- -------- -------- -------- -------
Net investment income................................ 0.35 0.75 0.74 0.72 0.84
Net realized and unrealized gain (loss) on
investments........................................ 0.16 (0.57) 0.23 0.52 0.61
Net realized and unrealized gain (loss) on foreign
currency transactions.............................. 0.02 (0.01) (0.00)(b) (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------
Total from investment operations..................... 0.53 0.17 0.97 1.24 1.45
-------- -------- -------- -------- -------
Less dividends and distributions:
From net investment income......................... (0.35) (0.74) (0.74) (0.71) (0.84)
In excess of net investment income................. -- (0.01) -- -- (0.01)
From net realized gain on investments.............. -- (0.03) (0.34) (0.18) (0.10)
In excess of net realized gain on investments...... -- (0.01) -- -- (0.02)
-------- -------- -------- -------- -------
Total dividends and distributions.................... (0.35) (0.79) (1.08) (0.89) (0.97)
-------- -------- -------- -------- -------
Net asset value at end of period..................... $ 7.72 $ 7.54 $ 8.16 $ 8.27 $ 7.92
======== ======== ======== ======== =======
Total investment return (a).......................... 7.13% 2.07% 12.20% 16.33% 20.28%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............................ 9.25%++ 9.40% 8.79% 9.0% 10.2%
Net expenses..................................... 1.00%++ 1.00% 1.01% 1.0% 1.0%
Expenses (before waiver)......................... 1.04%++ 1.04% 1.01% 1.0% 1.0%
Portfolio turnover rate.............................. 52% 128% 128% 118% 137%
Net assets at end of period (in 000's)............... $310,514 $278,181 $238,841 $116,805 $42,850
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
26
<PAGE> 128
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------------------------------------------------------- ----------
Six months September 1 Six months
ended through Year ended ended
June 30, December 31 August 31 June 30,
1999+ 1998 1997 1996 1995 1994* 1994 1999+
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.44 $ 7.70 $ 7.93 $ 7.53
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
0.32 0.69 0.69 0.67 0.81 0.23 0.69 0.32
0.16 (0.57) 0.23 0.52 0.61 (0.27) (0.08) 0.16
0.02 (0.01) (0.00)(b) (0.00)(b) (0.00)(b) -- -- 0.02
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
0.50 0.11 0.92 1.19 1.42 (0.04) 0.61 0.50
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
(0.32) (0.68) (0.69) (0.67) (0.81) (0.22) (0.67) (0.32)
-- (0.01) -- -- (0.01) -- -- --
-- (0.03) (0.34) (0.18) (0.10) -- (0.17) --
-- (0.01) -- -- (0.02) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
(0.32) (0.73) (1.03) (0.85) (0.94) (0.22) (0.84) (0.32)
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
$ 7.71 $ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.44 $ 7.70 $ 7.71
========== ========== ========== ========== ========== ========== ========== =======
6.75% 1.31% 11.55% 15.58% 19.71% (0.48%) 7.95% 6.75%
8.50%++ 8.65% 8.18% 8.4% 9.5% 9.1%++ 8.7% 8.50%++
1.75%++ 1.75% 1.62% 1.6% 1.6% 1.6%++ 1.6% 1.75%++
1.79%++ 1.79% 1.62% 1.6% 1.6% 1.6%++ 1.6% 1.79%++
52% 128% 128% 118% 137% 45% 190% 52%
$3,387,272 $3,309,389 $3,380,439 $2,441,180 $1,601,238 $1,128,913 $1,090,261 $33,729
<CAPTION>
Class C
-------------
September 1**
through
December 31
1998
-------------
<S> <C>
$ 7.43
-------
0.27
0.15
(0.01)
-------
0.41
-------
(0.27)
--
(0.03)
(0.01)
-------
(0.31)
-------
$ 7.53
=======
5.58%
8.65%++
1.75%++
1.79%++
128%
$10,025
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
27
<PAGE> 129
MainStay High Yield Corporate Bond Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
High Yield Corporate Bond Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek maximum income through investment in
a diversified portfolio of high yield debt securities. Capital appreciation is a
secondary objective. The Fund principally invests in high yield securities
(sometimes called "junk bonds"), which are generally considered speculative
because they present a greater risk of loss, including default, than higher
quality debt securities. These securities pay a premium--a high interest rate or
yield--because of the increased risk of loss. These securities can be also
subject to greater price volatility.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
28
<PAGE> 130
Notes to Financial Statements unaudited
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the NASDAQ system at prices supplied by the pricing agent or brokers selected by
the Subadvisor, if these prices are deemed to be representative of market values
at the regular close of business of the Exchange, (e) by appraising debt
securities at prices supplied by a pricing agent selected by the Subadvisor,
whose prices reflect broker/dealer supplied valuations and electronic data
processing techniques if those prices are deemed by the Subadvisor to be
representative of market values at the regular close of business of the
Exchange, (f) by appraising options and futures contracts at the last sale price
on the market where such options or futures are principally traded, and (g) by
appraising all other securities and other assets, including debt securities for
which prices are supplied by a pricing agent but are not deemed by the
Subadvisor to be representative of market values, but excluding money market
instruments with a remaining maturity of sixty days or less and including
restricted securities and securities for which no market quotations are
available, at fair value in accordance with procedures approved by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing the difference between market value on the 61st day prior
to maturity and value on maturity date if their original term to maturity at
purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
REPURCHASE AGREEMENT. The Fund's custodian and other banks acting in a
sub-custodian capacity take possession of the collateral pledged for investments
in repurchase agreements. The underlying collateral is valued daily on a
mark-to-market basis to determine that the value, including accrued interest,
exceeds the repurchase price. In the event of the seller's default of the
obligation to repurchase, the Funds have the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
29
<PAGE> 131
MainStay High Yield Corporate Bond Fund
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
----------- ------------ --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
Euro vs. U.S. Dollar, expiring 8/5/99-12/6/99......... E67,824,156 $ 72,650,306 $2,342,968
Pound Sterling vs. U.S. Dollar, expiring
9/1/99-10/6/99...................................... L82,908,678 $135,396,392 4,623,453
</TABLE>
<TABLE>
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
----------- ------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Pound Sterling vs. U.S. Dollar, expiring 9/8/99....... L12,576,243 $ 20,000,000 (165,322)
----------
Net unrealized appreciation on foreign currency
forward contracts................................... $6,801,099
==========
</TABLE>
SECURITIES SOLD SHORT. The Fund may engage in short sales as a method of
hedging declines in the value of securities owned. When the Fund enters into a
short sale, it must segregate the security sold short, or securities equivalent
in kind and amount to the securities sold, as collateral for its obligation to
deliver the security upon conclusion of the sale. A gain, limited to the price
at which the Fund sold the security short, or a loss, unlimited as to dollar
amount, will be recognized upon termination of a short sale if the market price
on the date the short position is closed out is less or greater, respectively,
than the proceeds originally received. Any such gain or loss may be offset,
completely or in part, by the change in the value of the hedged investments.
30
<PAGE> 132
Notes to Financial Statements unaudited (continued)
At June 30, 1999 there were no open short sales.
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933 (the "1933 Act").
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
The issuers of the securities will bear the costs involved in registration under
the 1933 Act and in connection with the disposition of such securities. The Fund
does not have the right to demand that such securities be registered. The Fund
may not invest more than 10% of its net assets in illiquid securities.
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 6/30/99 of
Security Acquisition Shares Cost Value Net Assets
- ------------------------------------------ ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Affinity Group, Inc.
Bank debt, Tranche B
8.625%, due 6/30/06..................... 12/17/98 $ 8,656,500 $ 8,656,500 $ 8,656,500 0.2%
Blackstone Hotel Acquisitions Co.
Bank debt
9.3504%, due 6/30/03.................... 5/18/99 L 8,390,000 12,038,596 12,299,338 0.3
Domino's Pizza, Inc.
Bank debt, Tranche B
8.8125%, due 12/21/06................... 12/24/98 $ 4,908,780 4,908,780 4,914,916 0.1
Bank debt, Tranche C
9.0625%, due 12/21/07................... 12/24/98 4,908,780 4,908,780 4,914,916 0.1
E & S Holdings Corp.
Bank debt, Term A
7.4975%, due 9/30/03.................... 5/26/99 1,824,873 1,477,028 1,471,195 0.1
Bank debt, Term B
7.9975%, due 9/30/04.................... 5/26/99 3,073,537 2,460,382 2,452,652 0.1
Bank debt, Term C
8.4975%, due 8/30/05.................... 5/26/99 1,552,958 1,280,594 1,277,867 0.0(a)
Bank debt, Term D
8.9975%, due 3/30/06.................... 5/26/99 44,085 36,932 36,868 0.0(a)
Bank debt, Revolver
7.4038%-9.25%, due 9/30/03.............. 5/26/99 11,283,051 8,115,097 7,877,238 0.2
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12..................... 10/28/98-5/12/99 FF 211,478,211 28,911,278 27,430,214 0.7
Bank debt, Tier One
7.03%, due 12/31/12..................... 3/23/99-6/21/99 L 19,116,644 25,609,480 24,860,075 0.7
First Pacific Capital Ltd.
Bank debt
6.8125%, due 1/23/00.................... 8/13/98 $ 10,160,000 9,453,651 9,855,200 0.3
FRI-MRD Corp.
(zero coupon), due 1/24/02
14.00%, beginning 7/31/99............... 10/30/98 19,000,000 17,531,780 18,596,250 0.5
15.00%, due 1/24/02..................... 8/12/97-1/14/98 53,990,000 46,955,004 53,922,512 1.5
</TABLE>
31
<PAGE> 133
MainStay High Yield Corporate Bond Fund
RESTRICTED SECURITIES (CONTINUED):
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 6/30/99 of
Security Acquisition Shares Cost Value Net Assets
- ------------------------------------------ ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Global Motorsport Group, Inc.
Bank debt, Tranche B
8.50%, due 10/31/05..................... 12/15/98 $ 4,975,000 $ 4,975,000 $ 4,975,000 0.1%
GPA Group, PLC
Preferred Stock......................... 3/7/96-12/23/97 41,600,000 16,177,800 21,216,000 0.6
International Wireless Communications
Holdings, Inc.
(zero coupon), due 8/15/01.............. 6/17/98 10,000,000 2,146,269 1,000,000 0.0(a)
Intertek Testing Services Ltd.
12.00%, due 11/1/07(b).................. 11/8/96-5/1/99 5,382,614 5,188,755 5,066,385 0.1
Warrants, expire 12/31/99............... 11/8/96 691 223,440 221,120 0.0(a)
Isle of Capri Casinos, Inc.
Bank debt, Tranche A
7.792%, due 4/23/04..................... 4/23/99-5/12/99 9,357,143 9,325,393 9,357,143 0.3
Kronos International, Inc.
Bank debt
5.4391%, due 9/15/00.................... 2/25/97-3/15/99 DM 21,512,495 11,706,394 11,173,283 0.3
Metawave Communications Corp.
Preferred Stock, Series D............... 5/14/99 259,831 606 1,714,885 0.0(a)
New World Pasta Co.
Bank debt, Term B
8.25%, due 1/28/06...................... 1/28/99 $ 7,448,000 7,389,409 7,522,480 0.2
Paperboard Industries International, Inc.
Preferred Stock
5.00%, Class A.......................... 5/5/98 219,308 3,643,057 3,389,413 0.1
President Casinos, Inc.
12.00%, due 9/15/01..................... 12/3/98 10,097,000 10,097,000 10,097,000 0.3
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04...................... 3/20/97 9,712,841 9,712,841 9,907,098 0.2
Stone Container Corp.
Bank debt, Term E
8.50%, due 10/1/03...................... 7/16/97 3,910,674 3,910,672 3,905,786 0.1
Supercanal Holding, S.A.
Warrants, Series A, expire 11/14/99..... 11/20/97 6,822,324 545,786 545,786 0.0(a)
Titan Tire Corp.
7.00%, due 2/11/00...................... 6/24/97 6,542,838 6,476,967 6,493,767 0.2
Triad Hospital Holdings, Inc.
Bank debt, Tranche B
8.97%, due 1/1/05....................... 6/9/99 25,550,000 25,550,000 25,550,000 0.7
Triarc Consumer Products Group, L.L.C.
Bank debt, Term B
8.6563%, due 3/12/06.................... 3/12/99 1,739,826 1,738,624 1,733,301 0.0(a)
Bank debt, Term C
8.9063%, due 3/12/07.................... 3/12/99 4,245,174 4,229,153 4,229,255 0.2
</TABLE>
32
<PAGE> 134
Notes to Financial Statements unaudited (continued)
RESTRICTED SECURITIES (CONTINUED):
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 6/30/99 of
Security Acquisition Shares Cost Value Net Assets
- ------------------------------------------ ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Willis Corroon Corp.
Bank debt, Tranche C
7.75%, due 2/19/08...................... 2/26/99 $ 2,910,000 $ 2,899,380 $ 2,899,087 0.1%
Bank debt, Tranche D
8.00%, due 8/19/08...................... 2/26/99 145,500 144,969 144,954 0.0(a)
------------ ------------ ---
$298,425,397 $309,707,484 8.3%
============ ============ ===
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
(b) PIK ("Payment in Kind")--interest payment is made with
additional shares.
DM Deutsche Mark
FF French Franc
L Pound Sterling
</TABLE>
COMMITMENTS AND CONTINGENCIES. As of June 30, 1999, the Fund had unfunded loan
commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
Unfunded
Borrower Commitment
-------- -----------
<S> <C>
E & S Holdings Corp. ....................................... $ 6,513,560
Isle of Capri Casinos, Inc. ................................ 12,142,857
Kronos International, Inc. ................................. 4,955,420
-----------
$23,611,837
===========
</TABLE>
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK. The Fund invests in
Loan Participations. When the Fund purchases a Loan Participation, the Fund
typically enters into a contractual relationship with the lender or third party
selling such Participation ("Selling Participant"), but not with the Borrower.
As a result, the Fund assumes the credit risk of the Borrower, the Selling
Participant and any other persons interpositioned between the Fund and the
Borrower ("Intermediate Participants"). The Fund may not directly benefit from
the collateral supporting the Senior Loan in which it has purchased the Loan
Participation. The Fund may be considered to have a concentration of credit risk
in the banking industry, since the Fund will only acquire Loan Participations if
the Selling Participant and each Intermediate Participant is a financial
institution.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
33
<PAGE> 135
MainStay High Yield Corporate Bond Fund
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily except
when collection is not expected. Discounts on securities purchased for the Fund
are accreted on the constant yield method over the life of the respective
securities or, if applicable, over the period to the first call date. Premiums
on securities purchased are not amortized for this Fund.
Income from payment-in-kind securities is recorded daily based on the effective
interest method of accrual.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred. Dividends on short positions are recorded as an expense of
the Fund on ex-dividend date.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.60% of the Fund's
average daily net assets. The Manager has voluntarily established a fee
breakpoint, which may be discontinued at any time of 0.55% on assets in excess
of
34
<PAGE> 136
Notes to Financial Statements unaudited (continued)
$500 million. For the six months ended June 30, 1999 the Manager earned
$11,033,386 and waived $795,476 of its fees.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.30% of
the average daily net assets of the Fund on assets up to $500 million. To the
extent that the Manager has voluntarily established a fee breakpoint, the
Subadvisor has voluntarily agreed to do so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $131,200 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemption of Class B and Class C shares
of $2,654,610 and $7,949, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $2,288,467.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
35
<PAGE> 137
MainStay High Yield Corporate Bond Fund
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $57,262 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$197,114 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, capital loss
carryforwards of $11,538,824 were available to the extent provided by
regulations to offset future realized gains of the Fund through 2006. To the
extent that these carryforwards are used to offset future capital gains, it is
probable that the capital gains so offset will not be distributed to
shareholders.
The Fund intends to elect, to the extent provided by the regulations, to treat
$17,487,479 of qualifying capital losses that arose during the prior year as if
they arose on January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of U.S.
Government securities, other than short-term securities, were $37,510 and
$63,040, respectively. Purchases and sales of securities, other than U.S.
Government securities, securities subject to repurchase transactions and
short-term securities, were $1,683,432 and $1,734,436, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
36
<PAGE> 138
Notes to Financial Statements unaudited (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................... 14,999 39,775 3,819 24,201 96,382 1,316
Shares issued in reinvestment of
dividends and distributions......... 1,044 9,995 56 2,470 26,712 22
------- ------- ----- ------- ------- -----
16,043 49,770 3,875 26,671 123,094 1,338
Shares redeemed....................... (12,707) (49,816) (831) (19,049) (98,329) (7)
------- ------- ----- ------- ------- -----
Net increase (decrease)............... 3,336 (46) 3,044 7,622 24,765 1,331
======= ======= ===== ======= ======= =====
</TABLE>
- -------
* First offered on September 1, 1998.
+ Unaudited.
37
<PAGE> 139
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
38
<PAGE> 140
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee HIGH YIELD CORPORATE BOND FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay High Yield Corporate Bond Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA09-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 141
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Equity
Income Fund versus Lipper Equity Income
Fund Index and Inflation--Class A, Class
B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 142
This page intentionally left blank
2
<PAGE> 143
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 144
$10,000 Invested in the MainStay Equity
Income Fund versus Lipper Equity Income
Fund Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 24.83%, Since Inception 23.08%
<TABLE>
<CAPTION>
MAINSTAY EQUITY INCOME LIPPER EQUITY INCOME FUND
PERIOD END FUND INDEX* INFLATION (CPI)+
- ---------- ---------------------- ------------------------- ---------------
<S> <C> <C> <C>
6/1/98 9450 10000 10000
6/98 9478 10081 10006
9/98 9057 9081 10043
12/98 9829 10282 10098
3/99 10528 10292 10135
6/99 12520 11211 10209
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 26.07%, Since Inception 25.14%
<TABLE>
<CAPTION>
MAINSTAY EQUITY INCOME LIPPER EQUITY INCOME FUND
PERIOD END FUND INDEX* INFLATION (CPI)+
- ---------- ---------------------- ------------------------- ---------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10030 10081 10006
9/98 9558 9081 10043
12/98 9838 10282 10098
3/99 10522 10292 10135
6/99 12621 11211 10209
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 30.07%, Since Inception 28.76%
<TABLE>
<CAPTION>
MAINSTAY EQUITY INCOME LIPPER EQUITY INCOME FUND
PERIOD END FUND INDEX* INFLATION (CPI)+
- ---------- ---------------------- ------------------------- ---------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10030 10081 10006
9/98 9558 9081 10043
12/98 10356 10282 10098
3/99 11076 10292 10135
6/99 13146 11211 10209
</TABLE>
4
<PAGE> 145
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/1/98 reflecting the effect of the 5.5% up-front sales charge, thereby
reducing the amount of the investment to $9,450. The Class B graph assumes
an initial investment of $10,000 made on 6/1/98. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
6/1/98 and includes the historical performance of the Class B shares for
periods from 6/1/98 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* The Lipper Equity Income Fund Index is an unmanaged equally weighted index
of the 30 largest funds in the Lipper equity income fund universe. Lipper,
Inc. is an independent monitor of mutual fund performance. Its rankings are
based on total returns with capital gains and dividends reinvested. Results
do not reflect any deduction of sales charges. An investment cannot be made
directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 146
Portfolio Management Discussion and Analysis
During the first six months of 1999, common stocks rose to new highs, with
investor interest widening beyond large-capitalization issues to include many
stocks in the mid-cap sector. Oil and gas prices rebounded from earlier lows,
causing oil-related issues to outperform the market in general. Broadly
speaking, investors showed increased confidence in worldwide economic growth,
which boosted the performance of many cyclical stocks.
STRONG PERFORMANCE
The MainStay Equity Income Fund was well positioned to benefit from these
developments. For the six months ended June 30, 1999, the Fund returned 27.38%
for Class A shares and 26.95% for Class B and Class C shares, excluding all
sales charges. All share classes substantially outperformed the average
Lipper(1) equity-income fund, which returned 8.98% during the first half of
1999. The Fund also outpaced the S&P 500 Index,(2) which returned 12.39% for the
same period.
The MainStay Equity Income Fund performed well for several reasons. First, the
Fund maintained a strongly overweighted position in energy stocks, which
benefited from rising oil prices throughout the reporting period. The Fund's
cyclical holdings--which are securities that tend to rise quickly with economic
upturns and fall quickly when the economy slows--also advanced. A global
economic recovery and improving company fundamentals shifted the market's
attention to the profit potential of companies in basic materials, construction,
and other cyclical sectors. Higher earnings estimates and increasing security
values also contributed to the Fund's strong performance during the first half
of the year. The Fund's strong focus on mid-cap issues also had a positive
impact on performance as investors widened their market perspective beyond
large-cap growth stocks.
FOCUS ON VALUE
The Fund's investment portfolio continued to focus on mid-cap value stocks. We
believe these issues have the potential to limit downside risk, since their high
dividend yields may provide a cushion if the market goes down, and undervalued
stocks may have less room to fall than overpriced issues in a declining market.
Throughout the reporting period, we avoided investing the Fund in highly valued
growth stocks, regardless of their performance potential. At the end of the
first half of 1999, the Fund had meaningful cash reserves and relatively high
exposure to defensive sectors such as electric utilities and real estate
investment trusts, also known as REITs. We believe that, should the market
change direction, the cash would allow us to make appropriate new purchases for
the Fund and the utilities may provide steady income for a measure of risk
protection.
Energy issues were among the Fund's top-performing holdings during the first
half of 1999. Union Pacific Resources, an oil and gas exploration company, was
the Fund's largest position and returned 80% during the first half of the year.
Kerr-McGee Corporation, an oil and gas exploration and production company, rose
34%
- -------
(1) See page 9 for additional information about Lipper, Inc.
(2) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
6
<PAGE> 147
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98 AND
SIX MONTHS ENDED 6/30/99
[BAR GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN % TOTAL RETURN %
CLASS A CLASS B & CLASS C
------- -----------------
<S> <C> <C>
12/98 4.01 3.56
6/99 27.38 26.95
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 9 for more information on performance.
from the time the Fund purchased the stock in April to the end of June 1999. The
stock was bought at an attractive price when the market overreacted to a
dilutive acquisition, ignoring the company's strong assets and positive
cash-flow profile.
Another strong performer was Callaway Golf, a golf equipment manufacturer whose
stock rose 43% over the first half of the year as investors saw the
effectiveness of the company's aggressive cost-cutting measures. Columbia
Energy, a natural-gas utility, rose 32% from the time the stock was purchased in
February through the end of the first half of 1999. Although utilities in
general did not perform well, the company's stock price soared when management
received a hostile takeover bid from Nisource, an electric and gas utility.
Fluor Corporation, an engineering and construction company, advanced 27% during
the first half of the year, based on aggressive restructuring, cost cutting, and
investor optimism over new projects in energy, chemicals, power, and
telecommunications.
Not all of the Fund's holdings were as strong. The Fund sold its holdings in
Lockheed Martin at a modest loss when the aerospace and defense company
disclosed an earnings shortfall and contract cost overruns. The Fund's
overweighted positions in electric utilities and REITs generally detracted from
performance when the stocks suffered setbacks as interest rates rose throughout
the first half of the year.
LOOKING AHEAD
Despite recent weaknesses, the Fund remains overweighted in electric utilities
and REITs. We believe that utilities will continue to offer attractive income
streams and capital-appreciation potential from restructuring and merger
activity. Many utilities also appear to be undervalued given their high dividend
yields. As of June 30, 1999, the Fund was also overweighted in energy and basic
materi-
7
<PAGE> 148
als stocks, since we believe that improving earnings and industry consolidations
may lead to higher prices among these securities, which appear to be selling
below their intrinsic value.
While the potential for a U.S. recession is an ongoing concern, we remain
enthusiastic about the Fund's prospects going forward. There appears to be a
general rotation from large-cap growth stocks into mid- and small-cap value
issues. If this shift continues or evolves into a long-term secular trend, the
Fund should be well positioned. Whatever the markets bring, the Fund will
continue to seek to realize maximum long-term return from a combination of
capital appreciation and income.
Denis Laplaige
Michael Sheridan
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 149
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 32.09% 29.69%
Class B 31.07% 28.76%
Class C 31.07% 28.76%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 24.83% 23.08%
Class B 26.07% 25.14%
Class C 30.07% 28.76%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 3 out of 3 out of
237 funds 236 funds
Class B 4 out of 5 out of
237 funds 236 funds
Class C n/a n/a
Average Lipper
equity income fund 11.36% 12.17%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $12.93 $0.1158 $0.0000
Class B $12.91 $0.0816 $0.0000
Class C $12.91 $0.0816 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes after this date vary based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A and Class B shares were first offered to the public
on 6/1/98, and Class C shares on 9/1/98. Life of fund return for the average
Lipper peer fund is for the period from 6/1/98 through 6/30/99.
9
<PAGE> 150
MainStay Equity Income Fund
<TABLE>
<CAPTION>
Shares Value
------------------------
<S> <C> <C>
COMMON STOCKS (82.8%)+
CHEMICALS (10.4%)
Cytec Industries Inc. (a).......... 15,000 $ 478,125
Eastman Chemical Co. .............. 18,000 931,500
Geon Co. (The)..................... 12,000 387,000
Lyondell Chemical Co. ............. 20,000 412,500
PPG Industries, Inc. .............. 3,300 194,906
Solutia Inc. (a)................... 20,000 426,250
-----------
2,830,281
-----------
COMMUNICATIONS--EQUIPMENT (0.8%)
General Instrument Corp. (a)....... 5,000 212,500
-----------
ELECTRIC POWER COMPANIES (19.8%)
Allegheny Energy, Inc. ............ 14,000 448,875
DQE, Inc........................... 18,000 722,250
DTE Energy Co. .................... 14,600 584,000
Energy East Corp. ................. 13,400 348,400
Illinova Corp. .................... 40,000 1,090,000
Niagara Mohawk Holdings, Inc. (a).. 45,000 722,812
PacifiCorp......................... 26,000 477,750
Texas Utilities Co. ............... 13,400 552,750
Unicom Corp. ...................... 11,400 439,613
-----------
5,386,450
-----------
ENGINEERING & CONSTRUCTION (4.0%)
Fluor Corp. ....................... 27,000 1,093,500
-----------
FOOD (1.5%)
ConAgra, Inc. ..................... 15,000 399,375
-----------
LEISURE TIME (2.1%)
Callaway Golf Co. ................. 39,900 583,538
-----------
MACHINERY (3.1%)
AGCO Corp. ........................ 22,000 248,875
New Holland N.V. .................. 35,000 599,375
-----------
848,250
-----------
MANUFACTURING (1.1%)
U.S. Industries, Inc. ............. 18,000 306,000
-----------
METALS--MINING (2.1%)
Phelps Dodge Corp. ................ 9,200 569,825
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
------------------------
<S> <C> <C>
NATURAL GAS DISTRIBUTORS & PIPELINES (3.4%)
Coastal Corp. (The)................ 6,500 $ 260,000
Columbia Energy Group.............. 10,600 664,488
-----------
924,488
-----------
OIL & GAS--EXPLORATION & PRODUCTION (7.4%)
PennzEnergy Co. ................... 33,500 559,031
Repsol SA (b)...................... 12,800 260,000
Union Pacific Resources Group Inc. 73,000 1,190,813
-----------
2,009,844
-----------
OIL & GAS--REFINING (2.7%)
Valero Energy Corp. ............... 34,300 735,306
-----------
OIL--INTEGRATED DOMESTIC (8.5%)
Amerada Hess Corp. ................ 8,000 476,000
Kerr-McGee Corp. .................. 22,600 1,134,238
USX-Marathon Group................. 21,600 703,350
-----------
2,313,588
-----------
OIL--INTEGRATED INTERNATIONAL (1.7%)
Texaco Inc. ....................... 7,200 450,000
-----------
POLLUTION CONTROL (0.6%)
Browning-Ferris Industries,
Inc. ............................. 4,000 172,000
-----------
RAILROADS (1.9%)
Burlington Northern Santa Fe
Corp. ............................ 16,600 514,600
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (7.6%)
Developers Diversified Realty
Corp. ............................ 20,000 332,500
Health Care Property Investors,
Inc. ............................. 15,500 447,562
Healthcare Realty Trust, Inc. ..... 22,500 472,500
Highwoods Properties, Inc. ........ 13,800 378,638
Nationwide Health Properties,
Inc. ............................. 23,400 446,062
-----------
2,077,262
-----------
RETAIL (1.2%)
Payless ShoeSource, Inc. (a)....... 6,000 321,000
-----------
TOBACCO (2.9%)
Philip Morris Cos. Inc. ........... 19,500 783,656
-----------
Total Common Stocks
(Cost $20,372,551)................ 22,531,463
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 151
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
PREFERRED STOCKS (7.1%)
CONTAINERS--METALS & GLASS (2.6%)
Owens-Illinois, Inc.
4.75%.......................... 16,000 $ 700,000
-----------
METALS--MINING (1.9%)
Cyprus Amax Minerals Co.
$4.00 Series A................. 11,000 506,000
-----------
PAPER & FOREST PRODUCTS (1.2%)
International Paper Co.
5.25%.......................... 6,000 324,000
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (1.4%)
General Growth Properties, Inc.
7.25% 7/15/08 (c).............. 16,000 384,000
-----------
Total Preferred Stocks
(Cost $1,719,710).............. 1,914,000
-----------
Principal
Amount
----------
SHORT-TERM INVESTMENTS (9.7%)
COMMERCIAL PAPER (9.7%)
American Express Credit Corp.
4.92%, due 7/7/99.............. $1,000,000 999,179
Ford Motor Credit Corp.
5.65%, due 7/1/99.............. 525,000 525,000
General Electric Co.
4.99%, due 7/9/99.............. 1,120,000 1,118,756
-----------
Total Short-Term Investments
(Cost $2,642,935).............. 2,642,935
-----------
Total Investments
(Cost $24,735,196) (d)......... 99.6% 27,088,398(e)
Cash and Other Assets,
Less Liabilities............... 0.4 111,226
----- ---------
Net Assets...................... 100.0% $27,199,624
===== ==========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) PIERS--Preferred Income Equity Redeemable Stock.
(d) The cost for Federal income tax purposes is $24,767,841.
(e) At June 30, 1999, net unrealized appreciation was $2,320,557, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $2,628,065 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $307,508.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 152
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$24,735,196).............................................. $27,088,398
Cash........................................................ 2,442
Receivables:
Investment securities sold................................ 425,000
Fund shares sold.......................................... 412,263
Dividends and interest.................................... 90,026
Unamortized organization expense............................ 52,942
-----------
Total assets........................................ 28,071,071
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 652,718
Fund shares redeemed...................................... 21,075
NYLIFE Distributors....................................... 12,437
MainStay Management....................................... 9,438
Transfer agent............................................ 9,276
Custodian................................................. 4,163
Trustees.................................................. 162
Accrued expenses............................................ 59,830
Dividend payable.......................................... 102,348
-----------
Total liabilities................................... 871,447
-----------
Net assets.................................................. $27,199,624
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 11,415
Class B................................................... 9,541
Class C................................................... 92
Additional paid-in capital.................................. 22,369,764
Accumulated undistributed net investment income............. 7,299
Accumulated undistributed net realized gain on
investments............................................... 2,448,311
Net unrealized appreciation on investments.................. 2,353,202
-----------
Net assets.................................................. $27,199,624
===========
CLASS A
Net assets applicable to outstanding shares................. $14,764,652
===========
Shares of beneficial interest outstanding................... 1,141,469
===========
Net asset value per share outstanding....................... $ 12.93
Maximum sales charge (5.50% of offering price).............. 0.75
-----------
Maximum offering price per share outstanding................ $ 13.68
===========
CLASS B
Net assets applicable to outstanding shares................. $12,316,732
===========
Shares of beneficial interest outstanding................... 954,079
===========
Net asset value and offering price per share outstanding.... $ 12.91
===========
CLASS C
Net assets applicable to outstanding shares................. $ 118,240
===========
Shares of beneficial interest outstanding................... 9,159
===========
Net asset value and offering price per share outstanding.... $ 12.91
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 153
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 309,844
Interest.................................................. 59,199
----------
Total income............................................ 369,043
----------
Expenses:
Management................................................ 65,456
Transfer agent............................................ 34,402
Distribution--Class B..................................... 26,012
Distribution--Class C..................................... 65
Shareholder communication................................. 23,553
Service--Class A.......................................... 14,685
Service--Class B.......................................... 8,670
Service--Class C.......................................... 22
Registration.............................................. 15,530
Professional.............................................. 14,650
Organization.............................................. 6,689
Custodian................................................. 6,217
Recordkeeping............................................. 6,000
Trustees.................................................. 228
Miscellaneous............................................. 7,228
----------
Total expenses before reimbursement..................... 229,407
Expense reimbursement by Manager............................ (49,042)
----------
Net expenses............................................ 180,365
----------
Net investment income....................................... 188,678
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 2,029,029
Net change in unrealized depreciation on investments........ 2,357,995
----------
Net realized and unrealized gain on investments............. 4,387,024
----------
Net increase in net assets resulting from operations........ $4,575,702
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of
$5,304.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 154
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended June 1, 1998**
June 30, through
1999* December 31, 1998
----------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 188,678 $ 73,306
Net realized gain on investments.......................... 2,029,029 526,098
Net change in unrealized appreciation (depreciation) on
investments............................................. 2,357,995 (4,793)
----------- -----------
Net increase in net assets resulting from operations...... 4,575,702 594,611
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (124,166) (70,639)
Class B................................................. (60,270) (14,420)
Class C................................................. (363) (1)
From net realized gain on investments:
Class A................................................. -- (73,706)
Class B................................................. -- (28,837)
Class C................................................. -- (2)
----------- -----------
Total dividends and distributions to shareholders..... (184,799) (187,605)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 2,121,886 9,963,096
Class B................................................. 7,472,033 4,192,218
Class C................................................. 116,598 300
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 5,739 79,421
Class B................................................. 17,455 38,060
Class C................................................. 2 3
----------- -----------
9,733,713 14,273,098
Cost of shares redeemed:
Class A................................................. (440,224) (15,950)
Class B................................................. (941,004) (207,914)
Class C................................................. (3) (1)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 8,352,482 14,049,233
----------- -----------
Net increase in net assets............................ 12,743,385 14,456,239
NET ASSETS:
Beginning of period......................................... 14,456,239 --
----------- -----------
End of period............................................... $27,199,624 $14,456,239
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 7,299 $ 3,420
=========== ===========
</TABLE>
- -------
* Unaudited.
** Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 155
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ---------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................ $ 10.25 $ 10.00 $ 10.24 $ 10.00 $ 10.24 $ 9.06
------- ------- ------- ------- ------- -------
Net investment income............... 0.12 0.07 0.08 0.04 0.08 0.04
Net realized and unrealized gain on
investments....................... 2.68 0.32 2.67 0.31 2.67 1.25
------- ------- ------- ------- ------- -------
Total from investment operations.... 2.80 0.39 2.75 0.35 2.75 1.29
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income.......... (0.12) (0.07) (0.08) (0.04) (0.08) (0.04)
From net realized gain on
investments....................... -- (0.07) -- (0.07) -- (0.07)
------- ------- ------- ------- ------- -------
Total dividends and distributions... (0.12) (0.14) (0.08) (0.11) (0.08) (0.11)
------- ------- ------- ------- ------- -------
Net asset value at end of period.... $ 12.93 $ 10.25 $ 12.91 $ 10.24 $ 12.91 $ 10.24
======= ======= ======= ======= ======= =======
Total investment return (a)......... 27.38% 4.01% 26.95% 3.56% 26.95% 14.30%
Ratios (to average net assets)++/
Supplemental Data:
Net investment income........... 2.30% 1.20% 1.55% 0.45% 1.55% 0.45%
Net expenses.................... 1.65% 3.11% 2.40% 3.86% 2.40% 3.86%
Expenses (before
reimbursement)................ 2.17% 3.11% 2.92% 3.86% 2.92% 3.86%
Portfolio turnover rate............. 218% 270% 218% 270% 218% 270%
Net assets at end of period (in
000's)............................ $14,765 $10,290 $12,317 $ 4,166 $ 118 $ --(b)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 156
MainStay Equity Income Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Equity Income Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to realize maximum long-term return from a
combination of capital appreciation and income.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities
16
<PAGE> 157
Notes to Financial Statements unaudited
not quoted on the NASDAQ system at prices supplied by the pricing agent or
brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange, (e) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, and (f) by appraising all other securities and other
assets, including debt securities for which prices are supplied by a pricing
agent but are not deemed by the Subadvisor to be representative of market
values, but excluding money market instruments with a remaining maturity of
sixty days or less and including restricted securities and securities for which
no market quotations are available, at fair value in accordance with procedures
approved by the Trustees. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which mature
in 60 days or less are valued at amortized cost if their term to maturity at
purchase was 60 days or less, or by amortizing the difference between market
value on the 61st day prior to maturity and value on maturity date if their
original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,459 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
17
<PAGE> 158
MainStay Equity Income Fund
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.70% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.65%, 2.40% and 2.40% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999, the Manager earned $65,456 and reimbursed the Fund $49,042.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and the Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.35% of the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the
18
<PAGE> 159
Notes to Financial Statements unaudited (continued)
Fund's Class B and Class C shares. The Distribution Plan provides that the Class
B and Class C shares of the Fund also incur a service fee at the annual rate of
0.25% of the average daily net asset value of the Class B or Class C shares of
the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $4,419 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $3,111 for
the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $34,402.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A and Class B
with net asset values of $11,637,000 and $1,291,000, respectively. This
represents 78.8% and 10.5%, respectively, of the net assets at period end for
Class A and B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $234 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $45,602 and $38,421, respectively.
19
<PAGE> 160
MainStay Equity Income Fund
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 178 626 9 998 424 --
Shares issued in reinvestment of dividends
and distributions....................... 1 2 -- 8 4 --
--- --- --- ----- --- ---
179 628 9 1,006 428 --
Shares redeemed........................... (42) (81) -- (2) (21) --
--- --- --- ----- --- ---
Net increase.............................. 137 547 9 1,004 407 --(a)
=== === === ===== === ===
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
20
<PAGE> 161
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 162
This page intentionally left blank
<PAGE> 163
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee EQUITY INCOME FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of the MainStay
Equity Income Fund. It may be given to others only when preceded or accompanied
by an effective MainStay Funds prospectus. This report does not offer to sell
any securities or solicit orders to buy them.
(c)1999. All rights reserved. MSSA20-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 164
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay
Equity Index Fund versus S&P 500 and
Inflation 3
Portfolio Management Discussion and
Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 16
Notes to Financial Statements 20
The MainStay Funds 25
</TABLE>
<PAGE> 165
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In
Europe, bonds also suffered primarily due to weakness in the euro and
uncertainty over Kosovo. Emerging market bonds, on the other hand, generally
recovered during the first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 1999
2
<PAGE> 166
$10,000 Invested in the MainStay
Equity Index Fund versus S&P 500
and Inflation
CLASS A SHARES SEC Returns: 1 Year 18.22%, 5 Year 25.97%, Since Inception 19.37%
[LINE GRAPH]
<TABLE>
<CAPTION>
PERIOD END MAINSTAY EQUITY INDEX FUND S&P 500* INFLATION+
- ---------- -------------------------- -------- ----------------
<S> <C> <C> <C>
12/20/90 9700 10000 10000
12/91 12430 13040 10298
12/92 13200 14032 10603
12/93 14391 15441 10893
12/94 14463 15645 11177
12/95 19657 21518 11467
12/96 23988 26454 11847
12/97 31728 35280 12047
12/98 40514 45361 12241
6/99 45287 50987 12375
</TABLE>
- ---------
Past performance is no guarantee of future results. SEC returns shown assume
capital gain and dividend distributions are reinvested, and in compliance with
SEC guidelines, include the maximum sales charge (see below) and show the
percentage change for each of the required periods. The Class A graph assumes
an initial investment of $10,000 made on 12/20/90 reflecting the effect of
the 3% up-front sales charge, thereby reducing the amount of the investment
to $9,700. All results include reinvestment of distributions at net asset
value and change in share price for the stated period.
* "S&P 500(R)" and "Standard & Poor's 500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Monitor Capital Advisors,
Inc. The Equity Index Fund is not sponsored, endorsed, sold, or promoted by
Standard & Poor's, and Standard & Poor's makes no representation regarding
the advisability of investing in the Equity Index Fund. The S&P 500 is an
unmanaged index and is considered to be generally representative of the
U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in the
cost of selected goods. It does not represent an investment return.
3
<PAGE> 167
Portfolio Management Discussion and Analysis
A multitude of positive indicators combined to propel stocks of large U.S.
companies higher during the six months ended June 30, 1999, extending the
remarkable bull market of the past several years. Domestically, economic growth
continued to surge. News on the inflation front remained low key. Prices for
oil, natural gas, lumber, and copper recovered during the reporting period,
while agricultural commodity prices generally declined. Investors welcomed
enhanced stability in global economies.
Within the overall bull market, there were changes among various U.S. equity
sectors. In many respects, the first quarter of 1999 was a continuation of
recent history. The majority of the equity market's performance was concentrated
in a handful of large-capitalization growth-oriented stocks. During the second
quarter of the year, the tide changed rather dramatically. The S&P 500 Index(1)
continued to fare well, but long out-of-favor value stocks saw a strong
recovery, as many companies reported corporate earnings in line with or
exceeding analysts' expectations. Over the same period, smaller-capitalization
U.S. stocks outperformed their larger-cap counterparts for the first time in
seven quarters.
STRONG PERFORMANCE
For the six months ended June 30, 1999, the MainStay Equity Index Fund returned
11.78% for Class A shares, excluding all sales charges. The Fund slightly
underperformed the average Lipper(2) S&P 500 Index objective fund, which
returned 11.95% for the same period. The S&P 500 Index, a hypothetical
investment that does not face the daily expenses associated with mutual fund
investing, returned 12.39% for the period.
It is worth noting that Morningstar(3) rated the Fund five stars overall and
five stars for the three- and five-year periods ended June 30, 1999, from among
3,043 and 1,878 domestic equity funds, respectively.
COMPUTER SECTOR LED THE S&P 500 INDEX
The two largest constituent sectors of the S&P 500 Index--computer software and
computer systems--together comprise approximately 13% of the Index and were both
up over 20% for the first six months of 1999. During the reporting period, LSI
Logic, up 186%,(4) Tandy, up 137%, and National Semiconductor, up 88%, were
stocks in other sectors that benefited from the computer industry's advance.
Oil-related stocks, also a significant element of the S&P 500 Index, returned
over 20% through June 30, 1999, as oil prices recovered from their precipitous
drop in 1998. Other strong-performing sectors of the S&P 500 Index included
investment banks/brokers, led by Schwab, up 96%; basic materials/industries, led
by Case, up 120%; and telecommunications, led by Sprint, up 147%, and Nextel, up
112%.
Housing-related stocks, a relatively small S&P 500 Index component, was the
worst-performing industry sector, struggling as interest rates rose and home-
buying activity began to cool. A more material decline came from the drug
stocks, which comprise almost 5% of the S&P 500 Index and declined almost 8%.
- ---------
(1) See footnote on page 3 for more information about the S&P 500.
(2) See page 7 for additional information about Lipper, Inc.
(3) Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking into account fees and
other sales charges and may change monthly. Its ratings of one (low) to
five (high) stars are based on a fund's three-, five-, and ten-year
average annual returns (if applicable) in excess of 90-day Treasury bill
returns with appropriate fee adjustments, and a risk factor that reflects
fund performance below 90-day Treasury bill monthly returns. The top 10%
of the funds in a rating group receive five stars, the next 22.5% receive
four stars, the middle 35% receive three stars, the next 22.5% receive two
stars, and the bottom 10% receive one star.
(4) Returns reflect performance for the six-month period ended 6/30/99.
4
<PAGE> 168
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
Period End Total Return %
- ---------- --------------
<S> <C>
12/91 28.01
12/92 6.19
12/93 9.01
12/94 0.50
12/95 35.91
12/96 22.04
12/97 32.26
12/98 27.69
6/99 11.78
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 7 for
more information on performance.
During the reporting period, McKesson HBOC, down 59%, Rite Aid, down 50%, and
Watson Pharmaceuticals, down 44%, were among the stocks in this and related
sectors that declined the most. Other declining industries included tobacco,
especially Philip Morris, down 25%; foods/retail food stores, particularly
Albertson's and Safeway, each down 19%; and health care companies, with Tenet
Healthcare down 29% and Humana down 27%.
The composition of the S&P 500 Index itself remained relatively constant through
the first six months of 1999, with just a few changes resulting from corporate
actions, such as mergers, spin-offs, and acquisitions.
LOOKING AHEAD
On the whole, the U.S. economy and stock market seem quite healthy. At the same
time, we believe that investors should not be lulled into a sense of
complacency, overlooking the risks that come with equity investing. Two areas of
particular concern are inflation and equity valuations.
While inflation appears to remain dormant, numerous indicators may be harbingers
of future inflation. Investors should consider that:
- - unemployment remains at a thirty-year low,
- - economic growth has been inordinately robust in historical terms,
- - oil prices are rebounding, and
- - troubled Pacific Rim and other emerging market economies appear to have
recovered from recent turmoil.
While these new threats to price stability have been absorbed by the bond market
through climbing yields, the stock market has yet to react. A clearer signal
that inflation is rising could have a detrimental effect on stock prices, given
the importance of earnings expectations that are currently priced into the
market.
5
<PAGE> 169
Equity valuations, as measured by price/earnings ratios, have continued to climb
in 1999, even as interest rates have gone up. While past performance is no
indication of future results, this pattern has historically implied expectations
of strong corporate profitability growth in the years ahead. Disappointing
corporate earnings reports may be met with disappointing stock-market
performance.
Of course, the objective of the MainStay Equity Index Fund is to seek to provide
investment results that correspond to the total return performance (and reflect
reinvestment of dividends) of publicly traded common stocks represented by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the
"Index"). As a result, we do not respond to or evaluate changing market and
economic conditions. Nor do we manage according to a given outlook for the
equity markets or the economy in general. That said, we feel it is important for
investors to diversify their portfolios and to keep focused on their long-term
goals despite inevitable short-term volatility in the equity market.
Jefferson C. Boyce
Stephen B. Killian
Portfolio Managers
Monitor Capital Advisors, Inc.
Past performance is no guarantee of future results.
6
<PAGE> 170
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Class A 21.88% 26.74% 19.80%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Class A 18.22% 25.97% 19.37%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Equity Index Fund 77 out of 38 out of 13 out of
100 funds 40 funds 13 funds
Average Lipper S&P
500 Index
objective fund 22.18% 27.31% 20.58%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $44.12 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for applicable sales charges. In compliance with
SEC guidelines, SEC returns include the maximum sales charge and show the
percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. The MainStay Equity
Index Fund, first offered to the public on 12/20/90, is offered as Class A
shares only. As of 1/3/95, shares were subject to an initial sales charge
of up to 3% and an annual 12b-1 fee of .25%.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Life of Fund ranking and the average Lipper peer fund return are
for the period from 12/20/90 through 6/30/99.
7
<PAGE> 171
MainStay Equity Index Fund
<TABLE>
<CAPTION>
Shares Value
------------------------------
<S> <C> <C>
COMMON STOCKS (97.7%)+
AEROSPACE/DEFENSE (1.2%)
Boeing Co. (The)............... 94,557 $ 4,178,238
General Dynamics Corp. ........ 12,313 843,440
Goodrich (B.F.) Co. ........... 7,191 305,618
Lockheed Martin Corp. ......... 38,300 1,426,675
Northrop Grumman Corp. ........ 6,709 444,891
Raytheon Co. Class B........... 32,777 2,306,681
Rockwell International
Corp. ........................ 18,624 1,131,408
United Technologies Corp. ..... 46,778 3,353,398
--------------
13,990,349
--------------
AIRLINES (0.3%)
AMR Corp. (a).................. 14,945 1,019,996
Delta Air Lines, Inc. ......... 13,638 785,890
Southwest Airlines Co. ........ 32,589 1,014,332
US Airways Group, Inc. (a)..... 7,132 310,688
--------------
3,130,906
--------------
ALUMINUM (0.3%)
Alcan Aluminum Ltd. ........... 21,963 701,443
Alcoa Inc. .................... 35,643 2,205,411
Reynolds Metals Co. ........... 6,303 371,877
--------------
3,278,731
--------------
AUTO PARTS & EQUIPMENT (0.3%)
Cooper Tire & Rubber Co. ...... 7,380 174,352
Delphi Automotive Systems
Corp. ........................ 54,636 1,014,181
Genuine Parts Co. ............. 17,376 608,160
Goodyear Tire & Rubber Co.
(The)......................... 15,120 889,245
--------------
2,685,938
--------------
AUTOMOBILES (1.0%)
Ford Motor Co. ................ 117,617 6,638,009
General Motors Corp. .......... 63,014 4,158,924
--------------
10,796,933
--------------
BANKS--MAJOR REGIONAL (4.2%)
AmSouth Bancorp................ 17,093 396,344
Bank of New York Co., Inc.
(The)......................... 73,925 2,712,124
Bank One Corp. ................ 114,809 6,838,311
BankBoston Corp. .............. 28,865 1,475,723
BB&T Corp. .................... 30,557 1,121,060
Comerica Inc. ................. 15,082 896,437
Fifth Third Bancorp............ 26,068 1,735,151
Firstar Corp. ................. 64,210 1,797,880
Fleet Financial Group, Inc. ... 55,347 2,456,023
Huntington Bancshares Inc. .... 20,355 712,425
KeyCorp........................ 43,474 1,396,602
Mellon Bank Corp. ............. 50,638 1,841,957
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
------------------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (CONTINUED)
Mercantile Bancorp., Inc. ..... 15,258 $ 871,613
National City Corp. ........... 30,514 1,998,667
Northern Trust Corp. .......... 10,936 1,060,792
PNC Bank Corp. ................ 29,435 1,696,192
Regions Financial Corp. ....... 21,761 836,438
Republic New York Corp. ....... 10,209 696,126
SouthTrust Corp. .............. 16,147 619,641
State Street Corp. ............ 15,636 1,334,924
Summit Bancorp................. 16,676 697,265
SunTrust Banks, Inc. .......... 31,236 2,168,950
Synovus Financial Corp. ....... 26,275 522,216
Union Planters Corp. .......... 13,762 614,989
U.S. Bancorp................... 70,574 2,399,516
Wachovia Corp. ................ 19,686 1,684,384
Wells Fargo Co. ............... 160,540 6,863,085
--------------
47,444,835
--------------
BANKS--MONEY CENTER (2.4%)
Bank of America Corp. ......... 169,340 12,414,739
Chase Manhattan Corp. (The).... 82,044 7,107,061
First Union Corp. ............. 94,022 4,419,034
Morgan (J.P.) & Co., Inc. ..... 17,255 2,424,328
--------------
26,365,162
--------------
BANKS--SAVINGS & LOANS (0.2%)
Golden West Financial Corp. ... 5,499 538,902
Washington Mutual, Inc. ....... 57,931 2,049,309
--------------
2,588,211
--------------
BEVERAGES--ALCOHOLIC (0.3%)
Anheuser-Busch Cos., Inc. ..... 46,158 3,274,333
Brown-Forman Corp.
Class B....................... 6,615 431,215
Coors (Adolph) Co.
Class B....................... 3,604 178,398
--------------
3,883,946
--------------
BEVERAGES--SOFT DRINKS (2.0%)
Coca-Cola Co. (The) (c)........ 239,621 14,976,313
Coca-Cola Enterprises Inc. .... 41,206 1,267,084
PepsiCo, Inc. ................. 141,400 5,470,413
--------------
21,713,810
--------------
BROADCAST/MEDIA (1.1%)
CBS Corp. (a).................. 68,955 2,995,233
Clear Channel Communications,
Inc. (a)...................... 32,239 2,222,476
Comcast Corp. Special Class
A............................. 71,856 2,761,965
MediaOne Group Inc. (a)........ 58,837 4,376,002
--------------
12,355,676
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 172
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BUILDING MATERIALS (0.1%)
Masco Corp. ................... 32,694 $ 944,039
Owens Corning.................. 5,276 181,363
Sherwin-Williams Co. (The)..... 16,474 457,153
--------------
1,582,555
--------------
CHEMICALS (1.5%)
Air Products & Chemicals,
Inc. ......................... 22,328 898,702
Dow Chemical Co. (The)......... 21,451 2,721,596
Du Pont (E.I.) De Nemours &
Co. .......................... 109,530 7,482,268
Eastman Chemical Co. .......... 7,696 398,268
Hercules Inc. ................. 9,747 383,179
Monsanto Co. .................. 61,304 2,417,676
Praxair, Inc. ................. 15,263 746,933
Rohm & Haas Co. ............... 20,532 880,323
Union Carbide Corp. ........... 12,947 631,166
--------------
16,560,111
--------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. .......... 11,049 667,084
Engelhard Corp. ............... 12,082 273,355
FMC Corp. (a).................. 3,212 219,420
PPG Industries, Inc. .......... 16,835 994,317
--------------
2,154,176
--------------
CHEMICALS--SPECIALTY (0.1%)
Grace (W.R.) & Co. (a)......... 6,689 122,910
Great Lakes Chemical Corp. .... 5,661 260,760
Nalco Chemical Co. ............ 6,532 338,848
Sigma-Aldrich Corp. ........... 9,741 335,456
--------------
1,057,974
--------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (4.5%)
Andrew Corp. (a)............... 8,000 151,500
Cabletron Systems, Inc. (a).... 17,935 233,155
Cisco Systems, Inc. (a)........ 308,746 19,856,227
General Instrument Corp. (a)... 16,774 712,895
Lucent Technologies Inc. ...... 295,157 19,904,671
Network Appliance, Inc. (a).... 4,800 268,200
Nortel Networks Corp. ......... 64,399 5,590,638
Scientific-Atlanta, Inc. ...... 7,299 262,764
Tellabs, Inc. (a).............. 38,068 2,571,969
3Com Corp. (a)................. 35,157 938,253
--------------
50,490,272
--------------
COMPUTER SOFTWARE & SERVICES (7.1%)
Adobe Systems Inc. ............ 5,930 487,187
America Online Inc. (a)........ 105,481 11,655,650
Autodesk, Inc. ................ 5,720 169,098
Automatic Data Processing,
Inc. ......................... 60,130 2,645,720
BMC Software, Inc. (a)......... 22,900 1,236,600
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
Ceridian Corp. (a)............. 14,055 $ 459,423
Computer Associates
International, Inc. .......... 52,080 2,864,400
Computer Sciences Corp. (a).... 15,494 1,071,991
Compuware Corp. (a)............ 35,707 1,135,929
Electronic Data Systems
Corp. ........................ 47,844 2,706,176
Equifax Inc. .................. 14,015 500,160
First Data Corp. .............. 41,896 2,050,286
Microsoft Corp. (a)(c)......... 495,628 44,699,450
Novell, Inc. (a)............... 32,714 866,921
Oracle Corp. (a)............... 139,742 5,187,922
Parametric Technology Corp.
(a)........................... 26,329 365,315
Paychex, Inc. ................. 23,860 760,538
PeopleSoft, Inc. (a)........... 23,333 402,494
Shared Medical Systems
Corp. ........................ 2,598 169,519
--------------
79,434,779
--------------
COMPUTER SYSTEMS (5.4%)
Apple Computer, Inc. (a)....... 15,437 714,926
Compaq Computer Corp. ......... 165,105 3,910,925
Data General Corp. (a)......... 4,953 72,128
Dell Computer Corp. (a)........ 246,299 9,113,063
EMC Corp. (a).................. 98,344 5,408,920
Gateway Inc. (a)............... 15,234 898,806
Hewlett-Packard Co. ........... 98,402 9,889,401
International Business
Machines Corp. ............... 176,194 22,773,075
Seagate Technology, Inc. (a)... 21,612 553,808
Silicon Graphics, Inc. (a)..... 18,289 299,482
Sun Microsystems, Inc. (a)..... 75,166 5,177,058
Unisys Corp. (a)............... 26,160 1,018,605
--------------
59,830,197
--------------
CONGLOMERATES (0.1%)
Tenneco Inc. .................. 16,484 393,556
Textron Inc. .................. 14,618 1,203,244
--------------
1,596,800
--------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. .................... 2,950 124,637
Crown Cork & Seal Co., Inc. ... 11,908 339,378
Owens-Illinois, Inc. (a)....... 15,147 495,118
--------------
959,133
--------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ............... 5,173 205,627
Temple-Inland Inc. ............ 5,383 367,390
--------------
573,017
--------------
COSMETICS/PERSONAL CARE (0.6%)
Alberto-Culver Co. Class B..... 5,503 146,517
Avon Products, Inc. ........... 25,454 1,412,697
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 173
MainStay Equity Index Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COSMETICS/PERSONAL CARE (CONTINUED)
Gillette Co. (The)............. 107,822 $ 4,420,702
International Flavors &
Fragrances Inc. .............. 10,250 454,844
--------------
6,434,760
--------------
ELECTRIC POWER COMPANIES (2.0%)
Ameren Corp. .................. 13,306 510,618
American Electric Power Co.,
Inc. ......................... 18,619 699,376
Carolina Power & Light Co. .... 14,694 629,087
Central & South West Corp. .... 20,665 483,044
Cinergy Corp. ................. 15,461 494,752
CMS Energy Corp. .............. 11,400 477,375
Consolidated Edison, Inc. ..... 22,074 998,849
Constellation Energy Group..... 14,458 428,318
Dominion Resources, Inc. ...... 18,602 805,699
DTE Energy Co. ................ 14,128 565,120
Duke Energy Corp. ............. 35,337 1,921,449
Edison International........... 33,736 902,438
Entergy Corp. ................. 23,917 747,406
FirstEnergy Corp. ............. 22,800 706,800
Florida Progress Corp. ........ 9,500 392,469
FPL Group, Inc. ............... 17,516 956,812
GPU, Inc. ..................... 12,158 512,916
New Century Energies Inc. ..... 11,135 432,177
Niagara Mohawk Holdings Inc.
(a)........................... 18,177 291,968
Northern States Power Co. ..... 14,804 358,072
PacifiCorp..................... 28,868 530,450
PECO Energy Co. ............... 18,591 781,984
PG&E Corp. .................... 37,308 1,212,510
PP&L Resources, Inc. .......... 15,294 470,291
Public Service Enterprise Group
Inc. ......................... 21,327 871,741
Reliant Energy, Inc. .......... 28,770 794,771
Southern Co. (The)............. 67,797 1,796,621
Texas Utilities Co. ........... 27,265 1,124,681
Unicom Corp. .................. 21,053 811,856
--------------
21,709,650
--------------
ELECTRICAL EQUIPMENT (3.9%)
Cooper Industries, Inc. ....... 9,160 476,320
Emerson Electric Co. .......... 42,256 2,656,846
General Electric Co. (c)....... 317,713 35,901,569
Grainger (W.W.), Inc. ......... 9,179 493,945
Honeywell Inc. ................ 12,218 1,415,761
Raychem Corp. ................. 7,515 278,055
Solectron Corp. (a)............ 24,511 1,634,577
Thomas & Betts Corp. .......... 5,558 262,616
--------------
43,119,689
--------------
ELECTRONICS--DEFENSE (0.0%) (b)
EG&G, Inc. .................... 4,352 155,040
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
ELECTRONICS--INSTRUMENTATION (0.1%)
PE Corp.-PE Biosystems Group... 4,950 $ 568,012
Tektronix, Inc. ............... 4,516 136,327
--------------
704,339
--------------
ELECTRONICS--SEMICONDUCTORS (3.2%)
Advanced Micro Devices, Inc.
(a)........................... 14,243 257,264
Applied Materials, Inc. (a).... 36,204 2,674,571
Intel Corp. ................... 322,190 19,170,305
KLA-Tencor Corp. (a)........... 8,512 552,216
LSI Logic Corp. (a)............ 13,848 638,739
Micron Technology, Inc. (a).... 24,241 977,215
Motorola, Inc. ................ 58,597 5,552,066
National Semiconductor Corp.
(a)........................... 16,351 413,885
Texas Instruments Inc. ........ 38,039 5,515,655
--------------
35,751,916
--------------
ENGINEERING & CONSTRUCTION (0.0%) (b)
Fluor Corp. ................... 7,317 296,339
Foster Wheeler Corp. .......... 3,928 55,483
--------------
351,822
--------------
ENTERTAINMENT (1.8%)
King World Productions, Inc.
(a)........................... 6,769 235,646
Seagram Co. Ltd. .............. 41,537 2,092,426
Time Warner Inc. .............. 115,835 8,340,120
Viacom Inc. Class B (a)........ 67,064 2,950,816
Walt Disney Co. (The).......... 200,007 6,162,716
--------------
19,781,724
--------------
FINANCIAL--MISCELLANEOUS (4.4%)
AFLAC Inc. .................... 25,800 1,235,175
American Express Co. .......... 43,801 5,699,605
American General Corp. ........ 24,386 1,838,095
Associates First Capital Corp.
Class A....................... 70,679 3,131,963
Citigroup Inc. ................ 326,873 15,526,467
Fannie Mae..................... 99,510 6,803,996
Franklin Resources Inc. ....... 24,462 993,769
Freddie Mac.................... 67,490 3,914,420
MBIA Inc. ..................... 9,657 625,291
MBNA Corp. .................... 77,865 2,384,616
Morgan Stanley Dean Witter &
Co. .......................... 55,435 5,682,088
SLM Holding Corp. ............. 15,851 726,174
Transamerica Corp. ............ 12,110 908,250
--------------
49,469,909
--------------
FOOD (1.7%)
Bestfoods...................... 27,113 1,342,093
Campbell Soup Co. ............. 42,330 1,899,559
ConAgra, Inc. ................. 47,411 1,262,318
General Mills, Inc. ........... 14,801 1,189,630
Heinz (H.J.) Co. .............. 34,899 1,749,312
Hershey Foods Corp. ........... 13,540 803,938
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 174
Portfolio of Investments June 30, 1999 unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD (CONTINUED)
Kellogg Co. ................... 39,358 $ 1,298,814
Nabisco Group Holdings
Corp. ........................ 31,561 617,422
Quaker Oats Co. (The).......... 13,117 870,641
Ralston-Ralston Purina Group... 31,640 963,043
Sara Lee Corp. ................ 87,706 1,989,830
Unilever N.V. ................. 55,552 3,874,752
Wrigley (Wm.) Jr. Co. ......... 11,268 1,014,120
--------------
18,875,472
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.3%)
Cardinal Health, Inc. ......... 26,348 1,689,565
McKesson HBOC, Inc. ........... 26,893 863,938
SUPERVALU Inc. ................ 11,563 297,024
SYSCO Corp. ................... 32,135 958,025
--------------
3,808,552
--------------
GOLD & PRECIOUS METALS MINING (0.2%)
Barrick Gold Corp. ............ 37,915 734,603
Battle Mountain Gold Co. (a)... 22,363 54,510
Homestake Mining Co. .......... 25,254 206,767
Newmont Mining Corp. .......... 16,287 323,704
Placer Dome Inc. .............. 31,700 374,457
--------------
1,694,041
--------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)..... 8,516 537,572
Snap-on Inc. .................. 6,362 230,225
Stanley Works (The)............ 8,650 278,422
--------------
1,046,219
--------------
HEALTH CARE--DIVERSIFIED (4.2%)
Abbott Laboratories............ 147,611 6,716,300
Allergan, Inc. ................ 6,424 713,064
American Home Products
Corp. ........................ 126,854 7,294,105
Bristol-Myers Squibb Co. ...... 192,873 13,585,491
Johnson & Johnson.............. 130,544 12,793,312
Mallinckrodt Inc. ............. 6,869 249,860
Warner-Lambert Co. ............ 82,558 5,727,462
--------------
47,079,594
--------------
HEALTH CARE--DRUGS (4.4%)
Lilly (Eli) & Co. ............. 106,902 7,656,856
Merck & Co., Inc. ............. 228,862 16,935,788
Pfizer Inc. ................... 125,706 13,796,233
Pharmacia & Upjohn, Inc. ...... 49,126 2,790,971
Schering-Plough Corp. ......... 142,559 7,555,627
Watson Pharmaceuticals, Inc.
(a)........................... 9,300 326,081
--------------
49,061,556
--------------
HEALTH CARE--HMOS (0.3%)
Aetna Inc. .................... 13,833 1,237,189
Humana Inc. (a)................ 16,278 210,597
United Healthcare Corp. ....... 16,819 1,053,290
Wellpoint Health Networks Inc.
(a)........................... 6,600 560,175
--------------
3,061,251
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
HEALTH CARE--HOSPITAL MANAGEMENT (0.2%)
Columbia/HCA Healthcare
Corp. ........................ 55,182 $ 1,258,830
Tenet Healthcare Corp. (a)..... 30,090 558,546
--------------
1,817,376
--------------
HEALTH CARE--MEDICAL PRODUCTS (1.0%)
Bard (C.R.), Inc. ............. 4,999 239,015
Bausch & Lomb Inc. ............ 5,589 427,558
Baxter International Inc. ..... 28,315 1,716,597
Becton, Dickinson & Co. ....... 24,330 729,900
Biomet, Inc. .................. 10,955 435,461
Boston Scientific Corp. (a).... 38,448 1,689,309
Guidant Corp. (a).............. 29,365 1,510,462
Medtronic, Inc. ............... 56,844 4,426,727
St. Jude Medical, Inc. (a)..... 8,229 293,158
--------------
11,468,187
--------------
HEALTH CARE--MISCELLANEOUS (0.4%)
ALZA Corp. (a)................. 9,755 496,286
Amgen Inc. (a)................. 49,756 3,028,896
HCR Manor Care, Inc. (a)....... 10,742 259,822
HEALTHSOUTH Corp. (a).......... 40,303 602,026
--------------
4,387,030
--------------
HEAVY DUTY TRUCKS & PARTS (0.2%)
Cummins Engine Co., Inc. ...... 4,089 233,584
Dana Corp. .................... 16,089 741,100
Eaton Corp. ................... 6,932 637,744
ITT Industries, Inc. .......... 8,489 323,643
Navistar International Corp.
(a)........................... 6,458 322,900
PACCAR Inc. ................... 7,609 406,130
--------------
2,665,101
--------------
HOMEBUILDING (0.0%) (b)
Centex Corp. .................. 5,763 216,473
Kaufman & Broad Home Corp. .... 4,623 114,997
Pulte Corp. ................... 4,152 96,015
--------------
427,485
--------------
HOTEL/MOTEL (0.4%)
Carnival Corp. ................ 59,554 2,888,369
Harrah's Entertainment, Inc.
(a)........................... 12,413 273,086
Hilton Hotels Corp. ........... 25,072 355,709
Marriott International, Inc.
Class A....................... 24,251 906,381
--------------
4,423,545
--------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World Industries,
Inc. ......................... 3,888 224,775
Maytag Corp. .................. 8,574 597,501
Whirlpool Corp. ............... 7,351 543,974
--------------
1,366,250
--------------
HOUSEHOLD PRODUCTS (1.7%)
Clorox Co. (The)............... 11,390 1,216,594
Colgate-Palmolive Co. ......... 28,446 2,809,042
Fort James Corp. .............. 21,426 811,510
Kimberly-Clark Corp. .......... 51,601 2,941,257
Procter & Gamble Co. (The)..... 129,027 11,515,660
--------------
19,294,063
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 175
MainStay Equity Index Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOUSEWARES (0.2%)
Fortune Brands, Inc. .......... 16,271 $ 673,213
Newell Rubbermaid Inc. ........ 27,492 1,278,378
Tupperware Corp. .............. 5,605 142,927
--------------
2,094,518
--------------
INSURANCE BROKERS (0.3%)
Aon Corp. ..................... 24,826 1,024,073
Marsh & McLennan Cos., Inc. ... 25,585 1,931,667
--------------
2,955,740
--------------
INSURANCE--LIFE (0.4%)
Conseco, Inc. ................. 31,439 956,925
Jefferson-Pilot Corp. ......... 10,367 686,166
Lincoln National Corp. ........ 19,626 1,026,685
Provident Cos., Inc. .......... 13,264 530,560
Torchmark Corp. ............... 12,964 442,397
UNUM Corp. .................... 13,566 742,738
--------------
4,385,471
--------------
INSURANCE--MULTI-LINE (1.5%)
American International Group,
Inc. ......................... 120,332 14,086,365
CIGNA Corp. ................... 19,747 1,757,483
Hartford Financial Services
Group, Inc. (The)............. 22,084 1,287,773
--------------
17,131,621
--------------
INSURANCE--PROPERTY & CASUALTY (0.7%)
Allstate Corp. (The)........... 78,346 2,810,663
Chubb Corp. (The).............. 15,814 1,099,073
Cincinnati Financial Corp...... 15,990 600,624
Loews Corp. ................... 10,593 838,171
MGIC Investment Corp. ......... 10,672 500,250
Progressive Corp. (The)........ 7,122 1,032,690
SAFECO Corp. .................. 13,273 585,671
St. Paul Cos., Inc. (The)...... 21,950 698,285
--------------
8,165,427
--------------
INVESTMENT BANK/BROKERAGE (0.8%)
Bear Stearns Cos., Inc.
(The)......................... 11,376 531,828
Lehman Brothers Holdings
Inc. ......................... 11,509 716,435
Merrill Lynch & Co., Inc. ..... 35,694 2,853,289
Paine Webber Group Inc. ....... 14,100 659,175
Schwab (Charles) Corp. (The)... 39,658 4,357,423
--------------
9,118,150
--------------
LEISURE TIME (0.1%)
Brunswick Corp. ............... 8,891 247,837
Mirage Resorts, Inc. (a)....... 19,339 323,928
--------------
571,765
--------------
MACHINE TOOLS (0.0%) (b)
Milacron Inc. ................. 3,635 67,248
--------------
MACHINERY--DIVERSIFIED (0.4%)
Briggs & Stratton Corp. ....... 2,277 131,497
Case Corp. .................... 7,347 353,574
Caterpillar Inc. .............. 34,508 2,070,480
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
MACHINERY--DIVERSIFIED (CONTINUED)
Deere & Co. ................... 22,511 $ 891,998
Ingersoll-Rand Co. ............ 16,144 1,043,306
NACCO Industries, Inc. Class
A............................. 854 62,769
Thermo Electron Corp. (a)...... 15,410 309,163
Timken Co. (The)............... 6,021 117,410
--------------
4,980,197
--------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc. ... 3,400 89,888
--------------
MANUFACTURING--DIVERSIFIED (1.5%)
AlliedSignal Inc. ............. 53,663 3,380,769
Crane Co. ..................... 6,615 207,959
Danaher Corp. ................. 13,113 762,193
Dover Corp. ................... 20,684 791,163
Illinois Tool Works Inc. ...... 24,296 1,992,272
Johnson Controls, Inc. ........ 8,240 571,135
Millipore Corp. ............... 4,308 174,743
Pall Corp. .................... 12,069 267,781
Parker-Hannifin Corp. ......... 10,584 484,218
Sealed Air Corp. (a)........... 8,110 526,136
Tyco International Ltd. ....... 79,679 7,549,586
--------------
16,707,955
--------------
METALS--MINING (0.1%)
ASARCO Inc. ................... 3,871 72,823
Cyprus Amax Minerals Co. ...... 8,790 133,498
Freeport-McMoRan Copper & Gold
Inc. Class B (a).............. 15,922 285,601
Inco Ltd. (a).................. 18,667 336,006
Phelps Dodge Corp. ............ 5,683 351,991
--------------
1,179,919
--------------
MISCELLANEOUS (0.8%)
AES Corp. (The) (a)............ 18,579 1,079,904
American Greetings Corp. Class
A............................. 6,530 196,716
Archer-Daniels-Midland Co. .... 57,080 881,172
Corning Inc. .................. 23,615 1,656,002
Harcourt General, Inc. ........ 6,954 358,566
Harris Corp. .................. 7,726 302,763
Jostens, Inc. ................. 3,291 69,317
Minnesota Mining &
Manufacturing Co. ............ 39,107 3,399,865
Nextel Communications, Inc.
Class A (a)................... 28,777 1,444,246
Pioneer Hi-Bred International,
Inc. ......................... 23,297 907,127
Sprint Corp. (PCS Group) (a)... 42,777 2,443,636
TRW, Inc. ..................... 11,594 636,221
--------------
13,375,535
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.7%)
Coastal Corp. (The)............ 20,753 830,120
Columbia Energy Group.......... 8,113 508,584
Consolidated Natural Gas
Co. .......................... 9,331 566,858
Eastern Enterprises............ 2,223 88,364
Enron Corp. ................... 34,349 2,808,031
NICOR Inc. .................... 4,719 179,617
ONEOK, Inc. ................... 3,119 99,028
Peoples Energy Corp. .......... 3,474 130,926
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 176
Portfolio of Investments June 30, 1999 unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NATURAL GAS DISTRIBUTORS & PIPELINES (CONTINUED)
Sempra Energy.................. 23,375 $ 528,860
Sonat, Inc. ................... 10,664 353,245
Williams Cos., Inc. (The)...... 41,835 1,780,602
--------------
7,874,235
--------------
OFFICE EQUIPMENT & SUPPLIES (0.5%)
Pitney Bowes Inc. ............. 26,051 1,673,777
Xerox Corp. ................... 64,247 3,794,588
--------------
5,468,365
--------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. ....... 4,785 113,943
Rowan Cos., Inc. (a)........... 8,166 150,560
--------------
264,503
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.6%)
Baker Hughes Inc. ............. 31,755 1,063,792
Halliburton Co. ............... 42,738 1,933,894
McDermott International
Inc. ......................... 5,746 162,325
Schlumberger Ltd. ............. 53,092 3,381,297
--------------
6,541,308
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.3%)
Anadarko Petroleum Corp. ...... 11,769 433,246
Apache Corp. .................. 10,841 422,799
Burlington Resources Inc. ..... 17,247 745,933
Union Pacific Resources Group,
Inc. ......................... 24,496 399,591
Unocal Corp. .................. 23,611 935,586
--------------
2,937,155
--------------
OIL--INTEGRATED DOMESTIC (0.6%)
Amerada Hess Corp. ............ 8,910 530,145
Ashland Inc. .................. 7,237 290,385
Atlantic Richfield Co. ........ 31,220 2,608,821
Kerr-McGee Corp. .............. 8,372 420,170
Occidental Petroleum Corp. .... 33,760 713,180
Phillips Petroleum Co. ........ 24,539 1,234,618
Sunoco Inc. ................... 8,824 266,374
USX-Marathon Group............. 29,985 976,387
--------------
7,040,080
--------------
OIL--INTEGRATED INTERNATIONAL (4.3%)
Chevron Corp. ................. 63,535 6,047,738
Exxon Corp. ................... 235,758 18,182,836
Mobil Corp. ................... 75,959 7,519,941
Royal Dutch Petroleum Co. ADR
(d)........................... 208,233 12,546,038
Texaco Inc. ................... 52,096 3,256,000
--------------
47,552,553
--------------
PAPER & FOREST PRODUCTS (0.6%)
Boise Cascade Corp. ........... 5,364 230,652
Champion International
Corp. ........................ 9,367 448,445
Georgia-Pacific Group.......... 16,688 790,594
International Paper Co. ....... 39,907 2,015,304
Louisiana-Pacific Corp. ....... 10,391 246,786
Mead Corp. (The)............... 9,887 412,782
Potlatch Corp. ................ 2,859 125,617
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (CONTINUED)
Westvaco Corp. ................ 9,698 $ 281,242
Weyerhaeuser Co. .............. 19,384 1,332,650
Willamette Industries, Inc. ... 10,727 494,113
--------------
6,378,185
--------------
PERSONAL LOANS (0.5%)
Capital One Financial Corp. ... 19,138 1,065,747
Countrywide Credit Industries,
Inc. ......................... 10,929 467,215
Household International,
Inc. ......................... 46,514 2,203,601
Providian Financial Corp. ..... 13,768 1,287,308
--------------
5,023,871
--------------
PHOTOGRAPHY/IMAGING (0.2%)
Eastman Kodak Co. ............. 31,487 2,133,244
IKON Office Solutions, Inc. ... 14,444 216,660
Polaroid Corp. ................ 4,254 117,517
--------------
2,467,421
--------------
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries,
Inc. ......................... 15,275 656,825
Waste Management, Inc. ........ 59,152 3,179,420
--------------
3,836,245
--------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The)... 19,171 1,034,036
Meredith Corp. ................ 5,096 176,449
--------------
1,210,485
--------------
PUBLISHING--NEWSPAPER (0.4%)
Dow Jones & Co., Inc. ......... 8,789 466,366
Gannett Co., Inc. ............. 27,163 1,938,759
Knight-Ridder, Inc. ........... 7,616 418,404
New York Times Co. (The) Class
A............................. 17,091 629,162
Times Mirror Co. (The) Class
A............................. 7,039 417,061
Tribune Co. ................... 11,468 999,150
--------------
4,868,902
--------------
RAILROADS (0.5%)
Burlington Northern Santa Fe
Corp. ........................ 45,631 1,414,561
CSX Corp. ..................... 21,074 954,916
Kansas City Southern
Industries, Inc. ............. 10,700 682,794
Norfolk Southern Corp. ........ 36,867 1,110,618
Union Pacific Corp. ........... 24,040 1,401,832
--------------
5,564,721
--------------
RESTAURANTS (0.6%)
Darden Restaurants, Inc. ...... 12,965 282,799
McDonald's Corp. .............. 131,657 5,439,080
Tricon Global Restaurants, Inc.
(a)........................... 14,903 806,625
Wendy's International, Inc. ... 11,922 337,542
--------------
6,866,046
--------------
RETAIL STORES--APPAREL (0.6%)
Gap, Inc. (The)................ 83,336 4,198,026
Limited, Inc. (The)............ 20,667 937,765
TJX Cos., Inc. (The)........... 31,220 1,040,016
--------------
6,175,807
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 177
MainStay Equity Index Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL STORES--DEPARTMENT (0.5%)
Dillard's, Inc. Class A........ 10,493 $ 368,567
Federated Department Stores,
Inc. (a)...................... 20,215 1,070,131
Kohl's Corp. (a)............... 15,801 1,219,640
May Department Stores Co.
(The)......................... 32,460 1,326,802
Nordstrom, Inc. ............... 13,762 461,027
Penney (J.C.) Co., Inc. ....... 25,495 1,238,101
--------------
5,684,268
--------------
RETAIL STORES--DRUGS (0.3%)
Longs Drug Stores Corp. ....... 3,769 130,266
Rite Aid Corp. ................ 25,157 619,491
Walgreen Co. .................. 96,821 2,844,117
--------------
3,593,874
--------------
RETAIL STORES--FOOD (0.7%)
Albertson's, Inc. ............. 40,885 2,108,129
Great Atlantic & Pacific Tea
Co., Inc. (The)............... 3,678 124,363
Kroger Co. (The) (a)........... 80,172 2,239,805
Safeway Inc. (a)............... 48,254 2,388,573
Winn-Dixie Stores, Inc. ....... 14,459 534,079
--------------
7,394,949
--------------
RETAIL STORES--GENERAL MERCHANDISE (2.3%)
Dayton Hudson Corp. ........... 43,012 2,795,780
Kmart Corp. (a)................ 48,047 789,773
Sears, Roebuck & Co. .......... 37,040 1,650,595
Wal-Mart Stores, Inc. ......... 432,212 20,854,229
--------------
26,090,377
--------------
RETAIL STORES--SPECIALTY (1.9%)
AutoZone, Inc. (a)............. 14,590 439,524
Best Buy Co., Inc. (a)......... 11,800 796,500
Circuit City Stores-Circuit
City Group.................... 9,768 908,424
Consolidated Stores Corp.
(a)........................... 10,648 287,496
Costco Cos., Inc. (a).......... 21,282 1,703,890
CVS Corp. ..................... 37,925 1,938,916
Dollar General Corp. .......... 21,608 626,632
Home Depot, Inc. (The)......... 143,896 9,272,298
Lowe's Cos., Inc. ............. 36,062 2,044,265
Office Depot, Inc. (a)......... 32,700 721,444
Pep Boys-Manny, Moe & Jack
(The)......................... 5,122 110,763
Staples Inc. (a)............... 45,163 1,397,230
Tandy Corp. ................... 19,042 930,678
Toys "R" Us, Inc. (a).......... 24,153 499,665
--------------
21,677,725
--------------
SHOES (0.2%)
NIKE, Inc. Class B............. 27,441 1,737,358
Reebok International Ltd.
(a)........................... 5,403 100,631
--------------
1,837,989
--------------
SPECIALIZED SERVICES (0.7%)
Block (H&R), Inc. ............. 9,394 469,700
Cendant Corp. (a).............. 74,611 1,529,523
Dun & Bradstreet Corp. (The)... 15,895 563,280
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
SPECIALIZED SERVICES (CONTINUED)
Ecolab Inc. ................... 12,625 $ 550,766
IMS Health Inc. ............... 30,720 960,000
Interpublic Group of Cos., Inc.
(The)......................... 13,636 1,181,219
Laidlaw Inc. .................. 32,025 236,185
National Service Industries,
Inc. ......................... 4,013 144,468
Omnicom Group Inc. ............ 17,336 1,386,880
Service Corp. International.... 26,523 510,568
--------------
7,532,589
--------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. .................. 7,533 293,316
Donnelley (R.R.) & Sons Co. ... 12,743 472,288
--------------
765,604
--------------
STEEL (0.1%)
Allegheny Teledyne Inc. ....... 18,677 422,567
Bethlehem Steel Corp. (a)...... 12,672 97,416
Nucor Corp. ................... 8,573 406,682
USX-U.S. Steel Group........... 8,624 232,848
Worthington Industries,
Inc. ......................... 8,902 146,327
--------------
1,305,840
--------------
TELECOMMUNICATIONS--LONG DISTANCE (3.6%)
AT&T Corp. .................... 308,997 17,245,895
MCI WorldCom, Inc. (a)......... 180,695 15,584,944
Sprint Corp. (FON Group)....... 84,032 4,437,940
--------------
37,268,779
--------------
TELEPHONE (4.7%)
ALLTEL Corp. .................. 27,372 1,957,098
Ameritech Corp. ............... 106,839 7,852,666
Bell Atlantic Corp. ........... 150,786 9,857,635
BellSouth Corp. ............... 183,923 8,621,391
CenturyTel, Inc. .............. 13,400 532,650
Frontier Corp. ................ 16,831 993,029
GTE Corp. ..................... 94,239 7,132,714
SBC Communications Inc. ....... 190,714 11,061,412
US West Inc. .................. 48,875 2,871,406
--------------
50,880,001
--------------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Fruit of the Loom Ltd. (a)..... 7,045 68,689
Liz Claiborne, Inc. ........... 6,087 222,175
Russell Corp. ................. 3,309 64,526
Springs Industries, Inc. Class
A............................. 1,720 75,035
V.F. Corp. .................... 11,675 499,106
--------------
929,531
--------------
TOBACCO (0.9%)
Philip Morris Cos. Inc. ....... 234,287 9,415,409
UST Inc. ...................... 17,120 500,760
--------------
9,916,169
--------------
TOYS (0.1%)
Hasbro, Inc. .................. 18,961 529,723
Mattel, Inc. .................. 40,462 1,069,714
--------------
1,599,437
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 178
Portfolio of Investments June 30, 1999 unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION--MISCELLANEOUS (0.2%)
FDX Corp. (a).................. 28,920 $ 1,568,910
Ryder System, Inc. ............ 6,864 178,464
--------------
1,747,374
--------------
Total Common Stocks (Cost
$738,673,899)................. 1,089,545,904(e)
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.7%)
COMMERCIAL PAPER (0.8%)
Allergan, Inc.
5.20%, due 7/13/99 (c)....... $1,500,000 1,497,398
Cooperative Association of
Tractor Dealers Inc.
4.87%, due 7/2/99 (c)........ 350,000 349,952
Mitsubishi International Corp.
5.85%, due 7/1/99 (c)........ 1,400,000 1,400,000
Mitsubishi Motors Credit of
America Inc.
5.45%, due 7/7/99 (c)........ 2,700,000 2,697,546
5.45%, due 7/13/99 (c)....... 3,500,000 3,493,640
--------------
Total Commercial Paper
(Cost $9,438,536)............ 9,438,536
--------------
U.S. GOVERNMENT (0.9%)
United States Treasury Bills
4.50%, due 9/23/99 (c)....... 7,000,000 6,925,437
4.56%, due 9/16/99 (c)....... 3,000,000 2,970,592
--------------
Total U.S. Government
(Cost $9,896,029)............ 9,896,029
--------------
Total Short-Term Investments
(Cost $19,334,565)........... 19,334,565
--------------
Total Investments
(Cost $758,008,464) (f)...... 99.4% 1,108,880,469(g)
Cash and Other Assets,
Less Liabilities............. 0.6 6,752,981
----- --------------
Net Assets.................... 100.0% $1,115,633,450
===== ==============
</TABLE>
<TABLE>
<CAPTION>
Contracts Unrealized
Long Appreciation(h)
----------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.1%)
Standard & Poor's 500
September 1999........ 71 $ 744,753
Mini September 1999... 3 4,321
------------
Total Futures Contracts
(Settlement Value
$24,732,430).......... $ 749,074
============
</TABLE>
- -------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated as collateral for futures contracts.
(d) ADR--American Depository Receipt.
(e) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 99.9% of net assets.
(f) The cost for Federal income tax purposes is $758,154,676.
(g) At June 30, 1999, net unrealized appreciation was $350,725,793, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $359,807,471 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $9,081,678.
(h) Represents the difference between the value of the contracts at the time
they were opened and the value at June 30, 1999.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 179
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$758,008,464)............................................. $1,108,880,469
Cash........................................................ 73,403
Receivables:
Investment securities sold................................ 6,123,275
Fund shares sold.......................................... 4,438,979
Dividends and interest.................................... 976,558
Variation margin receivable on futures contracts............ 608,965
Unamortized organization expense............................ 18,364
Other assets................................................ 466
--------------
Total assets........................................ 1,121,120,479
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 2,975,743
Fund shares redeemed...................................... 1,442,002
MainStay Management....................................... 436,508
NYLIFE Distributors....................................... 218,254
Transfer agent............................................ 149,382
Custodian................................................. 48,549
NYLIFE Inc................................................ 33,000
Trustees.................................................. 7,150
Accrued expenses............................................ 176,441
--------------
Total liabilities................................... 5,487,029
--------------
Net assets.................................................. $1,115,633,450
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized.......... $ 252,862
Additional paid-in capital.................................. 738,488,377
Accumulated undistributed net investment income............. 3,053,183
Accumulated undistributed net realized gain on
investments............................................... 22,217,949
Net unrealized appreciation on investments.................. 351,621,079
--------------
Net assets applicable to outstanding shares................. $1,115,633,450
==============
Shares of beneficial interest outstanding................... 25,286,206
==============
Net asset value per share outstanding....................... $ 44.12
Maximum sales charge (3.00% of offering price).............. 1.36
--------------
Maximum offering price per share outstanding................ $ 45.48
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 180
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 6,043,133
Interest.................................................. 1,580,112
------------
Total income............................................ 7,623,245
------------
Expenses:
Management................................................ 2,390,302
Distribution.............................................. 1,195,151
Transfer agent............................................ 635,489
Shareholder communication................................. 78,835
Custodian................................................. 76,459
Recordkeeping............................................. 60,972
Registration.............................................. 57,911
Professional.............................................. 34,757
Trustees.................................................. 13,724
Amortization of organization expense...................... 6,188
Miscellaneous............................................. 20,274
------------
Total expenses.......................................... 4,570,062
------------
Net investment income....................................... 3,053,183
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions..................................... 8,969,283
Futures transactions...................................... 7,310,583
------------
Net realized gain on investments............................ 16,279,866
------------
Net change in unrealized appreciation on investments:
Security transactions..................................... 89,075,332
Futures transactions...................................... 281,888
------------
Net unrealized gain on investments.......................... 89,357,220
------------
Net realized and unrealized gain on investments............. 105,637,086
------------
Net increase in net assets resulting from operations........ $108,690,269
============
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $134,093.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 181
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 3,053,183 $ 4,145,683
Net realized gain on investments.......................... 16,279,866 10,457,429
Net change in unrealized appreciation on investments...... 89,357,220 135,090,904
-------------- ------------
Net increase in net assets resulting from operations...... 108,690,269 149,694,016
-------------- ------------
Dividends and distributions to shareholders:
From net investment income................................ -- (4,229,242)
From net realized gain on investments..................... -- (8,583,224)
-------------- ------------
Total dividends and distributions to shareholders....... -- (12,812,466)
-------------- ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 441,548,633 469,003,594
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. -- 12,268,427
-------------- ------------
441,548,633 481,272,021
Cost of shares redeemed................................... (231,725,465) (256,722,364)
-------------- ------------
Increase in net assets derived from capital share
transactions........................................... 209,823,168 224,549,657
-------------- ------------
Net increase in net assets.............................. 318,513,437 361,431,207
NET ASSETS:
Beginning of period......................................... 797,120,013 435,688,806
-------------- ------------
End of period............................................... $1,115,633,450 $797,120,013
============== ============
Accumulated undistributed net investment income at end of
period.................................................... $ 3,053,183 $ --
============== ============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 182
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Six months September 1
ended Year ended December 31, through Year ended
June 30, ----------------------------------------- December 31, August 31,
1999+ 1998 1997 1996 1995 1994* 1994
---------- -------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period........................... $ 39.47 $ 30.91 $ 23.37 $ 19.15 $ 14.09 $ 14.48 $ 13.84
---------- -------- -------- -------- -------- ------- -------
Net investment income.............. 0.12 0.21 0.30 0.30 0.24 0.09 0.27
Net realized and unrealized gain
(loss) on investments............ 4.53 8.35 7.24 3.92 4.82 (0.48) 0.37
---------- -------- -------- -------- -------- ------- -------
Total from investment operations... 4.65 8.56 7.54 4.22 5.06 (0.39) 0.64
---------- -------- -------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income......... -- (0.21) (0.30) (0.54) (0.27) -- (0.25)
From net realized gain on
investments...................... -- (0.43) (0.41) (0.82) (0.27) -- (0.18)
---------- -------- -------- -------- -------- ------- -------
Total dividends and
distributions.................... -- (0.64) (0.71) (1.36) (0.54) -- (0.43)
---------- -------- -------- -------- -------- ------- -------
Reverse share split................ -- 0.64 0.71 1.36 0.54 -- 0.43
---------- -------- -------- -------- -------- ------- -------
Net asset value at end of period... $ 44.12 $ 39.47 $ 30.91 $ 23.37 $ 19.15 $ 14.09 $ 14.48
========== ======== ======== ======== ======== ======= =======
Total investment return (a)........ 11.78% 27.69% 32.26% 22.04% 35.91% (2.68%) 4.59%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.......... 0.64%++ 0.68% 1.25% 1.8% 1.7% 2.0%++ 1.9%
Net expenses................... 0.96%++ 0.96% 0.80% 0.8% 1.1% 0.9%++ 0.9%
Expenses (before
reimbursement)............... 0.96%++ 0.99% 0.99% 1.0% 1.1% 0.9%++ 0.9%
Portfolio turnover rate............ 2% 4% 3% 3% 4% 2% 12%
Net assets at end of period (in
000's)........................... $1,115,633 $797,120 $435,689 $225,750 $109,308 $61,561 $62,828
</TABLE>
- -------
<TABLE>
<S> <C>
* The Fund changed its fiscal year end from August 31 to
December 31.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charge and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 183
MainStay Equity Index Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Equity Index Fund (the "Fund").
The Fund's investment objective is to seek to provide investment results that
correspond to the total return performance (and reflect reinvestment of
dividends) of publicly traded common stocks represented by the Standard & Poor's
500 Composite Stock Price Index.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share is calculated on each
day the New York Stock Exchange (the "Exchange") is open for trading as of the
close of regular trading on the Exchange. The net asset value per share is
determined by taking the assets attributable to the shares, subtracting the
liabilities attributable to the shares, and dividing the result by the
outstanding shares. The Fund's net asset value will fluctuate and an investor
could lose money by investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges as nearly as
possible in the manner described in (a) by reference to their principal
exchange, including the National Association of Securities Dealers National
Market System, (c) by appraising over-the-counter securities quoted on the
National Association of Securities Dealers NASDAQ system (but not listed on the
National Market System) at the bid price supplied through such system, and (d)
by appraising over-the-counter securities not quoted on the NASDAQ system at
prices supplied by the pricing agent or brokers selected by the Subadvisor, if
these prices are deemed to be representative of market values at the regular
close of business of the Exchange. Short-term securities which mature in more
than 60 days are valued at current market quotations. Short-term securities
which mature in 60 days or less are valued at amortized cost if their term to
maturity at purchase was 60 days or less, or by amortizing the difference
between market value on the 61st day prior to maturity and value on maturity
date if their original term to maturity at purchase exceeded 60 days.
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis
20
<PAGE> 184
Notes to Financial Statements unaudited
to reflect the market value of the contract at the end of each day's trading.
The Fund agrees to receive from or pay to the broker an amount of cash equal to
the daily fluctuation in the value of the contract. Such receipts or payments
are known as "variation margin". When the futures contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
The Fund invests in stock index futures contracts to gain full exposure to
changes in stock market prices to fulfill its investment objective.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in long futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
annually. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled $124,798. Such costs are being amortized
over ten years beginning at the commencement of operations of the Fund. This
period corresponds to the guarantee period of the original offering (See Note
7).
In the event NYLIFE Securities Inc., an indirect wholly owned subsidiary of New
York Life Insurance Company ("New York Life"), redeems any of the shares
initially purchased, the proceeds of such redemption will be reduced by the
proportionate amount of the unamortized deferred organizational expenses which
the number of shares redeemed by it bears to the total number of initial shares
purchased by it.
21
<PAGE> 185
MainStay Equity Index Fund
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life, serves as the Fund's manager pursuant
to a management agreement and provides offices and conducts clerical,
recordkeeping and bookkeeping services, and keeps most of the financial and
accounting records required for the Fund. The Manager has delegated its
portfolio management responsibilities to Monitor Capital Advisors, Inc. (the
"Subadvisor"), a registered investment adviser and indirect wholly owned
subsidiary of New York Life. Under the supervision of the Trust's Board of
Trustees and the Manager, the Subadvisor is responsible for the day-to-day
portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.50% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $2,390,302.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and Monitor, the Manager pays the Subadvisor a monthly fee of 0.10% of the
average daily net assets of the Fund.
DISTRIBUTION FEES. The Trust, on behalf of the Fund, has a Distribution
Agreement with NYLIFE Distributors (the "Distributor"). The Fund has adopted a
Distribution Plan (the "Plan") in accordance with the provisions of Rule 12b-1
under the 1940 Act.
Pursuant to the Plan, the Distributor receives payments from the Fund at an
annual rate of 0.25% of the average daily net assets of the Fund's shares, which
is an expense of the Fund for distribution or service activities as designated
by the Distributor.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGE. The Fund was advised that the amount of sales charge retained by
the Distributor was $474,919 for the six months ended June 30, 1999.
22
<PAGE> 186
Notes to Financial Statements unaudited (continued)
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $635,489.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $13,118 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$60,972 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $226,009 and $17,436, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
23
<PAGE> 187
MainStay Equity Fund Index
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
1999+ 1998
---------------- -------------------
<S> <C> <C>
Shares sold.......................................... 10,653 13,478
Shares issued in reinvestment of dividends and
distributions...................................... -- 323
------ ------
10,653 13,801
Shares redeemed...................................... (5,562) (7,362)
Reduction of shares due to reverse shares split...... -- (338)
------ ------
Net increase......................................... 5,091 6,101
====== ======
- ---------
+ Unaudited.
</TABLE>
NOTE 7--GUARANTEE:
NYLIFE Inc. ("NYLIFE"), a New York corporation and a wholly owned subsidiary of
New York Life, will guarantee unconditionally and irrevocably pursuant to a
Guaranty Agreement between NYLIFE and the Fund (the "Guarantee") that if,
exactly 10 years from the date of purchase (the "Guarantee Date"), the net asset
value of a unit equal to the net asset value of a Fund share when purchased,
plus the value of all dividends and distributions paid, including cumulative
reinvested dividends and distributions attributable to such share paid during
that 10-year period ("Guarantee Share"), is less than the public offering price
initially paid for the share ("Guaranteed Amount"), NYLIFE will pay for
disbursement to shareholders an amount equal to the difference between the
Guaranteed Amount for each such share and the net asset value of each such
Guaranteed Share outstanding and held by shareholders as of the close of
business on the Guarantee Date. There is no charge to the Fund or its
shareholders for the Guarantee.
24
<PAGE> 188
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
25
<PAGE> 189
This page intentionally left blank
<PAGE> 190
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee EQUITY INDEX FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Equity Index Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSAS07-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 191
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Global
High Yield Fund versus J.P. Morgan
Emerging Markets Bond Index--Class A,
Class B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended
6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 22
</TABLE>
<PAGE> 192
This page intentionally left blank
2
<PAGE> 193
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 1999
3
<PAGE> 194
$10,000 Invested in the MainStay Global High Yield Fund versus J.P. Morgan
Emerging Markets Bond Index
CLASS A SHARES SEC Returns: 1 Year -13.19%, Since Inception -14.60%
[CLASS A SHARES GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL J.P.MORGAN EMERGING MARKETS BOND
PERIOD END HIGH YIELD FUND INDEX*
- ---------- --------------- --------------------------------
<S> <C> <C>
6/1/98 9550.00 10000.00
6/98 9273.00 9711.00
9/98 7066.00 7649.00
12/98 7986.00 8408.00
3/99 8250.00 8961.00
6/99 8429.00 11087.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year -14.22%, Since Inception -14.80%
[CLASS B SHARES GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL J.P.MORGAN EMERGING MARKETS BOND
PERIOD END HIGH YIELD FUND INDEX*
- ---------- --------------- --------------------------------
<S> <C> <C>
6/1/98 10000.00 10000.00
6/98 9700.00 9711.00
9/98 7369.00 7649.00
12/98 8318.00 8408.00
3/99 8588.00 8961.00
6/99 8359.00 11087.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year -10.60%, Since Inception -11.52%
[CLASS C SHARES GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL J.P.MORGAN EMERGING MARKETS BOND
PERIOD END HIGH YIELD FUND INDEX*
- ---------- --------------- --------------------------------
<S> <C> <C>
6/1/98 10000.00 10000.00
6/98 9700.00 9711.00
9/98 7369.00 7649.00
12/98 8318.00 8408.00
3/99 8588.00 8961.00
6/99 8759.00 11087.00
</TABLE>
4
<PAGE> 195
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/1/98 reflecting the effect of the 4.5% up-front sales charge, thereby
reducing the amount of the investment to $9,550. The Class B graph assumes
an initial investment of $10,000 made on 6/1/98. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
6/1/98 and includes the historical performance of the Class B shares for
periods from 6/1/98 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* The J.P. Morgan Emerging Markets Bond Index (EMBI) is an unmanaged,
market-capitalization weighted, total-return index tracking the traded
market for U.S.-dollar-denominated Brady bonds. As of 12/31/98, the EMBI
included 29 issues, with a total face value of $111.3 billion and a market
capitalization of $73.4 billion. An investment cannot be made directly into
an index.
5
<PAGE> 196
Portfolio Management Discussion and Analysis
Global high-yield bond markets recovered over the first half of 1999, following
the devaluation of the Brazilian real and evidence that inflation would remain
modest in that nation. Despite two defaults by the Russian government, Russian
dollar-denominated debt prices doubled over the first six months of the year.
Rising oil prices helped Venezuela and several other Latin American bond markets
advance, but Argentina's large amortization schedule concerned investors,
causing the country's dollar-denominated debt to severely underperform.
Meanwhile, the end of the Kosovo crisis has opened opportunities in European
emerging-market debt, as liquidity returned to most emerging markets around the
world during the first six months of the year.
RESULTS THAT LAGGED THE AVERAGE PEER FUND
During the first half of 1999, the MainStay Global High Yield Fund returned
5.56% for Class A shares and 5.30% for Class B and Class C shares, excluding all
sales charges. All share classes underperformed the 9.72% return of the average
Lipper(1) emerging-markets debt fund.
Recognizing that Brazil would probably have to abandon the Real Plan and devalue
its currency, the Fund began 1999 erring on the side of risk management by
underweighting Brazilian dollar-denominated debt. Concerned about the Russian
ruble crisis and recent Asian currency problems, we believed it would be prudent
for the Fund to maintain higher weightings in cash. These steps initially
appeared positive for the Fund as, early in the year, Brazil allowed the value
of its currency to move with market forces, and the currency quickly depreciated
30%. The quick positive response from the financial markets, however, took us by
surprise and the Fund's underweighted position in Brazil and lack of exposure to
Russia accounted for the bulk of its underperformance.
As Brazil's economic situation improved and Hugo Chavez acceded to the
presidency of Venezuela, we elected to increase the Fund's Latin American
exposure by reducing cash and selling Asian credits. With rising oil prices,
Venezuelan dollar-denominated debt was the Fund's best-performing asset class,
as this market rose 20% in the first six months of the year. In light of
political and economic problems, we chose to reduce exposure to Argentina and
eliminate the Fund's positions in Columbia--moves that had a positive impact on
the Fund as these markets underperformed. Despite the Fund's increased Latin
American exposure, remaining slightly underweighted relative to its benchmark
had a positive impact on performance as it became apparent that the U.S. was
going to raise interest rates.
STRENGTHS AND CHALLENGES
The Fund's stronger Asian credits in South Korea and the Philippines
outperformed the market during the first half of 1999. As the anticipated
Federal Reserve Board rate hike was priced into the market, emerging-markets
debt prices stabilized in June.
- -------
(1) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 197
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98
AND SIX MONTHS ENDED 6/30/99
[PERFORMANCE CHART]
[BAR CHART]
<TABLE>
<CAPTION>
Period End Total Return %
- -------------- ------------------
<S> <C>
12/98 -16.38 Class A
6/99 5.56 Class A
12/98 -16.82 Class B and Class C
6/99 5.30 Class B and Class C
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 9 for more information on performance.
In Latin America, the Fund's largest country weightings at the end of the first
half of the year were in Mexico (26%), Brazil (29%), and Venezuela (9%), all of
which had a positive impact on performance, as oil prices rose and Brazil took
action to improve the financial difficulties it faced in 1998. A credit facility
provided by the International Monetary Fund helped stabilize the Mexican market
and may reduce volatility as the upcoming election approaches.
In general, the Fund's corporate bond holdings outperformed during volatile
periods and underperformed when sovereign credits rallied. We continued to focus
on credits with strong balance sheets and quality management. Security structure
also had an impact on our selection process, though not always with the results
we anticipated. As an example, Euronet bonds will pay no interest until 2002,
but 12.375% thereafter. Although we believe the underlying business is sound,
the market did not like the structure of the bonds, which were among the Fund's
worst performers. We elected to take losses for the Fund and sold the Fund's
Euronet holdings, with a negative impact on performance.
On a more positive note, CEMEX, the world's third-largest cement maker, is
headquartered in Mexico but is truly a multinational enterprise. The bonds we
purchased for the Fund rapidly appreciated, reaching our price target in just
two weeks. Our research suggested that market enthusiasm may have been
exaggerated, so we decided to sell the Fund's position in these bonds, which
were the Fund's best-performing corporate issue in the first half of the year.
We may revisit these bonds when the price has settled to more sustainable
levels.
LOOKING AHEAD
At June 30, 1999, the Fund was overweighted in Mexican bonds, which offered more
yield than higher-rated Asian credits. It was also overweighted in Peruvian
bonds, given the nation's potential to
7
<PAGE> 198
follow Mexico's economic growth potential. With the end of the Kosovo war, the
Fund remains overweighted in Bulgarian dollar-denominated debt, anticipating an
influx of investors as peace improves the outlook for the region. In selecting
corporate bonds for the Fund, we continue to be attracted to media,
telecommunications, and electric companies--particularly ones that may see
credit improvements or may benefit from privatization.
Whatever the markets may bring, the Fund will continue to seek to provide
maximum current income by investing primarily in high-yield debt securities of
non-U.S. issuers, with capital appreciation as a secondary objective.
Maureen McFarland
Joseph Portera
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 199
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -9.10% -10.89%
Class B -9.70% -11.52%
Class C -9.70% -11.52%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -13.19% -14.60%
Class B -14.22% -14.80%
Class C -10.60% -11.52%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 27 out of 25 out of
51 funds 51 funds
Class B 28 out of 26 out of
51 funds 51 funds
Class C n/a n/a
Average Lipper emerging-
markets debt fund -10.63% -14.87%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.08 $0.3534 $0.0000
Class B $8.07 $0.3228 $0.0000
Class C $8.07 $0.3228 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment
return and principal value will fluctuate so that upon redemption, shares
may be worth more or less than their original cost. Total returns shown are
based on NAV and assume no deduction for CDSC or applicable sales charges.
In compliance with SEC guidelines, SEC returns include the maximum sales
charge and show the percentage change for each of the required periods. All
returns assume capital gain and dividend distributions are reinvested.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time.
Class A shares are sold with a maximum initial sales charge of 4.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance of
the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes vary after this date based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A and Class B shares were first offered to the public
on 6/1/98, and Class C shares on 9/1/98. Life of fund return for the average
Lipper peer fund is for the period from 6/1/98 through 6/30/99.
9
<PAGE> 200
MainStay Global High Yield Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------- ----------
<S> <C> <C>
LONG-TERM BONDS (94.6%)+
BRADY BONDS (25.8%)
BRAZIL (12.7%)
Republic of Brazil
Series RG
5.875%, due 4/15/06 (b)........ $ 636,500 $ 502,835
Series 18 year
5.9375%, due 4/15/12 (b)....... 200,000 123,125
Series 20 year
8.00%, due 4/15/14 (b)(d)...... 1,130,515 736,955
-----------
1,362,915
-----------
BULGARIA (3.1%)
Republic of Bulgaria
Series A
5.875%, due 7/28/24 (b)........ 500,000 339,062
-----------
PERU (3.8%)
Republic of Peru
Series 20 year
3.75%, due 3/7/17 (e).......... 750,000 411,562
-----------
POLAND (3.3%)
Republic of Poland
Series PDIB
5.00%, due 10/27/14............ 400,000 354,000
-----------
VENEZUELA (2.9%)
Republic of Venezuela
Series DL
6.3125%, due 12/18/07 (b)...... 404,762 312,426
-----------
Total Brady Bonds
(Cost $2,671,474).............. 2,779,965
-----------
CORPORATE BONDS (38.2%)
ARGENTINA (2.5%)
Perez Companc S.A.
9.00%, due 5/1/06 (c).......... 300,000 266,250
-----------
BRAZIL (5.0%)
Cia de Saneamento Basico de SP
Series REGS
10.00%, due 7/28/05............ 200,000 153,000
Cia Energetica Minas Gerais
9.125%, due 11/18/04 (c)....... 100,000 90,250
Companhia Paranaense de Energia
Series REGS
9.75%, due 5/2/05.............. 200,000 178,000
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
* Investments are grouped by country of issuance.
<TABLE>
<CAPTION>
Principal
Amount Value
------------- ----------
<S> <C> <C>
BRAZIL (CONTINUED)
Votorantim Celulose e Papel
Series REGS
8.50%, due 6/27/05............. $ 130,000 $ 115,700
-----------
536,950
-----------
CHILE (2.3%)
Empresa Nacional de Electridad
S.A.
8.50%, due 4/1/09 (c).......... 250,000 244,395
-----------
MEXICO (19.7%)
Conproca S.A.
12.00%, due 6/16/10 (c)........ 500,000 470,000
Petroleos Mexicanos
9.50%, due 9/15/27 (c)......... 450,000 429,750
United Mexican States
Series XW
10.375%, due 2/17/09........... 1,200,000 1,225,200
-----------
2,124,950
-----------
SOUTH KOREA (2.6%)
Korea Electric Power Corp.
6.375%, due 12/1/03............ 300,000 282,690
-----------
VENEZUELA (6.1%)
Republic of Venezuela
9.25%, due 9/15/27............. 987,000 658,206
-----------
Total Corporate Bonds
(Cost $4,085,393).............. 4,113,441
-----------
GOVERNMENTS & FEDERAL AGENCIES (18.5%)
ARGENTINA (4.2%)
Republic of Argentina
Series XW
11.00%, due 12/4/05............ 300,000 276,000
11.75%, due 4/7/09............. 200,000 180,000
-----------
456,000
-----------
BRAZIL (10.9%)
Republic of Brazil
10.125%, due 5/15/27........... 250,000 188,750
11.625%, due 4/15/04........... 1,045,000 982,300
-----------
1,171,050
-----------
PANAMA (2.0%)
Republic of Panama
8.875%, due 9/30/27............ 260,000 214,987
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 201
Portfolio of Investments* June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
------------- -------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
TURKEY (1.4%)
Republic of Turkey
12.375%, due 6/15/09........... $ 150,000 $ 148,500
-----------
Total Governments & Federal
Agencies
(Cost $2,098,288).............. 1,990,537
-----------
YANKEE BONDS (12.1%)
ARGENTINA (2.7%)
Acindar Industria Argentina de
Aceros S.A.
11.25%, due 2/15/04............ 100,000 76,000
Mastellone Hermanos S.A.
11.75%, due 4/1/08............. 300,000 216,000
-----------
292,000
-----------
MEXICO (6.4%)
Azteca Holdings S.A.
11.00%, due 6/15/02............ 150,000 126,750
Grupo Elektra S.A.
12.75%, due 5/15/01............ 80,000 77,200
Grupo Televisa S.A.
11.875%, due 5/15/06........... 100,000 102,750
Innova S. de R.L.
12.875%, due 4/1/07............ 200,000 163,000
Telefonos de Mexico S.A.
4.25%, due 6/15/04 (f)......... 100,000 103,250
TV Azteca S.A. de C.V.
10.50%, due 2/15/07............ 145,000 110,925
-----------
683,875
-----------
PHILIPPINES (3.0%)
National Power Corp.
9.625%, due 5/15/28............ 370,000 325,600
-----------
Total Yankee Bonds
(Cost $1,490,728).............. 1,301,475
-----------
Total Long-Term Bonds
(Cost $10,345,883)............. 10,185,418
-----------
Shares
----------
WARRANTS (0.6%)
ARGENTINA (0.0%) (A)
Republic of Argentina
expire 12/3/99................. 100 800
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
------------- -------------
<S> <C> <C>
MEXICO (0.6%)
United Mexican States
expire 2/18/00................. 1,000 $ 62,500
-----------
Total Warrants
(Cost $61,329)................. 63,300
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.3%)
COMMERCIAL PAPER (2.3%)
UNITED STATES (2.3%)
Ford Motor Credit Corp.
5.65%, due 7/1/99.............. $ 250,000 250,000
-----------
Total Short-Term Investment
(Cost $250,000)................ 250,000
-----------
Total Investments
(Cost $10,657,212) (g)......... 97.5% 10,498,718(h)
Cash and Other Assets,
Less Liabilities............... 2.5 270,538
----- ----------
Net Assets...................... 100.0% $10,769,256
===== ==========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
(b) Floating rate. Rate shown is the rate in effect at June
30, 1999.
(c) May be sold to institutional investors only.
(d) CIK ("Cash in Kind")--interest payment is made with cash
or additional securities.
(e) FLIRB (Float Loaded Interest Rate Bond) carries a fixed,
below market interest rate which rises incrementally
over the initial 5 to 7 years of the life of the bond,
and is then replaced by a floating rate coupon for the
remaining life of the bond.
(f) Convertible bond.
(g) The cost for Federal income tax purposes is $10,761,981.
(h) At June 30, 1999 net unrealized depreciation for
securities was $263,263, based on cost for Federal
income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which
there was an excess of market value over cost of
$313,951 and aggregate gross unrealized depreciation for
all investments on which there was an excess of cost
over market value of $577,214.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 202
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$10,657,212).............................................. $10,498,718
Cash........................................................ 169,676
Receivables:
Investment securities sold................................ 660,508
Interest.................................................. 247,729
Fund shares sold.......................................... 34,536
MainStay Management....................................... 5,621
Unamortized organization expense............................ 52,942
-----------
Total assets.............................................. 11,669,730
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 748,852
Transfer agent............................................ 5,878
NYLIFE Distributors....................................... 4,068
Custodian................................................. 1,739
Trustees.................................................. 141
Accrued expenses............................................ 63,314
Dividend payable............................................ 76,482
-----------
Total liabilities......................................... 900,474
-----------
Net assets.................................................. $10,769,256
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 9,326
Class B................................................... 3,975
Class C................................................... 32
Additional paid-in capital.................................. 12,828,199
Accumulated undistributed net investment income............. 42,547
Accumulated net realized loss on investments................ (1,969,192)
Accumulated undistributed net realized gain on foreign
currency transactions..................................... 12,863
Net unrealized depreciation on investments.................. (158,494)
-----------
Net assets.................................................. $10,769,256
===========
CLASS A
Net assets applicable to outstanding shares................. $ 7,538,143
===========
Shares of beneficial interest outstanding................... 932,568
===========
Net asset value per share outstanding....................... $ 8.08
Maximum sales charge (4.50% of offering price).............. 0.38
-----------
Maximum offering price per share outstanding................ $ 8.46
===========
CLASS B
Net assets applicable to outstanding shares................. $ 3,205,601
===========
Shares of beneficial interest outstanding................... 397,468
===========
Net asset value and offering price per share outstanding.... $ 8.07
===========
CLASS C
Net assets applicable to outstanding shares................. $ 25,512
===========
Shares of beneficial interest outstanding................... 3,163
===========
Net asset value and offering price per share outstanding.... $ 8.07
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 203
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 581,186
---------
Expenses:
Management................................................ 35,567
Transfer agent............................................ 25,816
Shareholder communication................................. 22,263
Professional.............................................. 17,474
Registration.............................................. 15,252
Distribution--Class B..................................... 10,281
Distribution--Class C..................................... 40
Service--Class A.......................................... 9,263
Service--Class B.......................................... 3,427
Service--Class C.......................................... 13
Amortization of organization expense...................... 6,690
Recordkeeping............................................. 5,951
Custodian................................................. 4,721
Trustees.................................................. 100
Miscellaneous............................................. 6,108
---------
Total expenses before waiver and reimbursement.......... 162,966
Fees waived and reimbursed by Manager....................... (66,257)
---------
Net expenses............................................ 96,709
---------
Net investment income....................................... 484,477
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... (696,701)
Foreign currency transactions............................. 12,863
---------
Net realized loss on investments and foreign currency
transactions.............................................. (683,838)
---------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... 753,313
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... (3,526)
---------
Net unrealized gain on investments and foreign currency
transactions.............................................. 749,787
---------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 65,949
---------
Net increase in net assets resulting from operations........ $ 550,426
=========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 204
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended June 1, 1998*
June 30, through
1999** December 31, 1998
----------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 484,477 $ 413,053
Net realized loss on investments.......................... (696,701) (1,272,491)
Net realized gain (loss) on foreign currency
transactions............................................ 12,863 (11,682)
Net change in unrealized depreciation on investments...... 753,313 (911,807)
Net change in unrealized appreciation on translation of
other assets and liabilities in foreign currencies and
foreign currency forward contracts...................... (3,526) 3,526
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 550,426 (1,779,401)
----------- -----------
Dividends to shareholders:
From net investment income:
Class A................................................. (329,061) (321,589)
Class B................................................. (113,623) (89,012)
Class C................................................. (530) (142)
----------- -----------
Total dividends to shareholders....................... (443,214) (410,743)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 77,910 9,504,312
Class B................................................. 709,766 2,974,159
Class C................................................. 26,248 19,635
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 8,250 11,928
Class B................................................. 37,371 32,959
Class C................................................. 104 11
----------- -----------
859,649 12,543,004
Cost of shares redeemed:
Class A................................................. (172,550) (116,560)
Class B................................................. (105,321) (136,060)
Class C................................................. (3) (19,971)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 581,775 12,270,413
----------- -----------
Net increase in net assets............................ 688,987 10,080,269
NET ASSETS:
Beginning of period......................................... 10,080,269 --
----------- -----------
End of period............................................... $10,769,256 $10,080,269
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 42,547 $ 1,284
=========== ===========
</TABLE>
- -------
* Commencement of operations.
** Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 205
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------- ------------------------- ---------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period......................... $ 8.00 $ 10.00 $ 7.98 $ 10.00 $ 7.98 $ 7.18
------- ------- ------- ------- ------- -------
Net investment income............ 0.38 0.34 0.35 0.32 0.35 0.27
Net realized and unrealized gain
(loss) on investments.......... 0.04 (1.99) 0.05 (2.01) 0.05 0.81
Net realized and unrealized gain
(loss) on foreign currency
transactions................... 0.01 (0.01) 0.01 (0.01) 0.01 (0.01)
------- ------- ------- ------- ------- -------
Total from investment
operations..................... 0.43 (1.66) 0.41 (1.70) 0.41 1.07
------- ------- ------- ------- ------- -------
Less dividends from net
investment income.............. (0.35) (0.34) (0.32) (0.32) (0.32) (0.27)
------- ------- ------- ------- ------- -------
Net asset value at end of
period......................... $ 8.08 $ 8.00 $ 8.07 $ 7.98 $ 8.07 $ 7.98
======= ======= ======= ======= ======= =======
Total investment return (a)...... 5.56% (16.38)% 5.30% (16.82)% 5.30% 14.99%
Ratios (to average net assets)++/
Supplemental Data:
Net investment income........ 9.74% 7.40% 8.99% 6.65% 8.99% 6.65%
Net expenses................. 1.70% 3.39% 2.45% 4.14% 2.45% 4.14%
Expenses (before waiver and
reimbursement)............. 3.00% 3.59% 3.75% 4.34% 3.75% 4.34%
Portfolio turnover rate.......... 82% 96% 82% 96% 82% 96%
Net assets at end of period (in
000's)......................... $ 7,538 $ 7,548 $ 3,206 $ 2,532 $ 26 $ --(b)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand dollars.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 206
MainStay Global High Yield Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Global High Yield Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek to provide maximum current income by
investing primarily in high yield debt securities of non-U.S. issuers. Capital
appreciation is a secondary objective.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor
16
<PAGE> 207
Notes to Financial Statements unaudited
to be representative of market values at the regular close of business of the
Exchange, and (b) by appraising all other securities and other assets, including
debt securities for which prices are supplied by a pricing agent but are not
deemed by the Subadvisor to be representative of market values, but excluding
money market instruments with a remaining maturity of sixty days or less and
including restricted securities and securities for which no market quotations
are available, at fair value in accordance with procedures approved by the
Trustees. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase was 60 days
or less, or by amortizing the difference between market value on the 61st day
prior to maturity and value on maturity date if their original term to maturity
at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period-end to credit loss in the event of a counterparty's failure
to perform its obligations.
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,460 and are being
amortized over 60 months beginning at the commencement of operations.
17
<PAGE> 208
MainStay Global High Yield Fund
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Interest income is
accrued daily except when collection is not expected. Discounts on securities
purchased for the Fund are accreted on the constant yield method over the life
of the respective securities, or, if applicable, over the period to the first
call date. Premiums on securities purchased are not amortized for this Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Gains and losses from certain foreign currency transactions
are treated as ordinary income for Federal income tax purposes.
18
<PAGE> 209
Notes to Financial Statements unaudited (continued)
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on forward currency contracts, net currency gains or losses realized
as a result of differences between the amounts of securities sale proceeds,
purchase cost, dividends, interest and withholding taxes as recorded on the
Fund's books, and the U.S. dollar equivalent amount actually received or paid.
Net currency gains or losses from valuing foreign currency denominated assets
and liabilities other than investments at period end exchange rates are
reflected in unrealized foreign exchange gains.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.70% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reduce its fee
payable to an annual percentage of 0.50% of the Fund's average daily net assets.
In addition, the Manager has voluntarily agreed to reimburse the expenses of the
Fund to the extent that operating expenses would exceed on an annualized basis
1.70%, 2.45% and 2.45% of the average daily net assets of the Class A, Class B
and Class C shares, respectively. For the six months ended June 30, 1999, the
Manager earned $35,567 which was waived. A reimbursement of Fund expenses
totaling $30,690 was also made.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.35% of the average daily net assets of the Fund. To the extent that
the Manager has agreed to voluntarily reduce its fee, the Subadvisor has
voluntarily agreed to do so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of
19
<PAGE> 210
MainStay Global High Yield Fund
0.25% of the average daily net assets of the Fund's Class A shares, which is an
expense of the Class A shares of the Fund for distribution or service activities
as designated by the Distributor. Pursuant to the Class B and Class C Plans, the
Fund pays the Distributor a monthly fee, which is an expense of the Class B and
Class C shares of the Fund, at the annual rate of 0.75% of the average daily net
assets of the Fund's Class B and Class C shares. The Distribution Plan provides
that the Class B and Class C shares of the Fund also incur a service fee at the
annual rate of 0.25% of the average daily net asset value of the Class B or
Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised that the Distributor retained contingent
deferred sales charges on redemptions of Class B shares of $1,315 for the six
months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued amounted to $25,816 for the six
months ended June 30, 1999.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A and Class B
with net asset values of $7,272,000 and $807,000, respectively. This represents
96.5% and 25.2%, respectively, of the net assets at period end for Class A and B
shares.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $154 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, capital loss carryforwards of $954,715, which have been
deferred for Federal income tax purposes, were available to the extent provided
by regulations to offset future realized gains of
20
<PAGE> 211
Notes to Financial Statements unaudited (continued)
the Fund through 2006. To the extent that these carryforwards are used to offset
future capital gains, it is probable that the capital gains so offset will not
be distributed to shareholders.
The Fund intends to elect to treat for Federal income tax purposes approximately
$213,007 of qualifying realized capital losses that arose during the prior
period as if they arose on January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $8,572 and $7,892, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There was no outstanding
balance on this line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
June 1, 1998*
Six months ended through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................ 10 88 3 957 331 3
Shares issued in reinvestment of
dividends............................ 1 5 --(a) 2 4 --
--- --- --- --- --- ---
11 93 3 959 335 3
Shares redeemed........................ (22) (13) --(a) (15) (18) (3)
--- --- --- --- --- ---
Net increase (decrease)................ (11) 80 3 944 317 --(a)
=== === === === === ===
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
21
<PAGE> 212
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
22
<PAGE> 213
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee GLOBAL HIGH YIELD FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Global High Yield Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA21-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 214
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
Government Fund versus Lehman Brothers
Government Bond Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay Funds 25
</TABLE>
<PAGE> 215
This page intentionally left blank
2
<PAGE> 216
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to
be managed with a consistent, disciplined process, seeking competitive returns
in all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 217
$10,000 Invested in the MainStay
Government Fund versus Lehman Brothers
Government Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -2.90%, 5 Year 5.55%, 10 Year 5.72%
<TABLE>
<CAPTION>
LEHMAN BROTHERS
PERIOD END MAINSTAY GOVERNMENT FUND GOVERNMENT BOND INDEX* INFLATION+
- ---------- ------------------------ ---------------------- ----------
<S> <C> <C> <C>
6/89 9550 10000 10000
6/90 9909 10693 10467
6/91 10816 11777 10959
6/92 12050 13397 11298
6/93 12896 15125 11637
6/94 12715 14922 11926
6/95 14040 16722 12289
6/96 14499 17476 12627
6/97 15482 18769 12917
6/98 17156 20881 13134
6/99 17444 21518 13277
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year -3.97%, 5 Year 5.61%, 10 Year 5.91%
Class C SEC Returns: 1 Year 0.03%, 5 Year 5.93%, 10 Year 5.91%
<TABLE>
<CAPTION>
LEHMAN BROTHERS
PERIOD END MAINSTAY GOVERNMENT FUND GOVERNMENT BOND INDEX* INFLATION+
- ---------- ------------------------ ---------------------- ----------
<S> <C> <C> <C>
6/89 10000 10000 10000
6/90 10376 10693 10467
6/91 11326 11777 10959
6/92 12618 13397 11298
6/93 13504 15125 11637
6/94 13314 14922 11926
6/95 14647 16722 12289
6/96 15037 17476 12627
6/97 15964 18769 12917
6/98 17574 20881 13134
6/99 17754 21518 13277
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 6/30/89
reflecting the effect of the 4.5% up-front sales charge, thereby reducing
the amount of the investment to $9,550 and includes the historical
performance of the Class B shares for periods from 6/30/89 through
12/31/94. Performance data for the two classes vary after this date based
on differences in their load and expense structures. The Class B graph
assumes an initial investment of $10,000 made on 6/30/89. Performance does
not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if shares
are redeemed within the first six years of purchase--as it would not apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 6/30/89 and includes the historical performance of the
Class B shares for periods from 6/30/89 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* The Lehman Brothers Government Bond Index includes issues of the U.S.
government and agencies thereof, as well as fixed-rate debt issues that are
rated investment grade by Moody's, Standard & Poor's, or Fitch, in that
order, with at least one year to maturity. The Index is unmanaged and
results assume the reinvestment of all income and capital gain
distributions. An investment cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 218
Portfolio Management Discussion and Analysis
The bond market saw a reversal of trends between the last half of 1998 and the
first half of 1999. Interest rates had fallen in 1998 as the Federal Reserve
and other worldwide central banks lowered interest rates to bring the global
financial crisis under control. As the new year began, market participants
realized that the Federal Reserve Board's easing policy would not continue.
Many investors believed that another world crisis was no longer imminent and
rates rose approximately 0.50% in the first quarter and another 0.50% in the
second quarter.
During the first half of the year, the strength of the U.S. economy took center
stage. The consumer-led boom was fueled by large tax refunds, the wealth created
by a surging stock market, and excess cash from refinancing mortgages. Overseas,
growth seemed to pick up during the first quarter, as the rally in foreign stock
markets signaled worldwide economic improvement. To begin to slow the U.S.
economy, the Federal Reserve Board increased short-term rates 0.25% on June 30,
1999.
FUND PERFORMANCE
During the first six months of 1999, the MainStay Government Fund returned
- -2.42% for Class A shares and -2.69% for Class B and Class C shares, excluding
all sales charges. Class A shares outperformed and Class B and Class C shares
slightly underperformed the -2.67% return of the average Lipper(1) general U.S.
government fund.
PORTFOLIO STRATEGY
During the first quarter, the average maturity of the Fund's portfolio was in
line with the market (around 7 years) or slightly shorter. The Fund used a
shorter duration to position itself defensively in the second quarter as rates
rose to 6%. Since securities with shorter maturities suffered less than those
with longer maturities when interest rates rose, the Fund's duration strategy
had a positive impact on the Fund's performance for the first half of the year.
In a diminishing Treasury market, liquidity and size continued to expand among
agency securities, leading to an actively traded agency market. Agency yield
spreads widened relative to Treasury securities during the second quarter. We
believe the supply-induced widening has stabilized and we added several agency
positions to the Fund's portfolio.
During the first quarter of 1999, residential and commercial mortgage-backed
bonds and asset-backed securities all performed well, contributing positively to
the Fund's relative performance as yield spreads between mortgage-backed and
Treasury securities tightened. As interest rates increased in the second
quarter, however, mortgage-backed securities tended to have longer maturities
and less-favorable risk profiles.
- -------
(1) See page 9 for additional information about Lipper, Inc.
5
<PAGE> 219
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Total Return %
--------------
<S> <C>
12/86 5.92
12/87 3.53
12/88 6.40
12/89 12.17
12/90 6.92
12/91 13.40
12/92 3.81
12/93 5.88
12/94 -2.85
12/95 16.38
12/96 1.97
12/97 9.12
12/98 8.32
6/99 -2.42
Past performance is no guarantee of future results. Returns
reflect the historical performance of the Class B shares
for the periods 12/86 through 12/94. See footnote * on
page 9 for more information on performance.
</TABLE>
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Total Return %
--------------------------
<S> <C>
12/86 5.92
12/87 3.53
12/88 6.40
12/89 12.17
12/90 6.92
12/91 13.40
12/92 3.81
12/93 5.88
12/94 -2.85
12/95 15.69
12/96 1.25
12/97 8.54
12/98 7.52
6/99 -2.69
Past performance is no guarantee of future results. Class C
share returns reflect the historical performance of the
Class B shares for periods 12/86 through 8/98. See footnote
* on page 9 for more information on performance.
</TABLE>
To help manage this concern, the Fund favored securities that were backed by
commercial mortgages and were in the highest rating category. We believe these
securities offer investors attractive yields and strong credit characteristics
and should provide favorable returns going forward. We continued to add asset-
backed securities to the Fund's portfolio in the second quarter, as yield
spreads to Treasuries continued to approach their widest levels in a year.
6
<PAGE> 220
HIGH CREDIT QUALITY
The Fund continues to focus on top-quality, highly liquid investments. Most of
the Fund's investments during the first half of 1999 were in U.S. Treasury and
agency securities, which are of a higher quality than securities with AAA
ratings.(2) During the reporting period, we continued to avoid leveraged
derivatives and foreign government bonds.
LOOKING FORWARD
Rising interest rates, fewer mortgage refinancing opportunities, and a reduced
flow from tax refunds may begin to cool the expanding economy in the coming
months, which may bring about the effect the Federal Reserve Board is seeking.
We continue to see value in liquidity and have positioned the Fund in very
actively traded securities. Whatever the economy and the markets may bring, the
Fund will continue to seek a high level of current income, consistent with
safety of principal.
Edward Munshower
Christopher Harms
Portfolio Managers
MacKay Shields Financial Corporation
- -------
(2) Currently debt rated AAA has the highest rating assigned by Standard &
Poor's and according to Standard & Poor's, the obligor's capacity to meet
its financial commitment on the obligation is extremely strong. These
ratings are based solely on the creditworthiness of the bonds in the
portfolio and are not meant to represent the stability or safety of the
Fund.
Past performance is no guarantee of future results.
7
<PAGE> 221
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 1.68% 6.53% 6.21% 6.59%
Class B 1.03% 5.93% 5.91% 6.36%
Class C 1.03% 5.93% 5.91% 6.36%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A -2.90% 5.55% 5.72% 6.22%
Class B -3.97% 5.61% 5.91% 6.36%
Class C 0.03% 5.93% 5.91% 6.36%
</TABLE>
FUND LIPPER + RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 78 out of n/a n/a 59 out of
184 funds 121 funds
Class B 127 out of 83 out of 48 out of 27 out of
184 funds 107 funds 50 funds 31 funds
Class C n/a n/a n/a n/a
Average Lipper
general U.S.
government fund 1.48% 6.62% 7.10% 7.03%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.02 $0.2376 $0.0000
Class B $8.01 $0.2058 $0.0000
Class C $8.01 $0.2058 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 4.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes after this date vary based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed within the first six years of
purchase and an annual 12b-1 fee of 1%. Class C shares, first offered to
the public on 9/1/98, are sold with no initial sales charge, but are
subject to a CDSC of 1% if redeemed within one year of purchase and an
annual 12b-1 fee of 1%. Performance figures for Class C shares include the
historical performance of the Class B shares for
8
<PAGE> 222
periods from inception (5/1/86) up to 8/31/98. Performance data for the two
classes after this date vary based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages listed are not class specific. Life of Fund
rankings reflect the performance of each share class from its initial
offering date through 6/30/99. Class A shares were first offered to the
public on 1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98.
Life of fund return for the average Lipper peer fund is for the period
from 5/1/86 through 6/30/99.
9
<PAGE> 223
MainStay Government Fund
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (100.5%)+
ASSET-BACKED SECURITIES (12.1%)
AIRPLANE LEASES (5.0%)
AerCo Ltd.
Series A1 Class A1
5.1775%, due 7/15/23 (d).... $ 4,185,000 $ 4,176,630
Aircraft Finance Trust
Series 1999-1A Class C
8.00%, due 5/15/24 (a)...... 4,210,000 3,988,217
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19 (c)...... 12,549,816 12,352,282
Morgan Stanley Aircraft
Finance
Series 1A Class A1
5.1975%, due 3/15/23
(a)(d)...................... 8,190,000 8,179,107
------------
28,696,236
------------
AUTO LEASES (1.0%)
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02 (c)...... 5,470,000 5,447,682
------------
CONSUMER LOANS (0.2%)
Green Tree Recreational,
Equipment & Consumer Trust
Series 1996-C Class A1
5.2275%, due 10/15/17
(c)(d)...................... 1,132,503 1,131,823
------------
CREDIT CARD RECEIVABLES (0.9%)
Citibank Credit Card Master
Trust 1
Series 1999-1 Class A
5.50%, due 2/15/06 (c)...... 5,525,000 5,321,901
------------
EQUIPMENT LOANS (2.4%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05 (c)...... 5,280,000 5,193,672
Ikon Receivables, LLC
Series 1999-1 Class A3
5.99%, due 5/15/05 (c)...... 6,440,000 6,413,339
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02
(c)(d)...................... 2,245,000 2,218,644
------------
13,825,655
------------
FINANCE (0.8%)
Green Tree Financial Corp.
Series 1999-4 Class A4
6.64%, due 5/1/31 (c)....... 4,750,000 4,766,625
------------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
HOME EQUITY LOANS (1.3%)
Saxon Asset Securities Trust
Series 1997-3 Class AF1
5.2525%, due 10/25/20
(c)(d)...................... $ 691,795 $ 691,657
Southern Pacific Secured
Asset Corp.
Series 1997-1 Class A1
5.1225%, due 4/25/27
(c)(d)...................... 6,708,101 6,693,343
------------
7,385,000
------------
STUDENT LOANS (0.5%)
Nellie Mae, Inc.
Series 1996-1 Class A1
5.16%, due 12/15/04
(c)(d)...................... 2,880,932 2,880,068
------------
Total Asset-Backed Securities
(Cost $70,858,601).......... 69,454,990
------------
MORTGAGE-BACKED SECURITIES (7.9%)
COMMERCIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE
OBLIGATIONS) (7.9%)
Asset Securitization Corp.
Series 1997-MD7 Class A1B
7.41%, due 1/13/30 (c)...... 10,367,000 10,606,063
DLJ Commercial Mortgage Corp.
Series 1999-CG2 Class A1A
6.88%, due 7/10/08 (c)...... 5,315,000 5,380,906
LB Commercial Conduit
Mortgage Trust
Series 1998-C4 Class A1B
6.21%, due 10/15/08 (c)..... 5,095,000 4,855,229
Series 1999-C1 Class A2
6.78%, due 4/15/09 (c)...... 5,175,000 5,116,212
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C2 Class A1
7.1752%, due 6/15/21
(c)(d)...................... 4,206,295 4,227,621
Morgan Stanley Capital I
Series 1998-HF2 Class A1
6.01%, due 11/15/30 (c)..... 2,787,071 2,716,921
Nationslink Funding Corp.
Series 1999-1 Class A2
6.316%, due 11/20/08 (c).... 6,920,000 6,642,785
SASCO Floating Rate
Commercial Mortgage Trust
Series 1998-C3A Class A1A
5.6425%, due 6/25/15
(c)(d)...................... 5,748,937 5,748,936
------------
Total Mortgage-Backed
Securities
(Cost $45,834,479).......... 45,294,673
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 224
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
U.S. GOVERNMENT & FEDERAL AGENCIES (80.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (13.1%)
5.125%, due 2/13/04 (e)..... $ 45,940,000 $ 44,017,870
5.375%, due 3/15/02......... 9,280,000 9,165,949
5.625%, due 3/15/01......... 10,000,000 9,993,500
6.375%, due 6/15/09 (e)..... 12,000,000 11,942,760
------------
75,120,079
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (31.6%)
6.50%, due 5/1/13-4/1/29.... 97,073,610 94,449,316
7.00%, due 11/1/12.......... 4,650,805 4,677,686
7.00%, due 9/15/29 TBA
(b)....................... 36,150,000 35,749,097
7.50%, due 7/14/29 TBA
(b)....................... 45,650,000 46,277,688
------------
181,153,787
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (5.3%)
7.00%, due 9/15/28.......... 21,020,933 20,823,967
8.00%, due 11/15/28......... 9,525,053 9,816,806
------------
30,640,773
------------
UNITED STATES TREASURY BONDS (16.3%)
5.25%, due 11/15/28 (e)..... 7,970,000 7,064,688
7.625%, due 2/15/25 (e)..... 25,795,000 30,425,976
8.875%, due 8/15/17 (e)..... 26,207,000 33,479,442
9.25%, due 2/15/16 (e)...... 17,105,000 22,279,263
------------
93,249,369
------------
UNITED STATES TREASURY NOTES (14.2%)
5.50%, due 5/15/09 (e)...... 33,710,000 32,930,288
6.25%, due 2/28/02 (e)...... 19,090,000 19,376,350
6.625%, due 5/15/07 (e)..... 21,170,000 22,046,649
6.875%, due 5/15/06......... 6,680,000 7,032,771
------------
81,386,058
------------
Total U.S. Government &
Federal Agencies
(Cost $474,933,300)......... 461,550,066
------------
Total Long-Term Investments
(Cost $591,626,380)......... 576,299,729
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.9%)
FEDERAL AGENCIES (6.9%)
Federal Home Loan Bank
4.49%, due 7/1/99 (b)....... $ 12,195,000 $ 12,195,000
Federal Mortgage Corp.
Discount Note
4.84%, due 7/29/99.......... 5,775,000 5,753,222
4.86%, due 7/23/99.......... 8,000,000 7,976,195
4.88%, due 7/14/99.......... 5,820,000 5,809,733
Federal National Mortgage
Association
4.86%, due 7/15/99.......... 7,605,000 7,590,597
------------
Total Short-Term Investments
(Cost $39,324,747).......... 39,324,747
------------
Total Investments
(Cost $630,951,127) (f)..... 107.4% 615,624,476(g)
Liabilities in Excess of
Cash and Other Assets....... (7.4) (42,427,132)
---- ----------
Net Assets................... 100.0% $573,197,344
===== ============
</TABLE>
- -------
(a) May be sold to institutional investors only.
(b) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and the
maturity will be determined upon settlement.
(c) Segregated as collateral for TBA.
(d) Floating rate. Rate shown is the rate in effect at June 30, 1999.
(e) Represents securities out on loan or a portion of which is out on loan.
(f) The cost for federal income tax purposes is $631,661,080.
(g) At June 30, 1999 net unrealized depreciation was $16,036,604, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $389,233 and aggregate unrealized depreciation
for all investments on which there was an excess of cost over market value
of $16,425,837.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 225
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$630,951,127)............................................. $ 615,624,476
Collateral held for securities loaned, at value (Note 2).... 178,508,463
Cash........................................................ 1,531
Receivables:
Investment securities sold................................ 54,616,141
Interest.................................................. 5,787,335
Fund shares sold.......................................... 621,618
-------------
Total assets........................................ 855,159,564
-------------
LIABILITIES:
Securities lending collateral, at value (Note 2)............ $ 178,508,463
Payables:
Investment securities purchased........................... 99,038,287
Fund shares redeemed...................................... 927,959
NYLIFE Distributors....................................... 454,223
MainStay Management....................................... 289,645
Transfer agent............................................ 89,849
Custodian................................................. 37,197
Trustees.................................................. 4,840
Accrued expenses............................................ 133,840
Dividend payable............................................ 2,477,917
-------------
Total liabilities................................... 281,962,220
-------------
Net assets.................................................. $ 573,197,344
=============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 36,857
Class B................................................... 678,696
Class C................................................... 258
Additional paid-in capital.................................. 708,799,969
Accumulated distribution in excess of net investment
income.................................................... (2,095,883)
Accumulated net realized loss on investments................ (118,895,902)
Net unrealized depreciation on investments.................. (15,326,651)
-------------
Net assets.................................................. $ 573,197,344
=============
CLASS A
Net assets applicable to outstanding shares................. $ 29,572,145
=============
Shares of beneficial interest outstanding................... 3,685,725
=============
Net asset value per share outstanding....................... $ 8.02
Maximum sales charge (4.50% of offering price).............. 0.38
-------------
Maximum offering price per share outstanding................ $ 8.40
=============
CLASS B
Net assets applicable to outstanding shares................. $ 543,418,368
=============
Shares of beneficial interest outstanding................... 67,869,603
=============
Net asset value and offering price per share outstanding.... $ 8.01
=============
CLASS C
Net assets applicable to outstanding shares................. $ 206,831
=============
Shares of beneficial interest outstanding................... 25,832
=============
Net asset value and offering price per share outstanding.... $ 8.01
=============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 226
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 18,357,772
------------
Expenses:
Distribution--Class B..................................... 2,123,919
Distribution--Class C..................................... 404
Management................................................ 1,775,882
Service--Class A.......................................... 31,931
Service--Class B.......................................... 707,885
Service--Class C.......................................... 135
Transfer agent............................................ 588,727
Shareholder communication................................. 62,247
Custodian................................................. 43,359
Recordkeeping............................................. 42,821
Registration.............................................. 34,964
Professional.............................................. 31,412
Trustees.................................................. 9,050
Miscellaneous............................................. 9,579
------------
Total expenses.......................................... 5,462,315
------------
Net investment income....................................... 12,895,457
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments............................ (11,615,378)
Net change in unrealized appreciation on investments........ (17,610,534)
------------
Net realized and unrealized loss on investments............. (29,225,912)
------------
Net decrease in net assets resulting from operations........ $(16,330,455)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 227
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
------------- -------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 12,895,457 $ 27,879,194
Net realized gain (loss) on investments................... (11,615,378) 30,978,483
Net change in unrealized appreciation on investments...... (17,610,534) (13,940,211)
------------- -------------
Net increase (decrease) in net assets resulting from
operations.............................................. (16,330,455) 44,917,466
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (764,199) (961,126)
Class B................................................. (14,224,149) (26,599,772)
Class C................................................. (2,992) (904)
Return of capital:
Class A................................................. -- (121,741)
Class B................................................. -- (3,369,262)
Class C................................................. -- (115)
------------- -------------
Total dividends and distributions to shareholders..... (14,991,340) (31,052,920)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 21,241,690 20,636,346
Class B................................................. 46,902,982 107,139,254
Class C................................................. 150,070 95,045
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 520,661 973,289
Class B................................................. 9,294,479 22,960,831
Class C................................................. 658 462
------------- -------------
78,110,540 151,805,227
Cost of shares redeemed:
Class A................................................. (13,010,722) (16,901,003)
Class B................................................. (73,423,340) (189,497,366)
Class C................................................. (33,550) --
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (8,357,072) (54,593,142)
------------- -------------
Net decrease in net assets............................ (39,678,867) (40,728,596)
NET ASSETS:
Beginning of period......................................... 612,876,211 653,604,807
------------- -------------
End of period............................................... $ 573,197,344 $ 612,876,211
============= =============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (2,095,883) $ --
============= =============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 228
This page intentionally left blank
15
<PAGE> 229
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ----------------------------------------------
1999+ 1998 1997 1996 1995
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 8.46 $ 8.27 $ 8.06 $ 8.41 $ 7.76
------- ------- ------- ------- -------
Net investment income................................... 0.20 0.43 0.50 0.50 0.58
Net realized and unrealized gain (loss) on
investments........................................... (0.40) 0.24 0.21 (0.35) 0.65
------- ------- ------- ------- -------
Total from investment operations........................ (0.20) 0.67 0.71 0.15 1.23
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............................ (0.24) (0.43) (0.50) (0.50) (0.58)
In excess of net investment income.................... -- -- -- -- (0.00)(b)
Return of capital....................................... -- (0.05) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions....................... (0.24) (0.48) (0.50) (0.50) (0.58)
------- ------- ------- ------- -------
Net asset value at end of period........................ $ 8.02 $ 8.46 $ 8.27 $ 8.06 $ 8.41
======= ======= ======= ======= =======
Total investment return (a)............................. (2.42%) 8.32% 9.12% 1.97% 16.38%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............................... 5.07%++ 5.20% 6.23% 6.3% 7.3%
Expenses............................................ 1.13%++ 1.12% 1.09% 1.0% 1.0%
Portfolio turnover rate................................. 125% 371% 338% 307% 540%
Net assets at end of period (in 000's).................. $29,572 $22,189 $17,114 $16,413 $12,784
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 230
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------------------------------- ---------------------------
Six months September 1, Six months September 1,**
ended Year ended December 31, through Year ended ended through
June 30, ----------------------------------------- December 31, August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998
---------- -------- -------- -------- -------- ------------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.76 $ 8.04 $ 8.77 $ 8.44 $ 8.43
-------- -------- -------- -------- -------- ---------- ---------- -------- --------
0.18 0.37 0.45 0.46 0.54 0.19 0.57 0.18 0.12
(0.40) 0.24 0.21 (0.37) 0.65 (0.29) (0.71) (0.40) 0.03
-------- -------- -------- -------- -------- ---------- ---------- -------- --------
(0.22) 0.61 0.66 0.09 1.19 (0.10) (0.14) (0.22) 0.15
-------- -------- -------- -------- -------- ---------- ---------- -------- --------
(0.21) (0.37) (0.45) (0.46) (0.54) (0.18) (0.57) (0.21) (0.12)
-- -- -- -- (0.00)(b) -- (0.01) -- --
-- (0.05) -- -- -- -- (0.01) -- (0.02)
-------- -------- -------- -------- -------- ---------- ---------- -------- --------
(0.21) (0.42) (0.45) (0.46) (0.54) (0.18) (0.59) (0.21) (0.14)
-------- -------- -------- -------- -------- ---------- ---------- -------- --------
$ 8.01 $ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.76 $ 8.04 $ 8.01 $ 8.44
======== ======== ======== ======== ======== ========== ========== ======== ========
(2.69%) 7.52% 8.54% 1.25% 15.69% (1.24%) (1.63%) (2.69%) 1.75%
4.32%++ 4.45% 5.67% 5.7% 6.7% 7.1%++ 7.1% 4.32%++ 4.45%++
1.88%++ 1.87% 1.65% 1.6% 1.7% 1.7%++ 1.7% 1.88%++ 1.87%++
125% 371% 338% 307% 540% 143% 491% 125% 371%
$543,418 $590,592 $636,491 $782,970 $990,184 $1,024,492 $1,119,586 $ 207 $ 94
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 231
MainStay Government Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Government Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek a high level of current income,
consistent with safety of principal.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, (b) by appraising options and futures contracts at the
last sale price on the market where such options or futures are principally
traded, and (c) by appraising all other securities and other assets, including
debt securities for which prices are supplied by a pricing agent but are not
deemed by the Subadvisor to be representative of market values, but excluding
money market instruments with a remaining maturity of sixty days or less and
including restricted securities and securities for which no market quotations
are available, at fair value in accordance with procedures approved by the
Trustees. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are
18
<PAGE> 232
Notes to Financial Statements unaudited
valued at amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing the difference between market value on the 61st day prior
to maturity and value on maturity date if their original term to maturity at
purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities and the regular
close of the Exchange will not be reflected in the Fund's calculation of net
asset value unless the Subadvisor believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.
MORTGAGE DOLLAR ROLLS. The Fund enters into mortgage dollar roll ("MDR")
transactions in which it sells mortgage-backed securities ("MBS") from its
portfolio to a counterparty from whom it simultaneously agrees to buy a similar
security on a delayed delivery basis. The MDR transactions of the Fund are
classified as purchase and sale transactions. The securities sold in connection
with the MDRs are removed from the portfolio and a realized gain or loss is
recognized. The securities the Fund has agreed to acquire are included at market
value in the portfolio of investments and liabilities for such purchase
commitments are included as payables for investments purchased. The Fund
maintains a segregated account with its custodian containing securities from its
portfolio having a value not less than the repurchase price, including accrued
interest. MDR transactions involve certain risks, including the risk that the
MBS returned to the Fund at the end of the roll, while substantially similar,
could be inferior to what was initially sold to the counterparty.
SECURITIES LENDING. The Fund may lend its securities to broker-dealers and
financial institutions. The loans are secured by collateral (cash or securities)
at least equal at all times to the market value of the securities loaned. The
Fund may bear the risk of delay in recovery of, or loss of rights in, the
securities loaned should the borrower of the securities fail financially. The
Fund receives compensation for lending its securities in the form of fees or it
retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
At June 30, 1999, the Fund had securities on loan with a market value of
$173,050,442 to broker-dealers and government securities dealers.
Cash collateral received by the Fund is invested in investment grade commercial
paper, or other securities in accordance with the Fund's Securities Lending
Procedures. Such investments are included as an asset and a corresponding
liability in the Statement of Assets and Liabilities. While the Fund invests
cash collateral in investment grade securities or other "high quality"
investment vehicles, the Fund bears the risk that liability for the collateral
may exceed the value of the investment.
19
<PAGE> 233
MainStay Government Fund
Net income earned by the Fund for securities lending transactions amounted to
$157,257, net of broker fees and rebates, for the six months ended June 30,
1999, which is included as interest income on the Statement of Operations.
Investments made with cash collateral at June 30, 1999:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Amsterdam Funding Corp.
5.127%, due 8/18/99....................................... $ 4,000,000 $ 3,963,311
Atlantis One Funding Corp.
5.104%, due 7/1/99........................................ 10,000,000 9,991,500
Bankers Trust Corp.
5.06%, due 8/9/99......................................... 10,000,000 9,999,800
Cincinnati Bell Inc.
5.901%, due 7/1/99........................................ 3,800,000 3,799,377
Edison Funding Co.
4.998%, due 7/27/99....................................... 7,950,000 7,794,180
Liberty Lighthouse Corp.
5.16%, due 11/5/99........................................ 25,000,000 24,988,996
Park Avenue Receivables Corp.
5.376%, due 7/7/99........................................ 25,000,000 24,973,896
Textron Financial Corp.
5.255%, due 11/24/99...................................... 18,000,000 17,997,403
------------
103,508,463
------------
REPURCHASE AGREEMENTS
Bear Stearns Securities Corp.
6.90%, due 12/31/99
(Collateralized by
$2,280,000 FSA Finance, Inc.
8.31%, due 6/1/07, Market Value $2,265,750
$24,485,000 Federal Home Loan Mortgage Corp.
6.50%, due 2/15/24, Market Value $23,565,797)....... 25,000,000 25,000,000
</TABLE>
20
<PAGE> 234
Notes to Financial Statements unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (continued)
Morgan (J.P) Securities Inc.
6.09%, due 12/31/99
(Collateralized by
$5,000,000 Anheuser-Busch Co. Inc.
5.65%, due 9/15/08, Market Value $4,600,000
$5,745,000 Artesia Bank S.C.
7.25%, due 9/29/49, Market Value $5,498,649
$5,000,000 Cox Enterprises Inc.
6.625%, due 6/14/02, Market Value $4,974,055
$5,000,000 General Motors Acceptance Corp.
5.58%, due 4/5/04, Market Value $4,999,800
$4,615,000 Laidlaw Inc.
7.65%, due 5/15/06, Market Value $4,476,550
$737,905 New Times Mirror
7.50%, due 7/1/23, Market Value $735,138)........ $25,000,000 $ 25,000,000
Lehman Brothers Inc.
6.20%, due 12/31/99
(Collateralized by
$46,060,000 Green Tree Financial Corp.
6.90%, due 2/15/04, Market Value $10,034,277
$20,445,000 Green Tree Financial Corp.
7.25%, due 7/15/05, Market Value $10,675,842
$3,090,000 Green Tree Financial Corp.
7.85%, due 7/15/04, Market Value $759,210
$2,360,000 Green Tree Financial Corp.
7.37%, due 7/15/29, Market Value $2,442,466
$945,000 Green Tree Financial Corp.
6.10%, due 10/15/18, Market Value $927,725
$720,000 Green Tree Financial Corp.
7.95%, due 7/15/25, Market Value $662,213)....... 25,000,000 25,000,000
------------
75,000,000
------------
$178,508,463
============
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain
21
<PAGE> 235
MainStay Government Fund
distributions are determined in accordance with Federal income tax regulations
which may differ from generally accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage backed securities. Interest
income is accrued daily except when collection is not expected. Discounts on
securities purchased for the Fund are accreted on the constant yield method over
the life of the respective securities. Premiums on securities purchased are not
amortized for this Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.60% of the Fund's
average daily net assets. The Manager has voluntarily established a fee
breakpoint, which may be discontinued at any time, of 0.55% on assets in excess
of $1 billion. For the six months ended June 30, 1999 the Manager earned
$1,775,882. It was not necessary for the Manager to waive part of its fee for
this period.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.30% of
the average daily net assets of the Fund on assets up to $1 billion. To the
extent that the Manager has voluntarily established a fee breakpoint, the
Subadvisor has voluntarily agreed to do so proportionately.
22
<PAGE> 236
Notes to Financial Statements unaudited (continued)
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $12,988 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemption of Class B shares of $275,398
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $588,727.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $9,170 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$42,821 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, capital loss
carryforwards of $106,440,455 were available, as shown in the table below, to
the extent provided by regulations to offset future realized gains
23
<PAGE> 237
MainStay Government Fund
of the Fund through 2005. To the extent that these carryforwards are used to
offset future capital gains, it is probable that the capital gains so offset
will not be distributed to shareholders.
<TABLE>
<CAPTION>
CAPITAL LOSS AMOUNT
AVAILABLE THROUGH (000'S)
- ----------------- --------
<S> <C>
2002...................................................... $ 91,253
2004...................................................... 13,291
2005...................................................... 1,896
--------
$106,440
========
</TABLE>
The Fund intends to treat for Federal income tax purposes approximately $130,116
of qualifying capital losses that arose during the prior year as if they arose
on January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of U.S.
Government securities were $611,715 and $743,871, respectively. Purchases and
sales of securities other than U.S. Government securities, securities subject to
repurchase transactions and short-term securities, were $156,711 and $129,465,
respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1999+ DECEMBER 31, 1998
------------------------------ ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................... 2,574 5,666 19 2,439 12,725 11
Shares issued in reinvestment of
dividends........................... 63 1,129 --(a) 116 2,741 --
------ ------- -- ------ ------- --
2,637 6,795 19 2,555 15,466 11
Shares redeemed....................... (1,575) (8,911) (4) (2,001) (22,634) --
------ ------- -- ------ ------- --
Net increase (decrease)............... 1,062 (2,116) 15 554 (7,168) 11
====== ======= == ====== ======= ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand shares.
</TABLE>
24
<PAGE> 238
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
25
<PAGE> 239
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<PAGE> 240
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee GOVERNMENT FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Government Fund. It may be given to others only when
preceded or accompanied by an effective MainStay Funds prospectus.
This report does not offer to sell any securities or solicit orders
to buy them.
(c)1999. All rights reserved. MSSA08-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 241
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Growth
Opportunities Fund versus Lipper Growth
& Income Funds Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 17
The MainStay Funds 22
</TABLE>
<PAGE> 242
This page intentionally left blank
2
<PAGE> 243
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to
be managed with a consistent, disciplined process, seeking competitive returns
in all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 244
$10,000 Invested in the MainStay Growth
Opportunities Fund versus Lipper Growth &
Income Funds Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 18.84%, Since Inception 24.21%
<TABLE>
<CAPTION>
MAINSTAY GROWTH LIPPER GROWTH & INCOME
PERIOD END OPPORTUNITIES FUND FUNDS INDEX* INFLATION (CPI)+
- ---------- -------------------------- ---------------------- ----------------
<S> <C> <C> <C>
6/1/98 9450 10000 10000
6/98 10055 10120 10006
9/98 9308 8858 10043
12/98 11208 10298 10098
3/99 11765 10517 10135
6/99 12644 11493 10209
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 19.74%, Since Inception 26.17%
<TABLE>
<CAPTION>
MAINSTAY GROWTH LIPPER GROWTH & INCOME
PERIOD END OPPORTUNITIES FUND FUNDS INDEX* INFLATION (CPI)+
- ---------- -------------------------- ---------------------- ----------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10630 10120 10006
9/98 9820 8858 10043
12/98 11800 10298 10098
3/99 12360 10517 10135
6/99 12730 11493 10209
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 23.74%, Since Inception 29.79%
<TABLE>
<CAPTION>
MAINSTAY GROWTH LIPPER GROWTH & INCOME
PERIOD END OPPORTUNITIES FUND FUNDS INDEX* INFLATION (CPI)+
- ---------- -------------------------- ---------------------- ----------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10630 10120 10006
9/98 9820 8858 10043
12/98 11800 10298 10098
3/99 12360 10517 10135
6/99 13260 11493 10209
</TABLE>
4
<PAGE> 245
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense
limitations, without which total return figures may have been lower. The
fee waivers and/or expense limitations are voluntary and may be
discontinued at any time. The Class A graph assumes an initial investment
of $10,000 made on 6/1/98 reflecting the effect of the 5.5% up-front
sales charge, thereby reducing the amount of the investment to $9,450.
The Class B graph assumes an initial investment of $10,000 made on
6/1/98. Performance reflects a 4% Contingent Deferred Sales Charge
(CDSC), as it would apply for the period shown. The Class C graph assumes
an initial investment of $10,000 made on 6/1/98 and includes the
historical performance of the Class B shares for periods from 6/1/98
through 8/31/98. Performance data for the two classes vary after this
date based on differences in their loads. Performance does not reflect
the CDSC--1% if redeemed within one year of purchase--as it would not
apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* The Lipper Growth & Income Funds Index is an equally weighted performance
index, adjusted for capital gains and income dividends, of the 30 largest
qualifying funds in the growth and income investment objective. An
investment cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 246
Portfolio Management Discussion and Analysis
The equity markets continued their strong yet volatile performance during the
first six months of 1999, with U.S. large-capitalization equity indices reaching
ever-higher milestones. Overall, the S&P 500 Index(1) posted a return of 12.39%
for the six-month period. The most significant factor influencing the stock
market was the impressive performance of U.S. corporate earnings. Accelerated
earnings growth was first witnessed in March 1999, causing investor sentiment to
turn away from traditional growth stocks, which have dominated the domestic
equity market for so long, in favor of value stocks.
The upward move in corporate earnings, however, was accompanied by a rise in
interest rates, which somewhat moderated market gains. At the end of June, the
Federal Reserve Board raised the targeted federal funds rate by 0.25% on
concerns that a strong economy would rekindle inflation. While there was still
little evidence of inflation, this monetary policy tightening was intended to
make sure the economy does not get derailed by a spiral of rising wages and
prices.
STRONG FUND PERFORMANCE
The MainStay Growth Opportunities Fund returned 12.82% for Class A shares and
12.37% for both Class B and Class C shares, excluding all sales charges, for the
six months ended June 30, 1999. All share classes outperformed the average
Lipper(2) growth & income fund, which returned 10.93% for the same period.
The Fund's strong performance was primarily due to three factors:
- - holdings in the technology and communication services sectors, which generated
impressive results in the first-half of 1999,
- - energy and basic materials holdings, which rebounded sharply off depressed
valuation levels, and
- - a shift in the Fund's portfolio allocation from growth to value stocks.
STRATEGIC SECTOR ALLOCATION
The Fund entered 1999 structured with a strong bias toward the growth segment of
the market. As our expectations heightened for improved corporate earnings,
however, we began to reposition the portfolio to a more neutral weighting
between growth and value stocks. The Fund benefited when value stocks
outperformed the overall market in the second calendar quarter, with earnings in
those value sectors exceeding the expectations of many analysts. By making such
a timely shift, the relative performance of the Fund withstood the sharp market
rotation into the value segment of the market during April and May, maintaining
above-average returns and reduced volatility.
Two of the Fund's best-performing hold-ings during the six-month period were
Nortel Networks and Tellabs, both in the telecommunications equipment industry.
Both companies benefited from strong demand for their products in the telecom
infrastructure segment of the economy. Holdings of MediaOne Group, a cable
systems operator, also generated strong returns in the first half of the year,
appreciating as two suitors attempted to
(1) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
(2) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 247
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98 AND SIX MONTHS
ENDED 6/30/99
[FUND PERFORMANCE BAR CHART]
<TABLE>
<CAPTION>
Period end Total Return %
<S> <C>
12/98 18.60 Class A
6/99 12.82 Class A
12/98 18.00 Class B and Class C
6/99 12.37 Class B and Class C
</TABLE>
Past performance is no guarantee of future results. Class C share returns the
historical performance of the Class B shares for periods 6/98 through 8/98.
See footnote * on page 9 for more information on performance.
acquire the company. Global Crossing, a leading independent provider of undersea
fiber-optic telecommunications systems, also provided strong results for the
Fund, primarily due to the anticipated growth of intercontinental communication
demand over the next decade. Halliburton, one of the world's largest oil service
companies, and Texas Instruments, a leading semiconductor manufacturer, were
other impressive performers for the Fund. The former rebounded off depressed
valuation levels as the steady increase in oil prices positively impacted the
company's growth prospects. The latter continued to benefit from its strong
competitive position in a crowded but fast-growing industry.
Several new purchases had a positive impact on performance during the semiannual
period, including Alcoa, AlliedSignal, Smurfit-Stone Container, and Eaton Corp.
We added these holdings as we positioned the portfolio in more value-oriented
equities. All of these companies' businesses are cyclical in nature, and we
believe they are poised for improving earnings growth throughout the next year.
Perhaps the worst performers in the Fund's investment portfolio were Service
Corp. International, one of the world's largest operators of funeral homes, and
Rite Aid, one of the largest drug store chains. Both companies surprised
investors with earnings disappointments that severely hurt the prices of their
stocks. We sold both of these positions at a loss to the Fund, believing that
negative earnings surprises generally erode management credibility and that
recovery may take several years.
LOOKING AHEAD
We believe corporate earnings may continue to meet or exceed estimates
throughout the remainder of 1999, and thus our strategic outlook going forward
remains positive. In our opinion, the improvement in corporate earnings may
broaden what has been extremely narrow
7
<PAGE> 248
market performance. On the other hand, continued earnings growth may also cause
interest rates to trend upward in the near term, although we do not expect the
move to be significant. We believe the more cyclical or value-oriented segments
of the market may continue to outperform, and as of June 30, 1999, we have moved
the Fund to a neutral weighting among virtually all sectors, with the exception
of consumer staples, financial, and health care, which are slightly
underweighted. No matter where the markets may move, the Fund will continue to
seek long-term growth of capital, with income as a secondary consideration.
James Agostisi
Patricia S. Rossi
Portfolio Managers
Madison Square Advisors, Inc.
Past performance is no guarantee of future results.
8
<PAGE> 249
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 25.75% 30.87%
Class B 24.74% 29.79%
Class C 24.74% 29.79%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 18.84% 24.21%
Class B 19.74% 26.17%
Class C 23.74% 29.79%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 49 out of 19 out of
842 funds 833 funds
Class B 63 out of 29 out of
842 funds 833 funds
Class C n/a n/a
Average Lipper
growth & income fund 14.49% 16.56%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $13.38 $0.0000 $0.0000
Class B $13.26 $0.0000 $0.0000
Class C $13.26 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes after this date vary based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages listed are not class specific. Life of Fund
rankings reflect the performance of each share class from its initial
offering date through 6/30/99. Class A and Class B shares were first
offered to the public on 6/1/98, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
6/1/98 through 6/30/99.
9
<PAGE> 250
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMMON STOCKS (89.6%)+
ALUMINUM (1.0%)
Alcoa Inc....................... 9,000 $ 556,875
-----------
BANKS (3.1%)
Bank of America Corp............ 6,000 439,875
Bank of New York Co., Inc.
(The).......................... 10,000 366,875
Mellon Bank Corp................ 14,000 509,250
U.S. Bancorp.................... 12,000 408,000
-----------
1,724,000
-----------
BEVERAGES (1.4%)
Anheuser-Busch Cos., Inc........ 6,000 425,625
Pepsi Bottling Group, Inc.
(The).......................... 15,000 345,938
-----------
771,563
-----------
BROADCAST/MEDIA (4.2%)
Capstar Broadcasting Corp.
Class A (a).................... 15,000 410,625
Clear Channel Communications,
Inc. (a)....................... 4,000 275,750
Comcast Corp. Special Class A
(a)............................ 10,400 399,750
MediaOne Group, Inc. (a)........ 8,000 595,000
News Corp. Ltd. (The) (b)....... 13,000 459,063
USA Networks, Inc. (a).......... 5,000 200,625
-----------
2,340,813
-----------
CHEMICALS (1.0%)
IMC Global Inc.................. 18,000 317,250
Praxair Inc..................... 5,000 244,687
-----------
561,937
-----------
COMMUNICATIONS--EQUIPMENT (6.8%)
ADC Telecommunications, Inc.
(a)............................ 11,000 501,188
Cisco Systems, Inc. (a)......... 10,000 643,125
Lucent Technologies Inc......... 9,900 667,631
Nokia Corp. (b)................. 9,000 824,063
Nortel Networks Corp............ 7,000 607,687
Tellabs, Inc. (a)............... 8,000 540,500
-----------
3,784,194
-----------
COMPUTER SOFTWARE & SERVICES (3.5%)
America Online, Inc. (a)........ 7,000 773,500
Ceridian Corp. (a).............. 8,400 274,575
Microsoft Corp. (a)............. 6,000 541,125
SunGard(R) Data Systems Inc.
(a)............................ 10,000 345,000
-----------
1,934,200
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMPUTER SYSTEMS (4.1%)
Comdisco Inc.................... 19,000 $ 486,875
EMC Corp. (a)................... 8,000 440,000
Hewlett-Packard Co.............. 7,000 703,500
Sun Microsystems, Inc. (a)...... 10,000 688,750
-----------
2,319,125
-----------
CONTAINERS--PAPER (0.7%)
Smurfit-Stone Container Corp.
(a)............................ 20,000 411,250
-----------
ELECTRIC POWER COMPANIES (0.8%)
Duke Energy Corp................ 8,000 435,000
-----------
ELECTRICAL EQUIPMENT (3.3%)
Emerson Electric Co............. 7,000 440,125
General Electric Co............. 9,000 1,017,000
SPX Corp. (a)................... 5,000 417,500
-----------
1,874,625
-----------
ELECTRONICS (5.0%)
Applied Materials, Inc. (a)..... 9,000 664,875
Motorola, Inc................... 6,000 568,500
Texas Instruments Inc........... 6,000 870,000
Vitesse Semiconductor Corp.
(a)............................ 10,000 674,375
-----------
2,777,750
-----------
ENTERTAINMENT (1.2%)
Time Warner Inc................. 9,000 648,000
-----------
FINANCE (4.4%)
American Express Co............. 5,000 650,625
American General Corp........... 6,000 452,250
Associates First Capital Corp.
Class A........................ 9,000 398,812
Citigroup Inc................... 13,000 617,500
Freddie Mac..................... 6,000 348,000
-----------
2,467,187
-----------
FOOD & HEALTH CARE DISTRIBUTORS (1.6%)
Cardinal Health, Inc............ 7,000 448,875
Sysco Corp...................... 15,000 447,188
-----------
896,063
-----------
HEALTH CARE-DRUGS (3.0%)
Glaxo Wellcome PLC ADR (b)...... 5,000 283,125
Lilly (Eli) & Co................ 5,000 358,125
Pfizer Inc...................... 3,000 329,250
Pharmacia & UpJohn, Inc......... 7,000 397,687
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 251
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE-DRUGS (CONTINUED)
SmithKline Beecham PLC ADR
(b)............................ 5,000 $ 330,313
-----------
1,698,500
-----------
HEALTH CARE--MEDICAL PRODUCTS (0.6%)
Biomet, Inc..................... 8,000 318,000
Genzyme Corp. (Surgical
Products) (a).................. 895 3,944
-----------
321,944
-----------
HEALTH CARE--MISCELLANEOUS (4.0%)
Abbott Laboratories............. 9,000 409,500
American Home Products Corp..... 8,000 460,000
Bristol-Myers Squibb Co......... 6,000 422,625
Johnson & Johnson............... 5,000 490,000
Warner-Lambert Co............... 6,750 468,281
-----------
2,250,406
-----------
HEAVY DUTY TRUCKS & PARTS (1.3%)
Eaton Corp...................... 8,000 736,000
-----------
INSURANCE (3.0%)
Allstate Corp. (The)............ 10,000 358,750
American International Group,
Inc............................ 4,200 491,662
Marsh & McLennan Cos., Inc...... 6,000 453,000
Provident Cos., Inc............. 10,000 400,000
-----------
1,703,412
-----------
INTERNET SOFTWARE & SERVICES (0.2%)
Rhythms NetConnections Inc.
(a)............................ 1,500 87,563
-----------
MACHINERY (1.0%)
Ingersoll-Rand Co............... 9,000 581,625
-----------
MANUFACTURING (2.5%)
AlliedSignal Inc................ 12,000 756,000
Tyco International Ltd.......... 7,000 663,250
-----------
1,419,250
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.1%)
Coastal Corp. (The)............. 13,500 540,000
Enron Corp...................... 8,000 654,000
-----------
1,194,000
-----------
OFFICE EQUIPMENT & SUPPLIES (1.1%)
Xerox Corp...................... 10,000 590,625
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
OIL & GAS DRILLING (0.5%)
Transocean Offshore Inc......... 10,000 $ 262,500
-----------
OIL & GAS--EQUIPMENT & SERVICES (1.8%)
Halliburton Co.................. 11,000 497,750
Schlumberger N.V................ 8,000 509,500
-----------
1,007,250
-----------
OIL-INTEGRATED INTERNATIONAL (2.9%)
BP Amoco PLC (b)................ 2,646 287,091
Conoco Inc.--Class A............ 18,000 501,750
Exxon Corp...................... 2,900 223,662
Mobil Corp...................... 6,000 594,000
-----------
1,606,503
-----------
PAPER & FOREST PRODUCTS (0.8%)
Boise Cascade Corp.............. 11,000 473,000
-----------
PUBLISHING (0.9%)
McGraw-Hill Cos., Inc. (The).... 9,000 485,438
-----------
RAILROADS (0.8%)
Union Pacific Corp.............. 8,000 466,500
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (0.8%)
Chelsea GCA Realty, Inc......... 6,800 252,450
Glenborough Realty Trust Inc.... 12,000 210,000
-----------
462,450
-----------
RETAIL (6.4%)
Costco Cos., Inc. (a)........... 8,000 640,500
CVS Corp........................ 8,300 424,337
Federated Department Stores,
Inc. (a)....................... 11,000 582,313
GoTo.com, Inc. (a).............. 5,000 140,000
Kroger Co. (The) (a)............ 24,000 670,500
Safeway Inc. (a)................ 12,000 594,000
Wal-Mart Stores, Inc............ 11,000 530,750
-----------
3,582,400
-----------
SPECIALIZED SERVICES (4.5%)
Acxiom Corp. (a)................ 18,000 448,875
Cendant Corp. (a)............... 30,000 615,000
Dun & Bradstreet Corp. (The).... 12,000 425,250
Fiserv, Inc. (a)................ 10,500 328,781
ServiceMaster Co. (The)......... 15,000 281,250
Young & Rubicam Inc............. 9,500 431,656
-----------
2,530,812
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 252
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (6.2%)
Allegiance Telecom, Inc. (a).... 6,500 $ 356,687
AT&T Corp....................... 9,000 502,313
Global Crossing Ltd. (a)........ 9,600 408,600
MCI WorldCom, Inc. (a).......... 8,000 690,000
Qwest Communications
International Inc. (a)......... 10,000 330,625
Sprint Corp. (FON Group)........ 10,000 528,125
Sprint Corp. (PCS Group) (a).... 1,250 71,406
Time Warner Telecom Inc.--Class
A (a).......................... 2,500 72,500
WinStar Communications, Inc.
(a)............................ 10,000 487,500
-----------
3,447,756
-----------
TELEPHONE (2.6%)
ALLTEL Corp..................... 7,000 500,500
Ameritech Corp.................. 7,000 514,500
Bell Atlantic Corp.............. 7,000 457,625
-----------
1,472,625
-----------
WASTE DISPOSAL (0.5%)
Republic Services, Inc. Class A
(a)............................ 12,000 297,000
-----------
Total Common Stocks
(Cost $42,265,188)............. 50,180,141
-----------
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.8%)
COMMERCIAL PAPER (11.8%)
BMW US Capital Corp.
5.20%, due 7/2/99.............. $2,000,000 $ 1,999,711
General Electric Capital Corp.
5.70%, due 7/1/99.............. 2,626,000 2,626,000
Orange & Rockland Utility
5.21%, due 7/8/99.............. 2,000,000 1,997,973
-----------
Total Short-Term Investments
(Cost $6,623,684).............. 6,623,684
-----------
Total Investments
(Cost $48,888,872) (c)......... 101.4% 56,803,825(d)
Liabilities In Excess of Cash
and Other Assets............... (1.4) (774,692)
---------- -----------
Net Assets...................... 100.0% $56,029,133
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At June 30, 1999, net unrealized appreciation was $7,914,953, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $8,490,287 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $575,334.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 253
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$48,888,872).............................................. $56,803,825
Cash........................................................ 17,926
Receivables:
Investment securities sold................................ 2,697,072
Fund shares sold.......................................... 292,122
Dividends and interest.................................... 35,653
Unamortized organization expense............................ 52,942
-----------
Total assets............................................ 59,899,540
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 3,713,519
MainStay Management....................................... 32,706
NYLIFE Distributors....................................... 31,855
Transfer agent............................................ 24,460
Fund shares redeemed...................................... 5,055
Custodian................................................. 4,910
Trustees.................................................. 267
Accrued expenses............................................ 57,635
-----------
Total liabilities....................................... 3,870,407
-----------
Net assets.................................................. $56,029,133
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,399
Class B................................................... 27,617
Class C................................................... 107
Additional paid-in capital.................................. 47,623,108
Accumulated net investment loss............................. (120,256)
Accumulated undistributed net realized gain on
investments............................................... 569,205
Net unrealized appreciation on investments.................. 7,914,953
-----------
Net assets.................................................. $56,029,133
===========
CLASS A
Net assets applicable to outstanding shares................. $19,259,271
===========
Shares of beneficial interest outstanding................... 1,439,877
===========
Net asset value per share outstanding....................... $ 13.38
Maximum sales charge (5.50% of offering price).............. 0.78
-----------
Maximum offering price per share outstanding................ $ 14.16
===========
CLASS B
Net assets applicable to outstanding shares................. $36,627,394
===========
Shares of beneficial interest outstanding................... 2,761,749
===========
Net asset value and offering price per share outstanding.... $ 13.26
===========
CLASS C
Net assets applicable to outstanding shares................. $ 142,468
===========
Shares of beneficial interest outstanding................... 10,742
===========
Net asset value and offering price per share outstanding.... $ 13.26
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 254
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 177,317
Interest.................................................. 122,431
----------
Total income............................................ 299,748
----------
Expenses:
Management................................................ 139,758
Distribution--Class B..................................... 90,507
Distribution--Class C..................................... 65
Transfer agent............................................ 69,467
Service--Class A.......................................... 19,723
Service--Class B.......................................... 30,169
Service--Class C.......................................... 21
Shareholder communication................................. 21,299
Registration.............................................. 18,940
Professional.............................................. 15,115
Recordkeeping............................................. 8,178
Organization.............................................. 6,690
Custodian................................................. 5,878
Trustees.................................................. 545
Miscellaneous............................................. 10,406
----------
Total expenses before reimbursement..................... 436,761
Expense reimbursement from Manager.......................... (16,757)
----------
Net expenses............................................ 420,004
----------
Net investment loss......................................... (120,256)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 843,518
Net change in unrealized appreciation on investments........ 4,176,626
----------
Net realized and unrealized gain on investments............. 5,020,144
----------
Net increase in net assets resulting from operations........ $4,899,888
==========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Dividends recorded net of foreign withholding taxes of $1,250.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 255
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended June 1, 1998**
June 30, through
1999* December 31, 1998
----------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (120,256) $ (108,699)
Net realized gain (loss) on investments................... 843,518 (276,582)
Net change in unrealized appreciation on investments...... 4,176,626 3,738,327
----------- -----------
Net increase in net assets resulting from operations...... 4,899,888 3,353,046
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 4,831,785 11,499,713
Class B................................................. 23,624,245 12,537,474
Class C................................................. 138,026 310
Cost of shares redeemed:
Class A................................................. (809,464) (106,967)
Class B................................................. (2,299,456) (1,639,458)
Class C................................................. (7) (2)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 25,485,129 22,291,070
----------- -----------
Net increase in net assets............................ 30,385,017 25,644,116
NET ASSETS:
Beginning of period......................................... 25,644,116 --
----------- -----------
End of period............................................... $56,029,133 $25,644,116
=========== ===========
Accumulated net investment loss at end of period............ $ (120,256) $ --
=========== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
* Unaudited.
** Commencement of operations.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 256
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------- ------------------------------ --------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period.............................. $ 11.86 $ 10.00 $ 11.80 $ 10.00 $11.80 $ 9.22
------- ------- ------- ------- ------ ------
Net investment loss (a)............... (0.01) (0.05) (0.05) (0.08) (0.05) (0.06)
Net realized and unrealized gain on
investments......................... 1.53 1.91 1.51 1.88 1.51 2.64
------- ------- ------- ------- ------ ------
Total from investment operations...... 1.52 1.86 1.46 1.80 1.46 2.58
------- ------- ------- ------- ------ ------
Net asset value at end of period...... $ 13.38 $ 11.86 $ 13.26 $ 11.80 $13.26 $11.80
======= ======= ======= ======= ====== ======
Total investment return (b)........... 12.82% 18.60% 12.37% 18.00% 12.37% 27.98%
Ratios (to average net assets)++/
Supplemental Data:
Net investment loss............... (0.15%) (1.09%) (0.90%) (1.84%) (0.90%) (1.84%)
Net expenses...................... 1.65% 2.53% 2.40% 3.28% 2.40% 3.28%
Expenses (before reimbursement)... 1.73% 2.53% 2.48% 3.28% 2.48% 3.28%
Portfolio turnover rate............... 30% 32% 30% 32% 30% 32%
Net assets at end of period
(in 000's).......................... $19,259 $13,293 $36,627 $12,351 $ 142 $ --(c)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during the period.
(b) Total return is calculated exclusive of sales charges and is not
annualized.
(c) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 257
Notes to Financial Statements unaudited
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Growth Opportunities Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek long-term growth of capital, with
income as a secondary consideration.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter securities not
quoted on the NASDAQ system at prices supplied by the pricing agent or brokers
selected by the Subadvisor, if these prices are deemed to be representative of
market values at the regular close of
17
<PAGE> 258
MainStay Growth Opportunities Fund
business of the Exchange. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which mature
in 60 days or less are valued at amortized cost if their term to maturity at
purchase was 60 days or less, or by amortizing the difference between market
value on the 61st day prior to maturity and value on maturity date if their
original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,460 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
18
<PAGE> 259
Notes to Financial Statements unaudited (continued)
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to Madison Square
Advisors, Inc. (the "Subadvisor"), a registered investment adviser and indirect
wholly owned subsidiary of New York Life. Under the supervision of the Trust's
Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.70% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.65%, 2.40% and 2.40% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999, the Manager earned $139,758 and reimbursed the Fund $16,757.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and the Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.35% of the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $10,299 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $8,687 for
the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
19
<PAGE> 260
MainStay Growth Opportunities Fund
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $69,467.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A with a net
asset value of $12,042,000. This represents 62.5% of the Class A net assets at
period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $472 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$8,178 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, a capital loss
carryforward of $227,903 was available, to the extent provided by regulations,
to offset future realized gains of the Fund through 2006. In addition, the Fund
intends to elect, to the extent provided by the regulations, to treat $48,487 of
qualifying capital losses that arose during the prior year as if they arose on
January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $33,276 and $10,687, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
20
<PAGE> 261
Notes to Financial Statements unaudited (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 387 1,905 11 1,131 1,202 --
Shares redeemed........................... (68) (190) -- (10) (156) --
----- ----- -- ----- ----- --
Net increase.............................. 319 1,715 11 1,121 1,046 --(a)
===== ===== == ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
21
<PAGE> 262
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
22
<PAGE> 263
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee GROWTH OPPORTUNITIES FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Growth Opportunities Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA22-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 264
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
International Bond Fund versus Salomon
Smith Barney Non-U.S. Dollar World
Government Bond Index--Class A, Class
B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay Funds 26
</TABLE>
<PAGE> 265
This page intentionally left blank
2
<PAGE> 266
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 267
$10,000 Invested in the MainStay International
Bond Fund versus Salomon Smith Barney
Non-U.S. Dollar World Government Bond Index
CLASS A SHARES SEC Returns: 1 Year -6.54%, Since Inception 6.13%
[Class A Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
DOLLAR WORLD GOVERNMENT BOND
PERIOD END MAINSTAY INTERNATIONAL BOND FUND INDEX*
- ---------- -------------------------------- -----------------------------
<S> <C> <C>
9/13/94 9550.00 10000.00
12/94 9569.00 10256.00
12/95 11356.00 12261.00
12/96 12935.00 12761.00
12/97 13171.00 12218.00
12/98 14700.00 14392.00
'6/99 13303.00 13080.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year -7.76%, Since Inception 6.14%
[Class B Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
DOLLAR WORLD GOVERNMENT BOND
PERIOD END MAINSTAY INTERNATIONAL BOND FUND INDEX*
- ---------- -------------------------------- -----------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 10020.00 10256.00
12/95 11819.00 12261.00
12/96 13371.00 12761.00
12/97 13525.00 12218.00
12/98 14985.00 14392.00
6/99 13241.00 13080.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year -3.88%, Since Inception 6.47%
[Class C Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON BROTHERS NON-U.S. DOLLAR
PERIOD END MAINSTAY INTERNATIONAL BOND FUND WORLD GOVERNMENT BOND INDEX*
- ---------- -------------------------------- --------------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 10020.00 10256.00
12/95 11819.00 12261.00
12/96 13371.00 12761.00
12/97 13525.00 12218.00
12/98 14985.00 14392.00
6/99 13511.00 13080.00
</TABLE>
4
<PAGE> 268
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
9/13/94 reflecting the effect of the 4.5% up-front sales charge, thereby
reducing the amount of the investment to $9,550, and includes the
historical performance of the Class B shares for periods from 9/13/94
through 12/31/94. Performance data for the two classes vary after this date
based on differences in their load and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 9/13/94. Performance
reflects a 2% Contingent Deferred Sales Charge (CDSC), as it would apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 9/13/94 and includes the historical performance of the
Class B shares for periods from 9/13/94 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. (The $10,000
invested in the Salomon Smith Barney Non-U.S. Dollar World Government Bond
Index begins on 8/31/94.) All results include reinvestment of distributions
at net asset value and change in share price for the stated period.
* The Salomon Smith Barney Non-U.S. Dollar World Government Bond Index is an
unmanaged index generally considered to be representative of the world bond
market. An investment cannot be made directly into an index.
5
<PAGE> 269
Portfolio Management Discussion and Analysis
During the first half of 1999, international bond markets were influenced by a
wide variety of forces. The Brazilian real's devaluation in January and signs of
a Japanese market recovery signaled the end of a two-year global economic
crisis. Commodity prices for oil, natural gas, lumber, and copper rose, which
was positive for stocks but negative for bonds, as inflationary concerns
resurfaced.
The European Central Bank eased interest rates by a half of a percent during the
first half of the year from 3% to 2.5% to reduce economic malaise. Although the
end of the war in Kosovo had a positive impact, the eleven European members of
the North Atlantic Treaty Organization (NATO) expressed concern over the cost of
reconstruction. In the U.S., the Federal Reserve Board's May announcement of a
bias toward raising interest rates was followed by a move to raise rates at the
end of June. Meanwhile, the U.S. dollar charged ahead versus other currencies,
as Japan struggled to get its economic footing and European growth lagged behind
expectations.
FACING A CHALLENGING MARKET ENVIRONMENT
For the six months ended June 30, 1999, the MainStay International Bond Fund
returned -9.50% for Class A shares and -9.83% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -6.14% return
of the average Lipper(1) international income fund for the first half of 1999.
The Fund also lagged the Salomon Smith Barney Non-U.S. Dollar World Government
Bond Index,(2) which returned -9.11% over the same period.
The Fund underperformed largely due to its underweighted position in Japanese
government bonds, which rose 2.5% in local-currency terms during the first half
of the year, and due to the strength of the U.S. dollar versus foreign
currencies.
STRATEGIC DECISIONS
The Fund maintained a close-to-neutral duration(3) throughout the first half of
the year. It held long-duration bonds in Europe and short-duration bonds in
Japan and dollar-bloc countries Australia and Canada. As European bonds rallied
following the European Central Bank rate cut, however, we reduced the Fund's
long European duration to neutral. While duration decisions had a mixed impact
on Fund performance, on average the result was positive. The Fund's duration
strategy in Europe helped during the first quarter, and holding shorter-duration
bonds in the dollar-bloc countries in which the Fund invested was successful
throughout the first half of 1999.
Excessive supply in the Japanese government bond market presented opportunities
to add these securities to the Fund's portfolio, and the Fund increased its
position in Japanese government bonds from 0% to 19% of net assets by the end of
June. Despite their low nominal yields, Japanese government bonds were the
Fund's best performers in the first half of the year. Unfortunately, the Fund
remains underweighted in Japan relative to its benchmark, which detracted from
the Fund's relative performance. On the other hand, remaining underweighted in
the Japanese yen during the first half of 1999
- -------
(1) See page 9 for additional information about Lipper, Inc.
(2) See page 5 for more information about the Salomon Smith Barney Non-U.S.
Dollar World Government Bond Index.
(3) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
6
<PAGE> 270
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[CLASS A SHARES BAR GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN %
--------------
<S> <C>
12/94 0.20
12/95 18.68
12/96 13.90
12/97 1.83
12/98 11.61
6/99 -9.50
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for the period ended 12/31/94. See
footnote * on page 9 for more information on performance.
CLASS B AND CLASS C SHARES
[CLASS B AND CLASS C SHARES BAR GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN %
--------------
<S> <C>
12/94 0.20
12/95 17.96
12/96 13.13
12/97 1.15
12/98 10.79
6/99 -9.83
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 9/13/94
through 8/31/98. See footnote * on page 9 for more information on performance.
added significantly to the Fund's performance.
In Europe, the Fund tried to capitalize on markets that needed to ease monetary
policy. As a result, the Fund was overweighted in the U.K. and occasionally held
positions in Norwegian bonds. While Norway was among the best-performing markets
in the first quarter, U.K. bonds were laggards throughout the first half of
1999, despite easing by the Bank of England. The Fund was underweighted in the
three- to seven-year portion of the Euroland(4) yield curve, which detracted
from performance when this sector outperformed both shorter- and longer-term
bonds.
- -------
(4) Euroland refers to the countries participating in European Monetary Union,
a system that allows several European nations to operate with a common
currency.
7
<PAGE> 271
The Fund also dramatically reduced its exposure to nongovernment bonds. Issues
such as Depfa Pfandbriefe eurobonds and European Investment Bank sterling bonds
were liquidated when their spreads contracted to historical norms. Since the
bonds were originally purchased at much wider spreads, the impact of the sales
was positive. We also used the recovery in emerging market debt to sell certain
of the Fund's nongovernment bond positions at prices well above their earlier
lows. This had a positive impact on the Fund's performance.
LOOKING AHEAD
Going forward, we are cautiously defensive. We will continue to focus on Japan,
using its growth as a measure of the health of the global economy, the direction
of monetary policy, and the speed at which policy decisions may be implemented.
We believe that the U.S. dollar may become increasingly vulnerable as the
economies of Europe and Japan continue to strengthen.
Whatever the markets may bring, the Fund will continue seeking to provide
competitive overall return commensurate with an acceptable level of risk by
investing primarily in a portfolio of non-U.S. (primarily government) debt
securities.
Maureen McFarland
Portfolio Manager
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 272
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -2.13% 7.15%
Class B -2.91% 6.47%
Class C -2.91% 6.47%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -6.54% 6.13%
Class B -7.76% 6.14%
Class C -3.88% 6.47%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 51 out of 54 funds 10 out of 31 funds
Class B 54 out of 54 funds 9 out of 26 funds
Class C n/a n/a
Average Lipper
international
income fund 2.48% 6.26%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.30 $0.2784 $0.0000
Class B $9.32 $0.2400 $0.0000
Class C $9.32 $0.2400 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 4.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of the
Class B shares for periods from inception (9/13/94) up to 12/31/94.
Performance data for the two classes vary after this date based on
differences in their load and expense structures. Class B shares of the Fund
are sold with no initial sales charge, but are subject to a maximum CDSC of
up to 5% if shares are redeemed within the first six years of purchase and
an annual 12b-1 fee of 1%. Class C shares, first offered to the public on
9/1/98, are sold with no initial sales charge, but are subject to a CDSC of
1% if redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance of
the Class B shares for periods from inception (9/13/94) up to 8/31/98.
Performance data for the two classes vary after this date based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A shares were first offered to the public on 1/3/95,
Class B shares on 9/13/94, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 9/13/94 through
6/30/99.
9
<PAGE> 273
MainStay International Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------------
<S> <C> <C>
LONG-TERM BONDS (95.8%)+
CORPORATE BONDS (8.9%)
GERMANY (3.2%)
Bayerische VBK New York
4.50%, due 6/24/02...... E 281,000 $ 296,284
Kredit Fuer Wiederaufbau
5.00%, due 1/4/09....... 610,000 643,559
-----------
939,843
-----------
SWEDEN (1.3%)
Banque Nationale de Paris
Medium-Term Notes
Series E
11.00%, due 11/4/99..... SK 3,050,000 366,744
-----------
UNITED KINGDOM (3.4%)
European Investment Bank
6.25%, due 12/7/08...... L 357,000 580,637
International Bank for
Reconstruction and
Development Medium-Term
Notes Series E
7.125%, due 7/30/07..... 241,000 408,568
-----------
989,205
-----------
UNITED STATES (1.0%)
Conproca S.A.
12.00%, due 6/16/10
(a)..................... $ 313,000 294,220
-----------
Total Corporate Bonds
(Cost $2,803,826)....... 2,590,012
-----------
GOVERNMENTS & FEDERAL AGENCIES (86.9%)
AUSTRALIA (5.2%)
Australian Government
Series 611
5.75%, due 6/15/11...... A$ 1,539,000 977,410
Federal National Mortgage
Association
Series EMTN
6.375%, due 8/15/07..... 830,000 540,502
-----------
1,517,912
-----------
BELGIUM (4.4%)
Kingdom of Belgium
Series 10
8.75%, due 6/25/02...... E 1,071,000 1,262,358
-----------
CANADA (4.9%)
Canadian Government
Series WH31
6.00%, due 6/1/08....... C$ 984,000 689,751
Series VR22
7.50%, due 3/1/01....... 1,039,000 728,051
-----------
1,417,802
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------------
<S> <C> <C>
DENMARK (1.2%)
Kingdom of Denmark
7.00%, due 12/15/04..... DK 2,258,000 $ 353,267
-----------
FINLAND (3.1%)
Finnish Government
Series RG
10.00%, due 9/15/01..... E 762,000 895,209
-----------
FRANCE (4.3%)
France Obligations
Assimilables du Tresor
4.00%, due 4/25/09...... 730,000 719,724
5.50%, due 4/25/29...... 516,000 535,982
-----------
1,255,706
-----------
GERMANY (14.6%)
Bundesobligation
Series 127
4.50%, due 5/19/03...... 1,474,000 1,559,052
Republic of Deutschland
Series 98
5.25%, due 1/4/08....... 1,010,000 1,092,444
5.625%, due 1/4/28...... 526,000 559,172
Series 96
6.00%, due 1/5/06....... 894,000 1,012,152
-----------
4,222,820
-----------
ITALY (10.5%)
Buoni Poliennali del
Tesoro
5.00%, due 5/1/08....... 533,000 559,357
6.50%, due 11/1/27...... 495,999 576,231
8.25%, due 7/1/01....... 763,000 860,062
8.50%, due 1/1/04....... 847,000 1,031,617
-----------
3,027,267
-----------
JAPAN (18.7%)
Japanese Government
Series 42
2.60%, due 3/20/19...... Y 70,800,000 567,851
Series 168
3.40%, due 3/22/04...... 339,800,000 3,102,741
Series 174
4.60%, due 9/20/04...... 181,800,000 1,758,353
-----------
5,428,945
-----------
NETHERLANDS (4.4%)
Netherlands Government
3.75%, due 7/15/09...... E 1,321,000 1,260,852
-----------
SPAIN (4.9%)
Bonos Y Obligacion del
Estado
4.50%, due 7/30/04...... 840,000 881,617
5.15%, due 7/30/09...... 515,000 544,982
-----------
1,426,599
-----------
SWEDEN (1.0%)
Swedish Government
Series 1040
6.50%, due 5/5/08....... SK 2,200,000 285,740
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 274
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
UNITED KINGDOM (9.7%)
Federal National Mortgage
Association
Series EMTN
6.875%, due 6/7/02...... L 1,080,000 $ 1,744,136
United Kingdom Treasury
Bonds
7.25%, due 12/7/07...... 334,000 595,188
9.00%, due 10/13/08..... 240,000 480,757
-----------
2,820,081
-----------
Total Governments &
Federal Agencies
(Cost $26,553,516)...... 25,174,558
-----------
Total Long-Term Bonds
(Cost $29,357,342)...... 27,764,570
-----------
<CAPTION>
Notional
Amount
------------
<S> <C> <C>
OPTION (0.1%)
UNITED STATES (0.1%)
U.S. Dollar Call/Euro Put
Strike price E1.024
Expire 8/31/99.......... 1,500,000 16,742
-----------
Total Option
(Cost $16,425).......... 16,742
-----------
<CAPTION>
Principal
Amount
------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.6%)
COMMERCIAL PAPER (1.6%)
UNITED STATES (1.6%)
Ford Motor Credit Corp.
5.65%, due 7/1/99....... $ 450,000 450,000
-----------
Total Short-Term
Investment
(Cost $450,000)......... 450,000
-----------
Total Investments
(Cost $29,823,767)
(b)..................... 97.5% 28,231,312(c)
Cash and Other Assets,
Less Liabilities........ 2.5 732,616
---- -----------
Net Assets............... 100.0% $28,963,928
===== ===========
</TABLE>
- -------
(a) May be sold to institutional investors only.
(b) The cost for Federal income tax purposes is $29,835,435.
(c) At June 30, 1999 net unrealized depreciation for securities was $1,604,123,
based on cost for Federal income tax purposes. This consisted of aggregate
gross unrealized appreciation for all investments on which there was an
excess of market value over cost of $32,990 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,637,113.
(d) The following abbreviations are used in the above portfolio:
A$ --Australian Dollar
C$ --Canadian Dollar
DK--Danish Krone
E --Euro
Y --Japanese Yen
L --Pound Sterling
SK--Swedish Krona
$ --U.S. Dollar
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 275
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$29,823,767).............................................. $28,231,312
Cash denominated in foreign currencies (identified cost
$454,334)................................................. 437,674
Cash........................................................ 127,865
Receivables:
Investment securities sold................................ 3,114,972
Interest.................................................. 462,958
Fund shares sold.......................................... 31,791
Unrealized appreciation on foreign currency forward
contracts................................................. 150,623
Unamortized organization expense............................ 2,021
-----------
Total assets........................................ 32,559,216
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 3,112,835
Fund shares redeemed...................................... 26,409
NYLIFE Distributors....................................... 16,059
MainStay Management....................................... 10,860
Transfer agent............................................ 8,312
Custodian................................................. 5,909
Trustees.................................................. 277
Accrued expenses............................................ 72,054
Dividend payable............................................ 133,396
Unrealized depreciation on foreign currency forward
contracts................................................. 209,177
-----------
Total liabilities................................... 3,595,288
-----------
Net assets.................................................. $28,963,928
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,031
Class B................................................... 17,041
Class C................................................... 32
Additional paid-in capital.................................. 32,155,929
Accumulated distribution in excess of net investment
income.................................................... (365,677)
Accumulated net realized loss on investments................ (2,138)
Accumulated net realized loss on foreign currency
transactions.............................................. (1,172,009)
Net unrealized depreciation on investments.................. (1,592,455)
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (90,826)
-----------
Net assets.................................................. $28,963,928
===========
CLASS A
Net assets applicable to outstanding shares................. $13,052,549
===========
Shares of beneficial interest outstanding................... 1,403,089
===========
Net asset value per share outstanding....................... $ 9.30
Maximum sales charge (4.50% of offering price).............. 0.44
-----------
Maximum offering price per share outstanding................ $ 9.74
===========
CLASS B
Net assets applicable to outstanding shares................. $15,881,853
===========
Shares of beneficial interest outstanding................... 1,704,138
===========
Net asset value and offering price per share outstanding.... $ 9.32
===========
CLASS C
Net assets applicable to outstanding shares................. $ 29,526
===========
Shares of beneficial interest outstanding................... 3,167
===========
Net asset value and offering price per share outstanding.... $ 9.32
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 276
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest (a).............................................. $ 827,069
-----------
Expenses:
Management................................................ 110,906
Distribution--Class B..................................... 64,820
Distribution--Class C..................................... 166
Transfer agent............................................ 56,720
Service--Class A.......................................... 17,944
Service--Class B.......................................... 21,608
Service--Class C.......................................... 57
Shareholder communication................................. 24,751
Professional.............................................. 18,912
Registration.............................................. 15,160
Recordkeeping............................................. 6,889
Amortization of organization expense...................... 4,945
Trustees.................................................. 483
Miscellaneous............................................. 3,783
-----------
Total expenses before waiver............................ 347,144
Fees waived by Manager...................................... (47,531)
-----------
Net expenses............................................ 299,613
-----------
Net investment income....................................... 527,456
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized loss from:
Security transactions..................................... (249,467)
Option transactions....................................... (9,652)
Foreign currency transactions............................. (1,172,009)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (1,431,128)
-----------
Net change in unrealized appreciation on investments:
Security transactions..................................... (2,111,454)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... (184,545)
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (2,295,999)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (3,727,127)
-----------
Net decrease in net assets resulting from operations........ $(3,199,671)
===========
</TABLE>
- -------
(a) Interest recorded net of foreign withholding taxes of
$1,235.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 277
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 527,456 $ 1,588,170
Net realized gain (loss) on investments................... (249,467) 573,596
Net realized loss on option transactions.................. (9,652) (32,695)
Net realized loss on foreign currency transactions........ (1,172,009) (20,109)
Net change in unrealized appreciation (depreciation) on
investments............................................. (2,111,454) 1,304,076
Net change in unrealized appreciation (depreciation) on
translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... (184,545) 99,738
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (3,199,671) 3,512,776
----------- -----------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Class A................................................. (399,639) (804,108)
Class B................................................. (414,297) (926,482)
Class C................................................. (1,065) (5)
From net realized gain on investments:
Class A................................................. -- (129,031)
Class B................................................. -- (156,223)
Class C................................................. -- (3)
----------- -----------
Total dividends and distributions to shareholders..... (815,001) (2,015,852)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 484,112 3,679,261
Class B................................................. 1,660,044 3,454,744
Class C................................................. 105,915 300
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 114,010 362,472
Class B................................................. 294,747 919,787
Class C................................................. 262 6
----------- -----------
2,659,090 8,416,570
Cost of shares redeemed:
Class A................................................. (1,271,411) (1,411,366)
Class B................................................. (2,678,725) (7,295,962)
Class C................................................. (69,872) --
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (1,360,918) (290,758)
----------- -----------
Net increase (decrease) in net assets................. (5,375,590) 1,206,166
NET ASSETS:
Beginning of period......................................... 34,339,518 33,133,352
----------- -----------
End of period............................................... $28,963,928 $34,339,518
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (365,677) $ (78,132)
=========== ===========
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 278
This page intentionally left blank
15
<PAGE> 279
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ----------------------------------------------
1999+ 1998 1997 1996 1995
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.57 $ 10.10 $ 10.95 $ 10.43 $ 9.90
------- ------- ------- ------- -------
Net investment income..................................... 0.19 0.54 0.80 0.72 1.15
Net realized and unrealized gain (loss) on investments.... (0.75) 0.58 (0.94) 0.27 0.59
Net realized and unrealized gain (loss) on foreign
currency transactions................................... (0.43) 0.02 0.33 0.41 0.07
------- ------- ------- ------- -------
Total from investment operations.......................... (0.99) 1.14 0.19 1.40 1.81
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income and net realized gain on
foreign currency transactions......................... (0.28) (0.58) (0.76) (0.73) (0.61)
From net realized gain on investments................... -- (0.09) (0.28) (0.15) (0.28)
In excess of net realized gain on investments and
foreign currency transactions......................... -- -- -- -- (0.39)
------- ------- ------- ------- -------
Total dividends and distributions......................... (0.28) (0.67) (1.04) (0.88) (1.28)
------- ------- ------- ------- -------
Net asset value at end of period.......................... $ 9.30 $ 10.57 $ 10.10 $ 10.95 $ 10.43
======= ======= ======= ======= =======
Total investment return (a)............................... (9.50%) 11.61% 1.83% 13.90% 18.68%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................. 3.74%++ 5.17% 5.35% 5.4% 5.6%
Net expenses.......................................... 1.48%++ 1.59% 1.56% 1.5% 1.5%
Expenses (before waiver).............................. 1.78%++ 1.89% 1.86% 1.8% 1.8%
Portfolio turnover rate................................... 188% 287% 179% 59% 103%
Net assets at end of period (in 000's).................... $13,053 $15,542 $12,263 $11,965 $11,494
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 280
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------------------------- --------------------------
Six months September 13,* Six months September 1**
ended Year ended December 31, through ended through
June 30, ------------------------------------- December 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994 1999+ 1998
---------- ------- ------- ------- ------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 9.90 $ 10.00 $10.59 $10.13
------- ------- ------- ------- ------- ------- ------ ------
0.15 0.46 0.74 0.64 1.06 0.12 0.15 0.16
(0.75) 0.58 (0.96) 0.27 0.61 (0.08) (0.75) 0.53
(0.43) 0.02 0.34 0.42 0.07 (0.02) (0.43) 0.02
------- ------- ------- ------- ------- ------- ------ ------
(1.03) 1.06 0.12 1.33 1.74 0.02 (1.03) 0.71
------- ------- ------- ------- ------- ------- ------ ------
(0.24) (0.50) (0.70) (0.65) (0.56) (0.12) (0.24) (0.16)
-- (0.09) (0.28) (0.15) (0.28) -- -- (0.09)
-- -- -- -- (0.35) -- -- --
------- ------- ------- ------- ------- ------- ------ ------
(0.24) (0.59) (0.98) (0.80) (1.19) (0.12) (0.24) (0.25)
------- ------- ------- ------- ------- ------- ------ ------
$ 9.32 $ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 9.90 $ 9.32 $10.59
======= ======= ======= ======= ======= ======= ====== ======
(9.83%) 10.79% 1.15% 13.13% 17.96% 0.20% (9.83%) 7.05%
2.99%++ 4.42% 4.69% 4.8% 4.9% 4.8%++ 2.99%++ 4.42%++
2.23%++ 2.34% 2.22% 2.1% 2.2% 2.8%++ 2.23%++ 2.34%++
2.53%++ 2.64% 2.52% 2.4% 2.5% 3.1%++ 2.53%++ 2.64%++
188% 287% 179% 59% 103% 4% 188% 287%
$15,882 $18,797 $20,870 $19,020 $13,212 $17,155 $ 29 $ --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 281
MainStay International Bond Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
International Bond Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on September 13,
1994 and September 1, 1998, respectively. Class A shares, Class B shares and
Class C shares bear the same voting (except for issues that relate solely to one
class), dividend, liquidation and other rights and conditions except that the
Class B shares and Class C shares are subject to higher distribution fee rates.
Each class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek to provide competitive overall return
commensurate with an acceptable level of risk by investing primarily in a
portfolio of non-U.S. (primarily government) debt securities.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
High yield bonds may involve special risks not commonly associated with
investment in higher rated debt securities. These bonds may be more susceptible
to real or perceived adverse economic and competitive industry conditions than
higher grade bonds. Also, the secondary market on which high yield bonds are
traded may be less liquid than the market for higher grade bonds.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result
18
<PAGE> 282
Notes to Financial Statements unaudited
by the outstanding shares of that class. The Fund's net asset value will
fluctuate and an investor could lose money by investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, and (b) by appraising all other securities and other
assets, including debt securities for which prices are supplied by a pricing
agent but are not deemed by the Subadvisor to be representative of market
values, but excluding money market instruments with a remaining maturity of
sixty days or less and including restricted securities and securities for which
no market quotations are available, at fair value in accordance with procedures
approved by the Trustees. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which mature
in 60 days or less are valued at amortized cost if their term to maturity at
purchase was 60 days or less, or by amortizing the difference between market
value on the 61st day prior to maturity and value on maturity date if their
original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
19
<PAGE> 283
MainStay International Bond Fund
Foreign currency forward contracts open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
-------------- ------------- --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
- -------------------------------
Australian Dollar vs. U.S. Dollar, expiring
8/18/99...................................... A$ 1,804,000 $ 1,153,385 $(41,317)
Canadian Dollar vs. U.S. Dollar, expiring
8/18/99...................................... C$ 213,000 $ 145,990 1,982
Canadian Dollar vs. U.S. Dollar, expiring
8/26/99...................................... C$ 2,540,000 $ 1,742,172 24,691
Danish Krone vs. Euro, expiring 8/23/99........ DK 2,760,000 E 370,773 (1,156)
Euro vs. Danish Krone, expiring 8/23/99........ E 631,381 DK 4,700,000 1,978
Euro vs Swedish Krona, expiring 8/30/99........ E 760,027 SK 6,800,000 15,378
Euro vs. U.S. Dollar, expiring 8/31/99......... E 965,000 $ 1,047,025 47,098
Pound Sterling vs. Euro, expiring 8/11/99...... L 910,980 E 1,400,000 12,042
Pound Sterling vs. U.S. Dollar, expiring
8/26/99...................................... L 829,000 $ 1,345,350 38,088
Swedish Krona vs. Euro, expiring 8/30/99....... SK 9,256,000 E 1,027,508 (28,209)
Contract Contract
Amount Amount
Purchased Sold
-------------- -------------
Foreign Currency Buy Contracts
- ------------------------------
Canadian Dollar vs. U.S. Dollar, expiring
8/26/99...................................... C$ 2,451,000 $ 1,651,367 5,935
Euro vs. U.S. Dollar, expiring 8/16/99......... E 1,366,527 $ 1,456,000 (41,669)
Euro vs. U.S. Dollar, expiring 8/31/99......... E 1,900,000 $ 2,045,654 (76,885)
Japanese Yen vs. U.S. Dollar, expiring
8/16/99...................................... Y 234,819,075 $ 1,970,000 (16,510)
--------
Net unrealized depreciation on foreign currency
forward contracts............................ $(58,554)
========
</TABLE>
PURCHASED AND WRITTEN OPTIONS. The Fund may write covered call and put options
on its portfolio securities or foreign currencies. Premiums are received and are
recorded as liabilities. The liabilities are subsequently adjusted to reflect
the current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are canceled in closing purchase transactions are
added to the proceeds or netted against the amount paid on the transaction to
determine the realized gain or loss. By writing a covered call option, a Fund
foregoes in exchange for the premium the opportunity for capital appreciation
above the exercise price should the market price of the underlying security or
foreign currency increase. By writing a covered put option, a Fund, in exchange
for the premium, accepts the risk of a decline in the market value of the
underlying security or foreign currency below the exercise price.
The Fund may purchase call and put options on its portfolio securities or
foreign currencies. The Fund may purchase call options to protect against an
increase in the price of the security or foreign currency it anticipates
purchasing. The Fund may purchase put options on its securities or foreign
currencies to protect against a decline in the value of the security or foreign
currency or to close out covered written put
20
<PAGE> 284
Notes to Financial Statements unaudited (continued)
positions. Risks may arise from an imperfect correlation between the change in
market value of the securities or foreign currencies held by the Fund and the
prices of options relating to the securities or foreign currencies purchased or
sold by the Fund and from the possible lack of a liquid secondary market for an
option. The maximum exposure to loss for any purchased option is limited to the
premium initially paid for the option.
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $54,000 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Interest income is
accrued daily except when collection is not expected. Discounts on securities
purchased for the Fund are accreted on the constant yield method over the life
of the respective securities, or, if applicable, over the period to the first
call date. Premiums on securities purchased are not amortized for this Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
21
<PAGE> 285
MainStay International Bond Fund
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Gains and losses from certain foreign currency transactions
are treated as ordinary income for Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on foreign currency forward contracts, net currency gains or losses
realized as a result of differences between the amounts of securities sale
proceeds, purchase cost, dividends, interest and withholding taxes as recorded
on the Fund's books, and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing foreign currency denominated
assets and liabilities other than investments at period end exchange rates are
reflected in unrealized foreign exchange gains.
Foreign currency held at June 30, 1999:
<TABLE>
<CAPTION>
Currency Cost Value
- ---------------------------------- -------- --------
<S> <C> <C> <C> <C>
Danish Krone DK 6 $ 1 $ 1
Euro E 384,341 412,899 396,371
Pound Sterling L 26,202 41,434 41,302
-------- --------
$454,334 $437,674
======== ========
</TABLE>
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has
22
<PAGE> 286
Notes to Financial Statements unaudited (continued)
delegated its portfolio management responsibilities to MacKay-Shields Financial
Corporation (the "Subadvisor"), a registered investment adviser and indirect
wholly owned subsidiary of New York Life. Under the supervision of the Trust's
Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.70% of the Fund's
average daily net assets. The Manager has agreed to waive a portion of its fee,
0.30% of the Fund's average daily net assets, until such time as the Fund
reaches $50 million in net assets. For the six months ended June 30, 1999, the
Manager earned $110,906 and waived $47,531 of its fee.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.45% of
the average daily net assets of the Fund. The Subadvisor has voluntarily agreed
to waive a portion of its fee until such time as the Fund reaches $50 million in
net assets.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan ("the
Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $960 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $13,651 and $281, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
23
<PAGE> 287
MainStay International Bond Fund
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $56,720.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $7,229,923 which represents 55.4% of the
Class A net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $504 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,889 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $54,073 and $53,399, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There was no outstanding
balance on this line of credit at June 30, 1999.
24
<PAGE> 288
Notes to Financial Statements unaudited (continued)
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999* December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................. 48 165 10 359 333 --
Shares issued in reinvestment of
dividends and distributions........... 11 30 --(a) 35 89 --
------- ------- --- ----- ----- ---
59 195 10 394 422 --
Shares redeemed......................... (127) (266) (7) (137) (709) --
------- ------- --- ----- ----- ---
Net increase (decrease)................. (68) (71) 3 257 (287) --(a)
======= ======= === ===== ===== ===
</TABLE>
- -------
<TABLE>
<C> <S>
* Unaudited
** First offered on September 1, 1998.
(a) Less than one thousand
</TABLE>
25
<PAGE> 289
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
26
<PAGE> 290
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee INTERNATIONAL BOND FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay International Bond Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA10-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 291
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
International Equity Fund versus Morgan
Stanley Capital International EAFE Index
--Class A, Class B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 15
Notes to Financial Statements 20
The MainStay Funds 27
</TABLE>
<PAGE> 292
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2
<PAGE> 293
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 294
$10,000 Invested in the MainStay
International Equity Fund versus
Morgan Stanley Capital International
EAFE Index
CLASS A SHARES SEC Returns: 1 Year -0.73%, Since Inception 6.70%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
PERIOD END MAINSTAY INTERNATIONAL EQUITY FUND INTERNATIONAL EAFE INDEX*
- ---------- ---------------------------------- ------------------------
<S> <C> <C>
9/13/94 9450.00 10000.00
12/94 9233.00 9586.00
12/95 9718.00 10661.00
12/96 10669.00 11306.00
12/97 11151.00 11507.00
12/98 13400.00 13808.00
6/99 13652.00 14356.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year -0.71%, Since Inception 6.88%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
PERIOD END MAINSTAY INTERNATIONAL EQUITY FUND INTERNATIONAL EAFE INDEX*
- ---------- ---------------------------------- ------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 9770.00 9586.00
12/95 10187.00 10661.00
12/96 11109.00 11306.00
12/97 11529.00 11507.00
12/98 13759.00 13808.00
6/99 13685.00 14356.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 3.29%, Since Inception 7.20%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL
PERIOD END MAINSTAY INTERNATIONAL EQUITY FUND INTERNATIONAL EAFE INDEX*
- ---------- ---------------------------------- ------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 9770.00 9586.00
12/95 10187.00 10661.00
12/96 11109.00 11306.00
12/97 11529.00 11507.00
12/98 13759.00 13808.00
6/99 13964.00 14356.00
</TABLE>
4
<PAGE> 295
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 9/13/94
reflecting the effect of the 5.5% up-front sales charge, thereby reducing
the amount of the investment to $9,450, and includes the historical
performance of the Class B shares for periods from 9/13/94 through
12/31/94. Performance data for the two classes vary after this date based
on differences in their load and expense structures. The Class B graph
assumes an initial investment of $10,000 made on 9/13/94. Performance
reflects a 2% Contingent Deferred Sales Charge (CDSC), as it would apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 9/13/94 and includes the historical performance of the
Class B shares for periods from 9/13/94 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* The Morgan Stanley Capital International Europe, Australia, Far East
Index--the EAFE Index--is an unmanaged, capitalization-weighted index
containing approximately 1,200 equity securities of companies located
outside the U.S. An investment cannot be made directly into an index.
5
<PAGE> 296
Portfolio Management Discussion and Analysis
During the first half of 1999, international equity markets were influenced by
a wide variety of forces. The Brazilian real's devaluation in January and signs
of a Japanese market recovery signaled the end of a two-year global economic
crisis. Commodity prices for oil, natural gas, lumber, and copper rose, which
was positive for stocks but negative for bonds, as inflationary concerns
resurfaced.
In the U.S., the Federal Reserve Board reacted to rising prices, low
unemployment, and the potential for wage increases with a May announcement of a
bias toward raising interest rates. At the end of June, the Federal Reserve
Board took action by raising the federal funds rate by 0.25%. While the end of
the war in Kosovo helped stabilize eastern European economies, concerns remained
over the cost of reconstruction. Meanwhile, the U.S. dollar charged ahead versus
other major currencies, while the euro suffered from slowing European growth and
the yen faltered as investors pondered the strength of the Japanese recovery.
FACING MARKET CHALLENGES
For the first half of 1999, the MainStay International Equity Fund returned
1.88% for Class A shares and 1.49% for Class B and Class C shares, excluding all
sales charges. All share classes underperformed the average Lipper(1)
international fund, which returned 7.38% and the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE Index),(2) which
returned 3.97% for the same six-month period.
The Fund's underperformance was largely attributable to its underweighted
position in Japanese securities and overweighted positions in Europe,
particularly in peripheral nations, including Portugal, whose stock market
declined 6.70% in local-currency terms, and Ireland, where the stock market
gained only 0.90% in local terms. Fortunately, the Fund was also overweighted in
Finland, which was Europe's best-performing market, returning 46.40% in local
terms.
While many European markets had positive returns in local-currency terms,
shifting currency values had a negative impact on U.S.-dollar based investors.
As the U.S. dollar's value rose relative to European currencies, the value of
gains in local-currency terms was substantially negated. On a relative basis,
however, the Fund benefited modestly from an appreciating Canadian dollar.
SHIFTING ASSETS IN A CHANGING ENVIRONMENT
The Fund uses a "country-first" approach, seeking to identify the most promising
geographical markets and then to invest in a wide array of companies in each
target market. During the first half of 1999, the Fund shifted assets from core
European markets, such as Germany and France, to markets in the Far East.
Japanese investments, as a percentage of the Fund's total assets, rose through
purchases and appreciation from 11% in January to over 20% at the end of June,
which had a positive impact on performance as Japanese stocks rose.
- -------
(1) See page 9 for additional information about Lipper, Inc.
(2) See page 5 for more information about the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE Index).
6
<PAGE> 297
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
Period End Total Return%
- ---------- -------------
<S> <C>
12/94 -2.30
12/95 5.25
12/96 9.78
12/97 4.52
12/98 20.17
6/99 1.88
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for period ended 12/31/94.
See footnote * on page 9 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
Period End Total Return%
- ---------- -------------
<S> <C>
12/94 -2.30
12/95 4.27
12/96 9.05
12/97 3.78
12/98 19.34
6/99 1.49
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 9/94
through 8/98. See footnote * on page 9 for more information on performance.
ADVANCING SECTORS AND COMPANIES
The Fund also seeks to identify promising lines of business and select companies
that are in a position to take advantage of factors which make industries more
competitive. Telecommunication companies have advanced on strong consumer
demand, and the Fund benefited from its positions in Nokia Oyj and NTT Mobile
Communications Network, Inc. Nokia, the number-one supplier of mobile phones
worldwide, rose 63.03% in local terms over the first half of the year. NTT,
which added over 400,000 new subscriptions in June, or over half of the industry
total, rose 76.34% over the same period.
Auto manufacturers have also advanced. During the reporting period, the Fund
7
<PAGE> 298
was invested in DaimlerChrysler in Europe and Honda Motor and Toyota Motor in
Japan--all of which made positive contributions to the Fund's performance.
Toyota rose 24.76% in local terms for the six months ended June 30, 1999, and
received the Global 500 Award and recognition from the United Nations for its
environmental initiative.
Irish cement manufacturer CRH PLC rose 16.78% in local terms for the reporting
period as its international operations capitalized on European infrastructure
improvements. BP Amoco PLC (+26.69% in local terms) benefited from rising oil
prices and increasing demand in Asia. Sony Corp. (+58.57% in local terms)
advanced on anticipation of its next-generation game console and announcement of
restructuring measures to cut costs and enhance profitability.
While the Fund had many successes, it also owned a number of companies in
industries that underperformed during the first six months of 1999. The Fund's
largest holding, Allied Irish Banks PLC, declined 16.53% in local-currency terms
for the six months ended June 30, 1999. While the company has broad
international reach and is domiciled in the fastest-growing European economy,
the stock underperformed on inflation concerns that accompanied the global
economic recovery.
LOOKING AHEAD
We remain optimistic for the international economy and believe we may see
continued moderate inflation, low interest rates, increasing cross-border
consolidation in Europe, and recoveries in some Asian countries. The Fund is
still overweighted in Europe, particularly in the peripheral countries, such as
Portugal and Ireland, but we believe Japan has strong potential and anticipate
making additional investments there. Our strategy will be to seek to purchase
new securities for the Fund or add to its existing positions when prices dip and
to seek cyclical companies poised to benefit if the turnaround in the Japanese
economy can be sustained. As of June 30, 1999, we believed that the Fund was
appropriately positioned with respect to foreign currencies, particularly the
euro.
Whatever happens, the Fund will continue to seek to provide long-term growth of
capital commensurate with an acceptable level of risk by investing in a
portfolio consisting primarily of non-U.S. equity securities, with current
income as a secondary objective.
Maureen McFarland
Joseph Portera
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 299
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 5.04% 7.97%
Class B 4.29% 7.20%
Class C 4.29% 7.20%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -0.73% 6.70%
Class B -0.71% 6.88%
Class C 3.29% 7.20%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 290 out of 570 funds 157 out of 232 funds
Class B 319 out of 570 funds 135 out of 204 funds
Class C n/a n/a
Average Lipper
international fund 4.83% 8.24%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $12.44 $0.0000 $0.0000
Class B $12.26 $0.0000 $0.0000
Class C $12.26 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show the
percentage change for each of the required periods. All returns assume capital
gain and dividend distributions are reinvested.
Class A shares, first offered to the public on 1/3/95, are sold with a maximum
initial sales charge of 5.5% and an annual 12b-1 fee of .25%. Performance
figures for this class include the historical performance of the Class B
shares for periods from inception (9/13/94) up to 12/31/94. Performance data
for the two classes after this date vary based on differences in their load
and expense structures. Class B shares of the Fund are sold with no initial
sales charge, but are subject to a maximum CDSC of up to 5% if shares are
redeemed within the first six years of purchase and an annual 12b-1 fee of 1%.
Class C shares, first offered to the public on 9/1/98, are sold with no
initial sales charge, but are subject to a CDSC of 1% if redeemed within one
year of purchase and an annual 12b-1 fee of 1%. Performance figures for Class
C shares include the historical performance of the Class B shares for periods
from inception (9/13/94) up to 8/31/98. Performance data for the two classes
after this date vary based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings reflect
the performance of each share class from its initial offering date through
6/30/99. Class A shares were first offered to the public on 1/3/95, Class B
shares on 9/13/94, and Class C shares on 9/1/98. Life of fund return for the
average Lipper peer fund is for the period from 9/13/94 through 6/30/99.
9
<PAGE> 300
MainStay International Equity Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (94.2%)+
AUSTRALIA (3.9%)
Australia & New Zealand Banking
Group, Ltd. (banking)......... 69,033 $ 507,620
Broken Hill Proprietary Co.,
Ltd. (energy sources)......... 23,120 267,814
Cable & Wireless Optus, Ltd.
(telecommunications).......... 462,092 1,052,189
Commonwealth Bank of Australia
(banking)..................... 29,700 472,801
Telstra Corp., Ltd.
(telecommunications).......... 182,100 1,043,480
WMC, Ltd.
(metals-nonferrous)........... 153,482 659,339
------------
4,003,243
------------
BELGIUM (2.2%)
Delhaize-Le Lion, S.A.
(merchandising)............... 3,440 292,853
Electrabel, S.A.
(utilities-electrical &
gas).......................... 1,780 574,563
Fortis AG (insurance).......... 22,320 700,898
Solvay, S.A. Class A
(chemicals)................... 4,770 316,549
Tractebel, S.A.
(utilities-electrical &
gas).......................... 2,890 405,332
------------
2,290,195
------------
FINLAND (4.6%)
Merita PLC (banking)........... 51,490 292,582
Nokia Oyj Class A (electrical &
electronics).................. 31,730 2,781,395
Outokumpu Oyj
(metals-nonferrous)........... 33,440 375,895
Pohjola Group Insurance Corp.
Class B (insurance)........... 14,000 718,282
Sampo Insurance Co., Ltd. Class
A (insurance)................. 5,310 153,877
UPM-Kymmene Oyj (forest
products & paper)............. 14,220 407,679
------------
4,729,710
------------
FRANCE (8.1%)
Air Liquide, S.A.
(chemicals)................... 2,202 346,307
AXA, S.A. (insurance).......... 4,408 537,774
Carrefour, S.A.
(merchandising)............... 6,390 939,051
Elf Aquitaine, S.A. (energy
sources)...................... 4,873 715,113
Eridania Beghin-Say, S.A. (food
& household products)......... 1,290 184,918
France Telecom, S.A.
(telecommunications).......... 10,070 760,695
Groupe Danone, S.A. (food &
household products)........... 2,093 539,614
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
FRANCE (CONTINUED)
Lafarge, S.A. (building
materials & components)....... 2,770 $ 263,381
L'Oreal, S.A. (health &
personal care)................ 1,527 1,032,251
Pernod-Ricard, S.A. (beverages
& tobacco).................... 3,500 234,615
Pinault-Printemps-Redoute, S.A.
(merchandising)............... 1,560 267,702
Schneider, S.A. (electrical &
electronics).................. 3,977 223,320
Societe Generale, S.A. Class A
(banking)..................... 1,420 250,267
Thomson CSF, S.A. (aerospace &
military technology).......... 7,061 245,397
Total Fina, S.A. Class B
(energy sources) (a).......... 6,714 866,188
Total Fina, S.A. Strip (energy
sources) (a).................. 3,780 39
Vivendi, S.A. (business &
public services).............. 12,435 1,007,316
------------
8,413,948
------------
GERMANY (9.5%)
Allianz AG Registered
(insurance)................... 2,450 679,660
Bayer AG (chemicals)........... 21,550 897,847
DaimlerChrysler AG
(automobiles)................. 16,604 1,438,354
Deutsche Bank AG (banking)..... 7,400 451,399
Deutsche Telekom AG
(telecommunications).......... 27,840 1,168,523
Dresdner Bank AG (banking)..... 11,700 457,297
Karstadt AG (merchandising).... 950 456,545
Mannesmann AG
(telecommunications).......... 4,071 607,496
Metro AG (merchandising)....... 6,850 425,266
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance)................... 940 174,007
RWE AG (utilities-electrical &
gas).......................... 11,655 539,555
SAP AG (business & public
services)..................... 1,520 514,151
Schering AG (health & personal
care)......................... 9,880 1,047,427
Veba AG (utilities-electrical &
gas).......................... 9,900 581,947
Viag AG (utilities-electrical &
gas).......................... 750 354,242
------------
9,793,716
------------
HONG KONG (0.5%)
Hutchison Whampoa, Ltd. (multi-
industry)..................... 52,000 470,831
------------
IRELAND (4.4%)
Allied Irish Banks PLC
(banking)..................... 86,317 1,134,959
CRH PLC (building materials &
components)................... 79,352 1,407,538
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 301
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
IRELAND (CONTINUED)
Elan Corp. PLC (health &
personal care) (a)............ 29,900 $ 858,756
Irish Life & Permanent PLC
(insurance)................... 21,175 223,831
Kerry Group PLC Class A (food &
household products)........... 28,369 336,446
Smurfit (Jefferson) Group PLC
(forest products & paper)..... 243,674 571,695
------------
4,533,225
------------
ITALY (4.1%)
Assicurazioni Generali S.p.A.
(insurance)................... 16,515 572,258
Banca Commerciale Italiana
S.p.A. (banking).............. 55,600 405,959
Benetton Group S.p.A. (textile
& apparel).................... 98,800 194,609
ENI S.p.A. (energy sources).... 157,970 943,250
Italgas S.p.A.
(utilities-electrical &
gas).......................... 19,000 79,748
Parmalat Finanziaria S.p.A.
(food & household products)... 40,000 52,389
Pirelli S.p.A. (industrial
components)................... 25,000 68,064
Riunione Adriatica di Sicurta
S.p.A. (insurance)............ 5,325 51,730
Telecom Italia S.p.A.
(telecommunications) (a)...... 79,430 825,693
Telecom Italia Mobile S.p.A.
(telecommunications).......... 111,800 667,566
Unicredito Italiano S.p.A.
(banking)..................... 81,000 355,851
------------
4,217,117
------------
JAPAN (20.4%)
Ajinomoto Co., Inc. (food &
household products) (c)....... 25,000 285,039
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (c)................. 63,000 896,832
Bridgestone Corp. (industrial
components) (c)............... 10,000 302,389
Fujitsu, Ltd. (data processing
& reproduction)............... 28,000 563,303
Hitachi, Ltd. (electrical &
electronics) (c).............. 48,000 450,114
Honda Motor Co., Ltd.
(automobiles) (c)............. 19,000 805,297
Industrial Bank of Japan, Ltd.
(The) (banking) (c)........... 93,000 737,631
Ito-Yokado Co., Ltd.
(merchandising)............... 8,000 535,378
Kirin Brewery Co., Ltd.
(beverages & tobacco) (c)..... 35,000 419,297
Matsushita Electric Industrial
Co., Ltd. (appliances &
household durables) (c)....... 15,000 291,236
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Electric Corp.
(electrical & electronics)
(c)........................... 56,000 $ 215,142
Mitsubishi Estate Co., Ltd.
(real estate) (c)............. 5,000 48,787
Mitsubishi Heavy Industries,
Ltd. (machinery & engineering)
(c)........................... 65,000 263,682
Mitsui Fudosan Co., Ltd. (real
estate)....................... 7,000 56,677
NEC Corp. (electrical &
electronics).................. 27,000 335,726
Nintendo Co., Ltd. (recreation
& other consumer goods)....... 3,000 421,610
Nippon Express Co., Ltd.
(transportation-road &
rail)......................... 9,000 53,910
Nippon Mitsubishi Oil Co.
(energy sources).............. 12,000 50,563
Nippon Steel Corp.
(metals-steel)................ 107,000 248,414
Nippon Telegraph & Telephone
Corp. (telecommunications).... 70 815,459
Nomura Securities Co., Ltd.
(financial services).......... 24,000 280,974
NTT Data Corp. (business &
public services).............. 130 1,033,246
NTT Mobile Communications
Network, Inc.
(telecommunications) (a)...... 30 406,490
NTT Mobile Communications
Network, Inc. New
(telecommunications) (a)...... 120 1,625,960
Olympus Optical Co., Ltd.
(electronic components &
instruments).................. 21,000 310,395
Rohm Co., Ltd. (electronic
components & instruments)..... 3,000 469,695
Sanyo Electric Co., Ltd.
(appliances & household
durables)..................... 19,000 77,233
Sharp Corp. (appliances &
household durables)........... 14,000 165,405
Softbank Corp. First Section
(business & public
services)..................... 1,600 324,003
Sony Corp. (appliances &
household durables)........... 13,300 1,433,994
Sumitomo Bank, Ltd.
(banking)..................... 40,000 496,050
Sumitomo Electric Industries
(industrial components)....... 20,000 227,370
Sumitomo Forestry Co., Ltd.
(building materials &
components)................... 36,000 280,181
Sumitomo Marine & Fire
Insurance Co. (insurance)..... 151,000 910,720
Takeda Chemical Industries,
Ltd. (health & personal
care)......................... 14,000 648,898
TDK Corp. (electronic
components & instruments)..... 3,000 274,381
Tokio Marine & Fire Insurance
Co. (insurance)............... 89,000 966,943
Tokyo Electric Power Co., Inc.
(utilities-electrical &
gas).......................... 8,000 168,875
Tokyo Seimitsu Co., Ltd.
(electronic components &
instruments).................. 7,000 445,900
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 302
MainStay International Equity Fund
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Toshiba Corp. (electrical &
electronics).................. 82,000 $ 584,669
Tostem Corp. (building
materials & components)....... 13,000 249,719
Toyota Motor Corp.
(automobiles)................. 41,000 1,297,382
Yamanouchi Pharmaceutical Co.,
Ltd. (health & personal
care)......................... 17,000 650,302
------------
21,125,271
------------
NETHERLANDS (3.6%)
ABN AMRO Holding N.V.
(banking)..................... 25,000 541,419
Akzo Nobel N.V. (chemicals).... 7,200 302,947
Elsevier N.V. (broadcasting &
publishing)................... 6,200 71,931
Heineken N.V. (beverages &
tobacco)...................... 7,100 363,539
ING Groep N.V. (financial
services)..................... 13,707 742,122
Koninklijke KPN N.V.
(telecommunications).......... 6,965 326,818
Royal Dutch Petroleum Co.
(energy sources).............. 16,738 980,450
TNT Post Group N.V. (business &
public services).............. 6,665 159,120
Wolters Kluwer CVA N.V.
(broadcasting & publishing)... 4,812 191,552
------------
3,679,898
------------
NEW ZEALAND (0.9%)
Contact Energy Ltd. (utilities-
electrical & gas) (a)......... 127,856 207,325
Fletcher Challenge Building
(building materials &
components)................... 158,928 231,603
Telecom Corp. of New Zealand
Ltd. (telecommunications)..... 121,288 520,611
------------
959,539
------------
PORTUGAL (2.0%)
Banco Comercial Portugues, S.A.
Registered (banking).......... 24,886 644,943
Banco Espirito Santo e
Comercial de Lisboa, S.A.
Registered (banking).......... 28,452 661,950
Electricidade de Portugal, S.A.
(utilities-electrical &
gas).......................... 16,800 302,501
Jeronimo Martins SGPS, S.A.
(merchandising)............... 2,900 95,792
Portugal Telecom, S.A.
Registered
(telecommunications).......... 8,300 337,675
Portugal Telecom, S.A. Rights
(telecommunications) (a)...... 8,300 86
------------
2,042,947
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
SPAIN (3.7%)
Acerinox, S.A.
(metals-steel)................ 2,030 $ 59,350
Autopistas Concesionaria
Espanola, S.A. (business &
public services).............. 8,340 97,619
Autopistas Concesionaria
Espanola, S.A. Bonus Rights
(business & public
services)..................... 8,340 4,817
Banco Bilbao Vizcaya, S.A.
Registered (banking).......... 39,870 576,047
Banco Santander Central
Hispano, S.A. (banking)....... 67,912 707,362
Endesa, S.A.
(utilities-electrical &
gas).......................... 20,480 436,771
Fomento de Construcciones y
Contratas, S.A. (construction
& housing).................... 1,710 97,873
Gas Natural SDG, S.A.
(utilities-electrical &
gas).......................... 2,930 213,025
Iberdrola, S.A.
(utilities-electrical &
gas).......................... 23,390 356,274
Repsol, S.A. (energy
sources)...................... 21,180 432,479
Telefonica, S.A.
(telecommunications) (a)...... 18,350 883,933
------------
3,865,550
------------
SWEDEN (1.4%)
AstraZeneca Group PLC (health &
personal care)................ 16,295 634,417
ForeningsSparbanken AB
(banking)..................... 14,250 201,135
Hennes & Mauritz AB Series B
(merchandising)............... 8,400 207,487
Skandia Forsakrings AB
(insurance)................... 10,600 198,242
Svenska Handelsbanken Series A
(banking)..................... 16,500 197,959
------------
1,439,240
------------
SWITZERLAND (6.1%)
Credit Suisse Group Registered
(banking)..................... 4,500 778,663
Nestle S.A. Registered (food &
household products)........... 850 1,531,498
Novartis AG Registered (health
& personal care).............. 514 750,539
Roche Holdings AG Genusscheine
(health & personal care)...... 100 1,027,925
Schweizerische
Rueckversicherungs
Gesellschaft Registered
(insurance)................... 320 609,293
UBS AG Registered (banking).... 3,615 1,078,974
Zurich Allied AG Registered
(insurance)................... 1,000 568,639
------------
6,345,531
------------
UNITED KINGDOM (18.5%)
Abbey National PLC (banking)... 25,080 470,845
Allied Zurich PLC
(insurance)................... 16,206 203,725
Barclays PLC (banking)......... 24,527 713,699
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 303
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
Bass PLC (leisure & tourism)... 72,671 $ 1,054,445
BG PLC (utilities-electrical &
gas).......................... 95,030 580,459
Boots Co. PLC
(merchandising)............... 27,343 324,764
BP Amoco PLC (energy
sources)...................... 76,987 1,379,802
British Airways PLC
(transportation-airlines)..... 66,702 460,261
British American Tobacco PLC
(beverages & tobacco)......... 16,206 152,379
British Telecommunications PLC
(telecommunications).......... 98,700 1,653,824
Cable & Wireless PLC
(telecommunications).......... 80,967 1,031,875
CGU PLC (insurance)............ 32,766 473,363
Diageo PLC (beverages &
tobacco)...................... 51,978 542,806
EMI Group PLC (recreation &
other consumer goods)......... 81,100 650,695
General Electric Co. PLC
(electrical & electronics).... 75,486 769,856
Granada Group PLC (leisure &
tourism)...................... 13,560 251,579
Great Universal Stores PLC
(The) (merchandising)......... 33,110 366,905
Imperial Chemical Industries
PLC (chemicals)............... 67,680 668,909
Kingfisher PLC
(merchandising)............... 30,154 346,982
Lloyds TSB Group PLC
(banking)..................... 73,116 991,174
Marks & Spencer PLC
(merchandising)............... 50,396 291,542
National Power PLC (utilities-
electrical & gas)............. 30,620 222,990
National Westminster Bank PLC
(banking)..................... 27,890 591,302
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The) (transportation-shipping) 8,611 129,288
Prudential Corp. PLC
(insurance)................... 34,700 510,876
Reed International PLC
(broadcasting & publishing)... 32,360 215,896
Rio Tinto PLC Registered
(metals-nonferrous)........... 26,460 443,574
Royal Bank of Scotland Group
PLC (banking)................. 33,660 685,513
Sainsbury (J.) PLC
(merchandising)............... 34,475 217,372
Scottish Power PLC (utilities-
electrical & gas)............. 23,010 198,763
SmithKline Beecham PLC (health
& personal care).............. 95,610 1,242,604
Unilever PLC (food & household
products)..................... 64,732 575,999
Vodafone Group PLC
(telecommunications).......... 35,223 694,025
------------
19,108,091
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
-----------------------------
<S> <C> <C>
UNITED STATES (0.3%)
Hellenic Telecommunications
Organization S.A.
(telecommunications).......... 28,000 $ 309,750
------------
Total Common Stocks
(Cost $81,124,913)............ 97,327,802
------------
<CAPTION>
Notional
Amount
----------
<S> <C> <C>
OPTIONS (0.0%) (b)
UNITED STATES (0.0%) (b)
U.S. Dollar Call/Euro Put
Strike price E1.024
Expire 8/31/99 (a)(f)......... 4,900,000 54,689
------------
Total Options
(Cost $53,655)................ 54,689
------------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.7%)
COMMERCIAL PAPER (3.7%)
UNITED STATES (3.7%)
Ford Motor Credit Corp.
5.65%, due 7/1/99
(financial services).......... $3,800,000 3,800,000
------------
Total Short-Term Investment
(Cost $3,800,000)............. 3,800,000
------------
Total Investments
(Cost $84,978,568) (d)........ 97.9% 101,182,491(e)
Cash and Other Assets,
Less Liabilities.............. 2.1 2,125,513
---------- ------------
Net Assets..................... 100.0% $103,308,004
========== ============
</TABLE>
- -------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated or partially segregated as collateral for foreign currency
forward contracts.
(d) The cost for Federal income tax purposes is $86,010,610.
(e) At June 30, 1999 net unrealized appreciation for securities was
$15,171,881, based on cost for Federal income tax purposes. This consisted
of aggregate gross unrealized appreciation for all investments on which
there was an excess of market value over cost of $18,488,588 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $3,316,707.
(f) E - Euro
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 304
MainStay International Equity Fund
The table below sets forth the diversification of International Equity Fund
investments by industry.
<TABLE>
<CAPTION>
Value Percent+
-----------------------
<S> <C> <C>
INDUSTRY DIVERSIFICATION
Aerospace & Military
Technology...................... $ 245,397 0.2%
Appliances & Household
Durables........................ 1,967,868 1.9
Automobiles...................... 3,541,033 3.4
Banking.......................... 15,300,233 14.8
Beverages & Tobacco.............. 1,712,635 1.7
Broadcasting & Publishing........ 479,379 0.5
Building Materials &
Components...................... 2,432,421 2.4
Business & Public Services....... 3,140,271 3.0
Chemicals........................ 2,532,558 2.4
Construction & Housing........... 97,873 0.1
Data Processing & Reproduction... 563,303 0.5
Electrical & Electronics......... 5,360,222 5.2
Electronic Components &
Instruments..................... 1,500,371 1.5
Energy Sources................... 5,635,699 5.5
Financial Services............... 4,823,096 4.7
Food & Household Products........ 3,505,903 3.4
Forest Products & Paper.......... 979,373 0.9
Health & Personal Care........... 7,893,119 7.6
Industrial Components............ 597,823 0.6
Insurance........................ 8,254,120 8.0
Leisure & Tourism................ 1,306,024 1.3
Machinery & Engineering.......... 263,681 0.2
Merchandising.................... 4,767,638 4.6
Metals-Nonferrous................ 1,478,808 1.4
Metals-Steel..................... 307,764 0.3
Multi-Industry................... 470,832 0.5
Real Estate...................... 105,464 0.1
Recreation & Other Consumer
Goods........................... 1,072,305 1.0
Telecommunications............... 14,732,148 14.3
Textile & Apparel................ 194,609 0.2
Transportation-Airlines.......... 460,261 0.4
Transportation-Road & Rail....... 53,910 0.1
Transportation-Shipping.......... 129,288 0.1
Utilities-Electrical & Gas....... 5,222,373 5.1
------------ -----
101,127,802 97.9
Cash and Other Assets,
Less Liabilities................ 2,180,202 2.1
------------ -----
Net Assets....................... $103,308,004 100.0%
============ =====
</TABLE>
- -------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 305
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$84,978,568).............................................. $101,182,491
Cash denominated in foreign currencies (identified cost
$1,737,065)............................................... 1,734,305
Cash........................................................ 578,215
Receivables:
Investment securities sold................................ 3,326,159
Fund shares sold.......................................... 403,706
Dividends and interest.................................... 377,233
Unrealized appreciation on foreign currency forward
contracts................................................. 592,987
Unamortized organization expense............................ 1,619
------------
Total assets.............................................. 108,196,715
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 4,062,020
MainStay Management....................................... 86,445
Fund shares redeemed...................................... 79,147
NYLIFE Distributors....................................... 68,224
Transfer agent............................................ 30,880
Custodian................................................. 10,241
Trustees.................................................. 823
Accrued expenses............................................ 96,015
Unrealized depreciation on foreign currency forward
contracts................................................. 454,916
------------
Total liabilities......................................... 4,888,711
------------
Net assets.................................................. $103,308,004
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 20,729
Class B................................................... 62,662
Class C................................................... 542
Additional paid-in capital.................................. 85,890,207
Accumulated distribution in excess of net investment
income.................................................... (709,919)
Accumulated net realized gain on investments................ 1,651,665
Accumulated undistributed net realized gain on foreign
currency transactions..................................... 77,739
Net unrealized appreciation on investments.................. 16,203,923
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 110,456
------------
Net assets.................................................. $103,308,004
============
CLASS A
Net assets applicable to outstanding shares................. $ 25,791,826
============
Shares of beneficial interest outstanding................... 2,072,912
============
Net asset value per share outstanding....................... $ 12.44
Maximum sales charge (5.50% of offering price).............. 0.72
------------
Maximum offering price per share outstanding................ $ 13.16
============
CLASS B
Net assets applicable to outstanding shares................. $ 76,851,430
============
Shares of beneficial interest outstanding................... 6,266,238
============
Net asset value and offering price per share outstanding.... $ 12.26
============
CLASS C
Net assets applicable to outstanding shares................. $ 664,748
============
Shares of beneficial interest outstanding................... 54,214
============
Net asset value and offering price per share outstanding.... $ 12.26
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 306
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 1,261,404
Interest.................................................. 34,766
-----------
Total income............................................ 1,296,170
-----------
Expenses:
Management................................................ 497,997
Distribution--Class B..................................... 283,741
Distribution--Class C..................................... 546
Transfer agent............................................ 206,131
Service--Class A.......................................... 29,785
Service--Class B.......................................... 94,528
Service--Class C.......................................... 186
Shareholder communication................................. 37,036
Custodian................................................. 24,394
Professional.............................................. 20,897
Recordkeeping............................................. 18,353
Registration.............................................. 14,122
Amortization of organization expense...................... 3,973
Trustees.................................................. 1,491
Miscellaneous............................................. 17,269
-----------
Total expenses.......................................... 1,250,449
-----------
Net investment income....................................... 45,721
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 3,739,023
Option transactions....................................... (35,647)
Foreign currency transactions............................. 77,739
-----------
Net realized gain on investments and foreign currency
transactions.............................................. 3,781,115
-----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... (2,402,652)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 328,785
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (2,073,867)
-----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 1,707,248
-----------
Net increase in net assets resulting from operations........ $ 1,752,969
===========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $175,401.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 307
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income (loss).............................. $ 45,721 $ (451,140)
Net realized gain on investments.......................... 3,739,023 1,935,682
Net realized loss on option transactions.................. (35,647) (92,842)
Net realized gain on foreign currency transactions........ 77,739 29,488
Net change in unrealized appreciation on investments...... (2,402,652) 14,778,315
Net change in unrealized appreciation (depreciation) on
translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 328,785 (460,882)
------------ ------------
Net increase in net assets resulting from operations...... 1,752,969 15,738,621
------------ ------------
Distributions to shareholders:
From net realized gain on investments and foreign currency
transactions:
Class A................................................. -- (372,585)
Class B................................................. -- (713,493)
Class C................................................. -- (101)
------------ ------------
Total distributions to shareholders................... -- (1,086,179)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 18,310,226 42,133,228
Class B................................................. 12,151,630 26,219,637
Class C................................................. 2,136,143 9,724
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 238,909
Class B................................................. -- 674,371
Class C................................................. -- 58
------------ ------------
32,597,999 69,275,927
Cost of shares redeemed:
Class A................................................. (17,197,867) (39,188,478)
Class B................................................. (11,991,127) (25,790,198)
Class C................................................. (1,496,298) --
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 1,912,707 4,297,251
------------ ------------
Net increase in net assets............................ 3,665,676 18,949,693
NET ASSETS:
Beginning of period......................................... 99,642,328 80,692,635
------------ ------------
End of period............................................... $103,308,004 $ 99,642,328
============ ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (709,919) $ (755,640)
============ ============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 308
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ----------------------------------------------
1999+ 1998 1997 1996 1995
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period................... $ 12.21 $ 10.33 $ 10.48 $ 10.05 $ 9.77
------- ------- ------- ------- -------
Net investment income (loss)............................. 0.04 0.01 0.80 0.29 0.27
Net realized and unrealized gain (loss) on investments... 0.14 2.13 0.03 0.07 0.10
Net realized and unrealized gain (loss) on foreign
currency transactions.................................. 0.05 (0.06) (0.36) 0.62 0.14
------- ------- ------- ------- -------
Total from investment operations......................... 0.23 2.08 0.47 0.98 0.51
------- ------- ------- ------- -------
Less distributions:
From net realized gain on investments and foreign
currency transactions................................ -- (0.20) (0.62) (0.52) (0.15)
In excess of net realized gain on investments.......... -- -- -- (0.03) (0.08)
------- ------- ------- ------- -------
Total distributions...................................... -- (0.20) (0.62) (0.55) (0.23)
------- ------- ------- ------- -------
Net asset value at end of period......................... $ 12.44 $ 12.21 $ 10.33 $ 10.48 $ 10.05
======= ======= ======= ======= =======
Total investment return (a).............................. 1.88% 20.17% 4.52% 9.78% 5.25%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)......................... 0.66%++ 0.08% 0.19% (0.1%) (0.2%)
Expenses............................................. 1.94%++ 2.01% 2.01% 2.0% 2.2%
Portfolio turnover rate.................................. 24% 54% 43% 19% 25%
Net assets at end of period (in 000's)................... $25,792 $24,115 $17,452 $17,475 $12,856
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is not
annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 309
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------- ------------------------------
Six months September 13,* Six months September 1**
ended Year ended December 31, through ended through
June 30, ---------------------------------------------- December 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994 1999+ 1998
---------- ------- ------- ------- ------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12.08 $ 10.22 $ 10.38 $ 9.97 $ 9.77 $ 10.00 $12.08 $10.60
------- ------- ------- ------- ------- ------- ------ ------
0.00 (0.08) 0.72 0.24 0.26 (0.04) 0.00 (0.09)
0.14 2.10 0.03 0.07 0.07 (0.16) 0.14 1.72
0.04 (0.05) (0.37) 0.59 0.09 (0.03) 0.04 (0.04)
------- ------- ------- ------- ------- ------- ------ ------
0.18 1.97 0.38 0.90 0.42 (0.23) 0.18 1.59
------- ------- ------- ------- ------- ------- ------ ------
-- (0.11) (0.54) (0.46) (0.15) -- -- (0.11)
-- -- -- (0.03) (0.07) -- -- --
------- ------- ------- ------- ------- ------- ------ ------
-- (0.11) (0.54) (0.49) (0.22) -- -- (0.11)
------- ------- ------- ------- ------- ------- ------ ------
$ 12.26 $ 12.08 $ 10.22 $ 10.38 $ 9.97 $ 9.77 $12.26 $12.08
======= ======= ======= ======= ======= ======= ====== ======
1.49% 19.34% 3.78% 9.05% 4.27% (2.30%) 1.49% 15.07%
(0.09%)++ (0.67%) (0.49%) (0.8%) (1.0%) (1.6%)++ (0.09%)++ (0.67%)++
2.69% ++ 2.76% 2.69% 2.7% 3.0% 3.9% ++ 2.69% ++ 2.76% ++
24% 54% 43% 19% 25% 9% 24% 54%
$76,851 $75,516 $63,241 $52,709 $25,341 $20,549 $ 665 $ 11
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 310
MainStay International Equity Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
International Equity Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on September 13,
1994 and September 1, 1998, respectively. Class A shares, Class B shares and
Class C shares bear the same voting (except for issues that relate solely to one
class), dividend, liquidation and other rights and conditions except that the
Class B shares and Class C shares are subject to higher distribution fee rates.
Each class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to provide long-term growth of capital
commensurate with an acceptable level of risk by investing in a portfolio
consisting primarily of non-U.S. equity securities. Current income is a
secondary objective.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no
20
<PAGE> 311
Notes to Financial Statements unaudited
sale occurs, at the mean between the closing bid and asked prices, (b) by
appraising common and preferred stocks traded on other United States national
securities exchanges or foreign securities exchanges as nearly as possible in
the manner described in (a) by reference to their principal exchange, including
the National Association of Securities Dealers National Market System, (c) by
appraising over-the-counter securities quoted on the National Association of
Securities Dealers NASDAQ system (but not listed on the National Market System)
at the bid price supplied through such system, and (d) by appraising
over-the-counter securities not quoted on the NASDAQ system at prices supplied
by the pricing agent or brokers selected by the Subadvisor, if these prices are
deemed to be representative of market values at the regular close of business of
the Exchange. Short-term securities which mature in more than 60 days are valued
at current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost if their term to maturity at purchase was 60
days or less, or by amortizing the difference between market value on the 61st
day prior to maturity and value on maturity date if their original term to
maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period-end to credit loss in the event of a counterparty's failure
to perform its obligations.
21
<PAGE> 312
MainStay International Equity Fund
Foreign currency forward contracts open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
----------- ----------- --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
- -------------------------------
Australian Dollar vs. U.S. Dollar, expiring 8/18/99....... A$3,681,000 $ 2,336,924 $(100,826)
Canadian Dollar vs. U.S. Dollar, expiring 8/26/99......... C$9,160,000 $ 6,282,794 89,041
Euro vs. Swedish Krona, expiring 8/30/99.................. E 925,752 SK8,318,000 22,894
Euro vs. U.S. Dollar, expiring 8/31/99.................... E 7,510,000 $ 8,148,350 367,179
New Zealand Dollar vs. U.S. Dollar, expiring 8/16/99...... N$2,365,000 $ 1,281,889 27,540
Pound Sterling vs Euro, expiring 8/11/99.................. L 3,058,290 E 4,700,000 40,426
Contract Contract
Amount Amount
Purchased Sold
----------- -----------
Foreign Currency Buy Contracts
- ------------------------------
Canadian Dollar vs. U.S. Dollar, expiring 8/26/99......... C$9,121,000 $ 6,121,477 45,907
Euro vs. U.S. Dollar, expiring 8/31/99.................... E 6,240,000 $ 6,678,672 (213,358)
Pound Sterling vs. U.S. Dollar, expiring 8/26/99.......... L 2,200,100 $ 3,610,100 (140,732)
---------
Net unrealized appreciation on foreign currency forward
contracts............................................... $ 138,071
=========
</TABLE>
PURCHASED AND WRITTEN OPTIONS. The Fund may write covered call and put options
on its portfolio securities or foreign currencies. Premiums are received and are
recorded as liabilities. The liabilities are subsequently adjusted to reflect
the current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are canceled in closing purchase transactions are
added to the proceeds or netted against the amount paid on the transaction to
determine the realized gain or loss. By writing a covered call option, a Fund
foregoes in exchange for the premium the opportunity for capital appreciation
above the exercise price should the market price of the underlying security or
foreign currency increase. By writing a covered put option, a Fund, in exchange
for the premium, accepts the risk of a decline in the market value of the
underlying security or foreign currency below the exercise price.
The Fund may purchase call and put options on its portfolio securities or
foreign currencies. The Fund may purchase call options to protect against an
increase in the price of the security or foreign currency it anticipates
purchasing. The Fund may purchase put options on its securities or foreign
currencies to protect against a decline in the value of the security or foreign
currency or to close out covered written put positions. Risks may arise from an
imperfect correlation between the change in market value of the securities or
foreign currencies held by the Fund and the prices of options relating to the
securities or foreign currencies purchased or sold by the Fund and from the
possible lack of a liquid secondary market for an option. The maximum exposure
to loss for any purchased option is limited to the premium initially paid for
the option.
22
<PAGE> 313
Notes to Financial Statements unaudited (continued)
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $49,000 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
Discounts on securities purchased for the Fund are accreted on the constant
yield method over the life of the respective securities. Premiums on securities
purchased are not amortized for this Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net
23
<PAGE> 314
MainStay International Equity Fund
assets resulting from changes in market prices are not separately presented.
However, gains and losses from certain foreign currency transactions are treated
as ordinary income for Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on forward currency contracts, net currency gains or losses realized
as a result of differences between the amounts of securities sale proceeds,
purchase cost, dividends, interest and withholding taxes as recorded on the
Fund's books, and the U.S. dollar equivalent amount actually received or paid.
Net currency gains or losses from valuing foreign currency denominated assets
and liabilities other than investments at period end exchange rates are
reflected in unrealized foreign exchange gains.
Foreign currency held at June 30, 1999:
<TABLE>
<CAPTION>
Currency Cost Value
- ---------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Australian Dollar A$ 737,354 $ 485,104 $ 488,055
Canadian Dollar C$ 28 19 19
Euro E 620,528 640,338 639,949
Hong Kong Dollar HK 294 38 38
Japanese Yen Y 930,962 7,681 7,692
New Zealand Dollar N$ 809,685 431,419 429,052
Pound Sterling L 65,417 104,666 103,117
Swedish Krona SK 109,174 13,098 12,841
Swiss Franc CF 83,236 54,702 53,542
---------- ----------
$1,737,065 $1,734,305
========== ==========
</TABLE>
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
24
<PAGE> 315
Notes to Financial Statements unaudited (continued)
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $497,997.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.60% the
average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $7,777 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $51,528
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $206,131.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $7,776,117, which represents 30.1% of the
Class A net assets at period end.
25
<PAGE> 316
MainStay International Equity Fund
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $1,505 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$18,353 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, capital loss carryforwards of $795,870 which have been
deferred for Federal income tax purposes, were available to the extent provided
by regulations to offset future realized gains of the Fund through 2005 and
2006. To the extent that these carryforwards are used to offset future capital
gains, it is probable that the capital gains so offset will not be distributed
to shareholders. The Fund intends to elect to treat for Federal income tax
purposes approximately $1,154,256 of qualifying realized capital gains and
foreign exchange gains that arose during the prior year as if they arose on
January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $23,763 and $22,994, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 1,488 1,003 176 3,750 2,295 1
Shares issued in reinvestment of
dividends................................ -- -- -- 20 57 --
------ ----- ---- ------ ------ ---
1,488 1,003 176 3,770 2,352 1
Shares redeemed............................ (1,390) (988) (123) (3,484) (2,286) --
------ ----- ---- ------ ------ ---
Net increase............................... 98 15 53 286 66 1
====== ===== ==== ====== ====== ===
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
</TABLE>
26
<PAGE> 317
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
27
<PAGE> 318
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee INTERNATIONAL EQUITY FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay International Equity Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA11-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 319
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
Results of Proxy Vote 3
$10,000 Invested in the MainStay MAP
Equity Fund versus S&P 500, Lipper
Growth & Income Fund Index, and
Inflation--Class I Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 18
The MainStay Funds 23
</TABLE>
<PAGE> 320
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 1999
2
<PAGE> 321
Results of Proxy Vote
A Special Meeting of Shareholders of the MAP-Equity Fund was held on June 3,
1999, to approve an Agreement and Plan of Reorganization (the "Plan") between
MAP-Equity Fund and The MainStay Funds, on behalf of MainStay MAP Equity Fund.
The Plan provided for the acquisition of all the assets of MAP- Equity Fund by
MainStay MAP Equity Fund in exchange for Class I shares of beneficial interest
of MainStay MAP Equity Fund and the assumption by MainStay MAP Equity Fund of
all the liabilities of MAP-Equity Fund, and for the pro rata distribution of
such MainStay MAP Equity Fund Class I shares to shareholders of MAP-Equity Fund
and the subsequent liquidation and dissolution of MAP-Equity Fund.
MAP-Equity Fund shareholders voted as follows: 1,402,014 in favor; 10,979
against; and 20,828 abstained, resulting in approval of the proposal.
3
<PAGE> 322
$10,000 Invested in the MainStay MAP Equity
Fund versus S&P 500, Lipper Growth & Income Fund Index, and Inflation
CLASS I SHARES SEC Returns: 1 Year 13.22%, 5 Year 23.10%, 10 Year 15.72%
[CLASS I SHARES GRAPH]
<TABLE>
<CAPTION>
MAINSTAY MAP EQUITY LIPPER GROWTH &
PERIOD END FUND S&P 500* INCOME FUND INDEX+ INFLATION++
- ---------- ------------------- -------- ------------------ ----------------
<S> <C> <C> <C> <C>
6/89 $ 9525.00 $ 10000.00 $ 10000.00 $ 10000.00
6/90 10232.00 11648.00 10911.00 10467.00
6/91 10839.00 12510.00 11553.00 10959.00
6/92 12541.00 14187.00 13103.00 11298.00
6/93 14118.00 16122.00 15246.00 11637.00
6/94 14510.00 16348.00 15843.00 11926.00
6/95 17085.00 20611.00 18928.00 12289.00
6/96 21694.00 25972.00 23069.00 12627.00
6/97 29316.00 34985.00 29756.00 12917.00
6/98 36236.00 45531.00 36341.00 13134.00
6/99 43071.00 55898.00 41270.00 13277.00
</TABLE>
- -------
On 6/9/99, the MAP-Equity Fund was reorganized as the MainStay MAP Equity
Fund Class I shares.
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which, performance may have been lower. The fee waivers and/or
expense limitations are voluntary and may be discontinued at any time.
Performance figures for the MainStay MAP Equity Fund Class I shares, first
offered 6/9/99, include the performance of the MAP-Equity Fund from 6/30/89
through 6/8/99. Prior to reorganization, shares of the MAP-Equity Fund were
subject to a maximum 4.75% sales charge, however, Class I shares are sold
with no initial sales charge and no annual 12b-1 fee. Performance for Class
A, Class B, and Class C shares will vary based on differences in their load
and expense structures. The graph assumes an initial investment of $10,000
made on 6/30/89 in Class I shares of the MainStay MAP Equity Fund. The
growth chart reflects the effect of the 4.75% sales charge, applicable
prior to the Fund's reorganization, thereby reducing the amount of the
investment to $9,525. All results include reinvestment of distributions at
net asset value and change in share price for the stated period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all capital gain
and dividend distributions. An investment cannot be made directly into an
index.
+ The Lipper Growth & Income Fund Index is an unmanaged equally weighted
performance index of the 30 largest qualifying funds in the growth and
income fund universe, based on year-end assets. Lipper, Inc. is an
independent monitor of mutual fund performance. Its rankings are based on
total return with capital gains and dividends reinvested. Results do not
reflect any deduction of sales charges. An investment cannot be made
directly into an index.
++ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 323
Portfolio Management Discussion and Analysis
A multitude of positive indicators combined to propel U.S. stocks higher during
the six months ended June 30, 1999, extending the remarkable bull market of the
past several years. Domestically, economic growth continued to surge, while
news on the inflation front remained low key. Prices for oil, natural gas,
lumber, and copper recovered during the reporting period, while agricultural
commodity prices generally declined. Investors welcomed enhanced stability in
global economies.
There were, however, changes among U.S. equity sectors. In many respects, the
first quarter of 1999 was a continuation of recent history, with the majority of
the equity market's performance concentrated in a handful of
large-capitalization growth-oriented stocks. During the second quarter of the
year, the tide changed rather dramatically. The S&P 500 continued to fare well,
but long out-of-favor value stocks came back strong in a dramatic reversal of
fortune, as many companies reported corporate earnings in line with or exceeding
analysts' expectations. Large-cap value stocks outperformed large-cap growth
stocks for the first time in nearly a year and a half. During the second quarter
of the year, smaller-capitalization U.S. stocks outperformed their larger-cap
counterparts for the first time in seven quarters, and within the
small-capitalization sector, value outperformed growth.
Along with positive earnings surprises, stronger performance among value
equities can be attributed to energy-related stocks, which rebounded sharply
with higher oil prices. In addition, a rotation into cyclicals (stocks that are
particularly sensitive to economic changes) led to healthier returns in sectors
that had long been out-of-favor. One reason why small-cap stocks were able to
outperform was that many were rising from all-time low valuations relative to
larger-cap issues.
FUND PERFORMANCE
For the six months ended June 30, 1999, the MainStay MAP Equity Fund returned
8.59% for Class I shares,(1) and underperformed the average Lipper(2) growth and
income fund, which returned 10.93% for the six-month reporting period. For the
period from June 9, 1999--commencement of operations--through June 30, 1999,
Class A shares returned 4.32% and Class B and Class C shares returned 4.30%,
excluding all sales charges.(1)
The primary reason for the Fund's underperformance for the six-month reporting
period was its value discipline, which seeks companies with low price to book
value or price to cash flow ratios plus a catalyst that may unlock a company's
potential, such as management changes, restructurings, and sales of
underperforming assets. Certainly, the rotation into cyclicals across the
capitalization spectrum and the dramatic comeback of small-cap stocks during the
second quarter helped Fund performance. But large-cap growth stocks still
outperformed their value counterparts during the first quarter of the year, and
small-cap growth stocks still outperformed their value counterparts for the
semiannual period. Unlike some value managers who tried to improve returns by
stepping into
- -------
(1) Performance figures for Class I shares include the historical performance of
the MAP-Equity Fund (predecessor to the MainStay MAP Equity Fund Class I
shares) from 1/1/99 to 6/8/99. Performance figures for Class A, Class B, and
Class C shares reflect actual performance from 6/9/99 through 6/30/99.
(2) See page 9 for additional information about Lipper, Inc.
5
<PAGE> 324
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS I SHARES
[CLASS I SHARES GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN%
-------------
<S> <C>
12/89 28.18
12/90 -5.09
12/91 27.69
12/92 10.53
12/93 8.67
12/94 2.76
12/95 32.50
12/96 23.82
12/97 27.99
12/98 24.23
6/99 8.59
</TABLE>
Past performance is no guarantee of future results. Class I share returns
include the performance of the MAP-Equity Fund for periods from 6/89
through 6/8/99. See footnote(*) on page 8 for more information on performance.
the growth arena, we remained focused on our value-oriented process.
Of course, the major event during the semiannual period was the reorganization
of the MAP-Equity Fund into the MainStay MAP Equity Fund on June 9, 1999. The
Fund maintained its investment objective and policies, and two of the Fund's
long-standing portfolio managers continue to handle day-to-day investment
decisions through the Fund's subadvisor, Markston International, LLC. As a
result, this reorganization had minimal, if any, impact on the Fund's
performance.
DIVERSIFIED VALUE APPROACH
Among the Fund's top performers during the first six months of 1999 were:
- - TriQuint Semiconductor, up 195%, as its yields improved and its orders
accelerated, largely as a function of strong demand for cellular and PCS
portable telephones,
- - Catalina Marketing, up 34%, as the company emerged as the leading distributor
of secure coupons over the Internet,
- - Biogen, appreciating 55% on strong growth in new prescriptions, which
supported robust earnings growth,
- - CommScope, up 82%, partially as a result of AT&T's merger with TCI, which
assured the upgrading of the domestic cable network to interactive telephony
capability; the Asian economic recovery also seemed to suggest improvement in
the company's international operations,
- - Motorola, appreciating 55% both on an ongoing reorganization and on firm
demand for communications equipment and semiconductors, and
- - American Express, up 27%, on continued growth in the basic charge-card
business, improving international economies that helped its worldwide
profitability, and continued growth at American Express Financial Advisors.
Perhaps the Fund's worst performers were National Computer Systems, which
6
<PAGE> 325
declined 9% on management's tempering of earnings expectations; Arrow
Electronics, which suffered from disappointing earnings; and Avid Technology,
which fell on low first-quarter volume, a restatement of research and
development (R&D) write-offs from a recent acquisition, and amortization of
goodwill.
The Fund made some significant purchases and sales during the semiannual
period. We initiated positions for the Fund in PathoGenesis and Protein Design
Labs, both pharmaceutical companies whose stock prices had declined, but whose
pipeline drugs may improve profitability going forward. We added to the Fund's
positions in Louisiana Pacific and Great Lakes Chemical, increasing the Fund's
weighting in the outperforming industrial sector, which had a positive impact
on performance.
During the first quarter, we eliminated the Fund's positions in Seagate
Technology at attractive prices--and in OshKosh B'Gosh, where we became
concerned that growth was slowing, even though the Fund had earned positive
returns. We decreased the Fund's weighting in the underperforming consumer
nondurable sector and the Fund remained underweighted in oil and gas.
LOOKING FORWARD
We believe the U.S. economy is experiencing a tight labor market with inflation
beginning to show up in medical costs and some industrial raw materials. We
believe the overall market is robustly priced although there are areas of
opportunity. Our expectation is for corporate earnings to continue to meet
estimates throughout the remainder of 1999, so our strategic outlook going
forward is reasonably positive. In our opinion, improvement in corporate
earnings could broaden out what has been extremely narrow market performance. On
the other hand, the growth in earnings may also cause interest rates to continue
their trend upward in the near term, although we do not expect the move to be
significant. Thus, we believe the more cyclical or value-oriented segments of
the market may continue to outperform. As of June 30, 1999, small-cap stocks
remained at unprecedented discounts in valuation to the S&P 500. We believe
small-cap stocks should continue to do well as long as the economy continues on
its expected growth path.
Given this outlook, we will seek to use the expected volatility of the market to
make new stock purchases or add to existing Fund positions, buying securities
that we believe represent value and have catalysts that may improve the
company's prospects over time. We enjoy flexibility when investing the Fund's
assets because the Fund is without capitalization constraints. As a result, the
portfolio will likely continue to seek an eclectic selection of securities,
diversified by issuer, industry, and company size. Wherever the markets may
move, the Fund will continue to seek long-term capital appreciation, with income
as a secondary objective.
Michael Mullarkey
Roger Lob
Portfolio Managers
Markston International, LLC
Past performance is no guarantee of future results.
7
<PAGE> 326
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a 4.32%
Class B n/a n/a n/a 4.30%
Class C n/a n/a n/a 4.30%
Class I 18.86% 24.31% 16.29% 12.20%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a -1.42%
Class B n/a n/a n/a -0.70%
Class C n/a n/a n/a 3.30%
Class I 13.22% 23.10% 15.72% 12.01%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a n/a
Class B n/a n/a n/a n/a
Class C n/a n/a n/a n/a
Class I 248 out of 76 out of 46 out of 37 out of
842 funds 323 funds 149 funds 63 funds
Average Lipper
growth and
income fund 14.49% 21.72% 15.13% 12.74%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $26.40 $0.0770 $0.0000
Class B $26.40 $0.0720 $0.0000
Class C $26.40 $0.0720 $0.0000
Class I $26.40 $0.0892 $0.2000
</TABLE>
- -------
On 6/9/99, the MAP-Equity Fund was reorganized as the MainStay MAP Equity
Fund Class I shares.
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. Performance figures
reflect certain fee waivers and/or expense limitations, without which,
performance may have been lower. The fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. All returns assume capital
gain and dividend distributions are reinvested. Performance figures for the
MainStay MAP Equity Fund Class I shares, first offered 6/9/99, include the
performance of the MAP-Equity Fund from inception (1/21/71) through 6/8/99.
Prior to reorganization, shares of the MAP-Equity Fund were subject to a
maximum 4.75% sales charge. Performance for Class A, Class B, and Class C
shares will vary based on differences in their load and expense structures.
8
<PAGE> 327
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares are sold with no initial sales
charge, but are subject to a Contingent Deferred Sales Charge (CDSC) of up to
5% if redeemed within the first six years of purchase and an annual 12b-1 fee
of 1%. Class C shares are sold with no initial sales charge, but are subject
to a CDSC of 1% if redeemed within one year of purchase and an annual 12b-1
fee of 1%. Class I shares are sold with no initial sales charge and no annual
12b-1 fee.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Life of Fund rankings reflect the performance of each share class
from its initial offering date through 6/30/99. Class A, Class B, and Class C
shares were first offered to the public on 6/9/99. Class I shares, first
offered 6/9/99, include the performance of the MAP-Equity Fund from inception
(1/21/71) through 6/8/99. Life of fund return for the average Lipper peer
fund is for the period from 1/21/71 through 6/30/99. Lipper averages are not
class specific.
9
<PAGE> 328
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMMON STOCKS (90.8%)+
AEROSPACE/DEFENSE (1.0%)
Boeing Co. (The)................ 16,148 $ 713,540
-----------
AUTO PARTS & EQUIPMENT (0.4%)
Pennzoil-Quaker State Co........ 17,935 269,025
-----------
BANKS (2.6%)
Northern Trust Corp............. 12,005 1,164,485
Popular, Inc.................... 20,940 634,744
-----------
1,799,229
-----------
BEVERAGES--SOFT DRINKS (0.6%)
Coca-Cola Co. (The)............. 4,308 269,250
PepsiCo, Inc.................... 3,597 139,159
-----------
408,409
-----------
BIOTECHNOLOGY (2.2%)
Biogen, Inc. (a)................ 16,112 1,036,203
Protein Design Labs, Inc. (a)... 22,800 505,875
-----------
1,542,078
-----------
BROADCAST/MEDIA (0.7%)
MediaOne Group, Inc. (a)........ 5,928 440,895
-----------
BUILDING MATERIALS (3.2%)
Lone Star Industries, Inc....... 8,740 328,296
Morgan Products Ltd. (a)........ 9,930 37,858
Valspar Corp. (The)............. 3,445 130,910
Vulcan Materials Co............. 35,178 1,697,339
-----------
2,194,403
-----------
CHEMICALS (2.1%)
IMC Global Inc.................. 3,850 67,856
Great Lakes Chemical Corp....... 30,405 1,400,531
-----------
1,468,387
-----------
COMMUNICATIONS--EQUIPMENT (1.6%)
CommScope, Inc. (a)............. 28,318 870,778
Nortel Networks Corp............ 2,736 237,519
-----------
1,108,297
-----------
COMPUTER SOFTWARE & SERVICES (7.2%)
Avid Technology, Inc. (a)....... 59,232 955,116
Electronic Data Systems Corp.... 8,613 487,173
Informix Corp. (a).............. 70,000 597,191
National Computer Systems,
Inc............................ 75,940 2,562,975
Shared Medical Systems Corp..... 6,282 409,900
-----------
5,012,355
-----------
CONSUMER FINANCE (0.4%)
Cash America International,
Inc............................ 20,424 262,959
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COSMETICS/PERSONAL CARE (0.8%)
Gillette Co. (The).............. 12,863 $ 527,383
-----------
ELECTRIC POWER COMPANIES (1.6%)
Cinergy Corp.................... 7,650 244,800
Reliant Energy, Inc............. 31,622 873,558
-----------
1,118,358
-----------
ELECTRICAL EQUIPMENT (0.6%)
Checkpoint Systems, Inc. (a).... 23,203 207,377
Vishay Intertechnology, Inc.
(a)............................ 10,540 221,340
-----------
428,717
-----------
ELECTRONICS--COMPONENTS (1.1%)
Arrow Electronics, Inc. (a)..... 36,475 693,025
Avnet, Inc...................... 1,530 71,145
-----------
764,170
-----------
ELECTRONICS--SEMICONDUCTORS (4.1%)
Motorola, Inc................... 20,231 1,916,887
National Semiconductor Corp.
(a)............................ 138 3,493
TriQuint Semiconductor, Inc.
(a)............................ 16,226 921,840
-----------
2,842,220
-----------
ENTERTAINMENT (3.8%)
Time Warner, Inc................ 36,702 2,642,544
-----------
FINANCIAL--MISCELLANEOUS (2.3%)
American Express Co............. 12,207 1,588,436
-----------
FOOD (2.2%)
Bestfoods....................... 6,589 326,156
Quaker Oats Co. (The)........... 11,349 753,290
Ralston Purina Co............... 14,641 445,635
-----------
1,525,081
-----------
HEALTH CARE DISTRIBUTORS (0.2%)
McKesson HBOC, Inc.............. 4,436 142,507
-----------
HEALTH CARE--DRUGS (5.2%)
PathoGenesis Corp.(a)........... 43,200 612,900
Pharmacia & Upjohn, Inc......... 46,657 2,650,701
Schering-Plough Corp............ 6,884 364,852
-----------
3,628,453
-----------
HEALTH CARE--HMOS (0.2%)
Humana Inc. (a)................. 10,740 138,949
-----------
HEALTH CARE--MISCELLANEOUS (2.9%)
Johnson & Johnson............... 9,027 884,646
MedPartners, Inc. (a)........... 152,342 1,152,086
-----------
2,036,732
-----------
HEAVY DUTY TRUCKS & PARTS (0.5%)
Cummins Engine Co., Inc......... 5,977 341,436
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 329
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOUSEHOLD--FURNISHINGS &
APPLIANCES (0.1%)
Armstrong World Industries,
Inc............................ 861 $ 49,777
-----------
HOUSEWARES (0.8%)
Newell Rubbermaid Inc........... 8,258 383,997
Tupperware Corp................. 6,079 155,014
-----------
539,011
-----------
INSURANCE (4.7%)
Allmerica Financial Corp........ 40,251 2,447,764
Reliance Group Holdings, Inc.... 5,826 43,331
SAFECO Corp. (The).............. 17,680 780,130
-----------
3,271,225
-----------
MANUFACTURING--DIVERSIFIED (2.6%)
Pentair, Inc.................... 7,672 350,994
Tyco International Ltd.......... 15,516 1,470,141
-----------
1,821,135
-----------
MISCELLANEOUS (2.0%)
Archer-Daniels-Midland Co....... 26,762 413,138
Minnesota Mining and
Manufacturing Co............... 10,790 938,056
-----------
1,351,194
-----------
NATURAL GAS DISTRIBUTORS &
PIPELINES (0.3%)
Northwest Natural Gas Co........ 4,635 111,819
Piedmont Natural Gas Co.,
Inc............................ 2,533 78,840
-----------
190,659
-----------
OIL & GAS SERVICES (2.4%)
Apache Corp..................... 5,661 220,779
BP Amoco PLC-ADR (b)............ 6,368 690,928
PennzEnergy Co.................. 17,935 299,290
Royal Dutch Petroleum Co. (b)... 6,415 386,504
Union Pacific Resources Group
Inc............................ 4,509 73,553
-----------
1,671,054
-----------
PAPER & FOREST PRODUCTS (2.4%)
Louisiana-Pacific Corp.......... 68,463 1,625,996
-----------
PUBLISHING (1.2%)
Meredith Corp................... 15,400 533,225
R.H. Donnelley Inc. (a)......... 9,808 191,869
Thomas Nelson, Inc.............. 10,082 112,163
Times Mirror Co. (The).......... 49 2,903
-----------
840,160
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT/
MANAGEMENT (1.0%)
Health Care Property Investors,
Inc............................ 14,946 $ 431,566
United Dominion Realty Trust,
Inc............................ 21,339 250,733
-----------
682,299
-----------
RESTAURANTS (0.9%)
VICORP Restaurants, Inc. (a).... 37,798 656,740
-----------
RETAIL (7.1%)
Burlington Coat Factory
Warehouse Corp................. 31,348 605,408
Charming Shoppes, Inc. (a)...... 57,500 350,394
CVS Corp........................ 45,776 2,340,298
Kroger Co. (The) (a)............ 30,128 841,701
Penney (J.C.) Co., Inc.......... 6,242 303,127
Systemax Inc. (a)............... 38,806 480,224
-----------
4,921,152
-----------
SPECIALIZED SERVICES (14.3%)
ACNielsen Corp. (a)............. 83,259 2,518,585
Catalina Marketing Corp. (a).... 31,537 2,901,404
Dun & Bradstreet Corp. (The).... 19,920 705,915
Harte-Hanks, Inc................ 81,562 2,212,369
IMS Health Inc.................. 16,730 522,812
National Service Industries,
Inc............................ 18,744 674,784
Nielsen Media Research (a)...... 2,954 86,405
Ogden Corp...................... 10,436 281,120
-----------
9,903,394
-----------
TELECOMMUNICATIONS--LONG
DISTANCE (2.6%)
Qwest Communications
International Inc.............. 14,000 462,875
Sprint Corp..................... 21,734 1,147,827
Sprint Corp. (PCS Group) (a).... 3,933 224,673
-----------
1,835,375
-----------
TELEPHONE (0.6%)
GTE Corp........................ 5,237 396,375
-----------
TEXTILES--APPAREL MANUFACTURERS (0.2%)
Burlington Industries, Inc.
(a)............................ 14,286 129,467
Hartmarx Corp. (a).............. 4,002 16,758
-----------
146,225
-----------
TRANSPORTATION--MISCELLANEOUS (0.1%)
Petroleum Helicopters, Inc...... 2,534 31,041
-----------
Total Common Stocks (Cost
$43,454,514)................... 62,877,375
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 330
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
PREFERRED STOCKS (0.4%)
BROADCAST/MEDIA (0.4%)
News Corp. Ltd., Pfd. ADR
(a)(b)......................... 8,614 $ 271,879
-----------
MISCELLANEOUS (0.0%)(c)
Craig Corp., Class A (a)........ 3,242 22,897
-----------
Total Preferred Stocks
(Cost $92,849)................. 294,776
-----------
<CAPTION>
Principal
Amount
<S> <C> <C>
----------
LONG-TERM CONVERTIBLE BOND (0.0%)(c)
RESTAURANTS (0.0%)(c)
Boston Chicken
7.75%, due 5/1/04 (d).......... $ 97,000 4,365
-----------
Total Long-Term Convertible Bond
(Cost $28,816)................. 4,365
-----------
SHORT-TERM INVESTMENT (9.2%)
TIME DEPOSIT (9.2%)
Caymen Bank of New York
4.125%, due 7/1/99............. 6,366,000 6,366,000
-----------
Total Short-Term Investment
(Cost $6,366,000).............. 6,366,000
-----------
Total Investments
(Cost $49,942,179) (e)......... 100.4% 69,542,516(f)
Liabilities in Excess of Cash
and Other Assets............... (0.4) (260,272)
---------- -----------
Net Assets...................... 100.0% $69,282,244
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Less than one tenth of a percent.
(d) Issuer in bankruptcy.
(e) The cost for Federal income tax purposes is $49,950,429.
(f) At June 30, 1999, net unrealized appreciation was $19,592,087, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $21,734,958 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,142,871.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 331
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$49,942,179).............................................. $69,542,516
Cash........................................................ 10,919
Receivables:
Investment securities sold................................ 6,376,179
Fund shares sold.......................................... 255,439
Dividends and interest.................................... 36,855
-----------
Total assets........................................ 76,221,908
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 6,573,343
Fund shares redeemed...................................... 38,436
MainStay Management....................................... 31,381
Custodian................................................. 14,914
Transfer agent............................................ 7,745
NYLIFE Distributors....................................... 451
Trustees.................................................. 299
Accrued expenses............................................ 65,732
Dividends payable........................................... 207,363
-----------
Total liabilities................................... 6,939,664
-----------
Net assets.................................................. $69,282,244
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 1,290
Class B................................................... 249
Class C................................................... 21
Class I................................................... 24,683
Additional paid-in capital.................................. 46,088,371
Accumulated distribution in excess of net investment
income.................................................... (915)
Accumulated undistributed net realized gain on
investments............................................... 3,568,208
Net unrealized appreciation on investments.................. 19,600,337
-----------
Net assets.................................................. $69,282,244
===========
CLASS A
Net assets applicable to outstanding shares................. $ 3,406,757
===========
Shares of beneficial interest outstanding................... 129,020
===========
Net asset value per share outstanding....................... $ 26.40
Maximum sales charge (5.50% of offering price).............. 1.54
-----------
Maximum offering price per share outstanding................ $ 27.94
===========
CLASS B
Net assets applicable to outstanding shares................. $ 658,037
===========
Shares of beneficial interest outstanding................... 24,921
===========
Net asset value and offering price per share outstanding.... $ 26.40
===========
CLASS C
Net assets applicable to outstanding shares................. $ 54,552
===========
Shares of beneficial interest outstanding................... 2,066
===========
Net asset value and offering price per share outstanding.... $ 26.40
===========
CLASS I
Net assets applicable to outstanding shares................. $65,162,898
===========
Shares of beneficial interest outstanding................... 2,468,252
===========
Net asset value and offering price per share outstanding.... $ 26.40
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 332
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 350,983
Interest.................................................. 92,768
----------
Total income............................................ 443,751
----------
Expenses:
Management................................................ 84,500
Professional.............................................. 55,124
Transfer agent............................................ 34,113
Custodian................................................. 32,511
Registration.............................................. 8,810
Shareholder communication................................. 5,717
Trustees.................................................. 3,599
Recordkeeping............................................. 1,528
Service--Class A.......................................... 282
Service--Class B.......................................... 40
Service--Class C.......................................... 3
Distribution--Class B..................................... 120
Distribution--Class C..................................... 7
Miscellaneous............................................. 31,166
----------
Total expenses.......................................... 257,520
----------
Net investment income....................................... 186,231
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 3,592,819
Net change in unrealized appreciation on investments........ 1,735,152
----------
Net realized and unrealized gain on investments............. 5,327,971
----------
Net increase in net assets resulting from operations........ $5,514,202
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 333
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 186,231 $ 1,056,936
Net realized gain on investments.......................... 3,592,819 24,437,046
Net change in unrealized appreciation on investments...... 1,735,152 (7,605,790)
----------- -----------
Net increase in net assets resulting from operations...... 5,514,202 17,888,192
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (9,935) --
Class B................................................. (1,794) --
Class C................................................. (149) --
Class I................................................. (220,568) (1,058,983)
From net realized gain on investments:
Class A................................................. -- --
Class B................................................. -- --
Class C................................................. -- --
Class I................................................. (508,098) (12,763,987)
----------- -----------
Total dividends and distributions to shareholders..... (740,544) (13,822,970)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 3,304,753 --
Class B................................................. 639,906 --
Class C................................................. 53,299 --
Class I................................................. 9,328,513 --
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. -- --
Class B................................................. -- --
Class C................................................. -- --
Class I................................................. 471,534 --
----------- -----------
13,798,005 --
Cost of shares redeemed:
Class A................................................. (6,105) --
Class B................................................. -- --
Class C................................................. -- --
Class I................................................. (9,697,557) (37,823,169)
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... 4,094,343 (37,823,169)
----------- -----------
Net increase (decrease) in net assets................. 8,868,001 (33,757,947)
NET ASSETS:
Beginning of period......................................... 60,414,243 94,172,190
----------- -----------
End of period............................................... $69,282,244 $60,414,243
=========== ===========
Accumulated undistributed net investment income (excess
distribution) at end of period............................ $ (915) $ 45,300
=========== ===========
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 334
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
-------- -------- --------
June 9* June 9* June 9*
through through through
June 30, June 30, June 30,
1999+ 1999+ 1999+
-------- -------- --------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $25.34 $25.34 $25.34
------ ------ ------
Net investment income (loss)................................ (0.00)(a) (0.02) (0.02)
Net realized and unrealized gain on investments............. 1.14 1.15 1.15
------ ------ ------
Total from investment operations............................ 1.14 1.13 1.13
------ ------ ------
Less dividends and distributions:
From net investment income................................ (0.08) (0.07) (0.07)
From net realized gain on investments..................... -- -- --
Distribution in excess of net investment income........... -- -- --
------ ------ ------
Total dividends and distributions........................... (0.08) (0.07) (0.07)
------ ------ ------
Net asset value at end of period............................ $26.40 $26.40 $26.40
====== ====== ======
Total investment return (b)................................. 4.32% 4.30% 4.30%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)............................ (0.07%)++ (0.82%)++ (0.82%)++
Net expenses............................................ 1.10%++ 1.85%++ 1.85%++
Expenses (before reimbursement)......................... 1.10%++ 1.85%++ 1.85%++
Portfolio turnover rate..................................... 18% 18% 18%
Net assets at end of period (in 000's)...................... $3,407 $ 658 $ 54
</TABLE>
- -------
<TABLE>
<C> <S>
* Class A, B and C shares first offered on June 9, 1999.
+ Unaudited.
++ Annualized.
(a) Less than one cent per share.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 335
<TABLE>
<CAPTION>
Class I
-----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ----------------------------------------------------
1999+ 1998 1997 1996 1995 1994
---------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 24.58 $ 22.73 $ 20.66 $ 19.36 $ 16.67 $ 18.13
------- ------- ------- ------- ------- -------
0.09 0.33 0.28 0.36 0.43 0.37
2.02 4.81 5.49 4.16 4.90 0.13
------- ------- ------- ------- ------- -------
2.11 5.14 5.77 4.52 5.33 0.50
------- ------- ------- ------- ------- -------
(0.09) (0.33) (0.29) (0.36) (0.43) (0.37)
(0.20) (2.96) (3.41) (2.86) (2.07) (1.59)
-- -- -- -- (0.14) --
------- ------- ------- ------- ------- -------
(0.29) (3.29) (3.70) (3.22) (2.64) (1.96)
------- ------- ------- ------- ------- -------
$ 26.40 $ 24.58 $ 22.73 $ 20.66 $ 19.36 $ 16.67
======= ======= ======= ======= ======= =======
8.59% 24.23% 27.99% 23.82% 32.50% 2.76%
0.61%++ 1.10% 1.18% 1.82% 2.30% 2.03%
0.83%++ 0.70% 0.82% 0.74% 0.81% 1.07%
0.83%++ 0.77% 0.82% 0.74% 0.81% 1.07%
18% 41% 58% 53% 39% 39%
$65,163 $60,414 $94,172 $73,591 $60,467 $48,130
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 336
MainStay MAP Equity Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
MAP Equity Fund (the "Fund").
MainStay MAP Equity Fund commenced operations in 1970 as the Mutual Benefit
Fund. It was renamed MAP-Equity Fund on May 1, 1995. Pursuant to an Agreement
and Plan of Reorganization ("Agreement") approved by MAP-Equity shareholders on
June 3, 1999, the MAP-Equity Fund was reorganized as the MainStay MAP Equity
Fund. The Agreement provided for the transfer of all of the assets of MAP-Equity
Fund to be exchanged for Class I shares of MainStay MAP Equity Fund, effective
on June 9, 1999.
The Fund currently offers four classes of shares, Class A shares, Class B
shares, Class C shares and Class I shares. Distribution of the four classes
commenced on June 9, 1999. Class A shares are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class I shares are not subject to sales charge. The four classes of shares bear
the same voting (except for issues that relate solely to one class), dividend,
liquidation and other rights and conditions except that Class B shares and Class
C shares are subject to higher distribution fee rates than Class A shares and
Class I shares are not subject to a distribution or service fee.
The Fund's investment objective is to seek long-term appreciation of capital.
The Fund also seeks to earn income, but this is a secondary objective.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
18
<PAGE> 337
Notes to Financial Statements unaudited
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter securities not
quoted on the NASDAQ system at prices supplied by the pricing agent or brokers
selected by the Subadvisor, if these prices are deemed to be representative of
market values at the regular close of business of the Exchange. Short-term
securities which mature in more than 60 days are valued at current market
quotations. Short-term securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 60 days or less, or by
amortizing the difference between market value on the 61st day prior to maturity
and value on maturity date if their original term to maturity at purchase
exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on investments of the Fund are
allocated to separate classes of
19
<PAGE> 338
MainStay MAP Equity Fund
shares based upon their relative net asset value on the date the income is
earned or expenses and realized and unrealized gains and losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUB-ADVISER. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to Markston
International, LLC (the "Subadvisor"). Under the supervision of the Trust's
Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.75% of the average
daily net assets of the Fund. For the period June 9, 1999 through June 30, 1999,
the Manager earned $29,853. The Manager has contractually agreed to limit total
annual fund operating expenses to 1.00%, 1.25%, 2.00% and 2.00% for Class I,
Class A, Class B and Class C shares, respectively, through May 30, 2001, after
which time the Manager may discontinue the limitation. For a two-year period
following expiration of the expense limitation, the Manager may be entitled to
reimbursement for a portion of expenses paid pursuant to the expense limitation.
Pursuant to the terms of a Sub-Advisory Agreement between the Manager and the
Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual rate of
the Fund's average daily net assets of 0.45% on assets up to $250 million, 0.40%
on assets from $250 million to $500 million and 0.35% on assets in excess of
$500 million.
Prior to June 9, 1999, investment advisory and management services were provided
by Markston Investment Management (the "Adviser") to MAP-Equity Fund ("MAP"),
the predecessor to the Fund. Under investment advisory and service agreements,
the Adviser was paid a fee at an annual rate of 0.50% of the first $200,000,000
of MAP's net assets, 0.45% of the next $100,000,000 of such value, 0.40% of the
next $100,000,000 of such value, and 0.35% of such value in excess of
$400,000,000. This basic fee was adjusted by an amount determined according to a
formula based on MAP's performance in relation to the Standard & Poor's 500
Index (the "Index"). The formula provided for a weekly increase or decrease in
the basic fee by an amount equal to 0.05% of net assets per annum for each full
two percentage points that the Fund's investment performance, over a 24-month
period, was better or worse than that of the Index. The maximum adjustment was
0.30%. For the period January 1, 1999 through June 8, 1999, the
20
<PAGE> 339
Notes to Financial Statements unaudited (continued)
basic advisory fee amounted to $132,901. The actual fee paid amounted to
$54,647, which reflected a downward performance adjustment of $78,254.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to Class A, Class B and Class C shares, has adopted a Distribution
Plan (the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940
Act. Pursuant to the Class A Plan, the Distributor receives a monthly fee from
the Fund at an annual rate of 0.25% of the average daily net assets of the
Fund's Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund. Class I
shares are not subject to a distribution or service fee.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A Fund shares was $1,986 for the period June
9, 1999 through June 30, 1999.
First Priority Investment Corporation ("First Priority") acted as distributor to
MAP until April 30, 1999 pursuant to a Distributor's Agreement. In exchange for
distribution services, First Priority retained sales charges paid by investors
of $192,924 for the period January 1, 1999 through April 30, 1999. Effective as
of the close of business on April 30, 1999, MAP closed to all new share
purchases, including automatic purchases, pending the reorganization.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. Effective June
9, 1999, MainStay Shareholder Services Inc. ("MSS"), an indirect wholly owned
subsidiary of New York Life, began serving as the Fund's transfer, dividend
disbursing and shareholder servicing agent. MSS has entered into an agreement
with Boston Financial Data Services ("BFDS") by which BFDS will perform certain
of the services for which MSS is responsible. Transfer agent expense paid to MSS
for the period June 9, 1999 through June 30, 1999 amounted to $7,422.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life,
MainStay Management or NYLIFE Distributors, currently are paid an annual fee of
$45,000, $2,000 for each Board meeting and $1,000 for each Committee meeting
attended plus reimbursement for travel and out-of-pocket expenses. The Trust
allocates this expense in proportion to the net assets of the respective Funds.
21
<PAGE> 340
MainStay MAP Equity Fund
Prior to the reorganization of MAP-Equity Fund, disinterested directors were
paid by MAP a fee at the rate of $400 per meeting attended, plus an annual
retainer of $1,200.
OTHER. Fees for recordkeeping services provided to the Fund by the Manager
amounted to $1,528 for the period June 9, 1999 through June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $11,242 and $10,390, respectively.
NOTE 5--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months
June 9, 1999* through ended Year ended
June 30, 1999** June 30, 1999** December 31, 1998
--------------------------- --------------- -----------------
Class A Class B Class C Class I(a) Class I
------- ------- ------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Shares sold........................ 129 25 2 382 420
Shares issued in reinvestment of
dividends and distributions...... -- -- -- 19 569
--- -- -- ---- ------
129 25 2 401 989
Shares redeemed.................... --(b) -- -- (390) (2,674)
--- -- -- ---- ------
Net increase (decrease)............ 129 25 2 11 (1,685)
=== == == ==== ======
</TABLE>
- -------
* First offered on June 9, 1999.
** Unaudited.
(a) As a result of the reorganization of MAP-Equity Fund into MainStay MAP
Equity Fund, effective June 9, 1999, shareholders of MAP-Equity Fund
received Class I shares of MainStay MAP Equity Fund.
(b) Less than one thousand.
22
<PAGE> 341
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
23
<PAGE> 342
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee MAP EQUITY FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay MAP Equity Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA30-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 343
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
Portfolio Management Discussion and
Analysis 3
Yields and Lipper Rankings 5
Portfolio of Investments 6
Financial Statements 9
Notes to Financial Statements 14
The MainStay Funds 17
</TABLE>
<PAGE> 344
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
2
<PAGE> 345
Portfolio Management Discussion and Analysis
The first half of 1999 saw a shift in the Federal Reserve Board's interest rate
policy. During the first four months of the year, the Federal Reserve
maintained a neutral bias on interest rates as inflation remained benign even
while the economy continued to grow. As economic growth started accelerating in
Asia and the U.S. economy showed no signs of slowing, interest rates rose as
investors felt that the Federal Reserve would have to raise rates. In May, the
Federal Reserve shifted to a bias toward raising interest rates. At the end of
June, it raised the target rate for federal funds to 5%, while leaving the
discount rate unchanged at 4.5%.
Since the beginning of the year, the rate on one-year U.S. Treasury bills rose
nearly half a percent to 5.06% on June 30, 1999, while the rate on twelve-month
LIBOR(1) rose three-quarters of a percent to 5.84% over the same period. These
rising rates affected the yields available on both domestic and international
money market instruments.
STRONG RELATIVE PERFORMANCE
For the seven-day period ended June 30, 1999, the Mainstay Money Market Fund
provided an effective yield of 4.44% and a current yield of 4.35% for Class A,
Class B, and Class C shares. For the six months ended June 30, 1999, the Fund
returned 2.18% for Class A, Class B, and Class C shares, exceeding the 2.09%
return of the average Lipper(2) money market fund over the same period.
PORTFOLIO MATURITY
During the first half of the year, the maturity of the portfolio ranged from
fifty-five to seventy-nine days. Interest rates rose in February as investors
believed that the Federal Reserve would raise rates to restrain the rate of
economic growth. We believed that the Federal Reserve would remain on hold and
we lengthened the maturity of the portfolio to seventy-nine days. As May
approached, we became defensive and let the maturity of the portfolio drift
downward to sixty days.
In late May, interest rates rose and we viewed this as another opportunity to
extend the maturity of the portfolio, anticipating that the Federal Reserve
would be unlikely to raise rates as much as it lowered them in 1998. The Fund's
performance benefited from our decisions on the maturity of the portfolio.
HIGH CREDIT QUALITY AND LIQUIDITY
The Fund continued to invest only in first-tier securities, or generally those
money market instruments in the highest rating category. The Fund did not invest
in any second-tier securities nor did it invest in split-rated issues (those
rated in the highest rating category by one credit rating agency and in the
second-highest rating category by another). Investments included bank
certificates of deposit (CDs), commercial paper, floating rate notes, and
asset-backed commercial paper.
- -------
(1) LIBOR is the London Interbank Offered Rate, or the rate the most credit-
worthy international banks dealing in Eurodollars charge each other for
large loans.
(2) See footnote and table on page 5 for more information on Lipper, Inc.
3
<PAGE> 346
The Fund did not invest in securities containing embedded put and call options.
The concentration on the highest quality and more liquid securities helped
manage the Fund's portfolio risk.
SECTOR ALLOCATION
During the reporting period, the Fund focused its investments on securities of
banks and bank holding companies and those of finance, brokerage, and industrial
companies. To lengthen the maturity of the portfolio, we increased the Fund's
allocation to CDs by purchasing one-year CDs issued by the largest and very
highly rated European banks. The steepness of the yield curve made the yields in
the one-year sector far more attractive than shorter maturities on the curve.
Securities issued by the European banks also offered a slightly higher yield.
LOOKING FORWARD
At its June 30, 1999, meeting, the Federal Reserve raised the target rate for
federal funds to 5% and moved to a neutral stance regarding the future direction
of interest rates. The Fund's portfolio is positioned accordingly. As the
interest rate outlook changes, we will make appropriate adjustments to the
portfolio. During the second half of 1999, the Fund intends to remain focused on
quality as it seeks as high a level of current income as is considered
consistent with the preservation of capital and liquidity.
Edward Munshower
Claude Athaide
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
- -------
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
4
<PAGE> 347
Yields and Lipper Rankings as of 6/30/99
FUND SEC YIELDS*
<TABLE>
<CAPTION>
7-DAY EFFECTIVE YIELD 7-DAY CURRENT YIELD
<S> <C> <C>
Class A 4.44% 4.35%
Class B 4.44% 4.35%
Class C 4.44% 4.35%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 122 out of n/a n/a 98 out of
317 funds 223 funds
Class B 122 out of 96 out of 53 out of 44 out of
317 funds 213 funds 130 funds 96 funds
Class C n/a n/a n/a n/a
Average Lipper
money market
fund 4.51% 4.90% 4.98% 5.41%
</TABLE>
- -------
* Past performance is no guarantee of future results. An investment in the
MainStay Money Market Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. Investment return and
principal value may fluctuate so that upon redemption, shares may be worth
more or less than their original cost. The 7-day current yield reflects
certain fee waivers and/or expense limitations, without which this
performance figure would have been 4.20%. The current yield is based on the
7-day period ending 6/30/99. The fee waivers and/or expense limitations are
voluntary and may be discontinued at any time.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
5/1/86 through 6/30/99.
5
<PAGE> 348
MainStay Money Market Fund
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100.0%)+
ASSET-BACKED SECURITY (1.2%)
Bishop's Gate Residential
Mortgage Trust
Series 1998-2A Class A1
5.13%, due 11/22/99
(a)(b)(c).................... $ 7,000,000 $ 7,000,000
------------
CERTIFICATES OF DEPOSIT
(18.2%)
ABN Amro Bank NV Chicago
5.50%, due 6/5/00 (c)........ 5,000,000 4,997,765
Bayerische Landesbank New York
5.12%, due 3/21/00 (c)....... 5,000,000 4,992,362
5.65%, due 7/22/99 (c)....... 4,000,000 4,000,242
Commerzbank AG New York
4.87%, due 4/10/00 (b)(c).... 5,000,000 4,998,457
5.01%, due 1/10/00 (c)....... 5,000,000 4,999,745
5.09%, due 2/16/00 (c)....... 5,000,000 4,998,937
Deutsche Bank New York
5.02%, due 1/11/00 (c)....... 5,000,000 5,000,923
5.06%, due 2/8/00 (c)........ 5,000,000 4,998,974
5.25%, due 5/18/99 (c)....... 5,000,000 4,992,059
Dresdner Bank New York
5.12%, due 9/15/99 (c)....... 5,000,000 5,001,247
Nationsbank North America
4.99%, due 1/11/00 (c)....... 5,000,000 4,999,744
Rabobank Nederland NV New York
4.83%, due 10/6/99 (c)....... 5,000,000 5,000,000
5.60%, due 6/14/00 (c)....... 5,000,000 4,997,708
5.64%, due 7/30/99 (c)....... 3,000,000 3,001,306
Societe Generale New York
4.87%, due 3/3/00 (b)(c)..... 5,000,000 4,998,341
5.29%, due 3/3/00 (c)........ 5,000,000 4,997,732
Svenska Handelsbanken New York
5.23%, due 3/1/00 (c)........ 5,000,000 4,998,070
UBS AG Stamford CT
5.29%, due 3/1/00 (c)........ 5,000,000 4,998,849
5.34%, due 5/30/00 (c)....... 5,000,000 4,997,802
Westdeutsche Landesbank
4.89%, due 7/7/99 (c)........ 5,000,000 4,999,998
4.90%, due 7/7/99 (c)........ 5,000,000 5,000,016
5.16%, due 9/17/99 (c)....... 4,000,000 4,000,558
------------
105,970,835
------------
COMMERCIAL PAPER (75.5%)
Abbey National North America
4.80%, due 8/9/99............ 5,000,000 4,974,000
4.95%, due 8/5/99............ 5,000,000 4,975,938
ABN Amro North America Finance
Inc. 5.17%, due 9/2/99....... 6,000,000 5,945,715
Alliance & Leicester PLC
4.84%, due 7/6/99 (a)........ 5,000,000 4,996,639
4.93%, due 7/9/99 (a)........ 5,000,000 4,994,522
5.20%, due 8/5/99 (a)........ 6,000,000 5,969,667
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Allianz of America Finance
Corp.
4.81%, due 7/16/99 (a)....... $ 5,000,000 $ 4,989,979
4.82%, due 7/28/99 (a)....... 4,500,000 4,483,733
5.22%, due 9/20/99 (a)....... 5,000,000 4,941,275
Allomon Funding Corp.
4.89%, due 7/12/99 (a)....... 2,475,000 2,471,302
5.07%, due 7/21/99 (a)....... 6,000,000 5,983,100
American Express Credit Corp.
4.82%, due 7/19/99........... 4,600,000 4,588,914
American General Finance Corp.
4.90%, due 7/30/99........... 5,000,000 4,980,264
4.96%, due 7/23/99........... 5,000,000 4,984,844
5.06%, due 8/6/99............ 6,000,000 5,969,640
Associates First Capital Corp.
4.95%, due 8/11/99........... 3,650,000 3,629,423
5.02%, due 8/23/99........... 5,600,000 5,558,613
5.15%, due 8/12/99........... 6,000,000 5,963,950
AT&T Corp.
5.18%, due 7/13/99........... 6,000,000 5,989,640
Banca CRT Financial Corp.
4.80%, due 8/9/99............ 5,000,000 4,974,000
4.83%, due 7/12/99........... 2,175,000 2,171,790
BankAmerica Corp.
4.81%, due 11/03/99.......... 5,000,000 4,916,493
4.82%, due 10/6/99........... 5,000,000 4,935,064
Barclays U.S. Funding Corp.
4.84%, due 7/6/99............ 5,000,000 4,996,639
4.90%, due 7/8/99............ 1,950,000 1,948,142
BCI Funding Corp.
5.08%, due 8/23/99........... 6,000,000 5,955,127
BellSouth Telecommunications
Inc.
4.85%, due 7/14/99...... 5,000,000 4,991,243
4.85%, due 7/16/99........... 5,000,000 4,989,896
4.98%, due 8/5/99............ 5,000,000 4,975,792
5.20%, due 9/7/99............ 6,000,000 5,941,067
Bil North America Inc.
4.88%, due 8/13/99........... 5,000,000 4,970,856
British Telecommunications PLC
4.78%, due 7/26/99........... 5,000,000 4,983,403
BTR Dunlop Finance Inc.
5.75%, due 7/1/99 (a)........ 4,500,000 4,500,000
Chevron USA Inc.
4.86%, due 7/23/99........... 5,000,000 4,985,150
4.96%, due 7/19/99........... 1,300,000 1,296,776
5.01%, due 8/2/99............ 6,000,000 5,973,280
Cregem North America Inc.
4.82%, due 7/12/99........... 5,000,000 4,992,636
4.84%, due 10/25/99.......... 5,000,000 4,922,022
Dresdner US Finance Inc.
5.15%, due 8/11/99........... 6,000,000 5,964,808
Ford Motor Credit Co.
4.84%, due 7/8/99............ 5,000,000 4,995,294
4.92%, due 7/26/99........... 5,000,000 4,982,917
4.98%, due 7/22/99........... 5,000,000 4,985,475
5.00%, due 8/3/99............ 5,000,000 4,977,083
Franklin Resources Inc.
5.05%, due 8/13/99 (a)....... 6,000,000 5,963,808
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
6
<PAGE> 349
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
General Electric Capital Corp.
4.74%, due 8/4/99............ $ 5,000,000 $ 4,977,617
4.82%, due 7/28/99........... 2,800,000 2,789,878
4.85%, due 7/15/99........... 5,000,000 4,990,569
4.92%, due 7/29/99........... 5,000,000 4,980,867
Generale Bank Inc.
4.88%, due 8/2/99............ 5,000,000 4,978,311
Goldman Sachs Group L.P. (The)
4.82%, due 10/28/99.......... 5,000,000 4,920,336
5.10%, due 9/22/99........... 6,000,000 5,929,450
Halifax PLC
4.75%, due 7/1/99............ 5,000,000 5,000,000
4.80%, due 10/1/99........... 5,000,000 4,938,667
4.93%, due 10/1/99........... 1,800,000 1,777,322
5.01%, due 10/1/99........... 2,500,000 2,467,992
ING America Insurance Holdings Inc.
4.83%, due 9/15/99........... 5,000,000 4,949,017
Internationale Nederlanden
(U.S.) Funding Corp.
4.85%, due 12/6/99........... 5,000,000 4,893,569
KFW International Finance Inc.
4.85%, due 7/19/99........... 3,500,000 3,491,513
Lloyds Bank PLC
4.80%, due 7/7/99............ 5,000,000 4,996,000
Merrill Lynch & Co. Inc.
4.86%, due 7/8/99............ 5,000,000 4,995,275
5.00%, due 7/21/99........... 6,000,000 5,983,333
Morgan (J.P.) & Co. Inc.
4.80%, due 10/15/99.......... 5,000,000 4,929,333
4.82%, due 7/15/99........... 5,000,000 4,990,628
Morgan Stanley, Dean Witter
Discover & Co.
4.99%, due 8/19/99........... 6,000,000 5,959,248
5.00%, due 7/2/99............ 6,000,000 5,999,167
5.01%, due 8/17/99........... 4,800,000 4,768,604
Nationwide Building Society
4.85%, due 7/27/99........... 5,000,000 4,982,486
4.86%, due 9/8/99............ 5,000,000 4,953,425
Prudential Finance (Jersey)
Ltd.
4.85%, due 7/16/99........... 5,000,000 4,989,896
Prudential Funding Corp.
4.75%, due 7/15/99........... 5,000,000 4,990,764
4.85%, due 7/9/99............ 5,000,000 4,994,611
Quebec (Province of)
4.82%, due 12/17/99.......... 5,000,000 4,886,864
Rio Tinto America Inc.
5.00%, due 7/12/99 (a)....... 5,000,000 4,992,361
Salomon Smith Barney Holdings Inc.
4.86%, due 7/2/99............ 5,000,000 4,999,325
4.89%, due 7/20/99........... 3,800,000 3,790,193
5.00%, due 7/21/99........... 5,000,000 4,986,111
San Paolo U.S. Financial Co.
4.83%, due 7/13/99........... 5,000,000 4,991,950
4.83%, due 8/10/99........... 5,000,000 4,973,167
</TABLE>
<TABLE>
<CAPTION>
Principal Amortized
Amount Cost
------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Svenska Handelsbanken Inc.
4.81%, due 7/14/99........... $ 5,000,000 $ 4,991,315
5.11%, due 9/27/99........... 6,000,000 5,925,053
Transportadora De Gas Del Sur
S.A. (TGS)
5.12%, due 9/21/99........... 6,000,000 5,930,027
UBS Finance (Delaware) Inc.
4.85%, due 8/9/99............ 3,100,000 3,083,712
UNIfunding Inc.
4.82%, due 7/27/99........... 5,000,000 4,982,594
4.89%, due 7/9/99............ 4,000,000 3,995,653
Wells Fargo & Co.
4.83%, due 7/29/99........... 5,000,000 4,981,217
4.85%, due 7/20/99........... 5,000,000 4,987,201
5.00%, due 7/28/99........... 5,000,000 4,981,250
Wood Street Funding Corp.
4.90%, due 7/6/99 (a)........ 5,000,000 4,996,597
5.26%, due 7/29/99 (a)....... 6,000,000 5,975,453
Xerox Corp.
4.83%, due 7/13/99........... 3,100,000 3,095,009
5.08%, due 9/23/99........... 5,800,000 5,731,251
------------
441,574,100
------------
FEDERAL AGENCY (1.0%)
Federal Home Mortgage Corp.
(Discount Note)
5.05%, due 8/12/99........... 6,000,000 5,964,650
------------
MEDIUM-TERM NOTES (4.1%)
First Union Corp.
4.99%, due 7/1/99 (b)(c)..... 5,000,000 5,000,000
National Rural Utilities
Cooperative Finance Corp.,
Series C
4.97%, due 9/21/99 (b)(c).... 4,000,000 4,000,000
5.18%, due 6/26/00 (b)(c).... 5,000,000 5,000,000
Prudential Funding Corp.,
Series B
5.09%, due 5/30/00
(a)(b)(c).................... 5,000,000 5,004,847
Xerox Corp., Series F
5.64%, due 7/14/00 (c)....... 5,000,000 4,997,733
------------
24,002,580
------------
Total Short-Term Investments
(Amortized Cost $584,512,165)
(e).......................... 100.0% 584,512,165
Cash and Other Assets,
Less Liabilities............. 0.0(d) 210,110
----- ------------
Net Assets.................... 100.0% $584,722,275
===== ============
</TABLE>
- -------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at June 30, 1999.
(c) Coupon interest bearing security.
(d) Less than one tenth of a percent.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
7
<PAGE> 350
MainStay Money Market Fund
The table below sets forth the diversification of Money Market Fund investments
by industry.
<TABLE>
<CAPTION>
Amortized
Cost Percent+
----------------------------
<S> <C> <C>
INDUSTRY DIVERSIFICATION
Auto Finance................... $ 19,940,769 3.4%
Banks #........................ 271,484,340 46.4
Brokerage...................... 55,822,555 9.6
Computer & Office Equipment.... 8,092,743 1.4
Conglomerates.................. 17,738,931 3.0
Consumer Financial Services.... 4,588,914 0.8
Domestic Oils.................. 12,255,206 2.1
Federal Agency................. 5,964,650 1.0
Finance........................ 114,982,388 19.7
Foreign Government............. 4,886,864 0.8
Insurance...................... 20,883,765 3.6
Mortgage Loan.................. 7,000,000 1.2
Telecommunication Services..... 31,871,040 5.5
Utilities...................... 9,000,000 1.5
------------ -----
584,512,165 100.0
Cash and Other Assets,
Less Liabilities.............. 210,110 0.0##
------------ -----
Net Assets..................... $584,722,275 100.0%
============ =====
</TABLE>
- -------
+ Percentages indicated are based on Portfolio net assets.
# The Fund will invest more than 25% of the market value of its total assets in
the securities of banks and bank holding companies, including certificates of
deposit, bankers' acceptances and securities guaranteed by banks and bank
holding companies.
## Less than one tenth of a percent.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 351
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(amortized cost $584,512,165).............................. $584,512,165
Cash........................................................ 590,445
Receivables:
Interest.................................................. 2,219,099
Fund shares sold.......................................... 25,000
------------
Total assets........................................ 587,346,709
------------
LIABILITIES:
Payables:
MainStay Management....................................... 155,756
Transfer agent............................................ 120,770
Custodian................................................. 38,033
Fund shares redeemed...................................... 14,225
Trustees.................................................. 4,497
Accrued expenses............................................ 139,245
Dividend payable............................................ 2,151,908
------------
Total liabilities................................... 2,624,434
------------
Net assets.................................................. $584,722,275
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 1,423,791
Class B................................................... 4,384,310
Class C................................................... 39,208
Additional paid-in capital.................................. 578,883,570
Accumulated net realized loss on investments................ (8,604)
------------
Net assets.................................................. $584,722,275
============
CLASS A
Net assets applicable to outstanding shares................. $142,379,077
============
Shares of beneficial interest outstanding................... 142,379,077
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS B
Net assets applicable to outstanding shares................. $438,422,364
============
Shares of beneficial interest outstanding................... 438,430,970
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS C
Net assets applicable to outstanding shares................. $ 3,920,834
============
Shares of beneficial interest outstanding................... 3,920,834
============
Net asset value and offering price per share outstanding.... $ 1.00
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 352
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $14,487,275
-----------
Expenses:
Management................................................ 1,367,514
Transfer agent............................................ 793,067
Shareholder communication................................. 81,292
Registration.............................................. 68,725
Custodian................................................. 65,086
Recordkeeping............................................. 41,600
Professional.............................................. 25,327
Trustees.................................................. 8,958
Miscellaneous............................................. 8,923
-----------
Total expenses before reimbursement..................... 2,460,492
Expense reimbursement from Manager.......................... (448,953)
-----------
Net expenses............................................ 2,011,539
-----------
Net investment income....................................... 12,475,736
-----------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 309
-----------
Net increase in net assets resulting from operations........ $12,476,045
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 353
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, December 31,
1999* 1998
---------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 12,475,736 $ 23,388,591
Net realized gain on investments.......................... 309 6,969
-------------- --------------
Net increase in net assets resulting from operations...... 12,476,045 23,395,560
-------------- --------------
Dividends to shareholders:
From net investment income:
Class A................................................. (3,031,224) (5,052,302)
Class B................................................. (9,423,270) (18,336,171)
Class C................................................. (21,242) (118)
-------------- --------------
Total dividends to shareholders....................... (12,475,736) (23,388,591)
-------------- --------------
Capital share transactions:
Net proceeds from sales of shares:
Class A................................................. 764,235,843 892,119,103
Class B................................................. 343,171,390 663,115,998
Class C................................................. 7,016,485 18,352
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 2,625,370 4,475,675
Class B................................................. 8,928,007 17,087,587
Class C................................................. 1,465 --
-------------- --------------
1,125,978,560 1,576,816,715
Cost of shares redeemed:
Class A................................................. (774,232,455) (827,769,898)
Class B................................................. (337,851,536) (592,657,906)
Class C................................................. (3,115,468) --
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 10,779,101 156,388,911
-------------- --------------
Net increase in net assets............................ 10,779,410 156,395,880
NET ASSETS:
Beginning of period......................................... 573,942,865 417,546,985
-------------- --------------
End of period............................................... $ 584,722,275 $ 573,942,865
============== ==============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 354
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
Six months
ended Year ended December 31,
June 30, --------------------------------------
1999+ 1998 1997 1996 1995
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- -------
Net investment income....................................... 0.02 0.05 0.05 0.05 0.05
-------- -------- ------- ------- -------
Less dividends from net investment income................... (0.02) (0.05) (0.05) (0.05) (0.05)
-------- -------- ------- ------- -------
Net asset value at end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= =======
Total investment return (a)................................. 2.18% 5.01% 5.08% 4.91% 5.51%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 4.34%++ 4.90% 4.97% 4.8% 5.4%
Net expenses............................................ 0.70%++ 0.70% 0.70% 0.7% 0.7%
Expenses (before reimbursement)......................... 0.86%++ 0.93% 0.95% 1.0% 0.9%
Net assets at end of period (in 000's)...................... $142,379 $149,751 $80,925 $53,890 $34,880
</TABLE>
- -------
<TABLE>
<S> <C>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 355
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------------------ --------------------------
Six months September 1 Six months September 1**
ended Year ended December 31, through Year ended ended through
June 30, ----------------------------------------- December 31, August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998
---------- -------- -------- -------- -------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- ------ ------
0.02 0.05 0.05 0.05 0.05 0.02 0.03 0.02 0.02
-------- -------- -------- -------- -------- -------- -------- ------ ------
(0.02) (0.05) (0.05) (0.05) (0.05) (0.02) (0.03) (0.02) (0.02)
-------- -------- -------- -------- -------- -------- -------- ------ ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ====== ======
2.18% 5.01% 5.08% 4.91% 5.51% 1.54% 3.08% 2.18% 1.60%
4.34%++ 4.90% 4.97% 4.8% 5.4% 4.6%++ 3.1% 4.34%++ 4.90%++
0.70%++ 0.70% 0.70% 0.7% 0.7% 0.7%++ 0.7% 0.70%++ 0.70%++
0.86%++ 0.93% 0.95% 1.0% 0.9% 0.9%++ 1.0% 0.86%++ 0.93%++
$438,422 $424,174 $336,622 $317,483 $279,843 $221,912 $192,477 $3,921 $ 18
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 356
MainStay Money Market Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Money Market Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, Class B
shares and Class C shares whose distribution commenced on January 3, 1995, May
1, 1986 and September 1, 1998, respectively, bear the same voting (except for
issues that relate solely to one class), dividend, liquidation and other rights
and conditions.
The Fund's investment objective is to seek as high a level of current income as
is considered consistent with the preservation of capital and liquidity. The
Fund's principal investments include derivatives such as variable rate master
demand notes, floaters and mortgage-related and asset-backed securities. If
expectations about change in interest rates, or assessments of an issuer's
creditworthiness or market conditions are wrong, the use of derivatives or other
investments could result in a loss.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws and restrictions.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The Fund seeks to maintain a net asset value of $1.00
per share, although there is no assurance that it will be able to do so on a
continuous basis, and it has adopted certain investment, portfolio and dividend
and distribution policies designed to enable it to do so. An investment in the
Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. Although the Fund seeks to preserve the value of
your investment of $1.00 per share, an investor could lose money by investing in
the Fund.
SECURITIES VALUATION. Securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between such cost and the value on
maturity date.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
14
<PAGE> 357
Notes to Financial Statements unaudited
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are recorded on the
ex-dividend date. Dividends are declared daily and paid monthly. Income
dividends are determined in accordance with Federal income tax regulations which
may differ from generally accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Interest income is accrued daily and discounts
and premiums on securities purchased for the Fund are accreted and amortized,
respectively, on the constant yield method over the life of the respective
securities.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income, expenses, and realized and unrealized gains and losses on Fund
investments are allocated to separate classes of shares based upon their
relative net asset value on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of the Fund's average
daily net assets of 0.50% up to $300 million, 0.45% on assets from $300 million
to $700 million, 0.40% on assets from $700 million to $1 billion and 0.35% on
assets in excess of $1 billion. The Manager has voluntarily agreed to assume the
expenses of the Fund to the extent that such expenses would exceed on an annual
basis 0.70% of the average daily net assets of the Fund. For the six months
ended June 30, 1999, the Manager earned $1,367,514 and reimbursed the Fund
$448,953.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of the Fund's average daily net assets of 0.25% up to $300 million, 0.225%
on assets from $300 million to $700 million, 0.20% on assets from $700 million
to $1 billion and 0.175% on assets in excess of $1 billion. To the extent the
Manager has agreed to reimburse expenses of the Fund, the Subadvisor has
voluntarily agreed to do so proportionately.
15
<PAGE> 358
MainStay Money Market Fund
CONTINGENT DEFERRED SALES CHARGE. Although the Fund does not assess a
contingent deferred sales charge upon redemption of Class B or Class C shares of
the Fund, the applicable contingent deferred sales charge will be assessed when
shares are redeemed from the Fund if the shareholder previously exchanged his or
her investment into the Fund from another Fund in the Trust. The Fund was
advised that the Distributor received from shareholders the proceeds from
contingent deferred sales charges for the six months ended June 30, 1999, in the
amount of $797,823.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $793,067.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $8,756 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$41,600 for the six months ended June 30, 1999.
NOTE 4--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
------------------------------ ------------------------------
Class A Class B Class C Class A Class B Class C*
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 764,236 343,171 7,017 892,119 663,116 18
Shares issued in reinvestment
of dividends................. 2,625 8,928 1 4,476 17,088 --
-------- -------- -------- -------- -------- --------
766,861 352,099 7,018 896,595 680,204 18
Shares redeemed................ (774,232) (337,851) (3,115) (827,770) (592,658) --
-------- -------- -------- -------- -------- --------
Net increase (decrease)........ (7,371) 14,248 3,903 68,825 87,546 18
======== ======== ======== ======== ======== ========
</TABLE>
- -------
+ Unaudited.
* First offered on September 1, 1998.
16
<PAGE> 359
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
17
<PAGE> 360
This page intentionally left blank
<PAGE> 361
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee MONEY MARKET FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Money Market Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA12-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 362
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay New
York Tax Free Fund versus Lehman Brothers
Municipal Bond Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay Funds 23
</TABLE>
<PAGE> 363
This page intentionally left blank
2
<PAGE> 364
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 365
$10,000 Invested in the MainStay New York
Tax Free Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -3.30%, 5 Year 4.91%, Since Inception 5.57%
<TABLE>
<CAPTION>
MAINSTAY NEW YORK TAX FREE LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- -------------------------- ------------------------- ----------
<S> <C> <C> <C>
10/1/91 9550.00 10000.00 10000.00
12/91 9749.00 10335.00 10051.00
12/92 10628.00 11247.00 10349.00
12/93 11916.00 12628.00 10632.00
12/94 11353.00 11975.00 10908.00
12/95 13167.00 14066.00 11192.00
12/96 13569.00 14689.00 11563.00
12/97 14708.00 16038.00 11758.00
12/98 15499.00 17077.00 11947.00
6/99 15227.00 16709.00 12078.00
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year -4.15%, 5 Year 5.30%,
Since Inception 6.04%
Class C SEC Returns: 1 Year -0.15%, 5 Year 5.62%,
Since Inception 6.04%
<TABLE>
<CAPTION>
MAINSTAY NEW YORK TAX FREE LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- -------------------------- ------------------------- ----------
<S> <C> <C> <C>
10/1/91 10000.00 10000.00 10000.00
12/91 10208.00 10335.00 10051.00
12/92 11128.00 11247.00 10349.00
12/93 12477.00 12628.00 10632.00
12/94 11888.00 11975.00 10908.00
12/95 13751.00 14066.00 11192.00
12/96 14145.00 14689.00 11563.00
12/97 15297.00 16038.00 11758.00
12/98 16062.00 17077.00 11947.00
6/99 15755.00 16709.00 12078.00
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
10/1/91 reflecting the effect of the 4.5% maximum up-front sales charge,
thereby reducing the amount of the investment to $9,550. The Class B graph
assumes an initial investment of $10,000 made on 10/1/91 and includes the
historical performance of the Class A shares for periods from 10/1/91
through 12/31/94. Performance data for the two classes vary after this date
based on differences in their load and expense structures. Performance does
not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if shares
are redeemed within the first six years of purchase--as it would not apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 10/1/91 and includes the historical performance of the
Class A shares for periods 10/1/91 through 12/31/94 and Class B shares for
periods 1/1/95 through 8/31/98. Performance data after these dates vary
based on differences in their load and expense structures. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. (The $10,000 invested in the Lehman
Brothers Municipal Bond Index begins on 9/30/91.) All results include
reinvestment of distributions at net asset value and change in share price
for the stated period.
* The Lehman Brothers Municipal Bond Index (which does not have a sales
charge) includes approximately 15,000 municipal bonds rated Baa or better
by Moody's with a maturity of at least two years. Bonds subject to the
Alternative Minimum Tax or with floating or zero coupons are excluded. The
Index is unmanaged and results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 366
Portfolio Management Discussion and Analysis
During the first half of 1999, the U.S. economy remained stronger than earlier
estimates. Concerns that troubled foreign economies and an overspent American
consumer would slow the demand for domestic products and services faded into
the background. Following Brazil's currency devaluation and an upsurge in the
Japanese stock market, global economies steadily improved. With low
unemployment and the wealth created by a rising stock market, consumer spending
remained strong.
Although low unemployment raised concerns that companies would need to raise
wages to attract new workers, inflation remained relatively benign. Seeking to
prevent future inflation, in May the Federal Reserve Board announced a bias
toward higher interest rates, and at the end of June it raised the targeted
federal funds rate by 0.25%, leaving the discount rate untouched. Given the
Federal Reserve's advance signals, interest rates increased throughout the first
half of the year, which had a negative impact on prices in most high-grade bond
sectors, including municipals.
The New York economy remained strong, bolstered by a booming stock market, high
personal income taxes, and advances in the financial services and real estate
industries. While the state's unemployment rate is still higher than the
national average, unemployment is down and the number of citizens on public
assistance remains below one million.
During the reporting period, Nassau County's outstanding bonds were downgraded
to a BBB rating(1) and the city's managers were criticized for questionable
accounting practices and continuing to spend more than the county's revenue
stream. And, as usual, the New York Assembly was late in enacting a budget.
FUND PERFORMANCE IN A DECLINING MARKET
For the six-month period ended June 30, 1999, the MainStay New York Tax Free
Fund returned -1.76% for Class A shares and -1.91% for Class B and Class C
shares, excluding all sales charges. Class A shares outperformed and Class B and
Class C shares underperformed the -1.80% return of the average Lipper(2) New
York municipal debt fund during the first half of 1999.
The Fund's performance relative to its peers resulted largely from two factors.
First, the Fund held several higher-coupon bonds that helped maintain a
desirable yield and shorten the Fund's duration.(3) Shorter-duration bonds
proved beneficial for the Fund in a steadily rising interest-rate environment.
Second, the Fund is not allowed to invest in low-quality (or "junk")
municipals, which may have placed it at a disadvantage to some municipal funds.
While the Fund may invest in securities rated in any of the top four rating
categories by Moody's or S&P, during the reporting period, we concentrated
primarily on securities in the higher rating categories, believing that the
additional yield on bonds in the lower rating categories available to the Fund
was insufficient to justify the risks involved. While the higher quality of the
portfolio was positive in terms of risk management, it detracted from the
Fund's performance relative to its peers.
- -------
(1) Debt rated BBB by Standard & Poor's exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
(2) See page 9 for additional information about Lipper, Inc.
(3) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
5
<PAGE> 367
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
Period end Total Return%
<S> <C>
12/91 2.08
12/92 9.01
12/93 12.11
12/94 -4.71
12/95 15.97
12/96 3.06
12/97 8.39
12/98 5.38
6/99 -1.76
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 8
for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
Period end Total Return%
<S> <C>
12/91 2.08
12/92 9.01
12/93 12.11
12/94 -4.71
12/95 15.67
12/96 2.86
12/97 8.14
12/98 5.00
6/99 -1.91
</TABLE>
Past performance is no guarantee of future results. Class B share returns
reflect the historical performance of the Class A shares for the periods 12/91
through 12/94. Class C share returns reflect historical performance of the Class
A shares for periods 12/91 through 12/94 and Class B shares for periods 1/95
through 8/98. See footnote * on page 8 for more information on performance.
STRATEGIC MANAGEMENT DECISIONS
While the Fund held some higher-coupon, shorter-duration bonds that performed
well during the first half of 1999, overall, the Fund's duration was longer than
its peers. The Fund's duration reflected our expectation that consumer spending
would eventually slow and that inflation was likely to remain low. As it
happened, however, consumer spending remained robust, with spending exceeding
earnings in June. While inflation has in fact remained low, the fear that it
would rise led to higher interest rates, which detracted from the performance of
long-duration bonds.
6
<PAGE> 368
Given recent financial problems in the hospital sector, the Fund remained
underweighted in these securities, which proved beneficial for the Fund's
overall performance. In an effort to manage risk, the Fund continued to seek
diversification by municipal sector, county, coupon, and maturity. During the
reporting period, the Fund was overweighted in water, sewer, and general
obligation bonds with AAA and AA ratings.(4)
To enhance performance, the Fund seeks securities that have the potential for
prerefunding. Most bonds carry a call provision, generally about ten years after
issuance. If the issuer wants to take advantage of lower interest rates and
refinance before the call date, the bonds can be prerefunded. In a prerefunding,
new bonds are issued and the proceeds are used to purchase Treasury securities
that mature near the same date as the original issue's call date. The securities
are escrowed and used to pay the interest until the first call date, at which
time the principal is paid. Prerefundings may provide large gains for
bondholders because the municipals are in effect tax-free Treasury bonds whose
maturity, in many cases, has been reduced by more than 20 years. During the
reporting period, the Fund benefited from two bonds that were prerefunded--New
York City General Obligation 7.2% bonds maturing 8/15/15 and 6.0% bonds due
2/15/25. Both securities recorded nice gains in a declining market.
FACING MARKET CHALLENGES
As rates rose, prices declined for most municipal issues. High-coupon short-call
bonds provided the best performance, but the Fund seeks to provide a measure of
call protection by limiting the amount of short-call bonds it holds. While this
strategy had a positive impact on portfolio risk, it tended to limit the return
potential of the Fund in a rising rate environment.
The worst-performing bonds in the Fund's portfolio were long-duration bonds,
including low-coupon and discount issues. Two bonds that fit this category were
New York City Industrial Authority for the Lighthouse 4.5% bonds due 7/1/33 and
New York State Mental Health Services 4.5% bonds maturing 8/15/28. Both issues
suffered from their low coupon and long maturity, detracting from the Fund's
performance in the rising rate environment.
LOOKING AHEAD
The Fund continues to have a longer duration than its peers and we anticipate
maintaining this position until new information changes our view of future
inflation. We will continue to concentrate on high-quality securities, seeking
yield advantages and diversification by county, municipal sector, coupon, and
maturity. Whatever the markets may bring, the Fund will seek to provide a high
level of current income exempt from regular federal income tax and personal
income tax of New York State and its political subdivisions, including New York
City, consistent with the preservation of capital.
James Flood
Edward Munshower
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
- -------
(4) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. Debt rated AA differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
7
<PAGE> 369
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Class A 1.25% 5.88% 6.20%
Class B 0.85% 5.62% 6.04%
Class C 0.85% 5.62% 6.04%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Class A -3.30% 4.91% 5.57%
Class B -4.15% 5.30% 6.04%
Class C -0.15% 5.62% 6.04%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 6/30/99
<S> <C> <C> <C>
Class A 63 out of 38 out of 29 out of
97 funds 61 funds 40 funds
Class B 78 out of n/a 62 out of
97 funds 75 funds
Class C n/a n/a n/a
Average Lipper
NY municipal
debt fund 1.35% 5.98% 6.36%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.68 $0.2274 $0.0000
Class B $9.61 $0.2130 $0.0000
Class C $9.61 $0.2130 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show the
percentage change for each of the required periods. All returns assume capital
gain and dividend distributions are reinvested. Performance figures reflect
certain fee waivers and/or expense limitations, without which total return
figures may have been lower. The fee waivers and/or expense limitations are
voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5% and an
annual 12b-1 fee of .25%. Class B shares, first offered to the public on
1/3/95, are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed within the first six years of purchase
and an annual 12b-1 fee of .50%. Performance figures for this class include
the historical performance of the Class A shares for periods from inception
(10/1/91) up to 12/31/94. Performance data for the two classes vary after this
date based on differences in their load and expense
8
<PAGE> 370
structures. Class C shares, first offered to the public on 9/1/98, are sold
with no initial sales charge, but are subject to a CDSC of 1% if redeemed
within one year of purchase and an annual 12b-1 fee of .50%. Performance
figures for this class include the historical performance of the Class A
shares for periods from inception (10/1/91) up to 12/31/94 and Class B
shares for periods 1/1/95 up to 8/31/98. Performance data for the two
classes vary after this date based on differences in their load and expense
structures.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A shares were first offered to the public on 10/1/91,
Class B shares on 1/3/95, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 10/1/91 through
6/30/99.
9
<PAGE> 371
MainStay New York Tax Free Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (98.2%)+
NEW YORK (98.2%)
Battery Park City Authority
Revenue
Series A
5.50%, due 11/1/26............. $ 900,000 $ 903,177
Metropolitan Transportation
Authority
New York Commuter Facilities
Revenue, Series A
5.625%, due 7/1/27............. 850,000 862,308
New York City General Obligation
Series D
6.00%, due 2/15/25............. 715,000 747,118
Series F
8.20%, due 11/15/04............ 60,000 65,775
New York City Industrial
Development
Agency Civic Facility Revenue
Lighthouse International
Project
4.50%, due 7/1/33.............. 1,790,000 1,510,312
New York City Municipal Water
Finance Authority, Water &
Sewer
Systems Revenue, Series B
5.50%, due 6/15/27............. 400,000 401,524
5.75%, due 6/15/26............. 1,200,000 1,245,000
5.875%, due 6/15/26............ 500,000 510,625
New York State Dormitory
Authority
Revenue
Manhattanville
(zero coupon), due 7/1/19...... 2,175,000 728,625
(zero coupon), due 7/1/21...... 1,175,000 352,500
Mental Health
Services Facilities Improvement
Series F
4.50%, due 8/15/28............. 600,000 510,750
New York University
Series A
5.75%, due 7/1/27.............. 500,000 528,125
Park Ridge Housing Income
Project
7.85%, due 2/1/29 (b).......... 800,000 817,672
Rockefeller University
4.75%, due 7/1/37.............. 900,000 793,530
St. Johns University
5.70%, due 7/1/26.............. 500,000 511,635
State University Educational
Facilities
5.50%, due 5/15/26............. 750,000 742,500
New York State Energy Research &
Development Authority
Electric Co. Facilities Revenue
Con Edison, Project A
7.50%, due 1/1/26 (a).......... 500,000 512,015
- -------
+ Percentages indicated are based on fund net assets.
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------
<S> <C> <C>
NEW YORK (CONTINUED)
New York State Environmental
Facilities Corp. Pollution
Control Revenue
Series A
5.45%, due 8/15/12............. $ 450,000 $ 462,937
Series B
7.50%, due 3/15/11............. 600,000 615,774
New York State Local Government
Assistance Corp.
(zero coupon), due 4/1/14...... 1,500,000 686,250
New York State Medical Care
Facilities
Finance Agency Revenue
7.35%, due 2/15/29............. 610,000 624,433
7.375%, due 8/15/19............ 400,000 409,476
7.50%, due 2/15/21(d).......... 315,000 333,900
7.875%, due 8/15/20............ 55,000 57,888
8.875%, due 8/15/07............ 455,000 462,234
Montefiore Medical Center
6.00%, due 2/15/35 (b)......... 850,000 894,625
St. Francis Hospital of Roslyn
Project A
7.625%, due 11/1/21 (b)........ 1,035,000 1,058,391
New York State Thruway Authority
Service Contract Revenue
Local Highway & Bridge
5.75%, due 4/1/16.............. 900,000 928,260
New York State Tollway Authority
General Revenue
Series D
5.50%, due 1/1/15.............. 500,000 504,375
Niagara Falls New York Bridge
Commission Toll Revenue
Series B
5.25%, due 10/1/15............. 715,000 719,469
Port Authority of New York &
New Jersey Consolidated Bonds
Series 52
9.00%, due 11/1/14............. 650,000 660,244
Series 109
5.375%, due 7/15/27............ 1,000,000 1,000,000
Triborough Bridge & Tunnel
Authority
of New York, General Purpose
Revenue, Series Y
6.125%, due 1/1/21............. 750,000 815,625
-----------
Total Long-Term Municipal Bonds
(Cost $22,493,670)............. 21,977,072
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 372
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL BOND (0.4%)
New York City General Obligation
Various Subordinated
Series A-8
3.70%, due 8/1/18 (c).......... $ 100,000 $ 100,000
-----------
Total Short-Term Municipal Bond
(Cost $100,000)................ 100,000
-----------
Total Investments
(Cost $22,593,670) (e)......... 98.6% 22,077,072(f)
Cash and Other Assets,
Less Liabilities............... 1.4 308,750
----- -----------
Net Assets...................... 100.0% $22,385,822
===== ===========
</TABLE>
- -------
(a) Interest on this security is subject to alternative minimum tax.
(b) Segregated as collateral for futures contracts.
(c) Variable rate security that may be tendered back to the issuer at any time
prior to maturity at par.
(d) Prerefunding security--issuer has or will issue new bonds and use the
proceeds to purchase Treasury securities that mature at or near the same
date as the original issue's call date.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(f) At June 30, 1999, net unrealized depreciation was $516,598, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $268,313 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $784,911.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 373
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$22,593,670).............................................. $22,077,072
Cash........................................................ 72,287
Receivables:
Interest.................................................. 406,233
Fund shares sold.......................................... 8,600
-----------
Total assets............................................ 22,564,192
-----------
LIABILITIES:
Payables:
Shareholder communication................................. 46,355
Custodian................................................. 9,355
NYLIFE Distributors....................................... 6,305
MainStay Management....................................... 5,743
Transfer agent............................................ 3,489
Trustees.................................................. 194
Accrued expenses............................................ 21,033
Dividend payable............................................ 85,896
-----------
Total liabilities....................................... 178,370
-----------
Net assets.................................................. $22,385,822
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,873
Class B................................................... 8,317
Additional paid-in capital.................................. 22,887,541
Accumulated distribution in excess of net investment
income.................................................... (6,122)
Accumulated net realized loss on investments................ (2,189)
Net unrealized depreciation on investments.................. (516,598)
-----------
Net assets.................................................. $22,385,822
===========
CLASS A
Net assets applicable to outstanding shares................. $14,390,241
===========
Shares of beneficial interest outstanding................... 1,487,286
===========
Net asset value per share outstanding....................... $ 9.68
Maximum sales charge (4.50% of offering price).............. 0.46
-----------
Maximum offering price per share outstanding................ $ 10.14
===========
CLASS B
Net assets applicable to outstanding shares................. $ 7,995,340
===========
Shares of beneficial interest outstanding................... 831,732
===========
Net asset value and offering price per share outstanding.... $ 9.61
===========
CLASS C
Net assets applicable to outstanding shares................. $ 241
===========
Shares of beneficial interest outstanding................... 25
===========
Net asset value and offering price per share outstanding.... $ 9.61
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 374
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 669,325
----------
Expenses:
Management................................................ 58,073
Shareholder communication................................. 23,739
Transfer agent............................................ 21,701
Service--Class A.......................................... 18,728
Service--Class B.......................................... 10,307
Professional.............................................. 12,059
Custodian................................................. 11,173
Distribution--Class B..................................... 10,307
Registration.............................................. 9,735
Recordkeeping............................................. 6,000
Trustees.................................................. 352
Miscellaneous............................................. 8,732
----------
Total expenses before reimbursement..................... 190,906
Expense reimbursement from Manager.......................... (36,576)
----------
Net expenses............................................ 154,330
----------
Net investment income....................................... 514,995
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions..................................... 8,521
Futures transactions...................................... (30,444)
----------
Net realized loss on investments............................ (21,923)
Net change in unrealized appreciation on investments........ (906,329)
----------
Net realized and unrealized loss on investments............. (928,252)
----------
Net decrease in net assets resulting from operations........ $ (413,257)
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 375
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 514,995 $ 922,511
Net realized gain (loss) on investments................... (21,923) 250,744
Net change in unrealized appreciation on investments...... (906,329) (86,245)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (413,257) 1,087,010
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (342,726) (649,522)
Class B................................................. (178,386) (272,985)
Class C................................................. (5) (4)
From net realized gain on investments:
Class A................................................. -- (141,453)
Class B................................................. -- (71,954)
Class C................................................. -- (2)
----------- -----------
Total dividends and distributions to shareholders..... (521,117) (1,135,920)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 204,750 3,306,693
Class B................................................. 879,862 3,642,989
Class C................................................. -- 250
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 141,058 377,476
Class B................................................. 88,542 208,607
Class C................................................. 3 4
----------- -----------
1,314,215 7,536,019
Cost of shares redeemed:
Class A................................................. (803,833) (2,017,731)
Class B................................................. (856,204) (1,201,673)
Class C................................................. (3) --
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... (345,825) 4,316,615
----------- -----------
Net increase (decrease) in net assets................. (1,280,199) 4,267,705
NET ASSETS:
Beginning of period......................................... 23,666,021 19,398,316
----------- -----------
End of period............................................... $22,385,822 $23,666,021
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (6,122) $ --
=========== ===========
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 376
This page intentionally left blank
15
<PAGE> 377
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------------
Six months September 1
ended Year ended December 31, through Year ended
June 30, ------------------------------------------- December 31 August 31,
1999+ 1998 1997 1996 1995 1994* 1994
---------- ------- ------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................. $ 10.08 $ 10.09 $ 9.91 $ 10.12 $ 9.20 $ 9.58 $ 10.43
------- ------- ------- ------- ------- ------- -------
Net investment income................ 0.23 0.45 0.49 0.50 0.52 0.19 0.56
Net realized and unrealized gain
(loss) on investments.............. (0.40) 0.08 0.32 (0.21) 0.91 (0.39) (0.59)
------- ------- ------- ------- ------- ------- -------
Total from investment operations..... (0.17) 0.53 0.81 0.29 1.43 (0.20) (0.03)
------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income......... (0.23) (0.46) (0.49) (0.50) (0.51) (0.18) (0.57)
From net realized gain on
investments...................... -- (0.08) (0.14) -- -- -- (0.25)
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions.... (0.23) (0.54) (0.63) (0.50) (0.51) (0.18) (0.82)
------- ------- ------- ------- ------- ------- -------
Net asset value at end of period..... $ 9.68 $ 10.08 $ 10.09 $ 9.91 $ 10.12 $ 9.20 $ 9.58
======= ======= ======= ======= ======= ======= =======
Total investment return (a).......... (1.76%) 5.38% 8.39% 3.06% 15.97% (2.11%) (0.35%)
Ratios (to average net assets)/
Supplemental Data:
Net investment income............ 4.52%++ 4.43% 4.88% 5.0% 5.4% 6.1%++ 5.7%
Net expenses..................... 1.24%++ 1.24% 1.24% 1.24% 1.24% 0.99%++ 0.99%
Expenses (before
reimbursement)................. 1.56%++ 1.57% 1.41% 1.4% 1.4% 1.2%++ 1.1%
Portfolio turnover rate.............. 21% 157% 212% 114% 114% 39% 169%
Net assets at end of period (in
000's)............................. $14,390 $15,499 $13,814 $15,572 $18,248 $17,106 $17,862
</TABLE>
- -------
<TABLE>
<S> <C>
The Fund changed its fiscal year end from August 31 to
* December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 378
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------- ------------------------------
Six months Six months September 1**
ended Year ended December 31, ended through
June 30, ------------------------------------------ June 30, December 31,
1999+ 1998 1997 1996 1995 1999+ 1998
---------- ------ ------ ------ ------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$10.01 $10.03 $ 9.84 $10.02 $ 9.20 $10.01 $10.11
------ ------ ------ ------ ------ ------ ------
0.21 0.43 0.45 0.45 0.59 0.21 0.13
(0.40) 0.06 0.33 (0.18) 0.82 (0.40) (0.01)
------ ------ ------ ------ ------ ------ ------
(0.19) 0.49 0.78 0.27 1.41 (0.19) 0.12
------ ------ ------ ------ ------ ------ ------
(0.21) (0.43) (0.45) (0.45) (0.59) (0.21) (0.14)
-- (0.08) (0.14) -- -- -- (0.08)
------ ------ ------ ------ ------ ------ ------
(0.21) (0.51) (0.59) (0.45) (0.59) (0.21) (0.22)
------ ------ ------ ------ ------ ------ ------
$ 9.61 $10.01 $10.03 $ 9.84 $10.02 $ 9.61 $10.01
====== ====== ====== ====== ====== ====== ======
(1.91%) 5.00% 8.14% 2.86% 15.67% (1.91%) 1.18%
4.27%++ 4.18% 4.63% 4.7% 5.1% 4.27%++ 4.18%++
1.49%++ 1.49% 1.49% 1.49% 1.49% 1.49%++ 1.49%++
1.81%++ 1.82% 1.66% 1.6% 1.6% 1.81%++ 1.82%++
21% 157% 212% 114% 114% 21% 157%
$7,995 $8,217 $5,585 $4,100 $1,588 $ --(b) --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 379
MainStay New York Tax Free Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
New York Tax Free Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares whose
distribution commenced on October 1, 1991, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on January 3, 1995
and September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund invests substantially all of its assets in debt obligations issued by
political subdivisions and authorities in the State of New York, the
Commonwealth of Puerto Rico, Guam and the Virgin Islands. The issuer's ability
to meet its obligations may be affected by economic and political developments
within the State of New York, the Commonwealth of Puerto Rico, Guam and the
Virgin Islands.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, (b) by appraising options and futures contracts at the
last sale price on the market where such options or futures are principally
traded, and (c) by appraising all other securities and other assets, including
debt securities for
18
<PAGE> 380
Notes to Financial Statements unaudited
which prices are supplied by a pricing agent but are not deemed by the
Subadvisor to be representative of market values, but excluding money market
instruments with a remaining maturity of sixty days or less and including
restricted securities and securities for which no market quotations are
available, at fair value in accordance with procedures approved by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing the difference between market value on the 61st day prior
to maturity and value on maturity date if their original term to maturity at
purchase exceeded 60 days.
Events affecting the values of certain portfolio investments that occur between
the close of trading on the principal market for such investments and the
regular close of the Exchange will not be reflected in the Fund's calculation of
net asset value unless the Subadvisor believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin." When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund has entered into contracts for
the future delivery of debt securities in order to attempt to protect against
the effects of adverse changes in interest rates or to lengthen or shorten the
average maturity or duration of the Fund's portfolio.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
19
<PAGE> 381
MainStay New York Tax Free Fund
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Interest income is
accrued daily except when collection is not expected. Premiums on securities
purchased by the Fund are amortized on the constant yield method over the life
of the respective securities or, if applicable, over the period to the first
call date. Discounts are accreted when required by Federal tax regulations.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.50% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.24%, 1.49% and 1.49% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999, the Manager earned $58,073 and reimbursed the Fund $36,576.
20
<PAGE> 382
Notes to Financial Statements unaudited (continued)
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.25% of
the average daily net assets of the Fund. To the extent the Manager has agreed
to reimburse expenses of the Fund, the Subadvisor has voluntarily agreed to do
so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.25% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $838 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $15,375
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $21,701.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, the Distributor beneficially held shares of Class A
and Class C of the Fund with net asset values of $4,835,048 and $99,
respectively, which represents 33.6% and 41.1%, respectively, of the Class A and
Class C net assets at period end.
21
<PAGE> 383
MainStay New York Tax Free Fund
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $358 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $4,864 and $5,612, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
----------------------------------- -------------------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 20 89 -- 327 362 --
Shares issued in reinvestment of
dividends and distributions... 14 9 -- 37 21 --
--- --- -- ---- ---- --
34 98 -- 364 383 --
Shares redeemed................. (80) (87) -- (199) (119) --
--- --- -- ---- ---- --
Net increase (decrease)......... (46) 11 --(a) 165 264 --(a)
=== === == ==== ==== ==
</TABLE>
- -------
<TABLE>
<S> <C>
* First offered on September 1, 1998.
(a) Less than one thousand.
+ Unaudited.
</TABLE>
22
<PAGE> 384
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
23
<PAGE> 385
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee NEW YORK TAX FREE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay New York Tax Free Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA13-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 386
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
Research Value Fund versus S&P 500/BARRA
Value Index and Inflation--Class A,
Class B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 387
This page intentionally left blank
2
<PAGE> 388
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 389
$10,000 Invested in the MainStay Research Value Fund versus S&P 500/BARRA Value
Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 13.74%, Since Inception 11.28%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE S&P500/BARRA VALUE
PERIOD END FUND INDEX* INFLATION+
---------- ----------------------- ------------------ ----------------
<S> <C> <C> <C>
6/1/98 9450.00 10000.00 10000.00
6/98 9327.00 10076.00 10006.00
9/98 8203.00 8775.00 10043.00
12/98 9734.00 10305.00 10098.00
3/99 10074.00 10598.00 10135.00
6/99 11227.00 11743.00 10209.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 14.35%, Since Inception 12.69%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE
PERIOD END FUND S&P 500/BARRA VALUE INDEX* INFLATION+
---------- ----------------------- -------------------------- ----------------
<S> <C> <C> <C>
6/01/98 10000.00 10000.00 10000.00
6/98 9870.00 10076.00 10006.00
9/98 8660.00 8775.00 10043.00
12/98 10250.00 10305.00 10098.00
3/99 10590.00 10598.00 10135.00
6/99 11309.00 11743.00 10209.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 18.35%, Since Inception 16.34%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE S&P 500/BARRA VALUE
PERIOD END FUND INDEX* INFLATION+
---------- ----------------------- ------------------- ----------------
<S> <C> <C> <C>
6/01/98 10000.00 10000.00 10000.00
6/98 9870.00 10076.00 10006.00
9/98 8660.00 8775.00 10043.00
12/98 10250.00 10305.00 10098.00
3/99 10590.00 10598.00 10135.00
6/99 11780.00 11743.00 10209.00
</TABLE>
4
<PAGE> 390
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/1/98 reflecting the effect of the 5.5% up-front sales charge, thereby
reducing the amount of the investment to $9,450. The Class B graph assumes
an initial investment of $10,000 made on 6/1/98. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
6/1/98 and includes the historical performance of the Class B shares for
periods from 6/1/98 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P
500/BARRA Value Index is a capitalization-weighted index of approximately
half of the companies in the S&P 500 Index, and consists of those companies
with lower price-to-book ratios. The S&P 500 is an unmanaged index and is
considered to be generally representative of the U.S. Stock Market. Results
for both the S&P 500 and the S&P 500/BARRA Value Index assume the
reinvestment of all income and capital gain distributions. An investment
cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 391
Portfolio Management Discussion and Analysis
A multitude of positive indicators combined to propel U.S. stocks higher during
the six months ended June 30, 1999, extending the remarkable bull market of the
past several years. Domestically, economic growth continued to surge. News on
the inflation front remained benign. Prices for oil, natural gas, lumber, and
copper recovered during the reporting period, while agricultural commodity
prices generally declined. Investors welcomed enhanced stability in global
economies, moving the S&P 500 Index(1) 12.39% higher for the semiannual period.
There were, however, changes among U.S. equity sectors. In many respects, the
first quarter of 1999 was a continuation of recent history. The majority of the
equity market's positive performance was concentrated in a handful of large-
capitalization growth-oriented stocks. During the second quarter of the year,
the tide changed rather dramatically. The S&P 500 continued to fare well, but
long out-of-favor value stocks came back strong in a dramatic reversal of
fortune. Many companies reported corporate earnings in line with or exceeding
analysts' expectations. Large-cap value stocks outperformed large-cap growth
stocks for the first time in nearly a year and a half. During the second
quarter, smaller-capitalization U.S. stocks outperformed their larger-cap
counterparts for the first time in seven quarters.
Along with positive earnings surprises, stronger performance in value stocks can
be attributed to stronger performance in energy-related issues, which rebounded
with higher oil prices. A rotation into cyclicals--securities that are
particularly sensitive to changes in the economy--also led to healthier returns
in sectors such as basic materials and capital goods, which had long been out of
favor.
STRONG FUND PERFORMANCE
For the six months ended June 30, 1999, the MainStay Research Value Fund
returned 15.34% for Class A shares and 14.93% for Class B and Class C shares,
excluding all sales charges. All share classes significantly outperformed the
average Lipper(2) growth and income fund, which returned 10.93% for the same six
months.
Besides productive stock selection, there were three primary factors that
contributed to the Fund's strong performance during the semiannual period.
- - Broadening market performance. As leadership in the equity markets spread
beyond a small number of large-capitalization growth stocks, the Fund
benefited from its bottom-up, value-driven stock selection process, as
investors began to recognize the value inherent in several of the Fund's
holdings, which subsequently became more expensive. Still, the valuation gap
between a select group of market leaders and the broad market in general
remains relatively wide on a historical basis.
- - Resurging cyclical sectors. As investors began to realize that the worst of
the Asian economic crisis had passed and that U.S. and European economic
growth looked promising, some of the
- -------
(1) See page 5 for additional information about the S&P 500.
(2) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 392
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98
AND SIX MONTHS ENDED 6/30/99
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN %
------------------------------------------------
PERIOD END CLASS A CLASS B AND CLASS C
---------- ------- -------------------
<S> <C> <C>
12/98 3.00 2.50
6/99 15.34 14.93
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 9 for more information on performance.
more depressed sectors of the market began to rise. As just one example, the
basic materials sector advanced nearly 30% from January through May 1999,
before retracting some of its gains. The rotation away from high-valuation
large-cap growth stocks and into basic materials and other cyclical sectors
helped overall Fund performance.
- - Relationship between inflation and Federal Reserve Board policy. Concerns
about the direction of interest rates and Federal Reserve Board policy
continued to play a major role in determining the course of the equity
markets. The report in May of an unexpectedly large rise in the consumer price
index coupled with the subsequent adoption by the Federal Reserve Board of a
bias toward raising interest rates led to a market decline. Fear of inflation
subsided somewhat over the course of the following month, and at the end of
June the Federal Reserve Board announced that it would raise the federal funds
rate by a quarter of a percent and maintain a neutral stance on interest rates
going forward. In response to these actions, the market rose to new highs.
DIVERSIFIED, RESEARCH-INTENSIVE VALUE APPROACH
During the first half of 1999, we purchased and sold securities for the Fund
across a wide spectrum of industries, with a focus on stock-specific
fundamentals rather than on the shifting macro-economic backdrop. Among the
Fund's top performers during the six-month period were:
- - Texas Instruments, which trimmed production and gained a seemingly sustainable
advantage in the fast-growing market for digital signal processing chips used
in modems, cell phones, and other electronic devices,
- - First Data, which enjoys a dominant market share in credit-card transaction
processing,
- - IBM, which continues to benefit from worldwide leadership, strong cash flow,
an aggressive stock repurchase pro-
7
<PAGE> 393
gram, and optimistic prospects for its mainframe business given its strengths
in Internet commerce,
- - Tribune Co., where we believe the market does not fully recognize the growing
value of the company's television stations, investment in the WB network, and
Internet media investment portfolio, and
- - The Williams Cos., whose natural gas pipeline and energy services businesses
benefited from rising energy prices, and whose communications division
accelerated its build-out of a nationwide, state-of-the-art fiber-optic
network that we expect will be highlighted in an initial public offering later
this year.
Among the Fund's worst performers were Seagate Technology, Monsanto, and Ace
Ltd. Since the portfolio continues to hold these securities, however, the losses
from these companies were only on paper. We believe the fundamentals remain
favorable for each of these companies and that their share values may appreciate
in the months ahead.
LOOKING AHEAD
Despite stock-market valuations that are generally lofty, we believe that on
balance, the U.S. economy looks healthy and may provide an attractive backdrop
for equity investing in the second half of 1999. We are generally optimistic
about corporate earnings prospects throughout the remainder of the year. Though
the "valuation gap" between growth and value has narrowed somewhat, a large
divergence persists. This situation presents opportunities on which to focus our
research efforts for the Fund.
All of these factors have given us a positive outlook for the Fund's style of
relative-value management. We intend to continue monitoring the Fund's
diversified portfolio and the investment universe, seeking securities we believe
have the potential to outperform over time, while preserving capital on the
downside. Whatever the markets may bring, the Fund will continue to seek
long-term capital appreciation by investing primarily in securities of
large-capitalization companies.
John A. Levin
Jeffrey A. Kigner
G. Todd Silva
Portfolio Managers
John A. Levin & Co., Inc.
Past performance is no guarantee of future results.
8
<PAGE> 394
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 20.36% 17.26%
Class B 19.35% 16.34%
Class C 19.35% 16.34%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 13.74% 11.28%
Class B 14.35% 12.69%
Class C 18.35% 16.34%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 181 out of 842 funds 328 out of 833 funds
Class B 221 out of 842 funds 353 out of 833 funds
Class C n/a n/a
Average Lipper
growth and income fund 14.49% 16.56%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.88 $0.0000 $0.0000
Class B $11.78 $0.0000 $0.0000
Class C $11.78 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show the
percentage change for each of the required periods. All returns assume capital
gain and dividend distributions are reinvested. Performance figures reflect
certain fee waivers and/or expense limitations, without which total return
figures may have been lower. The fee waivers and/or expense limitations are
voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no initial
sales charge, but are subject to a maximum CDSC of up to 5% if shares are
redeemed within the first six years of purchase and an annual 12b-1 fee of 1%.
Class C shares, first offered to the public on 9/1/98, are sold with no
initial sales charge, but are subject to a CDSC of 1% if redeemed within one
year of purchase and an annual 12b-1 fee of 1%. Performance figures for Class
C shares include the historical performance of the Class B shares for periods
from inception (6/1/98) up to 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A and Class B shares were first offered to the public
on 6/1/98, and Class C shares on 9/1/98. Life of fund return for the average
Lipper peer fund is for the period from 6/1/98 through 6/30/99.
9
<PAGE> 395
MainStay Research Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (89.4%)+
AEROSPACE/DEFENSE (2.8%)
United Technologies Corp........ 8,232 $ 590,132
-----------
BANKS (4.1%)
Bank of New York Co., Inc.
(The).......................... 12,200 447,587
Mellon Bank Corp................ 11,400 414,675
-----------
862,262
-----------
BEVERAGES (1.2%)
Anheuser-Busch Cos. Inc......... 3,500 248,281
-----------
BROADCAST/MEDIA (3.5%)
Chancellor Media Corp. (a)...... 9,200 507,150
Fox Entertainment Group Inc.--
Class A (a).................... 8,900 239,744
-----------
746,894
-----------
CHEMICALS (2.8%)
Monsanto Co..................... 15,200 599,450
-----------
COMPUTER SOFTWARE & SERVICES (3.0%)
First Data Corp................. 13,200 645,975
-----------
COMPUTER SYSTEMS (7.1%)
Compaq Computer Corp............ 3,800 90,012
International Business Machines
Corp........................... 6,600 853,050
Seagate Technology Inc. (a)..... 21,600 553,500
-----------
1,496,562
-----------
CONTAINERS--METALS & GLASS (2.0%)
Owens-Illinois, Inc. (a)........ 12,800 418,400
-----------
ELECTRICAL EQUIPMENT (5.8%)
General Electric Co............. 6,200 700,600
Koninklijke Philips
Electronics.................... 5,152 519,708
-----------
1,220,308
-----------
ELECTRONICS (3.8%)
Texas Instruments Inc........... 5,500 797,500
-----------
ENTERTAINMENT (1.0%)
Walt Disney Co. (The)........... 6,700 206,444
-----------
</TABLE>
- --------------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
FOOD (5.2%)
Nabisco Holdings Corp.--Class
A.............................. 13,100 $ 566,575
Ralston Purina Co............... 17,300 526,569
-----------
1,093,144
-----------
FOOD & HEALTH CARE DISTRIBUTORS (1.5%)
McKesson HBOC, Inc.............. 9,800 314,825
-----------
HARDWARE & TOOLS (2.6%)
Black & Decker Corp. (The)...... 8,700 549,187
-----------
HEALTH CARE--DRUGS (1.7%)
Pfizer Inc...................... 3,300 362,175
-----------
HEALTH CARE--MISCELLANEOUS (5.3%)
Johnson & Johnson............... 5,900 578,200
Warner-Lambert Co............... 7,800 541,125
-----------
1,119,325
-----------
INSURANCE (8.5%)
Ace, Ltd........................ 14,800 418,100
Aetna Inc....................... 5,200 465,075
EXEL Ltd.--Class A.............. 7,100 401,150
Partnerre Ltd................... 8,200 306,475
Tokio Marine & Fire Insurance
Co. Ltd. (The)................. 3,500 196,438
-----------
1,787,238
-----------
MANUFACTURING (2.1%)
AlliedSignal Inc................ 3,600 226,800
Tyco International Ltd.......... 2,400 227,400
-----------
454,200
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (4.3%)
KeySpan Energy Corp............. 14,500 382,438
Williams Cos., Inc. (The)....... 12,200 519,262
-----------
901,700
-----------
OFFICE EQUIPMENT & SUPPLIES (1.6%)
Xerox Corp...................... 5,600 330,750
-----------
OIL & GAS--EQUIPMENT & SERVICES (2.3%)
Schlumberger N. V. ............. 7,500 477,656
-----------
OIL & GAS--EXPLORATION & PRODUCTION (1.8%)
Unocal Corp..................... 9,600 380,400
-----------
OIL--INTEGRATED INTERNATIONAL (2.8%)
Chevron Corp.................... 3,300 314,119
Conoco Inc.--Class A............ 9,900 275,962
-----------
590,081
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 396
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PUBLISHING (4.5%)
Tribune Co...................... 11,000 $ 958,375
-----------
TELECOMMUNICATIONS--LONG DISTANCE (2.0%)
Loral Space & Communications
Ltd. (a)....................... 23,100 415,800
-----------
TELEPHONE (6.1%)
Bell Atlantic Corp.............. 10,800 706,050
BellSouth Corp.................. 12,300 576,563
-----------
1,282,613
-----------
Total Common Stocks
(Cost $16,077,225)............. 18,849,677
-----------
PREFERRED STOCKS (3.8%)
BROADCAST/MEDIA (3.7%)
News Corp. Ltd.--Pfd. (b)....... 24,400 770,125
-----------
CONTAINERS--METALS & GLASS (0.1%)
Owens-Illinois, Inc. 4.75%
(Conv)......................... 700 30,625
-----------
Total Preferred Stocks
(Cost $668,911)................ 800,750
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (10.1%)
TIME DEPOSIT (10.1%)
Cayman Bank of New York
4.125%, due 7/1/99............. $2,138,000 $ 2,138,000
-----------
Total Short-Term Investment
(Cost $2,138,000).............. 2,138,000
-----------
Total Investments
(Cost $18,884,136) (c)......... 103.3% 21,788,427(d)
Liabilities in Excess of Cash
and Other Assets............... (3.3) (701,517)
----- -----------
Net Assets...................... 100.0% $21,086,910
===== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt
(c) The cost for Federal income tax purposes is $18,937,219.
(d) At June 30, 1999, net unrealized appreciation was $2,851,208, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $3,465,438 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $614,230.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 397
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$18,884,136).............................................. $21,788,427
Cash........................................................ 749
Receivables:
Investment securities sold................................ 1,698,212
Fund shares sold.......................................... 145,083
Dividends and interest.................................... 7,310
Unamortized organization expense............................ 52,942
-----------
Total assets........................................ 23,692,723
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 2,517,813
Transfer agent............................................ 9,159
NYLIFE Distributors....................................... 8,974
MainStay Management....................................... 7,993
Custodian................................................. 4,495
Fund shares redeemed...................................... 810
Trustees.................................................. 158
Accrued expenses............................................ 56,411
-----------
Total liabilities................................... 2,605,813
-----------
Net assets.................................................. $21,086,910
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 10,817
Class B................................................... 6,431
Class C................................................... 563
Additional paid-in capital.................................. 17,760,327
Accumulated net investment loss............................. (39,904)
Accumulated undistributed net realized gain on
investments............................................... 444,385
Net unrealized appreciation on investments.................. 2,904,291
-----------
Net assets.................................................. $21,086,910
===========
CLASS A
Net assets applicable to outstanding shares................. $12,846,893
===========
Shares of beneficial interest outstanding................... 1,081,681
===========
Net asset value per share outstanding....................... $ 11.88
Maximum sales charge (5.50% of offering price).............. 0.69
-----------
Maximum offering price per share outstanding................ $ 12.57
===========
CLASS B
Net assets applicable to outstanding shares................. $ 7,576,758
===========
Shares of beneficial interest outstanding................... 643,074
===========
Net asset value and offering price per share outstanding.... $ 11.78
===========
CLASS C
Net assets applicable to outstanding shares................. $ 663,259
===========
Shares of beneficial interest outstanding................... 56,294
===========
Net asset value and offering price per share outstanding.... $ 11.78
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 398
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 117,919
Interest.................................................. 24,081
----------
Total income............................................ 142,000
----------
Expenses:
Management................................................ 74,701
Transfer agent............................................ 34,530
Distribution--Class B..................................... 22,229
Distribution--Class C..................................... 1,485
Service--Class A.......................................... 14,066
Service--Class B.......................................... 7,410
Service--Class C.......................................... 495
Shareholder communication................................. 20,618
Registration.............................................. 15,371
Professional.............................................. 14,651
Organization.............................................. 6,689
Recordkeeping............................................. 6,000
Custodian................................................. 5,184
Trustees.................................................. 233
Miscellaneous............................................. 6,979
----------
Total expenses before reimbursement..................... 230,641
Expense reimbursement by Manager............................ (48,737)
----------
Net Expenses............................................ 181,904
----------
Net investment loss......................................... (39,904)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 908,464
Net change in unrealized appreciation on investments........ 1,714,783
----------
Net realized and unrealized gain on investments............. 2,623,247
----------
Net increase in net assets resulting from operations........ $2,583,343
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $1,356.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 399
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months June 1, 1998**
ended through
June 30, 1999* December 31, 1998
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (39,904) $ (107,527)
Net realized gain (loss) on investments................... 908,464 (464,079)
Net change in unrealized appreciation on investments...... 1,714,783 1,189,508
----------- -----------
Net increase in net assets resulting from operations...... 2,583,343 617,902
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 965,848 10,183,730
Class B................................................. 2,560,741 4,678,889
Class C................................................. 462,075 124,376
Cost of shares redeemed:
Class A................................................. (148,705) (123,065)
Class B................................................. (440,627) (376,840)
Class C................................................. (755) (2)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 3,398,577 14,487,088
----------- -----------
Net increase in net assets............................ 5,981,920 15,104,990
NET ASSETS:
Beginning of period......................................... 15,104,990 --
----------- -----------
End of period............................................... $21,086,910 $15,104,990
=========== ===========
Accumulated net investment loss at end of period............ $ (39,904) $ --
=========== ===========
</TABLE>
- -------
* Unaudited.
** Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 400
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------- ------------------------- --------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period....... $ 10.30 $ 10.00 $ 10.25 $ 10.00 $ 10.25 $ 8.30
------- ------- ------- ------- ------- -------
Net investment loss (a)...................... (0.01) (0.07) (0.05) (0.10) (0.05) (0.06)
Net realized and unrealized gain on
investments................................ 1.59 0.37 1.58 0.35 1.58 2.01
------- ------- ------- ------- ------- -------
Total from investment operations............. 1.58 0.30 1.53 0.25 1.53 1.95
------- ------- ------- ------- ------- -------
Net asset value at end of period............. $ 11.88 $ 10.30 $ 11.78 $ 10.25 $ 11.78 $ 10.25
======= ======= ======= ======= ======= =======
Total investment return (b).................. 15.34% 3.00% 14.93% 2.50% 14.93% 23.49%
Ratios (to average net assets)++/
Supplemental Data:
Net investment loss...................... (0.18%) (1.48%) (0.93%) (2.23%) (0.93%) (2.23%)
Net expenses............................. 1.80% 3.15% 2.55% 3.90% 2.55% 3.90%
Expenses (before reimbursement).......... 2.35% 3.15% 3.10% 3.90% 3.10% 3.90%
Portfolio turnover rate...................... 37% 53% 37% 53% 37% 53%
Net assets at end of period (in 000's)....... $12,847 $10,378 $ 7,577 $ 4,589 $ 663 $ 138
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 401
MainStay Research Value Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Research Value Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in securities of large-capitalization companies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter
16
<PAGE> 402
Notes to Financial Statements unaudited
securities not quoted on the NASDAQ system at prices supplied by the pricing
agent or brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase was 60 days
or less, or by amortizing the difference between market value on the 61st day
prior to maturity and value on maturity date if their original term to maturity
at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,459 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
17
<PAGE> 403
MainStay Research Value Fund
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to John A. Levin & Co.,
Inc., (the "Subadvisor"). Under the supervision of the Trust's Board of Trustees
and the Manager, the Subadvisor is responsible for the day-to-day portfolio
management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.85% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.80%, 2.55% and 2.55% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999, the Manager earned $74,701 and reimbursed the Fund $48,737.
Pursuant to the terms of a Sub-advisory Agreement between MainStay Management
and the Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.425% on assets up to $250 million, 0.3825% on assets from $250 million
to $500 million and 0.34% on assets in excess of $500 million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
18
<PAGE> 404
Notes to Financial Statements unaudited (continued)
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $3,264 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class B shares of $9,135 for
the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $34,530.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A and Class B
with net asset values of $10,692,000 and $1,178,000, respectively. This
represents 83.2% and 15.5%, respectively, of the net assets at period end for
Class A and B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $242 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, a capital loss
carryforward of $410,996 was available, to the extent provided by regulations,
to offset future realized gains through 2006.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $9,279 and $6,195, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment
19
<PAGE> 405
MainStay Research Value Fund
amount, regardless of usage. Such commitment fees are allocated amongst the
funds based upon net assets and other factors. Interest on any revolving credit
loan is charged based upon the Federal Funds Advances rate. There were no
borrowings on the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
----------------------------------- -------------------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................... 91 237 43 1,021 488 13
Shares redeemed................ (17) (42) -- (13) (40) --
--- --- -- ----- --- --
Net increase................... 74 195 43 1,008 448 13
=== === == ===== === ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
</TABLE>
20
<PAGE> 406
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 407
This page intentionally left blank
<PAGE> 408
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee RESEARCH VALUE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Research Value. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA23-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 409
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Small
Cap Growth Fund versus Russell 2000
Index and Inflation--Class A, Class B,
and Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Ratings 8
Portfolio of Investments 9
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 410
This page intentionally left blank
2
<PAGE> 411
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 412
$10,000 Invested in the MainStay Small Cap
Growth Fund versus Russell 2000 Index
and Inflation
CLASS A SHARES SEC Returns: 1 Year 12.24%, Since Inception 20.17%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY
SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ----------- ------------------- ----------------
<S> <C> <C> <C>
6/01/98 9450.00 10000.00 10000.00
6/98 10272.00 10021.00 10006.00
9/98 8505.00 8002.00 10043.00
12/98 9932.00 9307.00 10098.00
3/99 10159.00 8802.00 10135.00
6/99 12200.00 10136.00 10209.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 12.86%, Since Inception 21.99%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY
SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ----------- ------------------- ----------------
<S> <C> <C> <C>
6/01/98 10000.00 10000.00 10000.00
6/98 10860.00 10021.00 10006.00
9/98 8980.00 8002.00 10043.00
12/98 10460.00 9307.00 10098.00
3/99 10680.00 8802.00 10135.00
6/99 12288.00 10136.00 10209.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 16.86%, Since Inception 25.62%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY
SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ----------- ------------------- ----------------
<S> <C> <C> <C>
6/01/98 10000.00 10000.00 10000.00
6/98 10860.00 10021.00 10006.00
9/98 8980.00 8002.00 10043.00
12/98 10460.00 9307.00 10098.00
3/99 10680.00 8802.00 10135.00
6/99 12800.00 10136.00 10209.00
</TABLE>
4
<PAGE> 413
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see below)
and show the percentage change for each of the required periods. The Class A
graph assumes an initial investment of $10,000 made on 6/1/98 reflecting the
effect of the 5.5% up-front sales charge, thereby reducing the amount of the
investment to $9,450. The Class B graph assumes an initial investment of
$10,000 made on 6/1/98. Performance reflects a 4% Contingent Deferred Sales
Charge (CDSC), as it would apply for the period shown. The Class C graph
assumes an initial investment of $10,000 made on 6/1/98 and includes the
historical performance of the Class B shares for periods from 6/1/98 through
8/31/98. Performance data for the two classes vary after this date based on
differences in their loads. Performance does not reflect the CDSC--1% if
redeemed within one year of purchase--as it would not apply for the period
shown. All results include reinvestment of distributions at net asset value
and change in share price for the stated period.
* The Russell 2000 Index is an unmanaged index that measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which, in turn,
is an unmanaged index that includes the 3,000 largest U.S. companies based
on total market capitalization. The Russell 2000 Index represents
approximately 10% of the total market capitalization of the Russell 3000
Index. Total returns reflect reinvestment of all dividends and capital
gains. An investment cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in the
cost of selected goods. It does not represent an investment return.
5
<PAGE> 414
Portfolio Management Discussion and Analysis
The first half of 1999 was a study in market contrasts. The first quarter
brought a continuation of former trends, with a handful of large-capitalization
growth stocks and a few smaller Internet names dominating the market's advances.
In April, however, signs of a global economic recovery resulted in a significant
shift. The large-cap leaders slipped on concerns over rising interest rates and
rich valuations. The broader market averages firmed, with small-cap and value
stocks solidly outpacing their large-cap growth counterparts in all but the
final two weeks of the second quarter of 1999. When the markets perceived that
the Federal Reserve Board was not poised for a series of interest rate hikes,
all segments of the equity market advanced at the quarter's end.
RETURNS AHEAD OF THE AVERAGE PEER FUND
For the six months ended June 30, 1999, the MainStay Small Cap Growth Fund
returned 22.84% for Class A shares and 22.37% for Class B and Class C shares,
excluding all sales charges. All share classes returned more than twice the
8.56% total return of the average Lipper(1) small-cap fund. The Fund performed
strongly largely as a result of the relative strength of its technology
holdings.
SHIFTING THE FUND'S FOCUS
Perhaps the most important decision that we made for the Fund during the first
half of the year involved significantly increasing its technology exposure, by
adding several stocks, including Legato and Great Plains Software. As part of
this decision, we shifted strategy in mid-February by beginning to include
Internet stocks among the Fund's purchases. The Fund continued to seek companies
with strong and highly visible long-term growth prospects. Given the pace and
magnitude of expansion in this area, however, we focused less on near-term
earnings and more on discounted future cash flow for these fledgling companies.
The Fund has established positions in Ariba, InterVU, and VerticalNet. Overall,
the Fund's Internet stocks had a strongly positive impact on performance.
In addition to Internet-related names, we added significantly to the Fund's
communication networks and customer services software holdings, with Tut
Systems, Covad Communications Company, and Clarify. The Fund also had
significant holdings in fiber-channel storage, with shares of QLogic and Emulex,
and hardware and software architecture for digital consumer electronics, with
shares of SanDisk Corp. All of these holdings had a positive impact on the
Fund's performance.
During the reporting period, we moved to reduce the Fund's exposure to health
care services stocks, which helped position the Fund more advantageously as
government inquiries and changes in regulations and reimbursement schedules
continued to plague the industry. We also lightened the Fund's weighting in
traditional financial stocks as the sector continued to significantly
underperform.
- -------
(1) See page 8 for additional information about Lipper, Inc.
6
<PAGE> 415
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98
AND SIX MONTHS ENDED 6/30/99
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN %
-----------------------------------------------
PERIOD END CLASS A CLASS B AND CLASS C
- ---------- ------- -------------------
<S> <C> <C>
12/98 5.10 4.60
6/99 22.84 22.37
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 8 for more information on performance.
RESHAPING PORTFOLIO HOLDINGS
As the end of the first half neared, we did some housecleaning to reshape the
Fund's portfolio. Specifically, we pared a few of the larger-cap holdings to
avoid capitalization drift within the Fund. The Fund also sold three
stocks--Central Parking, Consolidated Graphics, and Blue Rhino--that it had
purchased on anticipation that the companies would benefit from industry
consolidation. Unfortunately, they failed to live up to their promise and
detracted from the Fund's performance. We also sold the Fund's one beleaguered
assisted-living stock, Sunrise Assisted Living, which also had a negative impact
on the Fund's results.
On the positive side, we took advantage of recent price declines to add a few
core software names to the Fund, including Peregrine. We reentered the financial
sector by adding stocks of nonbank financial firms that provide services
designed to boost business profitability and competitiveness. These additions to
the Fund's portfolio included Towne Services, Advent Software, and WIT Capital.
Finally, in addition to Ariba, mentioned earlier, the Fund added commerce and
business inter- and intranet systems integrators, Viant and iXL, as well as an
electronics contract manufacturer, Benchmark Electronics, seeking to benefit
from rising demand for the services these companies provide.
LOOKING AHEAD
Small-cap equities remain historically undervalued compared to their large-cap
counterparts. We believe that market and earnings growth prospects for small-cap
growth companies remain strong. Whatever the markets may bring, the Fund will
continue to seek long-term growth of capital by investing primarily in
securities of small-cap companies.
Rudolph C. Carryl
Edmund C. Spelman
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 416
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 18.77% 26.62%
Class B 17.86% 25.62%
Class C 17.86% 25.62%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 12.24% 20.17%
Class B 12.86% 21.99%
Class C 16.86% 25.62%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 91 out of 698 funds 57 out of 686 funds
Class B 96 out of 698 funds 61 out of 686 funds
Class C n/a n/a
Average Lipper
small-cap fund 1.93% 3.50%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $12.91 $0.0000 $0.0000
Class B $12.80 $0.0000 $0.0000
Class C $12.80 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes after this date vary based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A and Class B shares were first offered to
the public on 6/1/98, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 6/1/98 through
6/30/99.
8
<PAGE> 417
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMMON STOCKS (97.2%)+
AEROSPACE/DEFENSE (0.9%)
HEICO Corp. .................... 21,000 $ 509,250
-----------
BANKS (0.8%)
Cullen/Frost Bankers, Inc. ..... 17,800 490,612
-----------
BROADCAST/MEDIA (1.6%)
Citadel Communications Corp.
(a)............................ 25,600 926,400
-----------
BUILDING MATERIALS (1.4%)
U.S. Concrete, Inc. (a)......... 85,000 807,500
-----------
CHEMICALS (1.3%)
MacDermid, Inc. ................ 16,000 744,000
-----------
COMMUNICATIONS--EQUIPMENT (2.1%)
Orckit Communications Ltd.
(a)............................ 25,000 618,750
Plantronics, Inc. (a)........... 9,400 612,175
-----------
1,230,925
-----------
COMPUTER SOFTWARE & SERVICES (16.1%)
Advent Software, Inc. (a)....... 8,300 556,100
Ariba, Inc. (a)................. 10,500 1,021,125
Clarify Inc. (a)................ 18,000 742,500
Complete Business Solutions,
Inc. (a)....................... 17,000 304,937
Exchange Applications, Inc.
(a)............................ 21,500 876,125
Fundtech Ltd. (a)............... 15,000 389,063
Great Plains Software, Inc.
(a)............................ 13,500 637,031
i2 Technologies, Inc. (a)....... 22,500 967,500
Legato Systems, Inc. (a)........ 11,000 635,250
Marimba, Inc. (a)............... 5,000 263,437
Peregrine Systems, Inc. (a)..... 25,000 642,188
QRS Corp. (a)................... 12,400 967,200
Sanchez Computer Associates,
Inc. (a)....................... 25,000 865,625
Towne Services, Inc. (a)........ 20,000 157,500
Xoom.com, Inc. (a).............. 8,000 420,000
-----------
9,445,581
-----------
COMPUTER SYSTEMS (3.3%)
Brocade Communications Systems,
Inc. (a)....................... 10,200 983,662
SanDisk Corp. (a)............... 21,000 945,000
-----------
1,928,662
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMPUTERS--NETWORKING (2.1%)
Emulex Corp. (a)................ 5,300 $ 589,293
Redback Networks (a)............ 5,100 640,369
-----------
1,229,662
-----------
COSMETICS/PERSONAL CARE (0.8%)
Steiner Leisure Ltd. (a)........ 15,000 454,687
-----------
ELECTRIC POWER COMPANIES (1.5%)
Calpine Corp. (a)............... 17,000 918,000
-----------
ELECTRICAL EQUIPMENT (2.5%)
Benchmark Electronics, Inc.
(a)............................ 18,000 646,875
Gilat Satellite Networks (a).... 15,600 819,000
-----------
1,465,875
-----------
ELECTRONICS (4.9%)
Mettler-Toledo International
Inc. (a)....................... 25,800 640,163
Optimal Robotics Corp. (a)...... 40,000 397,500
QLogic Corp. (a)................ 9,500 1,254,000
Waters Corp. (a)................ 11,400 605,625
-----------
2,897,288
-----------
ENGINEERING & CONSTRUCTION (1.0%)
Tetra Tech, Inc. (a)............ 35,250 581,625
-----------
FINANCE (1.6%)
Coinstar, Inc. (a).............. 17,200 493,425
Mutual Risk Management Ltd. .... 13,000 433,875
-----------
927,300
-----------
FOOD (1.0%)
American Italian Pasta Co.
(a)............................ 20,000 607,500
-----------
FOOD & HEALTH CARE DISTRIBUTORS (0.8%)
Patterson Dental Co. (a)........ 12,900 448,275
-----------
HEALTH CARE--DRUGS (2.5%)
AmeriSource Health Corp. (a).... 18,200 464,100
Andrx Corp. (a)................. 13,400 1,033,475
-----------
1,497,575
-----------
HEALTH CARE--MEDICAL PRODUCTS (6.0%)
CONMED Corp. (a)................ 26,000 796,250
Hanger Orthopedic Group, Inc.
(a)............................ 26,700 378,806
IDEXX Laboratories, Inc. (a).... 23,500 547,844
Ocular Sciences, Inc. (a)....... 20,400 354,450
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 418
MainStay Small Cap Growth Fund
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE--MEDICAL PRODUCTS (CONTINUED)
Perclose, Inc. (a).............. 11,200 $ 538,300
Xomed Surgical Products, Inc.
(a)............................ 19,050 927,497
-----------
3,543,147
-----------
HEALTH CARE--MISCELLANEOUS (1.1%)
MEDE AMERICA Corp. (a).......... 17,000 641,750
-----------
INTERNET SOFTWARE & SERVICES (12.4%)
BackWeb Technologies, Ltd.
(a)............................ 20,700 566,662
Covad Communications Group, Inc.
(a)............................ 21,000 1,119,563
InterVU Inc. (a)................ 12,000 459,750
iXL Enterprises, Inc. (a)....... 33,000 886,875
Media Metrix, Inc. (a).......... 6,000 319,500
Portal Software, Inc. (a)....... 16,000 741,000
PSINet Inc. (a)................. 7,700 336,875
StarMedia Network, Inc. (a)..... 20,000 1,282,500
TheStreet.com, Inc. (a)......... 9,000 324,000
VerticalNet, Inc. (a)........... 7,000 734,125
Viant Corp. (a)................. 14,000 490,000
-----------
7,260,850
-----------
INVESTMENT BANK/BROKERAGE (2.3%)
Wit Capital Group, Inc. (a)..... 40,000 1,360,000
-----------
MACHINERY--DIVERSIFIED (1.6%)
Applied Power Inc. ............. 14,300 390,569
Manitowoc Company, Inc. (The)... 13,800 574,425
-----------
964,994
-----------
MISCELLANEOUS (0.5%)
Boyds Collection, Ltd. (The)
(a)............................ 17,500 302,969
-----------
RETAIL (6.2%)
Cost Plus Inc. (a).............. 14,000 637,000
Duane Reade Inc. (a)............ 16,300 499,187
eToys Inc. (a).................. 11,000 448,250
Linens 'n Things, Inc. (a)...... 17,300 756,875
Men's Wearhouse, Inc. (The)
(a)............................ 16,950 432,225
Talbots, Inc. (The)............. 23,000 876,875
-----------
3,650,412
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
SCHOOLS (2.0%)
Bright Horizons Family
Solutions, Inc. (a)............ 27,000 $ 509,625
Sylvan Learning Systems, Inc.
(a)............................ 24,000 652,500
-----------
1,162,125
-----------
SPECIALIZED SERVICES (13.6%)
Acxiom Corp. (a)................ 19,500 486,281
Apollo Group, Inc. (a).......... 17,000 451,562
Corporate Executive Board Co.
(The) (a)...................... 26,000 924,625
Iron Mountain Inc. (a).......... 18,450 528,131
Lason, Inc. (a)................. 16,900 838,663
MAXIMUS, Inc. (a)............... 17,200 496,650
MedQuist Inc. (a)............... 17,500 765,625
Metzler Group, Inc. (The) (a)... 17,900 494,488
Pre-Paid Legal Services, Inc.
(a)............................ 18,700 508,406
Profit Recovery Group
International, Inc. (The)
(a)............................ 19,100 903,669
Quanta Services, Inc. (a)....... 20,000 880,000
Valassis Communications, Inc.
(a)............................ 19,900 728,838
-----------
8,006,938
-----------
STEEL (0.9%)
Gibraltar Steel Corp. .......... 21,000 519,750
-----------
TELECOMMUNICATIONS--LONG DISTANCE (1.8%)
GST Telecommunications, Inc.
(a)............................ 45,000 593,438
Tut Systems, Inc. (a)........... 10,000 489,375
-----------
1,082,813
-----------
TEXTILES--APPAREL MANUFACTURING (1.1%)
Gildan Activewear Inc. (a)...... 40,000 675,000
-----------
TRANSPORTATION (1.5%)
Expeditors International of
Washington, Inc. .............. 31,800 866,550
-----------
Total Common Stocks (Cost
$40,513,548)................... 57,148,015
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 419
Portfolio of Investments June 30, 1999 unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.9%)
COMMERCIAL PAPER (2.9%)
Ford Motor Credit Corp.
5.65%, due 7/1/99.............. $ 240,000 $ 240,000
General Electric Capital Corp.
4.95%, due 7/7/99.............. 455,000 454,624
Salomon Smith Barney Holdings
Inc.
5.00%, due 7/21/99............. 1,000,000 997,217
-----------
Total Short-Term Investments
(Cost $1,691,841).............. 1,691,841
-----------
Total Investments
(Cost $42,205,389) (b)......... 100.1% 58,839,856(c)
Liabilities in Excess of Cash
and Other Assets............... (0.1) (68,485)
---------- -----------
Net Assets...................... 100.0% $58,771,371
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(c) At June 30, 1999, net unrealized appreciation was $16,634,467, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $18,231,199 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,596,732.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 420
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$42,205,389).............................................. $58,839,856
Cash........................................................ 193,899
Receivables:
Fund shares sold.......................................... 327,225
Investment securities sold................................ 173,744
Dividends and interest.................................... 1,197
Unamortized organization expense............................ 52,942
-----------
Total assets........................................ 59,588,863
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 615,712
Transfer agent............................................ 44,185
MainStay Management....................................... 43,694
NYLIFE Distributors....................................... 29,541
Fund shares redeemed...................................... 17,648
Custodian................................................. 8,201
Trustees.................................................. 296
Accrued expenses............................................ 58,215
-----------
Total liabilities................................... 817,492
-----------
Net assets.................................................. $58,771,371
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 17,896
Class B................................................... 27,727
Class C................................................... 130
Additional paid-in capital.................................. 45,967,764
Accumulated net investment loss............................. (492,579)
Accumulated net realized loss on investments................ (3,384,034)
Net unrealized appreciation on investments.................. 16,634,467
-----------
Net assets.................................................. $58,771,371
===========
CLASS A
Net assets applicable to outstanding shares................. $23,113,035
===========
Shares of beneficial interest outstanding................... 1,789,637
===========
Net asset value per share outstanding....................... $ 12.91
Maximum sales charge (5.50% of offering price).............. 0.75
-----------
Maximum offering price per share outstanding................ $ 13.66
===========
CLASS B
Net assets applicable to outstanding shares................. $35,491,639
===========
Shares of beneficial interest outstanding................... 2,772,712
===========
Net asset value and offering price per share outstanding.... $ 12.80
===========
CLASS C
Net assets applicable to outstanding shares................. $ 166,697
===========
Shares of beneficial interest outstanding................... 13,022
===========
Net asset value and offering price per share outstanding.... $ 12.80
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 421
Statement of Operations
for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 18,647
Interest.................................................. 66,025
-----------
Total income............................................ 84,672
-----------
Expenses:
Management................................................ 210,567
Transfer agent............................................ 124,182
Distribution--Class B..................................... 93,718
Distribution--Class C..................................... 226
Service--Class A.......................................... 21,327
Service--Class B.......................................... 31,239
Service--Class C.......................................... 75
Shareholder communication................................. 22,590
Registration.............................................. 19,150
Professional.............................................. 15,198
Custodian................................................. 13,268
Recordkeeping............................................. 8,673
Organization.............................................. 6,689
Trustees.................................................. 600
Miscellaneous............................................. 9,749
-----------
Total expenses.......................................... 577,251
-----------
Net investment loss......................................... (492,579)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................ (1,753,240)
Net change in unrealized appreciation on investments........ 12,930,804
-----------
Net realized and unrealized gain on investments............. 11,177,564
-----------
Net increase in net assets resulting from operations........ $10,684,985
===========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $201.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 422
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months June 1, 1998**
ended through
June 30, December 31,
1999* 1998
----------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (492,579) $ (290,244)
Net realized loss on investments.......................... (1,753,240) (1,630,794)
Net change in unrealized appreciation on investments...... 12,930,804 3,703,663
----------- -----------
Net increase in net assets resulting from operations...... 10,684,985 1,782,625
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 4,558,608 15,576,522
Class B................................................. 12,631,767 21,163,932
Class C................................................. 156,143 577
Cost of shares redeemed:
Class A................................................. (1,047,602) (991,817)
Class B................................................. (4,264,902) (1,464,204)
Class C................................................. (15,251) (12)
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 12,018,763 34,284,998
----------- -----------
Net increase in net assets............................ 22,703,748 36,067,623
NET ASSETS:
Beginning of period......................................... 36,067,623 --
----------- -----------
End of period............................................... $58,771,371 $36,067,623
=========== ===========
Accumulated net investment loss at end of period............ $ (492,579) $ --
=========== ===========
</TABLE>
- -------
* Unaudited.
** Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 423
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
-------------------------- ------------------------- ---------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period........................... $ 10.51 $ 10.00 $ 10.46 $ 10.00 $10.46 $ 8.43
------- ------- ------- ------- ------ ------
Net investment loss (a)............ (0.10) (0.10) (0.13) (0.12) (0.13) (0.09)
Net realized and unrealized gain on
investments...................... 2.50 0.61 2.47 0.58 2.47 2.12
------- ------- ------- ------- ------ ------
Total from investment operations... 2.40 0.51 2.34 0.46 2.34 2.03
------- ------- ------- ------- ------ ------
Net asset value at end of period... $ 12.91 $ 10.51 $ 12.80 $ 10.46 $12.80 $10.46
======= ======= ======= ======= ====== ======
Total investment return (b)........ 22.84% 5.10% 22.37% 4.60% 22.37% 24.08%
Ratios (to average net assets)++/
Supplemental Data:
Net investment loss............ (1.89%) (2.12%) (2.64%) (2.87%) (2.64%) (2.87%)
Expenses....................... 2.30% 2.63% 3.05% 3.38% 3.05% 3.38%
Portfolio turnover rate............ 57% 32% 57% 32% 57% 32%
Net assets at end of period
(in 000's)....................... $23,113 $15,319 $35,492 $20,748 $ 167 $ 1
</TABLE>
- -------
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 424
MainStay Small Cap Growth Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Small Cap Growth Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in securities of small-cap companies.
Small-capitalization companies may be more volatile in price and have
significantly lower trading volumes than companies with larger capitalizations.
They may be more vulnerable to adverse business or market developments than
large-capitalization companies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National
16
<PAGE> 425
Notes to Financial Statements unaudited
Association of Securities Dealers National Market System, (c) by appraising
over-the-counter securities quoted on the National Association of Securities
Dealers NASDAQ system (but not listed on the National Market System) at the bid
price supplied through such system, and (d) by appraising over-the-counter
securities not quoted on the NASDAQ system at prices supplied by the pricing
agent or brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange. Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost if their term to maturity at purchase was 60 days
or less, or by amortizing the difference between market value on the 61st day
prior to maturity and value on maturity date if their original term to maturity
at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,459 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made.
17
<PAGE> 426
MainStay Small Cap Growth Fund
The investment income and expenses (other than expenses incurred under the
Distribution Plan) and realized and unrealized gains and losses on Fund
investments are allocated to separate classes of shares based upon their
relative net asset value on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $210,567.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.50% of the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
18
<PAGE> 427
Notes to Financial Statements unaudited (continued)
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $11,294 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $21,160 and $188, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $124,182.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A with a net
asset value of $11,619,000. This represents 50.3% of the net assets of Class A
at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $588 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$8,673 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, a capital loss
carryforward of $1,410,209 was available, to the extent provided by regulations,
to offset future realized gains through 2006. In addition, the Fund intends to
elect, to the extent provided by the regulations, to treat $220,585 of
qualifying capital losses that arose during the prior year as if they arose on
January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $34,978 and $23,887, respectively.
19
<PAGE> 428
MainStay Small Cap Growth Fund
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 434 1,206 14 1,563 2,140 1
Shares redeemed........................... (102) (416) (1) (106) (157) --
---- ----- -- ----- ----- ---
Net increase.............................. 332 790 13 1,457 1,983 1
==== ===== == ===== ===== ===
</TABLE>
- -------
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
20
<PAGE> 429
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 430
This page intentionally left blank
<PAGE> 431
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee SMALL CAP GROWTH FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Small Cap Growth Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA24-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 432
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Small
Cap Value Fund versus Russell 2000 Index
and Inflation--Class A, Class B, and
Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Fund Performance for the Since-Inception
Period Ended 12/31/98 and Six Months
Ended 6/30/99 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
The MainStay Funds 21
</TABLE>
<PAGE> 433
This page intentionally left blank
2
<PAGE> 434
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 435
$10,000 Invested in the MainStay Small Cap
Value Fund versus Russell 2000 Index
and Inflation
CLASS A SHARES SEC Returns: 1 Year -5.50%, Since Inception -8.17%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP VALUE
PERIOD END FUND RUSSELL 2000 INDEX* INFLATION+
---------- ------------------------ ------------------- ----------
<S> <C> <C> <C>
6/1/98 $ 9450.00 $10000.00 $10000.00
6/98 9119.00 10021.00 10006.00
9/98 7532.00 8002.00 10043.00
12/98 8533.00 9307.00 10098.00
3/99 7749.00 8802.00 10135.00
6/99 9119.00 10136.00 10209.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year -5.59%, Since Inception -7.45%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP VALUE
PERIOD END FUND RUSSELL 2000 INDEX* INFLATION+
---------- ------------------------ ------------------- ----------
<S> <C> <C> <C>
6/1/98 $10000.00 $10000.00 $10000.00
6/98 9640.00 10021.00 10006.00
9/98 7950.00 8002.00 10043.00
12/98 9000.00 9307.00 10098.00
3/99 8150.00 8802.00 10135.00
6/99 9180.00 10136.00 10209.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year -1.62%, Since Inception -3.89%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP VALUE
PERIOD END FUND RUSSELL 2000 INDEX* INFLATION+
---------- ------------------------ ------------------- ----------
<S> <C> <C> <C>
6/1/98 $10000.00 $10000.00 $10000.00
6/98 9640.00 10021.00 10006.00
9/98 7950.00 8002.00 10043.00
12/98 9000.00 9307.00 10098.00
3/99 8150.00 8802.00 10135.00
6/99 9580.00 10136.00 10209.00
</TABLE>
4
<PAGE> 436
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/1/98 reflecting the effect of the 5.5% up-front sales charge, thereby
reducing the amount of the investment to $9,450. The Class B graph assumes
an initial investment of $10,000 made on 6/1/98. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
6/1/98 and includes the historical performance of Class B shares for
periods from 6/1/98 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* The Russell 2000 Index is an unmanaged index that measures the performance
of the 2,000 smallest companies in the Russell 3000 Index, which, in turn,
is an unmanaged index that includes the 3,000 largest U.S. companies based
on total market capitalization. The Russell 2000 Index represents
approximately 10% of the total market capitalization of the Russell 3000
Index. Total returns reflect reinvestment of all dividends and capital
gains. An investment cannot be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 437
Portfolio Management Discussion and Analysis
The small-cap equity market in general, and small-cap value stocks in
particular, experienced a volatile, but record-breaking run during the six
months ended June 30, 1999. In fact, for the first time in seven quarters, in
the second quarter of 1999, the Russell 2000 Index(1) dramatically outperformed
the S&P 500 Index,(2) returning more than twice as much as the large-cap
benchmark. Within the small-cap sector, value stocks outperformed growth stocks
in the second quarter of the year, although small-cap growth stocks outperformed
small-cap value equities for the six months ended June 30, 1999.
Several factors stimulated this rather spectacular reversal of fortune.
- - The global economy started to improve, largely as a result of monetary easing
by central banks around the world. This improved outlook was reflected in
accelerated growth in small-cap company earnings, which in turn, was reflected
in stock gains.
- - There was increasing interest in small-cap stocks from a wide range of buyers,
as the all-time low valuations of small-cap companies relative to larger-cap
issues among publicly traded securities have been far superior to the value
differences institutional investors have seen in the market for privately
placed securities.
- - After appreciating 43% during the first quarter, the Inter@ctive Week Internet
Index(3) of approximately 50 Internet stocks gained only 2% during the second
quarter. This increase in activity beyond technology issues benefited many
small-cap value stocks and had a positive impact on the Fund's performance.
As investor sentiments shifted in the second quarter of 1999, higher oil prices
led to stronger performance in energy-related stocks. Spurred on by positive
corporate earnings surprises, cyclical stocks (known for rising quickly in
favorable times and falling quickly in weaker periods) showed renewed strength.
Other small-cap value sectors also showed strong performance during the
reporting period.
STRONG SECOND QUARTER PERFORMANCE
For the six months ended June 30, 1999, the MainStay Small Cap Value Fund
returned 6.87% for Class A shares and 6.44% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the average
Lipper(4) small-cap fund, which returned 8.56% over the same period. The primary
reason for the Fund's shortfall was sticking to our discipline of seeking
companies with true value characteristics, such as low price-to-earnings and
price-to-book ratios, during a six-month period when small-cap growth stocks
outperformed small-cap value stocks.
As we became more confident of the prospects for accelerating global growth, we
increased the Fund's exposure to the industrial and consumer cyclical sectors.
These moves contributed positively to performance, with the biggest boost coming
from consumer cyclicals. We reduced the Fund's weighting in the underperforming
financial services sector
- -------
(1) See page 5 for additional information about the Russell 2000 Index.
(2) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
(3) The American Stock Exchange (AMEX) Inter@ctive Week Internet Index (IIX) is
a collection of approximately 50 Internet-related companies (as of 6/30/99)
that gives investors a formal measure of the performance of the emerging
Internet industry.
(4) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 438
FUND PERFORMANCE FOR THE SINCE-INCEPTION PERIOD ENDED 12/31/98 AND
SIX MONTHS ENDED 6/30/99
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN %
----------------------------------------
PERIOD END CLASS A CLASS B AND CLASS C
- ---------- ------- -------------------
<S> <C> <C>
12/98 -9.70 -10.00
6/99 6.87 6.44
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 6/98
through 8/98. See footnote * on page 9 for more information on performance.
through the sale of several insurance and bank stocks. It is worth noting that
for the second quarter, the Fund returned 17.68% for Class A shares and 17.55%
for Class B and Class C shares, excluding all sales charges. All share classes
outperformed the average Lipper small-cap fund, which returned 15.56% during the
second quarter of 1999.
CONSUMER-CYCLICAL SECTOR FOCUS
Two of the Fund's holdings in the retail sector, Claire's Stores and Haverty
Furniture, were up 58% and 60%, respectively, from the beginning of the year
until they were sold in the second quarter, placing them among the portfolio's
top performers during the first half of 1999. Both companies reported strong
sales growth, while keeping expenses under tight control. The Fund sold these
stocks during the second quarter because, after sharp appreciation, they no
longer met our value criteria. The Fund's consumer sector was bolstered by the
addition of Buffets, a restaurant operator, and Smithfield Foods, an undervalued
food processor.
The Fund also benefited from external interest in several companies in its
portfolio. During the first half of the year, six holdings received takeover
bids at significant premiums, including Berkshire Realty, Oneida Ltd., Optek
Technology, and Varlen Corp. We sold Varlen Corp. before its takeover was
completed and Optek Technology upon its acquisition. The Fund also sold The DII
Group, Inc. in the technology sector, which reached a level that no longer met
our value criteria. Technology additions to the Fund included printed circuit
board manufacturer Hadco and telecom equipment maker Tekelec. We continue to
believe that many of the stocks the Fund holds are attractive to outside buyers.
Other additions to the Fund's portfolio included A. Schulman, a specialty resin
manufacturer expected to report improving profits, especially in Europe, and
Orthodontic Centers of America, the leading consolidator and operator of
orthodontic offices, which should continue its above-average growth.
7
<PAGE> 439
Perhaps the portfolio's worst performers were American Medical Security and
Reliance Group Holdings, two insurance companies that underperformed due to
disappointing underwriting trends. Plantronics, a company that had benefited
from growth in headset demand and was one of the Fund's top performers in 1998,
was also a poor performer during this semiannual period. This company had no
fundamental problems, but its strong price gain during the previous year was
difficult to sustain.
LOOKING FORWARD
Even with their recovery in the second quarter of 1999, small-cap stocks remain
at unprecedented discounts in valuation to the S&P 500. This discrepancy has not
gone unrecognized by strategic buyers, and we believe such ongoing, attractive
relative valuations are gaining the attention of individual investors as well.
We believe small-cap stocks should continue to do well as long as the economy
continues on its expected growth path.
Given this outlook, we will seek to use the expected volatility of the market to
make new stock purchases or add to existing Fund positions at attractive prices.
In particular, we anticipate adding to the Fund's holdings in the financial
sector, which we believe is attractively valued and may incur increasing merger
activity. Wherever the markets may move, the Fund will continue to seek
long-term capital appreciation by investing primarily in securities of small-cap
companies.
Timothy Dalton, Jr.
Kenneth Greiner
Portfolio Managers
Dalton, Greiner, Hartman, Maher & Co.
Past performance is no guarantee of future results.
8
<PAGE> 440
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 0.00% -3.24%
Class B -0.62% -3.89%
Class C -0.62% -3.89%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A -5.50% -8.17%
Class B -5.59% -7.45%
Class C -1.62% -3.89%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 6/30/99
<S> <C> <C>
Class A 299 out of 399 out of
698 funds 686 funds
Class B 322 out of 424 out of
698 funds 686 funds
Class C n/a n/a
Average Lipper
small-cap fund 1.93% 3.50%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.65 $0.0000 $0.0000
Class B $9.58 $0.0000 $0.0000
Class C $9.58 $0.0000 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a maximum CDSC of up to 5% if
shares are redeemed within the first six years of purchase and an annual
12b-1 fee of 1%. Class C shares, first offered to the public on 9/1/98, are
sold with no initial sales charge, but are subject to a CDSC of 1% if
redeemed within one year of purchase and an annual 12b-1 fee of 1%.
Performance figures for Class C shares include the historical performance
of the Class B shares for periods from inception (6/1/98) up to 8/31/98.
Performance data for the two classes after this date vary based on
differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A and Class B shares were first offered to
the public on 6/1/98, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 6/1/98 through
6/30/99.
9
<PAGE> 441
MainStay Small Cap Value Fund
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMMON STOCKS (94.4%)+
AUTO PARTS & EQUIPMENT (3.5%)
Aftermarket Technology Corp.
(a)............................ 37,900 $ 431,112
Borg-Warner Automotive, Inc. ... 5,800 319,000
Mark IV Industries, Inc. ....... 16,300 344,338
-----------
1,094,450
-----------
BANKS (6.1%)
Colonial BancGroup, Inc.
(The).......................... 28,300 394,431
ISB Financial Corp.............. 13,200 283,800
Local Financial Corp. (a)....... 36,400 364,000
Peoples Heritage Financial
Group, Inc. ................... 22,150 416,697
Staten Island Bancorp, Inc. .... 24,800 446,400
-----------
1,905,328
-----------
BROADCAST/MEDIA (2.0%)
Jones Intercable, Inc. Class A
(a)............................ 12,500 612,500
-----------
BUILDING MATERIALS (2.8%)
NCI Building Systems, Inc.
(a)............................ 11,300 241,537
Simpson Manufacturing Co., Inc.
(a)............................ 13,600 646,000
-----------
887,537
-----------
CHEMICALS (1.8%)
Schulman (A.), Inc. ............ 33,700 579,219
-----------
COMMUNICATIONS--EQUIPMENT (4.6%)
EMS Technologies, Inc. (a)...... 21,700 314,650
Plantronics, Inc. (a)........... 7,600 494,950
Tekelec (a)..................... 52,400 638,625
-----------
1,448,225
-----------
COMPUTER SOFTWARE & SERVICES (3.6%)
Systems & Computer Technology
Corp. (a)...................... 16,700 243,194
THQ Inc. (a).................... 30,600 879,750
-----------
1,122,944
-----------
COMPUTER SYSTEMS (1.6%)
Hutchinson Technology Inc.
(a)............................ 18,200 505,050
-----------
ELECTRIC POWER COMPANIES (2.0%)
TNP Enterprises, Inc............ 17,400 630,750
-----------
ELECTRICAL EQUIPMENT (5.1%)
Hadco Corp. (a)................. 11,700 465,075
Harman International Industries,
Inc. .......................... 14,800 651,200
Harmon Industries, Inc. ........ 3,800 75,287
Technitrol, Inc. ............... 12,300 396,675
-----------
1,588,237
-----------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
ELECTRONICS (1.9%)
Etec Systems, Inc. (a).......... 18,100 $ 601,825
-----------
ENERGY (1.4%)
C&D Technologies, Inc. ......... 14,800 453,250
-----------
FOOD (1.8%)
Smithfield Foods, Inc. (a)...... 17,400 581,812
-----------
HEALTH CARE--MEDICAL PRODUCTS (5.3%)
Arrow International, Inc. ...... 14,400 372,600
DENTSPLY International, Inc. ... 20,300 568,400
West Pharmaceutical Services,
Inc. .......................... 18,200 714,350
-----------
1,655,350
-----------
HEALTH CARE--MISCELLANEOUS (4.9%)
Mallinckrodt Inc. .............. 14,300 520,163
Orthodontic Centers of America
Inc. (a)....................... 39,600 559,350
US Oncology, Inc. (a)........... 38,296 459,552
-----------
1,539,065
-----------
HOMEBUILDING (2.3%)
Coachmen Industries, Inc. ...... 11,200 260,400
Skyline Corp. .................. 15,400 451,412
-----------
711,812
-----------
HOUSEWARES (1.2%)
Oneida Ltd. .................... 13,700 385,312
-----------
INSURANCE (1.1%)
American Medical Security Group,
Inc. .......................... 39,200 338,100
-----------
MACHINERY--DIVERSIFIED (2.8%)
IDEX Corp. ..................... 12,700 417,513
Specialty Equipment Cos., Inc.
(a)............................ 15,500 456,281
-----------
873,794
-----------
MANUFACTURING (6.9%)
Brady Corp. Class A............. 11,700 380,250
CLARCOR Inc. ................... 17,500 335,781
Harsco Corp. ................... 9,100 291,200
Hussmann International, Inc. ... 25,000 414,063
Lancaster Colony Corp. ......... 14,700 507,150
Matthews International Corp. ... 7,900 234,037
-----------
2,162,481
-----------
METALS (1.1%)
Hawk Corp. Class A (a).......... 40,300 355,144
-----------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
Hunt Corp. ..................... 13,300 122,194
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 442
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS--EQUIPMENT & SERVICES (2.5%)
Giant Industries, Inc. ......... 24,200 $ 240,487
Noble Drilling Corp. (a)........ 27,700 545,344
-----------
785,831
-----------
PAPER & FOREST PRODUCTS (3.0%)
FiberMark, Inc. (a)............. 28,000 369,250
Wausau-Mosinee Paper Corp. ..... 31,700 570,600
-----------
939,850
-----------
PUBLISHING (3.5%)
Hollinger International Inc. ... 33,900 402,563
R. H. Donnelley Corp. .......... 35,400 692,512
-----------
1,095,075
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (7.2%)
Bedford Property Investors,
Inc. .......................... 17,600 314,600
Boykin Lodging Co. ............. 19,700 302,888
CB Richard Ellis Services, Inc.
(a)............................ 17,700 440,287
Koger Equity, Inc. ............. 23,300 429,594
LNR Property Corp. ............. 21,600 461,700
Pan Pacific Retail Properties,
Inc. .......................... 16,500 320,719
-----------
2,269,788
-----------
RESTAURANTS (3.4%)
Buffets, Inc. (a)............... 41,400 476,100
Landry's Seafood Restaurants,
Inc. (a)....................... 37,800 302,400
Sbarro, Inc. (a)................ 10,700 289,569
-----------
1,068,069
-----------
RETAIL (1.7%)
Payless ShoeSource, Inc. (a).... 10,000 535,000
-----------
SPECIALIZED SERVICES (3.3%)
Banta Corp. .................... 17,300 363,300
InaCom Corp. (a)................ 16,000 202,000
Staff Leasing, Inc. (a)......... 35,800 460,925
-----------
1,026,225
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
TELECOMMUNICATIONS--LONG DISTANCE (2.6%)
Clearnet Communications Inc.
Class A (a).................... 36,800 $ 512,900
Norstan, Inc. (a)............... 23,500 292,281
-----------
805,181
-----------
TRANSPORTATION (3.0%)
Arnold Industries, Inc. ........ 32,200 497,088
Heartland Express, Inc. (a)..... 27,400 448,675
-----------
945,763
-----------
Total Common Stocks (Cost
$28,267,806)................... 29,625,161
-----------
Principal
Amount
----------
SHORT-TERM INVESTMENT (5.2%)
TIME DEPOSIT (5.2%)
Cayman Bank of New York 4.125%,
due 7/1/99..................... $1,644,000 1,644,000
-----------
Total Short-Term Investment
(Cost $1,644,000).............. 1,644,000
-----------
Total Investments (Cost
$29,911,806) (b)............... 99.6% 31,269,161(c)
Cash and Other Assets, Less
Liabilities.................... 0.4 110,241
---------- -----------
Net Assets...................... 100.0% $31,379,402
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) The cost for Federal income tax purposes is $29,916,309.
(c) At June 30, 1999, net unrealized appreciation was $1,352,852, based on cost
for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $2,960,274 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,607,422.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 443
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$29,911,806).............................................. $31,269,161
Cash........................................................ 1,079
Receivables:
Investment securities sold................................ 1,907,076
Fund shares sold.......................................... 103,959
Dividends and interest.................................... 48,346
Unamortized organization expense............................ 52,942
-----------
Total assets........................................ 33,382,563
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,885,353
Transfer agent............................................ 16,778
MainStay Management....................................... 16,501
NYLIFE Distributors....................................... 15,662
Custodian................................................. 9,063
Fund shares redeemed...................................... 1,053
Trustees.................................................. 191
Accrued expenses............................................ 58,560
-----------
Total liabilities................................... 2,003,161
-----------
Net assets.................................................. $31,379,402
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 15,540
Class B................................................... 16,526
Class C................................................... 564
Additional paid-in capital.................................. 29,932,594
Accumulated net investment loss............................. (65,097)
Accumulated undistributed net realized gain on
investments............................................... 121,920
Net unrealized appreciation on investments.................. 1,357,355
-----------
Net assets.................................................. $31,379,402
===========
CLASS A
Net assets applicable to outstanding shares................. $14,999,868
===========
Shares of beneficial interest outstanding................... 1,554,032
===========
Net asset value per share outstanding....................... $ 9.65
Maximum sales charge (5.50% of offering price).............. 0.56
-----------
Maximum offering price per share outstanding................ $ 10.21
===========
CLASS B
Net assets applicable to outstanding shares................. $15,838,692
===========
Shares of beneficial interest outstanding................... 1,652,558
===========
Net asset value and offering price per share outstanding.... $ 9.58
===========
CLASS C
Net assets applicable to outstanding shares................. $ 540,842
===========
Shares of beneficial interest outstanding................... 56,430
===========
Net asset value and offering price per share outstanding.... $ 9.58
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 444
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 171,010
Interest.................................................. 36,112
----------
Total income............................................ 207,122
----------
Expenses:
Management................................................ 123,514
Transfer agent............................................ 60,259
Distribution--Class B..................................... 44,009
Distribution--Class C..................................... 1,147
Service--Class A.......................................... 15,827
Service--Class B.......................................... 14,670
Service--Class C.......................................... 382
Shareholder communication................................. 22,009
Registration.............................................. 16,176
Professional.............................................. 14,811
Custodian................................................. 13,596
Organization.............................................. 6,689
Recordkeeping............................................. 6,104
Trustees.................................................. 352
Miscellaneous............................................. 8,327
----------
Total expenses before reimbursement..................... 347,872
Expense reimbursement by Manager............................ (68,039)
----------
Net expenses............................................ 279,833
----------
Net investment loss......................................... (72,711)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 720,571
Net change in unrealized depreciation on investments........ 1,455,462
----------
Net realized and unrealized gain on investments............. 2,176,033
----------
Net increase in net assets resulting from operations........ $2,103,322
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 445
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended June 1, 1998**
June 30, through
1999* December 31, 1998
----------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss....................................... $ (72,711) $ (145,914)
Net realized gain (loss) on investments................... 720,571 (611,042)
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,455,462 (98,107)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 2,103,322 (855,063)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 2,052,558 13,399,780
Class B................................................. 5,610,512 10,830,274
Class C................................................. 354,214 183,607
Cost of shares redeemed:
Class A................................................. (411,360) (201,264)
Class B................................................. (966,890) (676,513)
Class C................................................. (43,775) --
----------- -----------
Increase in net assets derived from capital share
transactions......................................... 6,595,259 23,535,884
----------- -----------
Net increase in net assets............................ 8,698,581 22,680,821
NET ASSETS:
Beginning of period......................................... 22,680,821 --
----------- -----------
End of period............................................... $31,379,402 $22,680,821
=========== ===========
Accumulated undistributed net investment income (loss) at
end of period............................................. $ (65,097) $ 7,614
=========== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
* Unaudited.
** Commencement of Operations.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 446
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------- ------------------------- ----------------------------
Six months June 1* Six months June 1* Six months September 1**
ended through ended through ended through
June 30, December 31, June 30, December 31, June 30, December 31,
1999+ 1998 1999+ 1998 1999+ 1998
---------- ------------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................. $ 9.03 $ 10.00 $ 9.00 $ 10.00 $ 9.00 $ 7.49
------- ------- ------- ------- ------ ------
Net investment loss (a).............. (0.01) (0.06) (0.04) (0.09) (0.04) (0.06)
Net realized and unrealized gain
(loss) on investments.............. 0.63 (0.91) 0.62 (0.91) 0.62 1.57
------- ------- ------- ------- ------ ------
Total from investment operations..... 0.62 (0.97) 0.58 (1.00) 0.58 1.51
------- ------- ------- ------- ------ ------
Net asset value at end of period..... $ 9.65 $ 9.03 $ 9.58 $ 9.00 $ 9.58 $ 9.00
======= ======= ======= ======= ====== ======
Total investment return (b).......... 6.87% (9.70%) 6.44% (10.00%) 6.44% 20.16%
Ratios (to average net assets)++/
Supplemental Data:
Net investment loss.............. (0.22%) (1.53%) (0.97%) (2.28%) (0.97%) (2.28%)
Net expenses..................... 1.90% 3.14% 2.65% 3.89% 2.65% 3.89%
Expenses (before
reimbursement)................. 2.45% 3.14% 3.20% 3.89% 3.20% 3.89%
Portfolio turnover rate.............. 26% 24% 26% 24% 26% 24%
Net assets at end of period (in
000's)............................. $15,000 $12,339 $15,839 $10,145 $ 541 $ 196
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 447
MainStay Small Cap Value Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Small Cap Value Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek long-term capital appreciation by
investing primarily in securities of small-cap companies.
Small-capitalization companies may be more volatile in price and have
significantly lower trading volumes than companies with larger capitalizations.
They may be more vulnerable to adverse business or market developments than
large-capitalization companies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
16
<PAGE> 448
Notes to Financial Statements unaudited
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter securities not
quoted on the NASDAQ system at prices supplied by the pricing agent or brokers
selected by the Subadvisor, if these prices are deemed to be representative of
market values at the regular close of business of the Exchange. Short-term
securities which mature in more than 60 days are valued at current market
quotations. Short-term securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 60 days or less, or by
amortizing the difference between market value on the 61st day prior to maturity
and value on maturity date if their original term to maturity at purchase
exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $67,459 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
17
<PAGE> 449
MainStay Small Cap Value Fund
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to Dalton, Greiner,
Hartman, Maher & Co. (the "Subadvisor"). Under the supervision of the Trust's
Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.90%, 2.65% and 2.65% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 1999, the Manager earned $123,514 and reimbursed the Fund $68,039.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and the Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.50% of the average daily net assets on assets up to $250 million,
0.45% on assets from $250 million to $500 million and 0.40% on assets in excess
of $500 million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the
18
<PAGE> 450
Notes to Financial Statements unaudited (continued)
Class B and Class C shares of the Fund, at the annual rate of 0.75% of the
average daily net assets of the Fund's Class B and Class C shares. The
Distribution Plan provides that the Class B and Class C shares of the Fund also
incur a service fee at the annual rate of 0.25% of the average daily net asset
value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $4,741 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $9,916 and $330, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $60,259.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A and Class B
with net asset values of $8,685,000 and $958,000, respectively. This represents
57.9% and 6.0%, respectively, of the net assets at period end for Class A and B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $344 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,104 for the six months ended June 30, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, a capital loss
carryforward of $594,148 was available, to the extent provided by regulations,
to offset future realized gains through 2006.
19
<PAGE> 451
MainStay Small Cap Value Fund
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $12,425 and $6,215, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended June 1, 1998* through
June 30, 1999+ December 31, 1998
--------------------------- -----------------------------
Class A Class B Class C Class A Class B Class C**
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 235 638 40 1,390 1,207 22
Shares redeemed........................... (47) (113) (5) (24) (80) --
--- ---- -- ----- ----- --
Net increase.............................. 188 525 35 1,366 1,127 22
=== ==== == ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* Commencement of operations.
** First offered on September 1, 1998.
</TABLE>
20
<PAGE> 452
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MacKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
21
<PAGE> 453
This page intentionally left blank
<PAGE> 454
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee SMALL CAP VALUE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Small Cap Value Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSAS25-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 455
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
Strategic Income Fund versus Lehman
Brothers Aggregate Bond Index and
Inflation--Class A, Class B, and
Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 20
Notes to Financial Statements 26
The MainStay Funds 35
</TABLE>
<PAGE> 456
This page intentionally left blank
2
<PAGE> 457
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 458
$10,000 Invested in the MainStay
Strategic Income Fund versus Lehman Brothers
Aggregate Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -3.40%, Since Inception 3.24%
<TABLE>
<CAPTION>
MAINSTAY STRATEGIC INCOME LEHMAN BROTHERS AGGREGATE
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ------------------------- ------------------------- ----------
<S> <C> <C> <C>
2/28/97 9550.00 10000.00 10000.00
3/97 9445.00 9889.00 10006.00
6/97 9834.00 10253.00 10031.00
9/97 10181.00 10594.00 10093.00
12/97 10183.00 10907.00 10131.00
3/98 10467.00 11075.00 10137.00
6/98 10650.00 11334.00 10199.00
9/98 10485.00 11813.00 10237.00
12/98 10709.00 11854.00 10294.00
3/99 10814.00 11794.00 10331.00
6/99 10773.00 11691.00 10406.00
</TABLE>
CLASS B SHARES Class B SEC Returns: 1 Year -4.56%, Since Inception 3.29%
<TABLE>
<CAPTION>
MAINSTAY STRATEGIC INCOME LEHMAN BROTHERS AGGREGATE
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ------------------------- ------------------------- ----------
<S> <C> <C> <C>
2/28/97 10000.00 10000.00 10000.00
3/97 9890.00 9889.00 10006.00
6/97 10268.00 10253.00 10031.00
9/97 10612.00 10594.00 10093.00
12/97 10602.00 10907.00 10131.00
3/98 10877.00 11075.00 10137.00
6/98 11037.00 11334.00 10199.00
9/98 10856.00 11813.00 10237.00
12/98 11062.00 11854.00 10294.00
3/99 11161.00 11794.00 10331.00
6/99 10753.00 11691.00 10406.00
</TABLE>
CLASS C SHARES Class C SEC Returns: 1 Year -0.56%, Since Inception 4.51%
<TABLE>
<CAPTION>
MAINSTAY STRATEGIC INCOME LEHMAN BROTHERS AGGREGATE
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ------------------------- ------------------------- ----------
<S> <C> <C> <C>
2/28/97 10000.00 10000.00 10000.00
3/97 9890.00 9889.00 10006.00
6/97 10268.00 10253.00 10031.00
9/97 10612.00 10594.00 10093.00
12/97 10602.00 10907.00 10131.00
3/98 10877.00 11075.00 10137.00
6/98 11037.00 11334.00 10199.00
9/98 10856.00 11813.00 10237.00
12/98 11062.00 11854.00 10294.00
3/99 11161.00 11794.00 10331.00
6/99 11086.00 11691.00 10406.00
</TABLE>
4
<PAGE> 459
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 2/28/97
reflecting the effect of the 4.5% up-front sales charge, thereby reducing
the amount of the investment to $9,550. The Class B graph assumes an
initial investment of $10,000 made on 2/28/97. Performance reflects a 3%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
2/28/97 and includes the historical performance of the Class B shares for
periods from 2/28/97 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* The Lehman Brothers Aggregate Bond Index includes fixed-rate debt issues
rated investment grade or higher by Moody's Investors Service, Standard &
Poor's, or Fitch Investor's Service, in that order. All issues must have at
least one year left to maturity and have an outstanding par value of at
least $100 million. The Lehman Brothers Aggregate Bond Index is comprised
of the Lehman Brothers Government/Corporate, the Mortgage-Backed
Securities, and the Asset-Backed Securities Indices. An investment cannot
be made directly into an index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in the
cost of selected goods. It does not represent an investment return.
5
<PAGE> 460
Portfolio Management Discussion and Analysis
The MainStay Strategic Income Fund invests across several asset classes,
including domestic and international bonds and high-yield and convertible
securities. In the United States, concerns over Federal Reserve Board
intentions to raise interest rates caused high-grade bond yields to rise about
1% during the first half of 1999. Since rising rates mean lower bond prices,
domestic bond investors suffered negative returns.
Although European bond markets benefited from easing by the European Central
Bank, a strong dollar and weak euro detracted from European bond returns when
translated into U.S. dollars. The Bank of England lowered interest rates, but
U.K. bonds continued to lag the market, while Japanese and Norwegian bonds
provided positive results. Despite the challenges facing domestic high-grade
bonds, increased liquidity and attractive valuations were the highlights of the
high-yield bond market during the first half of 1999. Convertible bonds provided
outstanding returns for the six months ended June 30, 1999, with narrowing yield
spreads and a stock market that reached record highs.
FUND RESULTS
During the first six months of 1999, the MainStay Strategic Income Fund returned
0.60% for Class A shares and 0.21% for Class B and Class C shares, excluding all
sales charges. All share classes underperformed the 0.82% return of the average
Lipper(1) multisector income fund for the first half of the year.
DOMESTIC BOND PERFORMANCE
During the first quarter of the year, we managed the average maturity of the
domestic high-grade portion of the Fund to keep it in line with the market
(around 7 years) or slightly shorter, which proved beneficial. The Fund used a
shorter duration to position itself defensively in the second quarter as rates
rose to 6%. Since securities with shorter maturities suffered less than those
with longer maturities when interest rates rose, our duration strategy in the
domestic high-grade portion of the Fund's portfolio made a positive contribution
to the Fund's performance for the first half of the year.
In a diminishing Treasury market, liquidity and size continued to expand among
agency securities, leading to an actively traded agency market. Agency yield
spreads widened relative to Treasury securities during the second quarter. We
believe the supply-induced widening has stabilized and we added several agency
positions to the domestic high-grade portion of the Fund's portfolio.
Concentration on residential and commercial mortgage-backed bonds worked well
for this portion of the Fund in the first quarter, but as rates rose, we focused
on highly rated commercial mortgages to help manage portfolio risk. Their high
yield, strong credit characteristics, and potential for higher demand may prove
beneficial going forward. Adding asset-backed securities as yield spreads
widened helped position the Fund for the future and had a positive impact on the
Fund's performance.
- -------
(1) See page 9 for additional information about Lipper, Inc.
6
<PAGE> 461
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
<TABLE>
<CAPTION>
12/97 12/98 6/99
------- ------- ------
<S> <C> <C> <C>
Class A Total Return % 6.62 5.17 0.60
Class B and C Total Return % 6.02 4.35 0.21
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/97
through 8/98. See footnote * on page 9 for more information on performance.
INTERNATIONAL BOND INVESTMENTS
The international bond portion of the Fund maintained a long duration in Europe,
shortening to neutral when the European Central Bank reduced interest rates. The
Fund used a short duration in dollar-bloc securities and Japanese bonds. While
the results were mixed, the net result was positive, and being short in the
dollar bloc was beneficial throughout the first half of 1999.
Although the Fund remains underweighted in Japanese bonds, it added to Japanese
government bonds throughout the first half of 1999, which proved highly
beneficial. At the same time, remaining underweighted in the Japanese yen added
significantly to the Fund's performance. Among European securities, the Fund was
overweighted in U.K. bonds, anticipating easing interest rates. Although rates
declined, the bonds continued to lag. In Euroland(2) the Fund was underweighted
in three- to seven-year bonds, which detracted from performance as these
securities outperformed shorter-and longer-term bonds. The international bond
portion of the Fund also reduced its exposure to nongovernment issues, taking
profits in various bonds as yield spreads narrowed.
HIGH-YIELD AND CONVERTIBLE SECURITIES
Despite rising rates, both the high-yield and convertible portions of the Fund's
portfolio showed positive returns for the first half of 1999. Strong high-yield
performers included UIH Australia/Pacific, Inc., which rose on an announcement
that its parent company, United International Holdings, Inc., was making an
initial public offering; @Entertainment, which is being acquired by UIH;
American Telecasting, which is being acquired by Sprint; and Nine West, which
was acquired by Jones Apparel Group. Although health care was the worst-
performing high-yield sector, through careful security selection, the Fund's
overweighted health care holdings showed positive returns. Overall, the Fund's
focus on B-rated issues(3) with strong asset coverage and cash-flow
characteristics helped enhance yields in this portion of the portfolio. As
default rates increased,
- -------
(2) Euroland refers to the countries participating in European Monetary Union,
a system that allows several European nations to operate with a common
currency.
(3) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
7
<PAGE> 462
however, we sought to manage both risk and return for the Fund by concentrating
on higher-rated high-yield securities.
Convertible securities also advanced during the reporting period, and the Fund
took some profits when the stock market rose at the end of June. Lodgian, a
hotel company, made a strong recovery from earlier lows and was sold in April
with a positive impact on six-month performance. Sun Healthcare, a nursing home
company, had a negative impact on performance as changing government policies
took a toll on the company's security values.
LOOKING AHEAD
Continued economic growth in the U.S. and Europe and signs of recovery in Japan
and other Asian markets have given us a cautious, but optimistic outlook for
bonds in general. There is a chance that U.S. interest rates will rise further,
which has caused us to reduce the Fund's domestic high-grade holdings. We
believe that cyclical trends may continue to affect high-yield securities and
have attempted to position that portion of the Fund accordingly. Whatever the
markets may bring, the Fund will continue seeking to provide current income and
competitive overall return by investing primarily in domestic and foreign debt
securities.
Edward Munshower
Joseph Portera
Steven Tananbaum
Thomas Wynn
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 463
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 1.15% 5.30%
Class B 0.44% 4.51%
Class C 0.44% 4.51%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A -3.40% 3.24%
Class B -4.56% 3.29%
Class C -0.56% 4.51%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 27 out of 96 funds 16 out of 77 funds
Class B 39 out of 96 funds 31 out of 77 funds
Class C n/a n/a
Average Lipper
multisector income fund -0.62% 3.93%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.42 $0.3498 $0.0000
Class B $9.41 $0.3126 $0.0000
Class C $9.41 $0.3126 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares are sold with a maximum initial sales charge of 4.5% and an
annual 12b-1 fee of .25%. Class B shares are sold with no initial sales
charge, but are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase and an annual 12b-1 fee of 1%. Class C
shares, first offered to the public on 9/1/98, are sold with no initial
sales charge, but are subject to a CDSC of 1% if redeemed within one year
of purchase and an annual 12b-1 fee of 1%. Performance figures for Class C
shares include the historical performance of the Class B shares for periods
from inception (2/28/97) up to 8/31/98. Performance data for the two
classes vary after this date based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A and Class B shares were first offered to the
public on 2/28/97, and Class C shares on 9/1/98. Life of fund return for
the average Lipper peer fund is for the period from 2/28/97 through
6/30/99.
9
<PAGE> 464
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
LONG-TERM BONDS (95.2%)+
ASSET-BACKED SECURITIES (5.1%)
AIRLINES (0.3%)
America West Airlines Corp.
Series C
6.86%, due 1/2/06............. $ 196,799 $ 194,477
Northwest Airlines Corp.
Pass-Through Certificates
Series 1999-1B
7.36%, due 8/1/21............. 100,000 96,300
-----------
290,777
-----------
AIRPLANE LEASES (0.9%)
AerCo Ltd.
Series 1A Class A1
5.1775%, due 7/15/23 (d)...... 150,000 149,700
Aircraft Finance Trust
Series 1999-1A Class C
8.00%, due 5/15/24 (c)........ 180,000 170,517
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19............ 420,282 413,667
-----------
733,884
-----------
AUTO LEASES (1.0%)
Premier Auto Trust
Series 1998-4 Class A3
5.69%, due 6/8/02............. 320,000 318,694
Series 1999-1 Class A3
5.69%, due 11/8/02............ 255,000 253,508
Toyota Auto Lease Trust
Series 1998-B Class A1
5.35%, due 7/25/02............ 310,000 307,170
-----------
879,372
-----------
CREDIT CARD RECEIVABLES (0.3%)
Chase Credit Card Master Trust
Series 1997-2 Class A
6.30%, due 4/15/03............ 220,000 221,045
-----------
ELECTRIC UTILITIES (0.5%)
AES Eastern Energy L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17 (c)......... 470,000 461,775
-----------
EQUIPMENT FINANCING (0.8%)
Atlas Air, Inc.
Pass-Through Certificates
Series 1999-1 Class C
8.77%, due 7/2/12............. 365,000 359,956
</TABLE>
- -------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Principal
Amount Value
------------------------------
<S> <C> <C>
EQUIPMENT FINANCING (CONTINUED)
IKON Receivables L.L.C.
Series 1999-1 Class A3
5.99%, due 5/15/05............ $ 295,000 $ 293,779
-----------
653,735
-----------
EQUIPMENT LOANS (0.4%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05............ 215,000 211,485
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02........... 100,000 98,826
-----------
310,311
-----------
FINANCE (0.3%)
Citibank Credit Card Master
Trust I
Series 1999-1 Class A
5.50%, due 2/15/06............ 265,000 255,259
-----------
LEISURE TIME (0.2%)
Harley-Davidson Eaglemark
Motorcycle Trust
Series 1999-1 Class A2
5.52%, due 2/15/05............ 160,000 156,904
-----------
MANUFACTURED HOUSING (0.3%)
Green Tree Financial Corp.
Series 1999 Class A4
6.64%, due 5/1/31............. 220,000 220,770
-----------
TRANSPORTATION (0.1%)
Federal Express Corp.
Pass-Through Certificates
Series 1998-1A Class A
6.72%, due 1/15/22............ 109,967 106,010
-----------
Total Asset-Backed Securities
(Cost $4,368,890)............. 4,289,842
-----------
CONVERTIBLE BONDS (1.7%)
CONGLOMERATES (0.1%)
Loxley Public Co. Ltd.
3.50%, due 4/20/05 (e)(f)..... 245,000 85,750
-----------
DRUGS (0.1%)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02............ 100,000 76,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 465
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
HEALTH CARE (0.1%)
PhyCor, Inc.
4.50%, due 2/15/03............ $ 125,000 $ 94,063
-----------
MINING (0.5%)
Agnico Eagle Mines Ltd.
3.50%, due 1/27/04 (g)........ 350,000 214,375
Battle Mountain Gold Co.
6.00%, due 1/4/05 (f)......... 285,000 212,325
-----------
426,700
-----------
TECHNOLOGY (0.9%)
Cirrus Logic, Inc.
6.00%, due 12/15/03........... 1,045,000 721,050
-----------
Total Convertible Bonds
(Cost $1,595,943)............. 1,403,563
-----------
CORPORATE BONDS (34.3%)
AEROSPACE (0.2%)
Goodrich (BF) Co.
6.60%, due 5/15/09............ 175,000 168,488
-----------
AUTO PARTS (0.4%)
Dana Corp.
7.00%, due 3/1/29............. 150,000 138,444
Pennzoil-Quaker State Co.
7.375%, due 4/1/29............ 175,000 165,261
-----------
303,705
-----------
BANKS (1.0%)
B.F. Saul Real Estate
Investment Trust
Series B
9.75%, due 4/1/08............. 255,000 237,150
Banc One Corp.
7.60%, due 5/1/07............. 80,000 82,795
Bank of America Corp.
6.625%, due 6/15/04........... 130,000 130,183
Local Financial Corp.
11.00%, due 9/8/04............ 410,000 424,350
-----------
874,478
-----------
BROKERAGE (0.8%)
Donaldson, Lufkin & Jenrette,
Inc.
5.875%, due 4/1/02............ 90,000 88,663
Goldman Sachs Group, Inc.
6.65%, due 5/15/09............ 360,000 348,606
Lehman Brothers Holdings, Inc.
6.625%, due 2/5/06............ 275,000 263,604
-----------
700,873
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
BUILDING MAINTENANCE & SERVICES (1.0%)
Building One Services Corp.
10.50%, due 5/1/09 (c)........ $ 900,000 $ 859,500
-----------
BUILDING MATERIALS (0.3%)
Vulcan Materials Co.
6.00%, due 4/1/09............. 250,000 235,040
-----------
CABLE (2.8%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03..... 245,000 156,800
NTL, Inc.
Series A
(zero coupon), due 4/15/05
12.75%, beginning 4/15/00..... 660,000 636,075
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01..... 1,340,000 964,800
United International Holdings,
Inc.
Series B
(zero coupon), due 2/15/08
10.75%, beginning 2/15/03..... 855,000 562,162
-----------
2,319,837
-----------
CASINOS (1.6%)
International Game Technology
8.375%, due 5/15/09 (c)....... 635,000 623,094
Penn National Gaming, Inc.
10.625%, due 12/15/04......... 625,000 625,000
President Casinos, Inc.
12.00%, due 9/15/01 (c)(h).... 47,000 47,000
13.00%, due 9/15/01........... 94,000 84,835
-----------
1,379,929
-----------
CELLULAR TELEPHONE (1.1%)
CCPR Services, Inc.
10.00%, due 2/1/07............ 275,000 293,906
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01
(h)(i)........................ 475,000 47,500
PageMart Nationwide, Inc.
(zero coupon), due 2/1/05
15.00%, beginning 2/1/00...... 180,000 158,400
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03...... 195,000 81,900
Price Communications Corp.
Series B
9.125%, due 12/15/06.......... 305,000 308,050
-----------
889,756
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 466
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CHEMICALS (0.5%)
Agriculture Minerals &
Chemicals, Inc.
10.75%, due 9/30/03........... $ 175,000 $ 173,469
Borden Chemicals & Plastics
L.P.
9.50%, due 5/1/05............. 55,000 52,525
Lyondell Chemical Co.
10.875%, due 5/1/09 (c)....... 155,000 161,200
-----------
387,194
-----------
CONSTRUCTION & ENGINEERING (0.4%)
Cathay International Ltd.
13.00%, due 4/15/08 (c)....... 675,000 270,000
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(e)..... 205,000 80,462
-----------
350,462
-----------
COSMETICS (0.3%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08............ 260,000 223,600
-----------
DOMESTIC OIL & GAS (0.8%)
Denbury Management, Inc.
9.00%, due 3/1/08............. 270,000 240,975
Queens Sand Resources, Inc.
12.50%, due 7/1/08............ 590,000 359,900
TransAmerican Energy Corp.
Series B
13.00%, due 6/15/02 (i)....... 350,000 40,687
-----------
641,562
-----------
DRUGS (0.6%)
Biovail Corporation
International
10.875%, due 11/15/05......... 190,000 196,650
Express Scripts, Inc.
9.625%, due 6/15/09 (c)....... 160,000 162,000
ICN Pharmaceuticals, Inc.
8.75%, due 11/15/08 (c)....... 110,000 108,075
-----------
466,725
-----------
ENERGY (0.1%)
CMS Energy Corp.
8.375%, due 7/1/03............ 115,000 114,657
-----------
FINANCE (0.9%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06............ 200,000 193,000
Cityscape Financial Corp.
Series A
12.75%, due 6/1/04 (e)........ 900,000 108,000
ContiFinancial Corp.
7.50%, due 3/15/02............ 55,000 38,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Imperial Credit Industries,
Inc.
Series B
9.875%, due 1/15/07........... $ 350,000 $ 283,500
Ocwen Asset Investment Corp.
11.50%, due 7/1/05............ 195,000 169,650
-----------
792,650
-----------
FINANCIAL SERVICES (0.2%)
Conseco, Inc.
6.40%, due 6/15/11............ 210,000 205,943
-----------
FOOD, BEVERAGES & TOBACCO (1.3%)
Buenos Aires Embotelladora
Sociedad Anonima
Series B
12.00%, due 8/3/05 (c)........ 38,000 32,300
Coca-Cola Enterprises, Inc.
6.95%, due 11/15/26........... 340,000 324,020
Joseph E. Seagram &
Sons, Inc.
5.79%, due 4/15/01............ 125,000 123,782
R.J. Reynolds Tobacco Holdings,
Inc.
7.75%, due 5/15/06 (c)........ 440,000 422,369
Standard Commercial Corp.
8.875%, due 8/1/05............ 225,000 185,625
-----------
1,088,096
-----------
GAS UTILITIES (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)....... 235,000 115,150
-----------
HEALTH CARE (4.5%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02............ 205,000 202,950
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95........... 225,000 177,505
Extendicare Health Services,
Inc.
9.35%, due 12/15/07........... 105,000 76,650
Genesis Health Ventures, Inc.
9.75%, due 6/15/05............ 95,000 77,425
Hanger Orthopedic Group, Inc.
11.25%, due 6/15/09 (c)....... 610,000 619,150
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03...... 215,000 89,494
Magellan Health Services, Inc.
9.00%, due 2/15/08............ 330,000 282,150
Medaphis Corp.
Series B
9.50%, due 2/15/05............ 545,000 403,300
MedPartners, Inc.
6.875%, due 9/1/00............ 85,000 79,900
7.375%, due 10/1/06........... 270,000 230,175
MultiCare Companies, Inc.
9.00%, due 8/1/07............. 200,000 140,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 467
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTH CARE (CONTINUED)
Quest Diagnostics, Inc.
9.875%, due 7/1/09 (c)........ $ 315,000 $ 317,362
10.75%, due 12/15/06.......... 355,000 406,475
Team Health, Inc.
12.00%, due 3/15/09 (c)....... 370,000 379,250
Unilab Corp.
11.00%, due 4/1/06............ 275,000 299,750
-----------
3,781,536
-----------
HOME BUILDING (0.3%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09
(c)(j)(k)..................... 235 235,000
-----------
HOUSEHOLD PRODUCTS (0.0%) (b)
Diamond Brands Operating Corp.
10.125%, due 4/15/08.......... 45,000 36,450
-----------
INDUSTRIAL (0.4%)
Morris Materials Handling, Inc.
9.50%, due 4/1/08............. 260,000 100,100
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03...... 500,000 237,500
-----------
337,600
-----------
INSURANCE (0.2%)
Fremont General Corp.
7.70%, due 3/17/04............ 190,000 187,840
-----------
LEISURE (0.2%)
Bally Total Fitness Holding
Corp.
Series D
9.875%, due 10/15/07.......... 185,000 179,450
-----------
MEDIA (2.3%)
CD Radio, Inc.
14.50%, due 5/15/09 (c)(l).... 1,265 1,290,300
Comcast Corp.
9.50%, due 1/15/08............ 230,000 240,925
Turner Broadcasting System,
Inc.
8.375%, due 7/1/13............ 242,000 260,811
Young America Corp.
Series B
11.625%, due 2/15/06.......... 260,000 182,000
-----------
1,974,036
-----------
MEDICAL EQUIPMENT (0.2%)
DJ Orthopedics L.L.C.
12.625%, due 6/15/09 (c)...... 160,000 157,200
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
MINING (0.2%)
Great Central Mines Ltd.
8.875%, due 4/1/08............ $ 145,000 $ 137,750
-----------
NATURAL GAS PIPELINES (0.2%)
Western Gas Resources, Inc.
10.00%, due 6/15/09 (c)....... 160,000 163,200
-----------
OIL & GAS EXPLORATION & PRODUCTION (0.7%)
Kelley Oil & Gas Corp.
14.00%, due 4/15/03 (c)....... 575,000 585,063
-----------
OIL SERVICES (0.3%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05............ 335,000 157,450
Vastar Resources, Inc.
6.50%, due 4/1/09............. 135,000 130,824
-----------
288,274
-----------
PUBLISHING (0.1%)
General Media, Inc.
10.625%, due 12/31/00......... 65,000 61,750
-----------
REAL ESTATE (1.5%)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07............ 630,000 538,782
Hospitality Properties Trust
7.00%, due 3/1/08............. 225,000 195,229
LNR Property Corp.
Series B
9.375%, due 3/15/08........... 230,000 216,200
Mack-Cali Realty L.P.
7.00%, due 3/15/04............ 215,000 212,106
Meditrust Co. (The)
Series MTN
7.77%, due 8/16/02............ 70,000 64,554
-----------
1,226,871
-----------
RECREATION & ENTERTAINMENT (1.8%)
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (e)(i).... 160,000 1,600
AMC Entertainment, Inc.
9.50%, due 2/1/11............. 260,000 244,400
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04.......... 500,000 491,250
Marvel Enterprises, Inc.
12.00%, due 6/15/09 (c)....... 180,000 181,800
Sports Club Company, Inc. (The)
11.375%, due 3/15/06.......... 295,000 296,475
Town Sports International, Inc.
Series B
9.75%, due 10/15/04........... 350,000 334,250
-----------
1,549,775
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 468
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RESTAURANTS & LODGING (1.6%)
Advantica Restaurant Group,
Inc.
11.25%, due 1/15/08........... $ 320,000 $ 308,000
FelCor Suites, L.P.
7.625%, due 10/1/07........... 225,000 209,250
Florida Panthers Holdings, Inc.
9.875%, due 4/15/09........... 580,000 542,300
FRI-MRD Corp.
15.00%, due 1/24/02 (c)(h).... 320,000 319,600
-----------
1,379,150
-----------
RETAIL (0.7%)
G&G Retail, Inc.
11.00%, due 5/15/06 (c)(m).... 350 323,750
Jo-Ann Stores, Inc.
10.375%, due 5/1/07 (c)....... 225,000 221,625
-----------
545,375
-----------
SEMICONDUCTORS (0.4%)
Amkor Technologies, Inc.
9.25%, due 5/1/06 (c)......... 325,000 316,875
-----------
SPECIALIZED SERVICES (0.2%)
WPP Finance (USA) Corp.
6.625%, due 7/15/05........... 135,000 128,095
-----------
STEEL, ALUMINUM & OTHER METALS (0.4%)
Generac Portable Products
L.L.C.
11.25%, due 7/1/06 (c)........ 230,000 256,450
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05........... 90,000 95,512
-----------
351,962
-----------
TECHNOLOGY (0.1%)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00...... 235,000 70,206
Entex Information Services,
Inc.
12.50%, due 8/1/06............ 85,000 52,275
-----------
122,481
-----------
TELECOMMUNICATION EQUIPMENT (0.3%)
EV International, Inc.
Series A
11.00%, due 3/15/07........... 365,000 288,350
-----------
TELECOMMUNICATION SERVICES (2.9%)
Arch Escrow Corp.
13.75%, due 4/15/08 (c)....... 180,000 162,000
Energis, PLC
9.75%, due 6/15/09 (c)........ 160,000 162,000
Globalstar L.P. Capital Corp.
10.75%, due 11/1/04........... 90,000 58,500
11.50%, due 6/1/05............ 360,000 234,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05........... $ 525,000 $ 215,250
ICG Communications, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03...... 230,000 126,500
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03..... 540,000 307,800
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05............ 100,000 39,000
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02..... 330,000 181,500
RCN Corp.
(zero coupon), due 10/15/07
11.125%, beginning 10/15/02... 470,000 316,075
Sprint Capital Corp.
6.875%, due 11/15/28.......... 265,000 247,513
T/SF Communications Corp.
Series B
10.375%, due 11/1/07.......... 180,000 180,000
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01.... 310,000 210,800
-----------
2,440,938
-----------
TRANSPORTATION (0.4%)
Equimar Shipholdings Ltd.
9.875%, due 7/1/07............ 95,000 63,175
Pacer International, Inc.
11.75%, due 6/1/07 (c)........ 320,000 310,400
-----------
373,575
-----------
Total Corporate Bonds
(Cost $35,087,886)............ 28,966,241
-----------
FOREIGN BONDS (28.7%)
AUSTRALIA (1.9%)
Australian Government
Series 611
5.75%, due 6/15/11............ A$ 747,000 474,415
Federal National Mortgage
Association Series EMTN
6.375%, due 8/15/07........... 668,000 435,021
6.50%, due 7/10/02............ 660,000 443,386
Treasury Corp. of Victoria
8.25%, due 10/15/03........... 295,000 210,862
-----------
1,563,684
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 469
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
FOREIGN BONDS (CONTINUED)
CANADA (1.6%)
Canadian Government
Series WH31
6.00%, due 6/1/08............. C$ 819,000 $ 574,112
Series VR22
7.50%, due 3/1/01............. 1,097,000 768,720
-----------
1,342,832
-----------
DENMARK (0.4%)
Kingdom of Denmark
7.00%, due 12/15/04........... DK 2,292,000 358,599
-----------
FINLAND (0.9%)
Finnish Government
Series RG
10.00%, due 9/15/01........... E 614,000 721,318
-----------
FRANCE (1.3%)
France Obligations Assimilables
du Tresor 4.00%, due
4/25/09....................... 1,118,000 1,102,233
-----------
GERMANY (4.2%)
Bundes Republic Deutschland
Series 96
6.00%, due 1/5/06............. 383,000 433,618
Series 98
5.25%, due 1/4/08............. 367,000 396,947
5.625%, due 1/4/28............ 287,000 305,091
Bundesobligation
Series 123
4.50%, due 5/17/02............ 1,076,275 1,139,698
Series 127
4.50%, due 5/19/03............ 628,000 664,219
Kredit Fuer Wiederaufbau
5.00%, due 1/4/09............. 550,000 580,243
-----------
3,519,816
-----------
ITALY (3.6%)
Buoni Poliennali del Tesoro
5.00%, due 5/1/08............. 470,000 493,229
6.50%, due 11/1/27............ 744,000 864,326
8.25%, due 7/1/01............. 658,000 741,685
8.50%, due 1/1/04............. 747,000 909,796
-----------
3,009,036
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
JAPAN (4.5%)
Japanese Government
Series 42
2.60%, due 3/20/19............ Y 62,000,000 $ 497,271
Series 168
3.40%, due 3/22/04............ 316,100,000 2,886,334
Series 174
4.60%, due 9/20/04............ 46,000,000 444,908
-----------
3,828,513
-----------
NETHERLANDS (1.4%)
Netherlands Government
3.75%, due 7/15/09............ E 1,223,000 1,167,284
-----------
SPAIN (1.4%)
Bonos Y Obligacion del Estado
4.50%, due 7/30/04............ 698,000 732,581
5.15%, due 7/30/09............ 428,000 452,905
-----------
1,185,486
-----------
SWEDEN (0.4%)
AB Spintab
Series 164
8.50%, due 12/19/01........... SK 1,000,000 128,462
Swedish Government
Series 1040
6.50%, due 5/5/08............. 1,800,000 233,788
-----------
362,250
-----------
UNITED KINGDOM (4.2%)
Federal National Mortgage
Association
Series EMTN
6.875%, due 6/7/02............ L 663,000 1,070,710
Regional Independent Media
Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03..... 330,000 311,456
United Kingdom Gilt
9.00%, due 10/13/08........... 726,000 1,454,289
United Kingdom Treasury Bond
7.25%, due 12/7/07............ 420,000 748,443
-----------
3,584,898
-----------
UNITED STATES (2.9%)
Aero Vodochody
7.50%, due 11/17/05 (c)....... $ 500,000 492,500
Camuzzi Gas Pampeana S.A.
9.25%, due 12/15/01 (g)....... 200,000 196,000
Conproca, S.A.
12.00%, due 6/16/10 (c)(f).... 313,000 294,220
Innova S de R.L.
12.875%, due 4/1/07 (g)....... 30,000 24,450
Perez Companc S.A.
9.00%, due 5/1/06 (c)......... 400,000 355,000
Republic of Brazil
11.625%, due 4/15/04.......... 615,000 578,100
Republic of Turkey
12.375%, due 6/15/09.......... 250,000 247,500
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 470
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
FOREIGN BONDS (CONTINUED)
UNITED STATES (CONTINUED)
Republic of Venezuela
9.25%, due 9/15/27............ $ 293,000 $ 195,394
Telefonos de Mexico S.A.
4.25%, due 6/15/04 (g)(n)..... 100,000 103,250
-----------
2,486,414
-----------
Total Foreign Bonds
(Cost $20,602,160)............ 24,232,363
-----------
LOAN ASSIGNMENTS (0.3%)
FOOD, BEVERAGES & TOBACCO (0.2%)
Domino's Pizza, Inc.
Bank debt
Tranche B
8.8125%, due 12/21/06
(d)(h)(o)..................... 99,671 99,795
Bank debt
Tranche C
9.0625%, due 12/21/07
(d)(h)(o)..................... 99,671 99,795
-----------
199,590
-----------
HEALTH CARE (0.1%)
Ventas Realty L.P.
Bank debt
Tranche D
7.81%, due 4/30/03
(d)(h)(o)..................... 124,655 104,710
-----------
Total Loan Assignments
(Cost $308,309)............... 304,300
-----------
MORTGAGE-BACKED SECURITIES (2.9%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (2.9%)
Asset Securitization Corp.
Series 1997-MD7 Class A1B
7.41%, due 1/13/30............ 375,000 383,647
DLJ Commercial Mortgage Corp.
Series 1999-CG2 Class A1A
6.88%, due 7/10/08............ 250,000 253,100
LB Commercial Conduit
Mortgage Trust
Series 1998-C4 Class A1B
6.21%, due 10/15/08........... 235,000 223,941
Series 1999-C1 Class A2
6.78%, due 4/15/09............ 240,000 237,274
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C2 Class A1
6.9732%, due 6/15/21 (d)...... 647,468 650,750
Morgan Stanley Capital I
Series 1998-HF2 Class A1
6.01%, due 11/15/30........... 96,106 93,687
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (CONTINUED)
Nationslink Funding Corp.
Series 1999-1 Class A2
6.316%, due 11/20/08.......... $ 320,000 $ 307,181
SASCO Floating Rate Commercial
Mortgage Trust
Series 1998-C3A Class A1A
5.6425%, due 10/25/99
(c)(d)........................ 259,530 259,530
-----------
2,409,110
-----------
Total Mortgage-Backed
Securities
(Cost $2,433,619)............. 2,409,110
-----------
U.S. GOVERNMENT & FEDERAL AGENCIES (18.7%)
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (1.9%)
5.125%, due 2/13/04........... 1,160,000 1,111,466
6.375%, due 6/15/09........... 535,000 532,448
-----------
1,643,914
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (7.4%)
6.50%, due 5/1/13-4/1/29...... 3,607,599 3,505,641
7.00%, due 12/1/12............ 682,908 686,856
7.00%, due 9/15/29 TBA (p).... 640,000 632,902
7.50%, due 7/14/29 TBA (p).... 1,370,000 1,388,838
-----------
6,214,237
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE
PASS-THROUGH SECURITIES) (2.9%)
7.00%, due 9/15/28............ 1,242,445 1,230,804
7.50%, due
12/15/23-11/25/28............. 808,430 819,580
8.00%, due 11/25/28........... 431,517 444,735
-----------
2,495,119
-----------
UNITED STATES TREASURY BONDS (2.6%)
5.25%, due 11/15/28........... 475,000 421,045
7.625%, due 2/15/25........... 85,000 100,260
8.875%, due 8/15/17 (q)....... 555,000 709,013
9.25%, due 2/15/16............ 735,000 957,337
-----------
2,187,655
-----------
UNITED STATES TREASURY NOTES (3.9%)
5.375%, due 6/30/03........... 785,000 775,556
5.50%, due 5/15/09 (q)........ 1,400,000 1,367,618
6.25%, due 2/28/02-2/15/03.... 860,000 874,920
6.625%, due 5/15/07........... 230,000 239,524
-----------
3,257,618
-----------
Total U.S. Government & Federal
Agencies
(Cost $16,138,186)............ 15,798,543
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 471
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
YANKEE BONDS (3.5%)
CELLULAR TELEPHONE (0.1%)
Millicom International
Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01...... $ 120,000 $ 88,200
-----------
CHEMICALS (0.6%)
Octel Developments, PLC
10.00%, due 5/1/06............ 490,000 504,700
-----------
CONSUMER DURABLES (0.1%)
International Semi-Technology
Microelectronics, Inc.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00..... 415,000 64,325
-----------
ELECTRIC UTILITIES (0.2%)
United Utilities, PLC
6.45%, due 4/1/08............. 190,000 178,851
-----------
MEDIA (0.1%)
Central European Media
Enterprises Ltd. 9.375%, due
8/15/04....................... 150,000 120,000
-----------
MINING (0.2%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27............ 180,000 100,800
Glencore Nickel Pty Ltd.
9.00%, due 12/1/14............ 65,000 55,900
-----------
156,700
-----------
MULTI-INDUSTRIAL (0.2%)
Tyco International Group S.A.
7.00%, due 6/15/28............ 185,000 172,476
-----------
PAPER & FOREST PRODUCTS (0.2%)
Doman Industries Ltd.
12.00%, due 7/1/04 (c)........ 175,000 170,625
-----------
STEEL, ALUMINUM & OTHER METALS (0.5%)
Ivaco, Inc.
11.50%, due 9/15/05........... 390,000 404,625
-----------
TELECOMMUNICATION SERVICES (0.7%)
Call-Net Enterprises, Inc.
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04..... 535,000 295,587
9.375%, due 5/15/09........... 315,000 300,038
-----------
595,625
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
TRANSPORTATION (0.6%)
Alpha Shipping, PLC
Series A
9.50%, due 2/15/08 (e)........ $ 200,000 $ 62,500
Cenargo International, PLC
9.75%, due 6/15/08............ 80,000 74,000
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (e)....... 275,000 71,844
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08........... 825,000 328,969
-----------
537,313
-----------
Total Yankee Bonds
(Cost $3,177,139)............. 2,993,440
-----------
Total Long-Term Bonds
(Cost $83,712,132)............ 80,397,402
-----------
<CAPTION>
Shares
--------------
<S> <C> <C>
COMMON STOCKS (0.1%)
FOOD, BEVERAGES & TOBACCO (0.1%)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (a)................... 12,550 43,925
-----------
HEALTH CARE (0.0%) (b)
General Healthcare Group Ltd.
(a)(r)........................ 25 1,182
-----------
Total Common Stocks
(Cost $55,179)................ 45,107
-----------
PREFERRED STOCKS (1.4%)
BROADCAST/MEDIA (0.2%)
Spanish Broadcasting System,
Inc.
14.25% (s).................... 155 168,534
-----------
CELLULAR TELEPHONE (0.6%)
Nextel Communications, Inc.
13.00%, Series D (s).......... 445 483,042
-----------
OIL SERVICES (0.4%)
RBF Finance Co.
13.875% (c)(s)(t)............. 290 298,700
-----------
TECHNOLOGY (0.0%) (b)
Metawave Communications Corp.
Series D (a)(c)(h)............ 3,317 21,892
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 472
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
Shares Value
------------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATION SERVICES (0.2%)
ICG Holdings, Inc.
14.25% (s).................... 205 $ 203,975
-----------
Total Preferred Stocks
(Cost $1,148,437)............. 1,176,143
-----------
WARRANTS (0.0%) (b)
CABLE (0.0%) (b)
@Entertainment, Inc.
expire 7/15/08 (a)............ 3,160 37,920
-----------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)........ 150 2
-----------
TELECOMMUNICATION SERVICES (0.0%) (b)
HighwayMaster Communications,
Inc. expire 9/15/05 (a)(c).... 200 2
Telehub Communications Corp.
expire 7/31/05 (a)(c)......... 310 1,240
-----------
1,242
-----------
Total Warrants
(Cost $31,911)................ 39,164
-----------
<CAPTION>
Notional
Amount
<S> <C> <C>
--------------
FOREIGN CURRENCY OPTION (0.0%) (b)
UNITED STATES (0.0%) (b)
U.S. Dollar Call/Euro Currency
put
Strike Price E 1.024 expires
8/31/99....................... 1,300,000 14,509
-----------
Total Foreign Currency Option
(Cost $14,235)................ 14,509
-----------
Principal
Amount
--------------
SHORT-TERM INVESTMENTS (4.0%)
COMMERCIAL PAPER (3.9%)
American Express Credit Corp.
4.92%, due 7/7/99............. $ 1,000,000 999,180
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Ford Motor Credit Co.
5.65%, due 7/1/99............. $ 1,075,000 $ 1,075,000
Wells Fargo & Co.
5.06%, due 7/14/99............ 1,245,000 1,242,725
-----------
Total Commercial Paper
(Cost $3,316,905)............. 3,316,905
-----------
SHORT-TERM LOAN ASSIGNMENT (0.1%)
HEALTH CARE (0.1%)
Ventas Realty L.P.
Bank debt
Tranche A
7.81%, due 10/30/99
(d)(h)(o)..................... 85,938 72,188
-----------
Total Short-Term Loan
Assignment
(Cost $79,609)................ 72,188
-----------
Total Short-Term Investments
(Cost $3,396,514)............. 3,389,093
-----------
Total Investments
(Cost $88,358,408) (u)........ 100.7% 85,061,418(v)
Liabilities in Excess of
Cash and Other Assets......... (0.7) (612,817)
----- -----------
Net Assets..................... 100.0% $84,448,601
===== =========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Floating rate. Rate shown is the rate in effect at June 30,
1999.
(e) Issue in default.
(f) Eurobond--bond denominated in U.S. dollars or other
currencies and sold to investors outside the country whose
currency is used.
(g) Yankee bond.
(h) Restricted security.
(i) Issuer in bankruptcy.
(j) 235 Units--each unit reflects $1,000 principal amount of
14.50% Senior Subordinated Notes plus rights to acquire
ordinary and preferred shares at a future date.
(k) CIK ("Cash in Kind")--interest payment is made with cash or
additional securities.
(l) 1,265 Units--each unit reflects $1,000 principal amount of
14.50% Senior Notes plus 3 warrants to acquire 10.95 shares
of common stock at $28.60 per share at a future date.
(m) 350 Units--each unit reflects $1,000 principal amount of
11.00% Senior Notes plus 0.07956 warrant to acquire 1 share
of common stock at $0.01 per share at a future date.
(n) Convertible bond.
(o) Multiple tranche facilities.
(p) TBA: Securities purchased on a forward commitment basis with
an approximate principal amount and maturity date. The
actual principal amount and the maturity date will be
determined upon settlement.
(q) Segregated as collateral for TBAs.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 473
Portfolio of Investments unaudited (continued)
<TABLE>
<S> <C>
(r) British security.
(s) PIK ("Payment in Kind")--dividend payment is made with
additional securities.
(t) 290 Units--each unit reflects 1 Senior Preferred Share plus
1 warrant to acquire 35 shares of common stock at $9.50 per
share at a future date.
(u) The cost for Federal income tax purposes is $88,483,216.
(v) At June 30, 1999, net unrealized depreciation was
$3,421,798, based on cost for Federal income tax purposes.
This consisted of aggregate gross unrealized appreciation
for all investments on which there was an excess of market
value over cost of $649,397 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $4,071,195.
(w) The following abbreviations are used in the above portfolio:
A$ --Australian Dollar
C$ --Canadian Dollar
DK--Danish Krone
E --Euro
Y --Japanese Yen
L --Pound Sterling
SK --Swedish Krona
$ --U.S. Dollar
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 474
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$88,358,408).............................................. $85,061,418
Cash........................................................ 2,398
Cash denominated in foreign currencies (identified cost
$310,005)................................................. 309,185
Receivables:
Investment securities sold................................ 2,957,046
Dividends and interest.................................... 1,396,798
Fund shares sold.......................................... 137,255
Unrealized appreciation on foreign currency forward
contracts................................................. 246,407
Unamortized organization expense............................ 111,091
-----------
Total assets........................................ 90,221,598
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 4,825,058
Fund shares redeemed...................................... 149,406
NYLIFE Distributors....................................... 56,480
MainStay Management....................................... 44,465
Custodian................................................. 40,570
Transfer agent............................................ 15,426
Trustees.................................................. 639
Accrued expenses............................................ 92,585
Unrealized depreciation on foreign currency forward
contracts................................................. 66,844
Dividend payable............................................ 481,524
-----------
Total liabilities................................... 5,772,997
-----------
Net assets.................................................. $84,448,601
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 23,025
Class B................................................... 65,932
Class C................................................... 726
Additional paid-in capital.................................. 89,312,452
Accumulated distribution in excess of net investment
income.................................................... (507,760)
Accumulated net realized loss on investments................ (1,112,595)
Accumulated net realized loss on foreign currency........... (209,687)
Net unrealized depreciation on investments.................. (3,296,990)
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 173,498
-----------
Net assets.................................................. $84,448,601
===========
CLASS A
Net assets applicable to outstanding shares................. $21,695,564
===========
Shares of beneficial interest outstanding................... 2,302,469
===========
Net asset value per share outstanding....................... $ 9.42
Maximum sales charge (4.50% of offering price).............. 0.44
-----------
Maximum offering price per share outstanding................ $ 9.86
===========
CLASS B
Net assets applicable to outstanding shares................. $62,068,703
===========
Shares of beneficial interest outstanding................... 6,593,187
===========
Net asset value and offering price per share outstanding.... $ 9.41
===========
CLASS C
Net assets applicable to outstanding shares................. $ 684,334
===========
Shares of beneficial interest outstanding................... 72,644
===========
Net asset value and offering price per share outstanding.... $ 9.41
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 475
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 120,859
Interest.................................................. 3,183,928
-----------
Total income............................................ 3,304,787
-----------
Expenses:
Management................................................ 256,013
Distribution--Class B..................................... 238,244
Distribution--Class C..................................... 1,602
Service--Class A.......................................... 26,723
Service--Class B.......................................... 79,415
Service--Class C.......................................... 534
Transfer agent............................................ 81,992
Custodian................................................. 43,926
Shareholder communication................................. 34,016
Amortization of organization expense...................... 20,667
Registration.............................................. 20,642
Professional.............................................. 17,371
Recordkeeping............................................. 15,875
Trustees.................................................. 1,358
Miscellaneous............................................. 11,576
-----------
Total expenses.......................................... 849,954
-----------
Net investment income....................................... 2,454,833
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Security transactions..................................... (1,239,151)
Option transactions....................................... (6,889)
Foreign currency transactions............................. (209,687)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (1,455,727)
-----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... (830,821)
Translation of assets and liabilities in foreign
currencies and foreign currency forward contracts....... 117,520
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (713,301)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (2,169,028)
-----------
Net increase in net assets resulting from operations........ $ 285,805
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 476
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 2,454,833 $ 4,237,985
Net realized gain (loss) on investments................... (1,239,151) 870,013
Net realized gain (loss) on foreign currency
transactions............................................ (209,687) 84,933
Net realized loss on option transactions.................. (6,889) (58,477)
Net change in unrealized depreciation on investments...... (830,821) (1,711,052)
Net change in unrealized appreciation on translation of
other assets and liabilities in foreign currencies and
foreign currency forward contracts...................... 117,520 (120,882)
------------ ------------
Net increase in net assets resulting from operations...... 285,805 3,302,520
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (779,715) (1,361,694)
Class B................................................. (2,067,640) (3,579,831)
Class C................................................. (15,546) (213)
In excess of net investment income:
Class A................................................. -- (27,470)
Class B................................................. -- (72,218)
Class C................................................. -- (4)
------------ ------------
Total dividends and distributions to shareholders..... (2,862,901) (5,041,430)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 4,214,114 8,072,354
Class B................................................. 6,890,593 35,572,822
Class C................................................. 2,620,986 90,944
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 481,980 1,057,437
Class B................................................. 1,333,021 2,923,414
Class C................................................. 9,101 216
------------ ------------
15,549,795 47,717,187
Cost of shares redeemed:
Class A................................................. (3,946,859) (6,068,979)
Class B................................................. (10,533,471) (14,736,037)
Class C................................................. (2,011,189) --
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions................................... (941,724) 26,912,171
------------ ------------
Net increase (decrease) in net assets................. (3,518,820) 25,173,261
NET ASSETS:
Beginning of period......................................... 87,967,421 62,794,160
------------ ------------
End of period............................................... $ 84,448,601 $ 87,967,421
============ ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (507,760) $ (99,692)
============ ============
</TABLE>
- -------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 477
This page intentionally left blank
23
<PAGE> 478
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months February 28*
ended Year ended through
June 30, December 31, December 31,
1999+ 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 9.71 $ 9.91 $ 10.00
------- ------- -------
Net investment income....................................... 0.30 0.60 0.54
Net realized and unrealized gain (loss) on investments...... (0.23) (0.09) 0.07
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. (0.01) (0.01) 0.05
------- ------- -------
Total from investment operations............................ 0.06 0.50 0.66
------- ------- -------
Less dividends and distributions:
From net investment income................................ (0.35) (0.69) (0.54)
From net realized gain on investments..................... -- -- (0.21)
In excess of net investment income........................ -- (0.01) --
------- ------- -------
Total dividends and distributions........................... (0.35) (0.70) (0.75)
------- ------- -------
Net asset value at end of period............................ $ 9.42 $ 9.71 $ 9.91
======= ======= =======
Total investment return (a)................................. 0.60% 5.17% 6.62%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 6.32%++ 6.14% 6.46%++
Net expenses............................................ 1.43%++ 1.38% 1.15%++
Expenses (before reimbursement)......................... 1.43%++ 1.42% 1.49%++
Portfolio turnover rate..................................... 148% 325% 323%
Net assets at end of period (in 000's)...................... $21,696 $21,603 $18,922
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 479
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- ------------------------------
Six months February 28* Six months September 1**
ended Year ended through ended through
June 30, December 31, December 31, June 30, December 31,
1999+ 1998 1997 1999+ 1998
---------- ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.70 $ 9.91 $ 10.00 $ 9.70 $ 9.59
------- ------- ------- ------- -------
0.26 0.54 0.48 0.26 0.21
(0.23) (0.11) 0.07 (0.23) 0.10
(0.01) (0.01) 0.05 (0.01) 0.01
------- ------- ------- ------- -------
0.02 0.42 0.60 0.02 0.32
------- ------- ------- ------- -------
(0.31) (0.62) (0.48) (0.31) (0.21)
-- -- (0.21) -- --
-- (0.01) -- -- --(b)
------- ------- ------- ------- -------
(0.31) (0.63) (0.69) (0.31) (0.21)
------- ------- ------- ------- -------
$ 9.41 $ 9.70 $ 9.91 $ 9.41 $ 9.70
======= ======= ======= ======= =======
0.21% 4.35% 6.02% 0.21% 3.41%
5.57%++ 5.39% 5.71%++ 5.57%++ 5.39%++
2.18%++ 2.13% 1.90%++ 2.18%++ 2.13%++
2.18%++ 2.17% 2.24%++ 2.18%++ 2.13%++
148% 325% 323% 148% 325%
$62,069 $66,273 $43,872 $ 684 $ 91
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
25
<PAGE> 480
MainStay Strategic Income Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Strategic Income Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on February 28, 1997. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's objective is to provide current income and competitive overall return
by investing primarily in domestic and foreign debt securities.
The Fund invests in high yield bonds. These bonds may involve special risks not
commonly associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market on which high yield bonds are traded may be less liquid than the market
for higher grade bonds.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly
26
<PAGE> 481
Notes to Financial Statements unaudited
as possible in the manner described in (a) by reference to their principal
exchange, including the National Association of Securities Dealers National
Market System, (c) by appraising over-the-counter securities quoted on the
National Association of Securities Dealers NASDAQ system (but not listed on the
National Market System) at the bid price supplied through such system, (d) by
appraising over-the-counter securities not quoted on the NASDAQ system at prices
supplied by the pricing agent or brokers selected by the Subadvisor, if these
prices are deemed to be representative of market values at the regular close of
business of the Exchange, (e) by appraising debt securities at prices supplied
by a pricing agent selected by the Subadvisor, whose prices reflect
broker/dealer supplied valuations and electronic data processing techniques if
those prices are deemed by the Subadvisor to be representative of market values
at the regular close of business of the Exchange, (f) by appraising options and
futures contracts at the last sale price on the market where such options or
futures are principally traded, and (g) by appraising all other securities and
other assets, including debt securities for which prices are supplied by a
pricing agent but are not deemed by the Subadvisor to be representative of
market values, but excluding money market instruments with a remaining maturity
of sixty days or less and including restricted securities and securities for
which no market quotations are available, at fair value in accordance with
procedures approved by the Trustees. Short-term securities which mature in more
than 60 days are valued at current market quotations. Short-term securities
which mature in 60 days or less are valued at amortized cost if their term to
maturity at purchase was 60 days or less, or by amortizing the difference
between market value on the 61st day prior to maturity and value on maturity
date if their original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in
27
<PAGE> 482
MainStay Strategic Income Fund
the foreign exchange rates underlying these instruments. The unrealized
appreciation (depreciation) on forward contracts reflects the Fund's exposure at
period end to credit loss in the event of a counterparty's failure to perform
its obligations.
Foreign currency forward contracts open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
------------- ------------ --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
Australian Dollar vs. U.S. Dollar, expiring
8/18/99............................................ A$ 1,995,000 $ 1,276,897 $(44,295)
Canadian Dollar vs. U.S. Dollar, expiring
8/18/99-8/26/99.................................... C$ 2,748,000 $ 1,885,828 27,717
Danish Krone vs. Euro, expiring 8/23/99.............. DK 3,970,000 E 533,323 (1,665)
Euro vs. U.S. Dollar, expiring 8/31/99............... E 3,085,000 $ 3,347,225 150,566
Euro vs. Danish Krone, expiring 8/23/99.............. E 658,248 DK 4,900,000 2,064
Pound Sterling vs. U.S. Dollar, expiring
8/26/99-10/6/99.................................... L 974,900 $ 1,584,175 46,724
Pound Sterling vs. Euro, expiring 8/11/99............ L 845,910 E 1,300,000 11,182
Swedish Krona vs. Euro, expiring 8/30/99............. SK 935,000 E 103,794 (2,850)
Contract Contract
Amount Amount
Purchased Sold
------------- ------------
Foreign Currency Buy Contracts
Canadian Dollar vs. U.S. Dollar, expiring 8/26/99.... C$ 1,620,000 $ 1,087,248 8,154
Canadian Dollar vs. U.S. Dollar, expiring 8/26/99.... C$ 690,000 $ 470,572 (4,012)
Euro vs. U.S. Dollar, expiring 8/16/99............... E 438,633 $ 468,000 (14,022)
--------
Net unrealized appreciation on foreign
currency forward contracts......................... $179,563
========
</TABLE>
PURCHASED AND WRITTEN OPTIONS. The Fund may write covered call and put options
on its portfolio securities or foreign currencies. Premiums are received and are
recorded as liabilities. The liabilities are subsequently adjusted to reflect
the current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are canceled in closing purchase transactions are
added to the proceeds or netted against the amount paid on the transaction to
determine the realized gain or loss. By writing a covered call option, a Fund
foregoes in exchange for the premium the opportunity for capital appreciation
above the exercise price should the market price of the underlying security or
foreign currency increase. By writing a covered put option, a Fund, in exchange
for the premium, accepts the risk of a decline in the market value of the
underlying security or foreign currency below the exercise price.
28
<PAGE> 483
Notes to Financial Statements unaudited (continued)
The Fund may purchase call and put options on its portfolio securities or
foreign currencies. The Fund may purchase call options to protect against an
increase in the price of the security or foreign currency it anticipates
purchasing. The Fund may purchase put options on its securities or foreign
currencies to protect against a decline in the value of the security or foreign
currency or to close out covered written put positions. Risks may arise from an
imperfect correlation between the change in market value of the securities or
foreign currencies held by the Fund and the prices of options relating to the
securities or foreign currencies purchased or sold by the Fund and from the
possible lack of a liquid secondary market for an option. The maximum exposure
to loss for any purchased option is limited to the premium initially paid for
the option.
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933 (the "1993 Act").
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
The issuers of the securities will bear the costs involved in registration under
the 1933 Act and in connection with the disposition of such securities. The Fund
does not have the right to demand that such securities be registered. The Fund
may not invest more than 15% of its net assets in illiquid securities.
29
<PAGE> 484
MainStay Strategic Income Fund
Restricted securities held at June 30, 1999:
<TABLE>
<CAPTION>
PRINCIPAL
DATE(S) OF AMOUNT/ 6/30/99 PERCENT OF
SECURITY ACQUISITION SHARES COST VALUE NET ASSETS
- ------------------------------------ --------------------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Domino's Pizza, Inc.
Bank debt, Tranche B
8.8125%, due 12/21/06 12/24/98 $ 99,671 $ 99,671 $ 99,795 0.1%
Bank debt, Tranche C
9.0625%, due 12/21/07 12/24/98 99,671 99,671 99,795 0.1
FRI-MRD Corp.
15.00%, due 1/24/02 8/12/97 320,000 299,872 319,600 0.4
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01 6/17/98 475,000 111,132 47,500 0.1
Metawave Communications Corp.
Preferred Stock
Series D 5/14/99 3,317 0(b) 21,892 0.0(a)
President Casinos, Inc.
12.00%, due 9/15/01 12/3/98 47,000 47,000 47,000 0.1
Ventas Reality L.P.
Bank debt, Tranche A
7.81%, due 10/30/99 4/27/99 85,938 79,609 72,188 0.1
Bank debt, Tranche D
7.81%, due 4/30/03 4/27/99 124,655 108,968 104,710 0.1
-------- -------- ---
$845,923 $812,480 1.0%
======== ======== ===
</TABLE>
- -------
(a) Less than one tenth of a percent.
(b) This preferred stock has no cost.
MORTGAGE DOLLAR ROLLS. The Fund enters into mortgage dollar roll ("MDR")
transactions in which it sells mortgage-backed securities ("MBS") from its
portfolio to a counterparty from whom it simultaneously agrees to buy a similar
security on a delayed delivery basis. The MDR transactions of the Fund are
classified as purchase and sale transactions. The securities sold in connection
with the MDRs are removed from the portfolio and a realized gain or loss is
recognized. The securities the Fund has agreed to acquire are included at market
value in the portfolio of investments and liabilities for such purchase
commitments are included as payables for investments purchased. The Fund
maintains a segregated account with its custodian containing securities from its
portfolio having a value not less than the repurchase price, including accrued
interest. MDR transactions involve certain risks, including the risk that the
MBS returned to the Fund at the end of the roll, while substantially similar,
could be inferior to what was initially sold to the counterparty.
30
<PAGE> 485
Notes to Financial Statements unaudited (continued)
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $208,486 and are being
amortized over 60 months beginning at the commencement of operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage-backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued
daily except when collection is not expected. Discounts on securities purchased
for the Fund are accreted on the constant yield method over the life of the
respective securities or, if applicable, over the period to the first call date.
Premiums on securities purchased are not amortized for this Fund.
Income from payment-in-kind securities is recorded daily based on the effective
interest method of accrual.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
31
<PAGE> 486
MainStay Strategic Income Fund
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, gains and losses
from certain foreign currency transactions are treated as ordinary income for
Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on forward currency contracts, net currency gains or losses realized
as a result of differences between the amounts of securities sale proceeds or
purchase cost, dividends, interest and withholding taxes as recorded on the
Fund's books, and the U.S. dollar equivalent amount actually received or paid.
The Fund isolates the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of long-term debt
securities sold during the period. Net currency gains or losses from valuing
such foreign currency denominated assets and liabilities at period end exchange
rates are reflected in unrealized foreign exchange gains.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
Foreign currency held at June 30, 1999:
<TABLE>
<CAPTION>
Currency Cost Value
- -------------------------------- -------- --------
<S> <C> <C> <C> <C>
Australian Dollar A$ 15 $ 10 $ 10
Euro E 298,792 308,963 308,146
Pound Sterling L 653 1,032 1,029
-------- --------
$310,005 $309,185
======== ========
</TABLE>
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life.
32
<PAGE> 487
Notes to Financial Statements unaudited (continued)
Under the supervision of the Trust's Board of Trustees and the Manager, the
Subadvisor is responsible for the day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.60% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $256,013.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.30% of
the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $11,225 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class B and Class C shares of
$46,849 and $205, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $81,992.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
33
<PAGE> 488
MainStay Strategic Income Fund
CAPITAL. At June 30, 1999, New York Life held shares of Class A with a net
asset value of $6,737,498 which represents 31.1% of the Class A net assets at
period end. The Distributor held shares of Class B with a net asset value of
$5,542,995, which represents 8.9% of the Class B net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $1,312 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$15,875 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of U.S.
Government securities were $35,135 and $36,252, respectively. Purchases and
sales of securities, other than U.S. Government securities, securities subject
to repurchase transactions and short-term securities, were $85,275 and $77,284,
respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 433 712 275 823 3,597 9
Shares issued in reinvestment of dividends
and
distributions............................ 50 138 1 108 297 --
---- ------ ---- ---- ------ --
483 850 276 931 3,894 9
Shares redeemed............................ (405) (1,086) (212) (615) (1,492) --
---- ------ ---- ---- ------ --
Net increase (decrease).................... 78 (236) 64 316 2,402 9
==== ====== ==== ==== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
</TABLE>
34
<PAGE> 489
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
35
<PAGE> 490
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee STRATEGIC INCOME FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Strategic Income Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA17-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 491
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay
Strategic Value Fund versus S&P 500,
Lipper Flexible Portfolio Fund Average,
and Inflation--Class A, Class B, and
Class C Shares 4
Portfolio Management Discussion and
Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 11
Financial Statements 19
Notes to Financial Statements 24
The MainStay Funds 31
</TABLE>
<PAGE> 492
This page intentionally left blank
2
<PAGE> 493
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 494
$10,000 Invested in the MainStay
Strategic Value Fund versus S&P 500, Lipper
Flexible Portfolio Fund Average, and Inflation
CLASS A SHARES SEC Returns: 1 Year 3.56%, Since Inception 8.36%
[LINE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500* AVERAGE+ INFLATION++
- ---------- ------------------ -------- --------------- -----------
<S> <C> <C> <C> <C>
10/22/97 9450.00 10000.00 10000.00 10000.00
12/31/97 9839.00 10243.00 10031.00 10019.00
3/31/98 10866.00 11672.00 10888.00 10025.00
6/30/98 10450.00 12057.00 11019.00 10087.00
9/30/98 8763.00 10857.00 10154.00 10124.00
12/31/98 9890.00 13170.00 11423.00 10180.00
3/31/99 10192.00 13827.00 11556.00 10217.00
6/30/99 11452.00 14803.00 12129.00 10291.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 3.75%, Since Inception 9.04%
[LINE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500* AVERAGE+ INFLATION++
- ---------- ------------------ -------- --------------- -----------
<S> <C> <C> <C> <C>
10/22/97 10000.00 10000.00 10000.00 10000.00
12/31/97 10404.00 10243.00 10031.00 10019.00
3/31/98 11455.00 11672.00 10888.00 10025.00
6/30/98 11008.00 12057.00 11019.00 10087.00
9/30/98 9210.00 10857.00 10154.00 10124.00
12/31/98 10376.00 13170.00 11423.00 10180.00
3/31/99 10673.00 13827.00 11556.00 10217.00
6/30/99 11493.00 14803.00 12129.00 10291.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 7.75%, Since Inception 11.25%
[LINE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500* AVERAGE+ INFLATION++
- ---------- ------------------ -------- --------------- -----------
<S> <C> <C> <C> <C>
10/22/97 9450.00 10000.00 10000.00 10000.00
12/31/97 9839.00 10243.00 10031.00 10019.00
3/31/98 10866.00 11672.00 10888.00 10025.00
6/30/98 10450.00 12057.00 11019.00 10087.00
9/30/98 8763.00 10857.00 10154.00 10124.00
12/31/98 9890.00 13170.00 11423.00 10180.00
3/31/99 10192.00 13827.00 11556.00 10217.00
6/30/99 11452.00 14803.00 12129.00 10291.00
</TABLE>
4
<PAGE> 495
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 10/22/97
reflecting the effect of the 5.5% up-front sales charge, thereby reducing
the amount of the investment to $9,450. The Class B graph assumes an
initial investment of $10,000 made on 10/22/97. Performance reflects a 4%
Contingent Deferred Sales Charge (CDSC), as it would apply for the period
shown. The Class C graph assumes an initial investment of $10,000 made on
10/22/97 and includes the historical performance of the Class B shares for
periods from 10/22/97 through 8/31/98. Performance data for the two classes
vary after this date based on differences in their loads. Performance does
not reflect the CDSC--1% if redeemed within one year of purchase--as it
would not apply for the period shown. All results include reinvestment of
distributions at net asset value and change in share price for the stated
period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Lipper, Inc. is an independent monitor of mutual fund performance.
Results do not reflect any deduction of sales charges and are based on
total returns with capital gains and dividends reinvested. According to
Lipper, a flexible portfolio fund allocates its investments across
various asset classes, including domestic common stocks, bonds, and money
market instruments, with a focus on total return.
++ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
5
<PAGE> 496
Portfolio Management Discussion and Analysis
During the first half of 1999, the stock market saw a dramatic reversal. With
mounting evidence of a global economic recovery beginning in April, the market's
long-standing preference for large-capitalization growth stocks gave way to a
focus on smaller companies and value-oriented names. Traditional value sectors,
including basic materials, energy, and consumer cyclicals, showed strong
advances in the second quarter of 1999. High-yield bonds and convertible
securities, which tend to perform in line with equities, also advanced with the
strength of the stock market. Stocks reached new highs after the Federal Reserve
Board raised the federal funds rate 0.25% at the end of June and announced a
neutral stance on interest rates going forward.
RESULTS AHEAD OF THE AVERAGE PEER FUND
During the first half of 1999, the MainStay Strategic Value Fund returned 15.80%
for Class A shares and 15.38% for Class B and Class C shares, excluding all
sales charges. All share classes dramatically outperformed the 6.24% return of
the average Lipper(1) flexible portfolio fund for the six months ended June 30,
1999.
The Fund's outperformance was largely due to careful security selection and the
market's move toward value-oriented sectors. Value equities, which had suffered
setbacks in previous periods, moved well ahead of the stock market as a whole
during the first half of 1999.(2) The Fund's high-yield bonds benefited from
increased liquidity and attractive valuations during the reporting period and
convertible securities provided outstanding returns as yield spreads narrowed
and the stock market reached record highs.
VALUE STOCKS SHOW A STRONG RECOVERY
The equity portion of the Fund benefited from its value orientation in the first
half of 1999. Adaptec is a computer data-flow systems company whose stock price
rose as the company reduced expenses, restructured assets, and experienced
strong demand. Union Pacific Resources, an oil and gas company, benefited from
rising oil prices, restructuring, and debt reductions. The price of Nippon
Telegraph & Telephone stock rose with the Japanese economic recovery, while
company management focused on increasing share-holder value.
Other strong performers for the Fund included United Healthcare, which had
positive earnings momentum as it actively repurchased stock, and Mark IV
Industries, a leading industrial and auto parts company that shed
capital-intensive divisions and focused on its core business. Georgia-Pacific
also showed positive performance, with higher volume, robust pricing, and
efficient operations that helped lower costs.
The stock of Service Corp. International, one of the world's leading funeral
services companies, did not perform well during the reporting period, yet it is
early in its cost-cutting initiatives. Shaw Industries, a floor covering
manufacturer, which is leaving its retail business to focus on manufacturing,
suffered as the market adjusted to its new strategy. Philip Morris, which we
believe continues to trade at a significant discount to asset value, suffered
from continuing litigation
- -------
(1) See page 9 for additional information about Lipper, Inc.
(2) As measured by the S&P 500 Index and the S&P 500/BARRA Value Index. See page
5 for additional information about the S&P 500. The S&P 500/BARRA Value
Index is a capitalization-weighted index of approximately half of the
companies in the S&P 500 Index, and consists of those companies with lower
price-to-book ratios. An investment cannot be made directly into an index.
6
<PAGE> 497
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN % TOTAL RETURN %
CLASS A SHARES CLASS B AND C SHARES
-------------- --------------------
<S> <C> <C>
12/97 4.11 4.04
12/98 0.52 -0.27
6/99 15.80 15.38
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 9 for
more information on performance.
Class C share returns reflect the historical performance of the Class B shares
for periods 12/97 through 8/98.
concerns. Even so, we believe the outlook for the company is improving.
The equity portion of the Fund remains overweighted in traditional value
sectors, with a commitment to securities that appear to be priced well below
their asset value or earnings potential and exhibit potential catalysts or
stimulus for positive change. Significant purchases included Seagate Technology,
which is benefiting from its cash-rich balance sheet, earnings momentum, and
share repurchases, and Smurfit-Stone Container, a paper and packaging company
that may benefit from the Asian market turnaround.
The Fund also had some significant sales during the reporting period. When
telephone service provider US West Inc. faced disappointing earnings, we sold
the Fund's position in the stock at a profit. We also sold the Fund's position
in Bank One Corp.'s stock in a profitable transaction when it reached the Fund's
target valuation. The Fund also benefited when LucasVarity PLC was taken over by
TRW, and we used the proceeds of the sale of LucasVarity shares to purchase
additional securities for the Fund.
HIGH-YIELD BONDS AND CONVERTIBLE SECURITIES
Despite rising rates, both the high-yield and convertible portions of the Fund's
portfolio showed positive returns for the first half of 1999. Strong high-yield
performers included UIH Australia/Pacific, Inc., which rose on an announcement
that its parent company, United International Holdings, Inc., was making an
initial public offering; @Entertainment, which is being acquired by UIH;
American Telecasting, which is being acquired by Sprint; and Nine West, which
was acquired by Jones Apparel Group. Although health care was the worst-
performing high-yield sector, through careful security selection, the Fund's
overweighted health care holdings showed positive returns. Overall, the Fund's
focus on B-rated issues(3) with strong asset coverage and cash-flow
characteristics helped enhance yields in this portion of
- -------
(3) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
7
<PAGE> 498
the portfolio. As default rates increased, however, we sought to manage both
risk and return for the Fund by concentrating on higher-rated high-yield
securities.
Convertible securities also advanced, with United Globalcom, an international
cable systems operator, rising strongly after an IPO for part of its European
operations and a substantial investment from Microsoft. Unisys, another large
holding, benefited from increased demand for its services. The Fund took some
profits in United Globalcom, International Paper, Xilinx, Inc., and other
securities when the stock market rose at the end of June. Other strong
performers were Lodgian, a hotel company that made a strong recovery from
earlier lows, and BEA Software, whose solid results overcame concerns about a
year-2000 slowdown. Unfortunately, year-2000 concerns hurt performance at System
Software Associates--and Sun Healthcare, a nursing home company, suffered as
changing government policies impacted the company's security values.
LOOKING AHEAD
We believe that improvements in Asian economies are brightening the outlook for
traditional value sectors and smaller-capitalization stocks, and we are
optimistic about the future for value equities, high-yield bonds, and
convertible securities in this context. Rising domestic interest rates may slow
economic growth, but we see little evidence that a recession is imminent. The
Fund remains committed to seeking maximum long-term total return from a
combination of common stocks, convertible securities, and high-yield securities.
Denis Laplaige
Steven Tananbaum
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
8
<PAGE> 499
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 9.59% 12.06%
Class B 8.75% 11.25%
Class C 8.75% 11.25%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 3.56% 8.36%
Class B 3.75% 9.04%
Class C 7.75% 11.25%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 6/30/99
<S> <C> <C>
Class A 121 out of 213 funds 90 out of 194 funds
Class B 130 out of 213 funds 102 out of 194 funds
Class C n/a n/a
Average Lipper
flexible portfolio fund 10.46% 12.46%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.67 $0.1104 $0.0000
Class B $11.66 $0.0691 $0.0000
Class C $11.66 $0.0691 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares are sold with a maximum initial sales charge of 5.5% and an
annual 12b-1 fee of .25%. Class B shares of the Fund are sold with no
initial sales charge, but are subject to a CDSC of up to 5% if shares are
redeemed within the first six years of purchase and an annual 12b-1 fee of
1%. Class C shares, first offered to the public on 9/1/98, are sold with no
initial sales charge, but are subject to a CDSC of 1% if redeemed within
one year of purchase and an annual 12b-1 fee of 1%. Performance figures for
Class C shares include the historical performance of the Class B shares for
periods from inception (10/22/97) up to 8/31/98. Performance data for the
two classes vary after this date based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A and Class B shares were first offered to
the public on 10/22/97, and Class C shares on 9/1/98. Life of fund return
for the average Lipper peer fund is for the period from 10/22/97 through
6/30/99.
9
<PAGE> 500
This page intentionally left blank
10
<PAGE> 501
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (12.5.%)+
BONDS (8.4%)
BANKS (0.7%)
Mitsubishi Bank Limited
International Finance (Bermuda)
Trust
3.00%, due 11/30/02.............. $350,000 $ 394,625
-----------
BROADCAST/MEDIA (0.6%)
News American Holdings, Inc. (zero
coupon), due 3/11/13 (d)......... 500,000 366,250
-----------
COMPUTER SOFTWARE & SERVICES (0.1%)
Metamor Worldwide, Inc.
2.94%, due 8/15/04............... 100,000 81,125
-----------
COMPUTERS-NETWORKING (0.4%)
Adaptec, Inc.
4.75%, due 2/1/04................ 250,000 241,250
-----------
ELECTRONICS-SEMICONDUCTORS (1.6%)
Amkor Technologies, Inc.
5.75%, due 5/1/03................ 400,000 400,500
Cirrus Logic, Inc.
6.00%, due 12/15/03.............. 805,000 555,450
-----------
955,950
-----------
ENERGY (0.4%)
PennzEnergy Co.
4.90%, due 8/15/08............... 250,000 253,750
-----------
GOLD & PRECIOUS METALS MINING (0.1%)
Battle Mountain Gold Co.
6.00%, due 4/1/05 (e)............ 75,000 55,875
-----------
HEALTH CARE (1.2%)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02............... 25,000 19,000
Elan Finance Corp. Ltd.
(zero coupon), due 12/14/18
(c)(d)........................... 700,000 357,875
Roche Holdings, Inc
Series DTC
(zero coupon), due 4/20/10
(c)(d)........................... 500,000 283,125
Veterinary Centers of
America, Inc.
5.25%, due 5/1/06................ 100,000 72,000
-----------
732,000
-----------
</TABLE>
- ---------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
INVESTMENT BANK/BROKERAGE (0.4%)
Merrill Lynch & Co., Inc
0.25%, due 5/10/06............... $200,000 $ 205,000
-----------
OIL SERVICES (0.2%)
Loews Corp.
3.125%, due 9/15/07.............. 100,000 81,250
-----------
RETAIL (0.5%)
Home Depot, Inc.
3.25%, due 10/1/01............... 100,000 279,750
-----------
SPECIALITY PRINTING (0.4%)
World Color Press, Inc.
6.00%, due 10/1/07............... 250,000 236,563
-----------
TELECOMMUNICATION SERVICES (1.8%)
Bell Atlantic Financial Services,
Inc.
4.25%, due 9/15/05 (c)........... 100,000 102,625
5.75%, due 4/1/03 (c)............ 150,000 151,687
Global TeleSystems Group
5.75%, due 7/1/10 (e)............ 200,000 316,785
Nextel Communications, Inc.
4.75%, due 7/1/07 (c)............ 400,000 474,000
-----------
1,045,097
-----------
Total Convertible Bonds
(Cost $4,774,146)................ 4,928,485
-----------
Shares
---------
PREFERRED STOCKS (4.1%)
AUTO PARTS & EQUIPMENT (0.4%)
Tower Automotive Capital Trust
6.75%............................ 5,000 253,750
-----------
BANKS (0.2%)
National Australia Bank, Inc.
7.875%........................... 4,000 121,500
-----------
CONTAINERS METAL & GLASS (0.2%)
Owens Illinois, Inc.
4.75%............................ 2,500 109,375
-----------
ENTERTAINMENT (0.7%)
Seagram Co. Ltd.
7.50%............................ 8,000 399,500
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 502
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
NATURAL GAS DISTRIBUTORS &
PIPELINES (0.5%)
El Paso Energy Capital Trust I
4.75%............................ 6,000 $ 297,000
-----------
PAPER & FOREST PRODUCTS (0.4%)
International Paper Co.
5.25%............................ 4,000 216,000
-----------
PUBLISHING (0.2%)
Tribune Co.
6.25%............................ 4,000 112,500
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (0.6%)
General Growth Properties, Inc.
7.25% (f)(g)..................... 15,000 360,000
-----------
SPECIALIZED SERVICES (0.6%)
Carriage Services Capital Trust
7.00% (c)........................ 3,000 166,875
Cendant Corp.
7.50%............................ 6,000 206,625
-----------
373,500
-----------
TELECOMMUNICATION SERVICES (0.3%)
Adelphia Communications Corp.
5.50%, Series D.................. 750 144,469
-----------
Total Preferred Stocks (Cost
$2,285,141)...................... 2,387,594
-----------
Total Convertible Securities (Cost
$7,059,287)...................... 7,316,079
-----------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
CORPORATE BONDS (10.0%)
AEROSPACE/DEFENSE (0.1%)
Newport News Shipbuilding, Inc.
9.25%, due 12/1/06............... $ 70,000 72,450
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
BANKS (0.3%)
B.F. Saul Real Estate
Investment Trust Series B
9.75%, due 4/1/08................ $ 75,000 $ 69,750
Local Financial Corp.
11.00%, due 9/8/04............... 120,000 124,200
-----------
193,950
-----------
BROADCAST/MEDIA (1.0%)
CD Radio, Inc 14.50%, due 5/15/09
(c)(h)........................... 295 300,900
Clear Channel Communications, Inc.
2.625%, due 8/15/04.............. 200,000 254,500
Young America Corp. Series B
11.625%, due 2/15/06............. 75,000 52,500
-----------
607,900
-----------
BUILDING MATERIALS (0.4%)
Building One Services Corp.
10.50%, due 5/1/09 (c)........... 225,000 214,875
-----------
CABLE TV (0.6%)
@Entertainment, Inc. Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03........ 55,000 35,200
UIH Australia/Pacific, Inc. Series
B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01........ 300,000 216,000
United International Holdings,
Inc. Series B
(zero coupon), due 2/15/08
10.75%, beginning 2/15/03........ 165,000 108,488
-----------
359,688
-----------
CASINOS (0.5%)
International Game Technology
8.375%, due 5/15/09 (c).......... 145,000 142,281
Penn National Gaming, Inc.
10.625%, due 12/15/04............ 140,000 140,000
-----------
282,281
-----------
CHEMICALS (0.0%) (b)
Borden Chemicals & Plastics L.P.
9.50%, due 5/1/05................ 25,000 23,875
-----------
COMMUNICATION-EQUIPMENT (0.1%)
EV International, Inc. Series A
11.00%, due 3/15/07.............. 90,000 71,100
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 503
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
COMPUTER SYSTEMS (0.0%) (b)
Entex Information Services, Inc.
12.50%, due 8/1/06............... $ 40,000 $ 24,600
-----------
COSMETICS/PERSONAL CARE (0.2%)
Jafra Cosmetics International,
Inc. 11.75%, due 5/1/08.......... 100,000 86,000
-----------
DOMESTIC OIL & GAS (0.3%)
Denbury Management, Inc. 9.00%,
due 3/1/08....................... 60,000 53,550
Queens Sand Resources, Inc.
12.50%, due 7/1/08............... 175,000 106,750
-----------
160,300
-----------
DRUGS (0.1%)
ICN Pharmaceuticals, Inc. 8.75%,
due 11/15/08 (c)................. 55,000 54,037
-----------
ELECTRICAL EQUIPMENT (0.0%) (b)
Electronic Retailing Systems
International, Inc. (zero
coupon), due 2/1/04
13.25%, beginning 2/1/00......... 90,000 26,888
-----------
ENGINEERING & CONSTRUCTION (0.2%)
Cathay International
Holdings, Inc.
13.00%, due 4/15/08 (c).......... 140,000 56,000
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(i)........ 80,000 31,400
-----------
87,400
-----------
ENTERTAINMENT (0.1%)
Sports Club Company, Inc. (The)
11.375%, due 3/15/06............. 75,000 75,375
-----------
FINANCE (0.2%)
Cityscape Financial Corp. Series A
12.75%, due 6/1/04 (i)........... 280,000 33,600
ContiFinancial Corp. 7.50%, due
3/15/02.......................... 20,000 14,000
Ocwen Asset Investment Corp.
11.50%, due 7/1/05............... 60,000 52,200
-----------
99,800
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------
<S> <C> <C>
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Buenos Aires Embotelladora
Sociedad Anonima Series B 12.00%,
due 8/3/05 (c)................... $ 14,000 $ 11,900
-----------
HEALTH CARE (1.5%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95.............. 85,000 67,057
DJ Orthopedics L.L.C.
12.625%, due 6/15/09 (c)......... 35000 34,387
Express Scripts, Inc. 9.625%, due
6/15/09 (c)...................... 35,000 35,438
Hanger Orthopedic Group, Inc.
11.25%, due 6/15/09 (c).......... 140,000 142,100
Magellan Health Services, Inc.
9.00%, due 2/15/08............... 85,000 72,675
Medaphis Corp.
Series B
9.50%, due 2/15/05............... 210,000 155,400
MedPartners, Inc.
6.875%, due 9/1/00............... 20,000 18,800
7.375%, due 10/1/06.............. 65,000 55,412
MultiCare Companies, Inc
9.00%, due 8/1/07................ 50,000 35,000
Quest Diagnostics, Inc.
10.75%, due 12/15/06............. 40,000 45,800
Team Health, Inc.
12.00%, due 3/15/09 (c).......... 110,000 112,750
Unilab Corp.
11.00%, due 4/1/06............... 70,000 76,300
-----------
851,119
-----------
HOME BUILDING (0.1%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (c)(l)(m).... 55 55,000
-----------
HOTEL/MOTEL (0.1%)
FelCor Suites, L.P.
7.625%, due 10/1/07.............. 60,000 55,800
-----------
INDUSTRIAL (0.3%)
Generac Portable Products L.L.C.
11.25%, due 7/1/06 (c)(e)........ 40,000 44,600
Morris Materials Handling, Inc.
9.50%, due 4/1/08................ 70,000 26,950
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03......... 165,000 78,375
-----------
149,925
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 504
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
LEISURE TIME (0.1%)
Bally Total Fitness Holding Corp.
Series D
9.875%, due 10/15/07............. $ 75,000 $ 72,750
-----------
MEDICAL EQUIPMENT (0.1%)
Biovail Corporation International
10.875%, due 11/15/05............ 75,000 77,625
-----------
MEDICAL/NURSING HOMES (0.0%) (b)
Genesis Health Ventures, Inc.
9.75%, due 6/15/05............... 20,000 16,300
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c).......... 50,000 24,500
Western Gas Resources, Inc.
10.00%, due 6/15/09 (c).......... 20,000 20,400
-----------
44,900
-----------
OIL & GAS-EXPLORATION & PRODUCTION (0.4%)
Kelley Oil & Gas Corp.
14.00%, due 4/15/03 (c).......... 150,000 152,625
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05............... 85,000 39,950
TransAmerican Energy Corp.
13.00%, due 6/15/02 (j).......... 125,000 14,531
-----------
207,106
-----------
PAPER & FOREST PRODUCTS (0.2%)
SD Warren Co.
Series B
12.00%, due 12/15/04............. 100,000 107,000
-----------
PUBLISHING (0.1%)
General Media, Inc.
10.625%, due 12/31/00............ 29,000 27,550
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (0.5%)
Cresent Real Estate Equities Co.
7.50%, due 9/15/07............... 245,000 209,526
LNR Property Corp.
Series B
9.375%, due 3/15/08.............. 95,000 89,300
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-----------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT/MANAGEMENT (CONTINUED)
Meditrust Co. (The)
Series MTN
7.77%, due 8/16/02............... $ 25,000 $ 23,055
-----------
321,881
-----------
REAL ESTATE INVESTMENT TRUST (0.1%)
Hospitality Properties Trust
7.00%, due 3/1/08................ 80,000 69,415
-----------
RESTAURANTS (0.7%)
Advantica Restaurant Group, Inc.
11.25%, due 1/15/08.............. 75,000 72,188
Florida Panthers Holdings, Inc.
9.875%, due 4/15/09.............. 95,000 88,825
FRI-MRD Corp.
15.00%, due 1/24/02 (c)(p)....... 250,000 249,687
-----------
410,700
-----------
RETAIL (0.3%)
G&G Retail, Inc.
11.00%, due 5/15/06 (c)(o)....... 80 74,000
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04............. 80,000 78,600
Jo-Ann Stores, Inc.
10.375%, due 5/1/07 (c).......... 55,000 54,175
-----------
206,775
-----------
STEEL (0.1%)
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05.............. 35,000 37,144
-----------
TELECOMMUNICATION SERVICES (0.9%)
Energis, PLC
9.75%, due 6/15/09 (c)........... 35,000 35,437
Globalstar L.P. Capital Corp.
11.50%, due 6/1/05............... 110,000 71,500
HighwayMaster Communications, Inc.
Series B
13.75%, due 9/15/05.............. 150,000 61,500
ICG Communications, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03......... 60,000 33,000
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03........ 200,000 114,000
ICO Global Communications Holdings
Ltd.
15.00%, due 8/1/05............... 40,000 15,600
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02........ 100,000 55,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 505
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
T/SF Communications Corp.
Series B
10.375%, due 11/1/07............. $ 75,000 $ 75,000
Telehub Communication Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/30/01....... 80,000 54,400
-----------
515,437
-----------
TELEPHONE (0.0%) (b)
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01
(j)(p)........................... 200,000 20,000
-----------
TOBACCO (0.1%)
Standard Commercial Corp.
8.875%, due 8/1/05............... 75,000 61,875
-----------
TRANSPORTATION (0.2%)
Equimar Shipholdings Ltd. 9.875%,
due 7/1/07....................... 35,000 23,275
Pacer International, Inc. 11.75%,
due 6/1/07 (c)................... 75,000 72,750
-----------
96,025
-----------
Total Corporate Bonds
(Cost $6,243,126)............... 5,856,746
-----------
FOREIGN BONDS (0.2%)
PUBLISHING (0.2%)
Regional Independent Media Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03........ L 125,000 117,976
-----------
Total Foreign Bonds
(Cost $123,260)................. 117,976
-----------
LOAN ASSIGNMENTS (0.2%)
FOOD, BEVERAGES & TOBACCO (0.1%)
Domino's Pizza Inc. Bank debt,
Tranche B
8.8125%, due 12/21/06
(n)(p)(q)........................ 39,868 39,918
Bank debt, Tranche C
9.0625%, due 12/21/07
(n)(p)(q)........................ 39,868 39,918
-----------
79,836
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------
<S> <C> <C>
HEALTH CARE (0.1%)
Ventas Realty L.P.
Bank debt, Tranche D
7.81%, due 4/30/03 (n)(p)(q)..... $ 44,876 $ 37,696
-----------
Total Loan Assignments (Cost
$118,879)........................ 117,532
-----------
YANKEE BONDS (1.2%)
BROADCAST/MEDIA (0.0%) (b)
Central European Media Enterprises
Ltd. 9.375%, due 8/15/04......... 40,000 32,000
-----------
CHEMICALS (0.2%)
Octel Developments, PLC 10.00%,
due 5/1/06....................... 100,000 103,000
-----------
COMPUTERS (0.0%) (b)
International Semi-Technology
Microelectronics, Inc.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00........ 150,000 23,250
-----------
MINING (0.1%)
Echo Bay Mines Ltd. 12.00%, due
4/1/27........................... 65,000 36,400
Glencore Nickel Pty Ltd. 9.00%,
due 12/1/14...................... 25,000 21,500
-----------
57,900
-----------
PAPER & FOREST PRODUCTS (0.1%)
Doman Industries Ltd. 12.00%, due
7/1/04 (c)....................... 40,000 38,600
-----------
STEEL, ALUMINUM & OTHER METALS (0.2%)
Ivaco, Inc. 11.50%, due 9/15/05... 120,000 124,500
-----------
TELECOMMUNICATIONS-LONG DISTANCE (0.3%)
Call-Net Enterprises, Inc (zero
coupon), due 5/15/09
10.80%, beginning 5/15/04........ 125,000 69,063
9.375%, due 5/15/09.............. 75,000 71,438
Rogers Communications, Inc.
8.875%, due 7/15/07.............. 30,000 30,150
-----------
170,651
-----------
TELEPHONE (0.1%)
Millicom International Cellular
S.A. (zero coupon), due 6/1/06
13.50%, beginning 6/1/01......... 50,000 36,750
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 506
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
Principal
Amount Value
----------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
TRANSPORTATION (0.2%)
Alpha Shipping, PLC Series A
9.50%, due 2/15/08 (i)........... $ 75,000 $ 23,438
Cenargo International, PLC 9.75%,
due 6/15/08...................... 25,000 23,125
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (i).......... 95,000 24,819
Pacific & Atlantic (Holdings) Ltd.
11.50%, due 5/30/08.............. 190,000 75,762
-----------
147,144
-----------
Total Yankee Bonds (Cost
$785,538)........................ 733,795
-----------
<CAPTION>
Shares
---------
<S> <C> <C>
COMMON STOCKS (73.4%)
AEROSPACE/DEFENSE (2.0%)
Raytheon Co.
Class A.......................... 16,500 1,136,437
-----------
ALUMINUM (1.2%)
Reynolds Metals Co. .............. 12,300 725,700
-----------
AUTO PARTS & EQUIPMENT (1.5%)
Federal-Mogul Corp. .............. 9,600 499,200
Mark IV Industries, Inc. ......... 18,800 397,150
-----------
896,350
-----------
BANKS (2.6%)
Bank of America Corp. ............ 8,700 637,819
Washington Mutual, Inc. .......... 24,400 863,150
-----------
1,500,969
-----------
BUILDING MATERIALS (0.8%)
Sherwin-Williams Co. (The)........ 16,800 466,200
-----------
CHEMICALS (2.0%)
IMC Global, Inc. ................. 40,700 717,337
Lyondell Chemical Co. ............ 22,700 468,188
-----------
1,185,525
-----------
COMPUTER SYSTEMS (1.0%)
Seagate Technology Inc. (a)....... 22,800 584,250
-----------
COMPUTERS-NETWORKING (1.6%)
Adaptec, Inc. (a)................. 26,400 932,250
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
CONTAINERS-METAL & GLASS (1.7%)
Owens-Illinios, Inc. (a).......... 30,400 $ 993,700
-----------
CONTAINERS-PAPER (3.4%)
Smurfit-Stone Container Corp.
(a).............................. 57,500 1,182,344
Temple-Inland, Inc. .............. 12,000 819,000
-----------
2,001,344
-----------
ELECTRIC POWER COMPANIES (5.8%)
DTE Energy Co. ................... 14,700 588,000
Energy East Corp. ................ 18,400 478,400
Illinova Corp. ................... 30,000 817,500
Niagara Mohawk Holdings, Inc.
(a).............................. 56,000 899,500
Texas Utilities Co. .............. 15,500 639,375
-----------
3,422,775
-----------
ELECTRICAL EQUIPMENT (1.7%)
Honeywell, Inc. .................. 8,700 1,008,112
-----------
ENGINEERING & CONSTRUCTION (1.2%)
Flour Corp. ...................... 17,200 696,600
-----------
FINANCIAL-MISCELLANEOUS (2.2%)
Citigroup, Inc. .................. 17,700 840,750
Equitable Cos., Inc. (The)........ 7,100 475,700
-----------
1,316,450
-----------
FOOD (0.7%)
ConAgra, Inc. .................... 16,100 428,663
-----------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (a)...................... 4,827 16,894
-----------
HEALTH CARE (2.8%)
CIGNA Corp. ...................... 3,500 311,500
United HealthCare Corp. .......... 20,900 1,308,862
-----------
1,620,362
-----------
HEAVY DUTY TRUCKS (0.6%)
Dana Corp. ....................... 7,500 345,469
-----------
HOTEL/MOTEL (1.5%)
Harrah's Entertainment, Inc.
(a).............................. 40,000 880,000
-----------
HOUSEWARES (0.9%)
Tupperware Corp. ................. 20,000 510,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 507
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Shares Value
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE (5.0%)
Allstate Corp. (The).............. 30,000 $ 1,076,250
Chubb Corp. (The)................. 10,000 695,000
Conseco, Inc. .................... 13,100 398,731
MGIC Investment Corp. ............ 16,500 773,438
-----------
2,943,419
-----------
MACHINERY-DIVERSIFIED (1.7%)
American Standard Cos. Inc. (a)... 20,900 990,137
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.8%)
Coastal Corp. (The)............... 28,300 1,132,000
El Paso Energy Corp. ............. 15,100 531,331
-----------
1,663,331
-----------
OIL & GAS SERVICES (9.3%)
Noble Affiliates, Inc. ........... 33,000 930,188
Tosco Corp. ...................... 47,000 1,219,062
Union Pacific Resources Group,
Inc. ............................ 80,900 1,319,681
Unocal Corp. ..................... 25,500 1,010,438
Valero Energy Corp. .............. 44,700 958,256
-----------
5,437,625
-----------
OIL-INTEGRATED DOMESTIC (2.1%)
Kerr-McGee Corp. ................. 24,280 1,218,553
-----------
OIL-INTEGRATED INTERNATIONAL (1.5%)
Texaco Inc. ...................... 13800 862,500
-----------
PAPER & FOREST PRODUCTS (1.8%)
Georgia-Pacific Group............. 12,600 596,925
International Paper Co. .......... 9,300 469,650
-----------
1,066,575
-----------
POLLUTION CONTROL (0.7%)
Browning-Ferris Industries,
Inc. ............................ 9,500 408,500
-----------
RETAIL (4.6%)
Federated Department Stores, Inc.
(a).............................. 19,100 1,011,106
K-Mart Corp. (a).................. 34,800 572,025
Payless ShoeSource, Inc. (a)...... 11,800 631,300
Saks Inc. (a)..................... 15,000 433,125
-----------
2,647,556
-----------
SPECIALIZED SERVICES (1.1%)
Service Corp. International....... 32,700 629,475
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
STEEL (1.4%)
USX-U.S. Steel Group............... 30,000 $ 810,000
-----------
TELEPHONE (1.0%)
Nippon Telegraph & Telephone Corp.
ADR (r)........................... 9,000 563,625
-----------
TEXTILE-APPAREL MANUFACTURERS (1.4%)
Liz Claiborne, Inc. ............... 23,000 839,500
-----------
TEXTILES-HOME FURNISHINGS (0.7%)
Shaw Industries, Inc. (a).......... 25,000 412,500
-----------
TOBACCO (2.3%)
Philip Morris Companies, Inc. ..... 31,200 1,253,850
RJ Reynolds Tobacco Holdings, Inc.
(a)............................... 2,833 89,250
-----------
1,343,100
-----------
TOYS (0.8%)
Mattel, Inc. ...................... 18,700 494,381
-----------
Total Common Stocks
(Cost $37,715,824)................ 42,998,827
-----------
PREFERRED STOCKS (0.3%)
BROADCAST/MEDIA (0.1%)
Spanish Broadcasting System, Inc.
14.25% (k)........................ 59 63,917
-----------
TELECOMMUNICATION SERVICES (0.2%)
Nextel Communications, Inc. 13.00%,
Series D (k)...................... 103 111,875
-----------
Total Preferred Stocks (Cost
$172,560)......................... 175,792
-----------
WARRANTS (0.0%) (b)
CABLE TV (0.0%) (b)
@Entertainment, Inc. expire 7/15/08
(a)............................... 660 7,920
UIH Australia/Pacific, Inc.
expire 5/15/06 (a)................ 30 30
-----------
7,950
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 508
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
Shares Value
----------------------------
<S> <C> <C>
WARRANTS (CONTINUED)
TELECOMMUNICATION SERVICES (0.0%) (b)
HighwayMaster Communications, Inc.
expire 9/15/05 (a)(c)............ 85 $ 1
Telehub Communications Corp.
expire 7/31/05 (a)(c)............ 80 320
-----------
321
-----------
Total Warrants
(Cost $6,510).................... 8,271
-----------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.2%)
COMMERCIAL PAPER (1.2%)
Ford Motor Credit Corp. 5.65%, due
7/1/99........................... $695,000 695,000
-----------
Total Commercial Paper
(Cost $695,000).................. 695,000
-----------
SHORT-TERM LOAN ASSIGNMENT (0.0%) (b)
HEALTH CARE (0.0%) (b)
Ventas Realty L.P.
Bank debt, Tranche A
7.81%, due 10/30/99 (n)(p)(q).... 27,500 23,100
-----------
Total Short-Term Loan Assignment
(Cost $25,696)................... 23,100
-----------
Total Short-Term Investments
(Cost $720,696).................. 718,100
-----------
Total Investments
(Cost $52,945,680) (s)........... 99.0% 58,043,118(t)
Cash and Other Assets,
Less Liabilities................. 1.0 560,120
-------- -----------
Net Assets........................ 100.0% $58,603,238
======== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) LYON-Liquid Yield Option Note: callable, zero coupon
securities priced at a deep discount from par. They
include a "put" feature that enables holders to redeem
them at a specific date, at a specific price. Put prices
reflect fixed interest rates, and therefore increase
over time.
(e) Eurobond-bond denominated in U.S. dollars or other
currencies and sold to investors outside the country
whose currency is used.
(f) PIERS-Preferred Income Equity Redeemable Stock.
(g) Depository Shares-each share represents 0.025 shares of
7.25% Preferred Income Equity Redeemable Stock, Series
A.
(h) 295 units-each unit reflects $1,000 principal amount of
14.50% Senior Notes plus 3 warrants to acquire 10.95
shares of common stock at $28.60 per share at a future
date.
(i) Issue in default.
(j) Issuer in bankruptcy.
(k) PIK ("Payment in Kind")-dividend payment is made with
additional securities.
(l) 55 units-each unit reflects $1,000 principal amount of
14.50% Senior Subordinated Notes plus rights to acquire
ordinary and preferred shares at a future date.
(m) CIK ("Cash in Kind")-interest payment is made with cash
or additional securities.
(n) Floating rate. Rate shown is the rate in effect at June
30, 1999.
(o) 80 units -- each unit reflects $1,000 principal amount
of 11.00% Senior Notes plus 0.07956 warrant to acquire 1
share of common stock at $0.01 per share at a future
date.
(p) Restricted security.
(q) Multiple tranche facilities.
(r) ADR -- American Depository Receipt.
(s) The cost for Federal income tax purposes is $53,635,058.
(t) At June 30, 1999, net unrealized appreciation was
$4,408,060, based on cost for Federal income tax
purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an
excess of market value over cost of $6,689,762 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $2,281,702.
(L) Security denominated in British Pound Sterling.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 509
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$52,945,680).............................................. $58,043,118
Cash........................................................ 51,249
Receivables:
Investment securities sold................................ 1,281,551
Dividends and interest.................................... 297,469
Fund shares sold.......................................... 107,900
Unrealized appreciation or foreign currency forward
contracts................................................. 6,680
Unamortized organization expense............................ 122,411
-----------
Total assets........................................ 59,910,378
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 910,390
MainStay Management....................................... 38,092
NYLIFE Distributors....................................... 36,155
Fund shares redeemed...................................... 22,805
Custodian................................................. 17,229
Transfer agent............................................ 14,105
Trustees.................................................. 493
Accrued expenses............................................ 92,166
Dividend payable............................................ 175,705
-----------
Total liabilities................................... 1,307,140
-----------
Net assets.................................................. $58,603,238
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 16,459
Class B................................................... 33,657
Class C................................................... 118
Additional paid-in capital.................................. 53,139,421
Accumulated distribution in excess of net investment
income.................................................... (22,633)
Accumulated undistributed net realized gain on
investments............................................... 300,052
Accumulated undistributed net realized gain on foreign
currency transactions..................................... 32,046
Net unrealized appreciation on investments.................. 5,097,438
Net unrealized appreciation on foreign currency forward
contracts................................................. 6,680
-----------
Net assets.................................................. $58,603,238
===========
CLASS A
Net assets applicable to outstanding shares................. $19,216,075
===========
Shares of beneficial interest outstanding................... 1,645,919
===========
Net asset value per share outstanding....................... $ 11.67
Maximum sales charge (5.50% of offering price).............. 0.68
-----------
Maximum offering price per share outstanding................ $ 12.35
===========
CLASS B
Net assets applicable to outstanding shares................. $39,250,044
===========
Shares of beneficial interest outstanding................... 3,365,723
===========
Net asset value and offering price per share outstanding.... $ 11.66
===========
CLASS C
Net assets applicable to outstanding shares................. $ 137,119
===========
Shares of beneficial interest outstanding................... 11,755
===========
Net asset value and offering price per share outstanding.... $ 11.66
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 510
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 420,362
Interest.................................................. 623,427
----------
Total income............................................ 1,043,789
----------
Expenses:
Management................................................ 209,892
Distribution--Class B..................................... 141,947
Distribution--Class C..................................... 395
Transfer agent............................................ 82,398
Service--Class A.......................................... 22,510
Service--Class B.......................................... 47,314
Service--Class C.......................................... 134
Shareholder communication................................. 32,288
Custodian................................................. 30,923
Registration.............................................. 18,331
Amortization of organization expense...................... 18,248
Professional.............................................. 15,279
Recordkeeping............................................. 10,922
Trustees.................................................. 815
Miscellaneous............................................. 9,385
----------
Total expenses.......................................... 640,781
----------
Net investment income....................................... 403,008
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 1,455,559
Foreign currency transactions............................. 32,046
----------
Net realized gain on investments and foreign currency
transactions.............................................. 1,487,605
----------
Net change in unrealized depreciation on investments:
Security transactions..................................... 6,109,642
Foreign currency forward transactions..................... 16,970
----------
Net unrealized gain on investments and foreign currency
transactions.............................................. 6,126,612
----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 7,614,217
----------
Net increase in net assets resulting from operations........ $8,017,225
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $206.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 511
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
----------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 403,008 $ 507,272
Net realized gain (loss) on investments................... 1,455,559 (1,159,336)
Net realized gain on foreign currency transactions........ 32,046 --
Net change in unrealized appreciation (depreciation) on
investments............................................. 6,109,642 (1,468,668)
Net change in unrealized (depreciation) on foreign
currency forward contracts.............................. 16,970 (10,290)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 8,017,225 (2,131,022)
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (180,977) (263,908)
Class B................................................. (239,439) (287,423)
Class C................................................. (766) (355)
From net realized gain on investments:
Class A................................................. -- (14,617)
Class B................................................. -- (31,491)
Class C................................................. -- (68)
----------- -----------
Total dividends and distributions to shareholders..... (421,182) (597,862)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 1,323,517 8,115,590
Class B................................................. 3,751,750 38,978,176
Class C................................................. 94,418 95,601
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 96,514 295,580
Class B................................................. 140,467 358,344
Class C................................................. 101 301
----------- -----------
5,406,767 47,843,592
Cost of shares redeemed:
Class A................................................. (2,578,880) (3,538,565)
Class B................................................. (8,324,148) (10,948,174)
Class C................................................. (54,120) (16,703)
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... (5,550,381) 33,340,150
----------- -----------
Net increase in net assets............................ 2,045,662 30,611,266
NET ASSETS:
Beginning of period......................................... 56,557,576 25,946,310
----------- -----------
End of period............................................... $58,603,238 $56,557,576
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (22,633) $ (4,459)
=========== ===========
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 512
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months October 22*
ended Year ended through
June 30, December 31, December 31,
1999+ 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $10.18 $10.29 $10.00
------ ------ ------
Net investment income....................................... 0.10 0.15 0.03
Net realized and unrealized gain (loss) on investments...... 1.50 (0.10) 0.38
------ ------ ------
Total from investment operations............................ 1.60 0.05 0.41
------ ------ ------
Less dividends and distributions:
From net investment income................................ (0.11) (0.15) (0.03)
From net realized gain on investments..................... -- (0.01) (0.09)
------ ------ ------
Total dividends and distributions........................... (0.11) (0.16) (0.12)
------ ------ ------
Net asset value at end of period............................ $11.67 $10.18 $10.29
====== ====== ======
Total investment return (a)................................. 15.80% 0.52% 4.11%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 1.95%++ 1.49% 1.66%++
Expenses................................................ 1.78%++ 1.79% 2.73%++
Portfolio turnover rate..................................... 68% 203% 29%
Net assets at end of period (in 000's)...................... $19,216 $17,946 $13,622
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 513
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- ------------------------------
Six months October 22* Six months September 1**
ended Year ended through ended through
June 30, December 31, December 31, June 30, December 31,
1999+ 1998 1997 1999+ 1998
---------- ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
$10.17 $10.29 $10.00 $10.17 $9.15
------ ------ ------ ------ ------
0.07 0.08 0.02 0.07 0.05
1.49 (0.11) 0.38 1.49 1.03
------ ------ ------ ------ ------
1.56 (0.03) 0.40 1.56 1.08
------ ------ ------ ------ ------
(0.07) (0.08) (0.02) (0.07) (0.05)
-- (0.01) (0.09) -- (0.01)
------ ------ ------ ------ ------
(0.07) (0.09) (0.11) (0.07) (0.06)
------ ------ ------ ------ ------
$11.66 $10.17 $10.29 $11.66 $10.17
====== ====== ====== ====== ======
15.38% (0.27%) 4.04% 15.38% 11.77%
1.20%++ 0.74% 0.91%++ 1.20%++ 0.74%++
2.53%++ 2.54% 3.48%++ 2.53%++ 2.54%++
68% 203% 29% 68% 203%
$39,250 $38,528 $12,325 $137 $84
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 514
MainStay Strategic Value Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Strategic Value Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on October 22, 1997. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. Class B shares and Class C shares
are offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Class A shares, Class B shares and Class C shares bear the same voting (except
for issues that relate solely to one class), dividend, liquidation and other
rights and conditions except that the Class B shares and Class C shares are
subject to higher distribution fee rates. Each class of shares bears
distribution and/or service fee payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to seek maximum long-term total return from a
combination of common stocks, convertible securities and high yield debt
securities.
The Fund invests in high yield bonds. These bonds may involve special risks not
commonly associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market on which high yield bonds are traded may be less liquid than the market
for higher grade bonds.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result
24
<PAGE> 515
Notes to Financial Statements unaudited
by the outstanding shares of that class. The Fund's net asset value will
fluctuate and an investor could lose money by investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the NASDAQ system at prices supplied by the pricing agent or brokers selected by
the Subadvisor, if these prices are deemed to be representative of market values
at the regular close of business of the Exchange, (e) by appraising debt
securities at prices supplied by a pricing agent selected by the Subadvisor,
whose prices reflect broker/dealer supplied valuations and electronic data
processing techniques if those prices are deemed by the Subadvisor to be
representative of market values at the regular close of business of the
Exchange, (f) by appraising options and futures contracts at the last sale price
on the market where such options or futures are principally traded, and (g) by
appraising all other securities and other assets, including debt securities for
which prices are supplied by a pricing agent but are not deemed by the
Subadvisor to be representative of market values, but excluding money market
instruments with a remaining maturity of sixty days or less and including
restricted securities and securities for which no market quotations are
available, at fair value in accordance with procedures approved by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase was 60 days or
less, or by amortizing the difference between market value on the 61st day prior
to maturity and value on maturity date if their original term to maturity at
purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the
25
<PAGE> 516
MainStay Strategic Value Fund
contract. The Fund enters into foreign currency forward contracts in order to
hedge its foreign currency denominated investments and receivables and payables
against adverse movements in future foreign exchange rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract
Amount Amount Unrealized
Foreign Currency Sale Contracts Sold Purchased Appreciation
- ------------------------------- ----------- --------- ------------
<S> <C> <C> <C>
Japanese Yen vs. U.S. Dollar, expiring 9/16/99.............. Y55,000,000 $463,080 $3,335
Pound Sterling vs. U.S. Dollar, expiring 9/8/99 - 10/6/99... L 68,400 111,249 3,345
------
Net unrealized appreciation on foreign currency forward
contracts................................................. $6,680
======
</TABLE>
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt sale
at an acceptable price may be difficult.
The issuers of the securities will bear the costs involved in registration under
the Securities Act of 1933 and in connection with the disposition of such
securities. The Fund does not have the right to demand that such securities be
registered. The Fund may not invest more than 15% of its net assets in illiquid
securities.
26
<PAGE> 517
Notes to Financial Statements unaudited (continued)
Restricted securities held at June 30, 1999:
<TABLE>
<CAPTION>
Percent
Acquisition Principal 6/30/99 of
Security Date Amount Cost Value Net Assets
- -------- ----------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Domino's Pizza, Inc.
Bank debt, Tranche B
8.8125%, due 12/21/06.............. 12/24/98 $ 39,868 $ 39,868 $ 39,918 0.1%
Bank debt, Tranche C
9.0625%, due 12/21/07.............. 12/24/98 39,868 39,868 39,918 0.1
FRI-MRD Corp.
15.00%, due 1/24/02................ 1/14/98 250,000 253,021 249,687 0.4
International Wireless Communications
Holdings, Inc.
(zero coupon), due 8/15/01......... 6/22/98 200,000 46,613 20,000 0.0(a)
Ventas Realty L.P.
Bank debt, Tranche A
7.81%, due 10/30/99................ 4/27/99 27,500 25,696 23,100 0.0(a)
Bank debt, Tranche D
7.81%, due 4/30/03................. 4/27/99 44,876 39,143 37,696 0.1
-------- -------- ---
$444,209 $410,319 0.7%
======== ======== ===
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
</TABLE>
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $173,175 and are being
amortized over a period not to exceed 60 months beginning at the commencement of
operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which many differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend
27
<PAGE> 518
MainStay Strategic Value Fund
income is recognized on the ex-dividend date and interest income is accrued
daily except when collection is not expected. Discounts on securities purchased
for the Fund are accreted on the constant yield method over the life of the
respective securities or, if applicable, over the period to the first call date.
Premiums on securities purchased are not amortized for this Fund.
Income from payment-in-kind securities is recorded daily based on the effective
interest method of accrual.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.75% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $209,892.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee at the annual
rate of 0.375% of the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
28
<PAGE> 519
Notes to Financial Statements unaudited (continued)
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $7,417 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class B shares of $69,746 for
the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $82,398.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 1999, New York Life held shares of Class A and Class B
with net asset values of $1,198,232 and $10,897,324, respectively. This
represents 6.2% and 27.8%, respectively, of the net assets at period end for
Class A and Class B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $838 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$10,922 for the six months ended June 30, 1999.
29
<PAGE> 520
MainStay Strategic Value Fund
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, capital loss carryforwards of $466,129 which have been
deferred for Federal income tax purposes, were available to the extent provided
by regulations to offset future realized gains of the Fund through 2006. To the
extent that these carryforwards are used to offset future capital gains, it is
probable that the capital gains so offset will not be distributed to
shareholders. The Fund intends to elect to treat for Federal income tax purposes
approximately $10,418 of qualifying foreign exchange losses that arose during
the prior year as if they arose on January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $37,870 and $42,913, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................. 120 344 9 756 3,629 10
Shares issued in reinvestment of
dividends and distributions............ 9 14 -(a) 29 30 -
---- ---- -- ---- ------ --
129 358 9 785 3,659 10
Shares redeemed.......................... (246) (780) (5) (345) (1,069) (2)
---- ---- -- ---- ------ --
Net increase (decrease).................. (117) (422) 4 440 2,590 8
==== ==== == ==== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
30
<PAGE> 521
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
31
-
<PAGE> 522
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee STRATEGIC VALUE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Strategic Value Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSA18-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 523
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Tax
Free Bond Fund versus Lehman Brothers
Municipal Bond Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 15
Notes to Financial Statements 20
The MainStay Funds 25
</TABLE>
<PAGE> 524
This page intentionally left blank
2
<PAGE> 525
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 526
$10,000 Invested in the MainStay
Tax Free Bond Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -4.41%, 5 Year 4.46%, 10 Year 5.33%
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ---------------------- ------------------------- ----------
<S> <C> <C> <C>
6/89 9450.00 10000.00 10000.00
6/90 9825.00 10681.00 10467.00
6/91 10525.00 11643.00 10959.00
6/92 11752.00 13014.00 11298.00
6/93 13050.00 14570.00 11637.00
6/94 12903.00 14595.00 11926.00
6/95 13648.00 15882.00 12289.00
6/96 14392.00 16937.00 12627.00
6/97 15545.00 18334.00 12917.00
6/98 16787.00 19922.00 13134.00
6/99 16802.00 20472.00 13277.00
</TABLE>
CLASS B AND CLASS C SHARESClass B SEC Returns: 1 Year -5.15%, 5 Year 4.91%, 10
Year 5.72%
Class C SEC Returns: 1 Year -1.16%, 5 Year 5.24%,
10 Year 5.72%
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS MUNICIPAL
PERIOD END FUND BOND INDEX* INFLATION+
- ---------- ---------------------- ------------------------- ----------
<S> <C> <C> <C>
6/89 10000.00 10000.00 10000.00
6/90 10288.00 10681.00 10467.00
6/91 11020.00 11643.00 10959.00
6/92 12305.00 13014.00 11298.00
6/93 13665.00 14570.00 11637.00
6/94 13511.00 14595.00 11926.00
6/95 14288.00 15882.00 12289.00
6/96 15033.00 16937.00 12627.00
6/97 16207.00 18334.00 12917.00
6/98 17466.00 19922.00 13134.00
6/99 17439.00 20472.00 13277.00
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods. The
Class A graph assumes an initial investment of $10,000 made on 6/30/89
reflecting the effect of the 4.5% up-front sales charge, thereby reducing
the amount of the investment to $9,550, and includes the historical
performance of the Class B shares for periods from 6/30/89 through
12/31/94. Performance data for the two classes vary after this date based
on differences in their load and expense structures. The Class B graph
assumes an initial investment of $10,000 made on 6/30/89. Performance does
not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if shares
are redeemed within the first six years of purchase--as it would not apply
for the period shown. The Class C graph assumes an initial investment of
$10,000 made on 6/30/89 and includes the historical performance of the
Class B shares for periods from 6/30/89 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* The Lehman Brothers Municipal Bond Index (which does not have a sales
charge) includes approximately 15,000 municipal bonds rated Baa or better
by Moody's with a maturity of at least two years. Bonds subject to the
Alternative Minimum Tax or with floating or zero coupons are excluded. The
Index is unmanaged and results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
4
<PAGE> 527
Portfolio Management Discussion and Analysis
During the first half of 1999, the U.S. economy remained stronger than earlier
estimates. Concerns that troubled foreign economies and an overspent American
consumer would slow the demand for domestic products and services faded into the
background. Following Brazil's currency devaluation and an upsurge in the
Japanese stock market, global economies steadily improved. With low unemployment
and the wealth created by a rising stock market, consumer spending remained
strong.
Although low unemployment raised concerns that companies would need to raise
wages to attract new workers, inflation remained relatively benign. Seeking to
prevent future inflation, in May the Federal Reserve Board announced a bias
toward higher interest rates, and at the end of June it raised the targeted
federal funds rate by 0.25%, leaving the discount rate untouched. Given the
Federal Reserve's advance signals, interest rates increased throughout the first
half of the year, which had a negative impact on prices in most high-grade bond
sectors, including municipals.
PERFORMANCE CHALLENGES IN A DECLINING MARKET
For the six-month period ended June 30, 1999, the MainStay Tax Free Bond Fund
returned -2.80% for Class A shares and -2.92% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -1.82% return
of the average Lipper(1) general municipal debt fund during the first half of
1999.
The Fund underperformed its peers largely as a result of two factors. First, the
Fund was positioned with a long duration(2) throughout the reporting period,
which had a negative impact on performance in a steadily rising interest-rate
environment. Second, the Fund is not allowed to invest in low-quality (or
"junk") municipals, which may have placed it at a disadvantage to some municipal
funds. While the Fund may invest in securities rated in any of the top four
rating categories by Moody's or S&P, during the reporting period we concentrated
primarily on securities in the higher rating categories, believing that the
additional yield on bonds in the lower rating categories available to the Fund
was insufficient to justify the risks involved.
STRATEGIC MANAGEMENT DECISIONS
The Fund's positioning during the first half of 1999 reflected the early
consensus view that rates might decline to maintain economic growth in a
challenging global environment. The decision to maintain a long duration had a
negative impact throughout the reporting period, despite signals that inflation
might remain low and that consumer spending might decrease, slowing economic
growth. Had the savings rate remained in its usual 4% range, our duration
strategy might have proved beneficial, but in June consumers actually spent more
than they earned. The unusual combination of low unemployment and low inflation
also supported the Fund's positioning, but neither the Federal Reserve nor the
market believed
- -------
(1) See page 9 for additional information about Lipper, Inc.
(2) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
5
<PAGE> 528
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- --------------
<S> <C>
12/86 6.01
12/87 0.58
12/88 8.77
12/89 7.38
12/90 4.68
12/91 10.89
12/92 8.41
12/93 10.39
12/94 -6.02
12/95 15.00
12/96 3.63
12/97 9.02
12/98 4.98
6/99 -2.80
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for the periods 12/86 through
12/94. See footnote * on page 8 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- ------------------
<S> <C>
12/86 6.01
12/87 0.58
12/88 8.77
12/89 7.38
12/90 4.68
12/91 10.89
12/92 8.41
12/93 10.39
12/94 -6.02
12/95 14.86
12/96 3.33
12/97 8.80
12/98 4.83
6/99 -2.92
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/86
through 8/98. See footnote * on page 8 for more information on performance.
this combination could be sustained, which resulted in rising interest rates.
Given recent financial problems in the hospital sector, the Fund remained
underweighted in these securities, which proved beneficial for the Fund's
overall performance. During the reporting period, the Fund was overweighted in
water, sewer, and general obligation bonds with AAA and AA ratings.(3) The
overall credit quality of the securities in the Fund's investment portfolio was
AA as of June 30, 1999, representing a high-quality municipal bond portfolio.
STRONG AND WEAK PERFORMERS
In a rising interest-rate environment, most municipal bonds declined in value.
Among the best-performing securities in the Fund's portfolio were higher-coupon,
- -------
(3) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. Debt rated AA differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
6
<PAGE> 529
short-call bonds. Stanford University 5.2% bonds maturing 12/1/27 contributed
positively to the Fund's relative performance. The issue's coupon held up well
and the bonds were purchased near a low point in the market, which helped them
provide stronger performance than other securities in the portfolio.
Most bonds carry a call provision, generally about ten years after issuance. If
the issuer wants to take advantage of lower interest rates and refinance before
the call date, the bonds can be prerefunded. In a prerefunding, new bonds are
issued and the proceeds are used to purchase Treasury securities that mature
near the same date as the original issue's call date. These securities are
escrowed and used to pay interest until the first call date, at which time the
principal is paid. Prerefundings may provide large gains for bondholders because
the municipals in effect become tax-free Treasury bonds whose maturity, in many
cases, has been reduced by more than 20 years. Although the Fund's
Foothill/Eastern Corridor Agency bonds are not scheduled to prerefund until
July, the market's knowledge of the imminent prerefunding helped increase the
price of the bonds, which contributed positively to the Fund's performance.
The worst performing bonds in the Fund's portfolio were long-duration bonds,
including zero-coupon, discount, and noncallable bonds, which had benefited the
Fund as interest rates declined in 1998. Wyandotte, Kansas 4.5% bonds due 9/1/28
underperformed as their low coupon and long duration detracted from performance
in a rising rate environment. Metropolitan Pier and Exposition zero-coupon bonds
due 6/15/20 also underperformed during the reporting period, despite strong
return potential over the long-term.
LOOKING AHEAD
The Fund continues to have a longer duration than its peers and we anticipate
maintaining this position until new information changes our view of future
inflation. We will continue to concentrate on high-quality securities, seeking
yield advantages and diversification by state, municipal sector, coupon, and
maturity. Whatever the markets may bring, the Fund will seek to provide a high
level of current income free from regular federal income tax, consistent with
the preservation of capital.
James Flood
Edward Munshower
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 530
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 0.09% 5.42% 5.81% 6.00%
Class B -0.16% 5.24% 5.72% 5.93%
Class C -0.16% 5.24% 5.72% 5.93%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A -4.41% 4.46% 5.33% 5.63%
Class B -5.15% 4.91% 5.72% 5.93%
Class C -1.16% 5.24% 5.72% 5.93%
</TABLE>
FUND LIPPER + RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 228 out of n/a n/a 144 out of
260 funds 176 funds
Class B 236 out of 145 out of 76 out of 52 out of
260 funds 155 funds 76 funds 54 funds
Class C n/a n/a n/a n/a
Average Lipper
general municipal
debt fund 1.14% 6.18% 6.85% 7.29%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.68 $0.2400 $0.0000
Class B $9.69 $0.2274 $0.0000
Class C $9.69 $0.2274 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 4.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes after this date vary based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial
8
<PAGE> 531
sales charge, but are subject to a maximum CDSC of up to 5% if shares are
redeemed within the first six years of purchase and an annual 12b-1 fee of
.50%. Class C shares, first offered to the public on 9/1/98, are sold with no
initial sales charge, but are subject to a CDSC of 1% if redeemed within one
year of purchase and an annual 12b-1 fee of .50%. Performance figures for
Class C shares include the historical performance of the Class B shares for
periods from inception (5/1/86) up to 8/31/98. Performance data for the two
classes vary after this date based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering
date through 6/30/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98. Life of
fund return for the average Lipper peer fund is for the period from
5/1/86 through 6/30/99.
9
<PAGE> 532
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.2%)+
ALABAMA (0.8%)
Birmingham Alabama Airport
Authority Revenue, Series A
7.375%, due 7/1/10 (a)....... $ 3,600,000 $ 3,732,948
------------
CALIFORNIA (16.3%)
Alvord California Unified
School District
Series B
5.50%, due 8/1/27............ 4,560,000 4,603,092
California Educational
Facilities
Authority Revenue
Pooled College & University
Projects, Series A
5.625%, due 7/1/23........... 900,000 884,295
Stanford University
Series N
5.20%, due 12/1/27 (b)....... 21,920,000 21,289,800
California State University
Revenue & Colleges
Housing System
5.90%, due 11/1/21........... 2,100,000 2,220,750
Escondido California Union
High School District Capital
(zero coupon), due 11/1/16
(d).......................... 3,500,000 1,386,875
(zero coupon), due 11/1/17
(d).......................... 7,115,000 2,659,231
(zero coupon), due 11/1/18
(d).......................... 1,860,000 655,650
(zero coupon), due 11/1/19
(d)........................ 3,500,000 1,163,750
(zero coupon), due 11/1/20
(d).......................... 7,000,000 2,196,250
Foothill-Eastern
Transportation
Corridor Agency, Toll Road
Revenue, Series A
(zero coupon), due 1/1/26.... 5,000,000 1,125,000
(zero coupon), due 1/1/27.... 56,105,000 11,992,443
(zero coupon), due 1/1/28.... 23,540,000 4,737,425
(zero coupon), due 1/1/29.... 1,200,000 228,000
(zero coupon), due 1/1/30.... 1,270,000 228,600
Inglewood Redevelopment
Agency Tax Allocation
Series A
5.25%, due 5/1/17............ 1,000,000 1,003,750
Laguna Salada Union
School District, Series B
(zero coupon), due 8/1/23.... 1,300,000 347,750
Palo Alto California Unified
School District, Series B
5.375%, due 8/1/18........... 1,275,000 1,278,188
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
San Joaquin Hills California
Transportation Corridor
Agency Toll Road Revenue
(zero coupon), due 1/1/16
(d).......................... $ 750,000 $ 315,938
(zero coupon), due 1/1/19
(d).......................... 13,915,000 4,870,250
(zero coupon), due 1/1/22
(d).......................... 20,500,000 6,098,750
(zero coupon), due 1/1/28
(d).......................... 13,450,000 2,858,125
Santa Monica-Malibu Unified
School District
(zero coupon), due 8/1/23.... 4,000,000 1,065,000
------------
73,208,912
------------
FLORIDA (2.7%)
Florida State Department of
Transportation
Right of Way
5.375%, due 7/1/26........... 12,040,000 11,994,850
------------
GEORGIA (3.3%)
Atlanta Georgia Water &
Wastewater Revenue, Series A
5.50%, due 11/1/22........... 7,500,000 7,696,875
Cherokee County Georgia
Water & Sewer Authority
Revenue
5.20%, due 8/1/25............ 5,355,000 5,234,513
Georgia Municipal Electric
Authority Power Revenue
Series Y
6.50%, due 1/1/17............ 2,000,000 2,262,500
------------
15,193,888
------------
ILLINOIS (16.5%)
Chicago Board of Education
Chicago School Reform
5.75%, due 12/1/20........... 8,000,000 8,175,360
5.75%, due 12/1/27........... 10,000,000 10,199,400
Chicago Illinois Building
Acquisition Certificates
5.40%, due 1/1/18............ 3,320,000 3,311,700
Chicago Illinois Gas Supply
Revenue
Peoples Gas, Light & Coke Co.
Series A
8.10%, due 5/1/20 (a)........ 2,000,000 2,103,840
Chicago Illinois Midway
Airport
Revenue, Series A
5.50%, due 1/1/29............ 9,145,000 9,110,706
Chicago Illinois O'Hare
International Airport Revenue
Series A
5.50%, due 1/1/16 (a)........ 1,000,000 997,500
Chicago Illinois Sales Tax
Revenue
5.375%, due 1/1/27........... 18,500,000 18,130,000
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 533
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
ILLINOIS (CONTINUED)
Illinois Health Facilities
Authority
Revenue Glenoaks Hospital
Hinsdale Hospital
Series B
9.00%, due 11/15/15 (d)...... $ 1,785,000 $ 1,946,506
Series C
9.50%, due 11/15/19 (d)...... 5,220,000 5,722,686
Series E
9.50%, due 11/15/19 (d)...... 810,000 888,003
Illinois Regional
Transportation
Authority, Series C
7.10%, due 6/1/25............ 1,500,000 1,681,875
Kankakee Illinois Sewer
Revenue
7.00%, due 5/1/16............ 2,000,000 2,210,000
Metropolitan Pier & Exposition
Authority, Illinois State Tax
Revenue
McCormick Place
(zero coupon), due 6/15/17... 9,250,000 3,434,063
(zero coupon), due 6/15/20... 17,505,000 5,448,431
Southern Illinois University
Revenue Capital, Housing and
Auxiliary
Series A
(zero coupon), due 4/1/24.... 4,000,000 994,840
------------
74,354,910
------------
INDIANA (2.8%)
Indiana Bond Bank
Common School Fund, Series A
5.00%, due 2/1/14............ 500,000 493,125
Indianapolis Indiana Local
Public Improvement Bond Bank
Series D
6.75%, due 2/1/20............ 6,000,000 6,502,500
Monroe County Community
School Building Corp.
First Mortgage
5.25%, due 7/1/12............ 3,000,000 3,000,000
PHM Multi Building Corp.
First Mortgage
5.90%, due 7/15/14 (d)....... 1,210,000 1,306,800
Tippecanoe County
School Building Corp.
First Mortgage
6.00%, due 7/15/13 (d)....... 1,300,000 1,397,500
------------
12,699,925
------------
KANSAS (3.3%)
Burlington Pollution Control
Revenue Kansas Gas &
Electric Co. Project
7.00%, due 6/1/31............ 8,300,000 8,849,875
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
KANSAS (CONTINUED)
Wyandotte County, Kansas City
Unified Government Utility
Systems Revenue
4.50%, due 9/1/28............ $ 6,930,000 $ 5,959,800
------------
14,809,675
------------
LOUISIANA (0.5% )
Louisiana State Offshore
Terminal Authority, Deepwater
Port
Revenue, Series E
7.60%, due 9/1/10............ 2,135,000 2,244,418
------------
MAINE (0.2%)
Maine Health & Higher
Educational Facility
Authority Revenue
Series B
5.75%, due 7/1/26............ 1,000,000 1,036,250
------------
MICHIGAN (0.2%)
Detroit Michigan, Downtown
Development
Series A
5.75%, due 7/15/15........... 1,000,000 1,047,500
------------
MINNESOTA (2.4%)
Rochester Minnesota Health
Care
Facilities, Mayo Foundation
Series A
5.50%, due 11/15/27 (b)...... 10,500,000 10,539,375
------------
MISSOURI (0.9%)
University of Missouri Revenue
5.80%, due 11/1/27........... 3,750,000 3,873,637
------------
MONTANA (0.5%)
Forsyth Montana Pollution
Control Revenue; Puget Sound
Power and Light
6.80%, due 3/1/22............ 2,200,000 2,348,500
------------
NEBRASKA (0.5%)
Nebraska Investment Finance
Authority, Single Family
Housing Revenue
Series C
6.30%, due 9/1/28 (a)(b)..... 1,990,000 2,044,725
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 534
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
NEW HAMPSHIRE (3.6%)
New Hampshire Higher
Educational & Health
Facilities
Authority Revenue
Dartmouth College
5.125%, due 6/1/28 (b)....... $10,750,000 $ 10,266,250
5.70%, due 6/1/27............ 5,900,000 6,069,625
------------
16,335,875
------------
NEW JERSEY (0.9%)
Middletown Township
New Jersey Board of Education
5.80%, due 8/1/22............ 3,850,000 4,032,875
------------
NEW YORK (27.4%)
Battery Park City Authority
Revenue, Series A
5.50%, due 11/1/26........... 100,000 100,353
Metropolitan Transportation
Authority
New York Commuter Facilities
Revenue, Series A
5.625%, due 7/1/27........... 10,650,000 10,804,212
5.75%, due 7/1/21............ 4,400,000 4,541,592
Metropolitan Transportation
Authority
New York dedicated Tax Fund,
Series A
4.50%, due 4/1/18............ 6,000,000 5,290,500
New York City General
Obligation
Series E
5.875%, due 8/1/13........... 15,000,000 15,619,500
Series D
6.00%, due 2/15/25........... 1,045,000 1,091,941
8.00%, due 8/1/04............ 55,000 59,538
Series B
7.00%, due 6/1/15............ 90,000 94,838
Series A
7.75%, due 8/15/07........... 50,000 53,750
7.75%, due 8/15/15........... 80,000 85,900
7.75%, due 8/15/16........... 35,000 37,581
Series F
8.20%, due 11/15/04.......... 205,000 224,731
New York City Industrial
Development Agency
Civic Facility Revenue
Lighthouse International
Project
4.50%, due 7/1/33............ 3,750,000 3,164,062
New York City Metropolitan
Transportation Authority
Control Series 7
(zero coupon), due 7/1/14.... 3,930,000 1,739,025
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
NEW YORK (CONTINUED)
New York City Municipal Water
Finance Authority, Water &
Sewer Systems Revenue
Series B
5.50%, due 6/15/27........... $18,600,000 $ 18,670,866
5.75%, due 6/15/26........... 1,300,000 1,348,750
5.75%, due 6/15/29........... 1,000,000 1,030,000
New York State Dormitory
Authority Revenue
Cornell University
Series A
7.375%, due 7/1/30........... 2,880,000 3,025,555
New York University, Series A
5.75%, due 7/1/27............ 2,500,000 2,640,625
6.00%, due 7/1/18............ 3,300,000 3,572,250
Park Ridge Housing Income
Project
7.85%, due 2/1/29............ 1,400,000 1,430,926
Rockefeller University
4.75%, due 7/1/37............ 850,000 749,445
St. Johns University
5.70%, due 7/1/26............ 3,250,000 3,325,627
Series C
7.375%, due 5/15/10.......... 6,000,000 7,044,480
Series B
7.50%, due 5/15/11........... 4,250,000 5,046,365
State University Educational
Facilities
5.50%, due 5/15/26........... 6,250,000 6,187,500
New York State Energy Research
& Development Authority
Gas Facilities Revenue
Brooklyn Union Gas Co.
Project
5.50%, due 1/1/21............ 1,250,000 1,254,688
New York State Environmental
Facilities Corp. Pollution
Control
Revenue, State Water
Series A
5.40%, due 8/15/11........... 1,920,000 1,975,200
5.45%, due 8/15/12........... 1,500,000 1,543,125
7.25%, due 6/15/10........... 400,000 428,500
7.50%, due 6/15/12........... 3,050,000 3,199,359
Series B
7.50%, due 3/15/11........... 700,000 718,403
New York State Local
Government
Assistance Corp.
Series C
(zero coupon), due 4/1/14.... 1,130,000 516,975
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
</TABLE>
12
<PAGE> 535
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York State Medical
Care Facilities
Finance Agency Revenue
7.375%, due 8/15/19.......... $ 1,615,000 $ 1,653,259
7.875%, due 8/15/20.......... 450,000 473,625
Montefiore Medical Center
Series A
6.00%, due 2/15/35........... 2,150,000 2,262,875
St. Francis Hospital of
Roslyn
Project A
7.625%, due 11/1/21.......... 3,875,000 3,962,575
New York State Thruway
Authority
General Revenue
Series D
5.50%, due 1/1/15............ 1,800,000 1,815,750
New York State Thruway
Authority
Service Contract Revenue
Local Highway & Bridge
5.75%, due 4/1/16............ 100,000 103,140
Niagara Falls New York Bridge
Commission Toll Revenue
Series B
5.25%, due 10/1/15........... 500,000 503,125
Port Authority of New York &
New Jersey Consolidated Bonds
Series 109
5.375%, due 7/15/27.......... 3,500,000 3,500,000
Rensselaer County New York
Industrial Development Agency
Civic Facility Revenue,
Polytechnic Institute
Dormitory, Series A
5.125%, due 8/2/29........... 1,500,000 1,406,250
Triborough Bridge & Tunnel
Authority of New York
General Purpose Revenue
Series Y
6.125%, due 1/1/21........... 750,000 815,625
------------
123,112,386
------------
NORTH CAROLINA (0.6%)
New Hanover County
Hospital Revenue, New Hanover
Regional Medical Center
Project
5.75%, due 10/1/26........... 2,500,000 2,568,750
------------
OHIO (0.5%)
Ohio State Air Quality
Development
Authority Revenue, Pollution
Control, Cleveland Co.
Project
8.00%, due 12/1/13........... 2,000,000 2,237,500
------------
PUERTO RICO (3.5%)
Puerto Rico Commonwealth
Government Development Bank
5.375%, due 7/1/25........... 10,850,000 $ 10,741,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
PUERTO RICO (CONTINUED)
Puerto Rico Commonwealth
Highway & Transportation
Authority Highway Revenue,
Series Y
5.50%, due 7/1/36............ $4,750,000 $ 4,809,375
------------
15,550,875
------------
TEXAS (6.5%)
Matagorda County Navigation
District 1, Pollution Control
Revenue
Central Power & Light Co.
Project
7.50%, due 12/15/14.......... 2,400,000 2,502,552
Houston Lighting & Power Co.
Series E
7.20%, due 12/1/18 (b)....... 3,470,000 3,580,936
Nueces River Authority Texas
Water
Supply, Corpus Christi Lake
Project
5.50%, due 3/1/27............ 1,250,000 1,264,063
Pflugerville Texas
General Obligation
4.75%, due 8/1/24............ 5,625,000 5,055,469
San Antonio Hotel Occupancy
Revenue Henry B. Gonzalez
Convention Center Expansion
Project
5.70%, due 8/15/26........... 2,200,000 2,263,250
South Texas Community College
District
5.75%, due 8/15/15........... 1,500,000 1,565,625
Spring Texas Independent
School District, Series A
4.50%, due 8/15/21........... 1,600,000 1,390,000
4.50%, due 8/15/22........... 2,000,000 1,725,960
Texas Water Resources Finance
Authority Revenue
7.625%, due 8/15/08.......... 9,860,000 9,904,962
------------
29,252,817
------------
UTAH (0.5%)
Utah Water Finance Agency
Revenue, Pooled Loan
Financing Program
Series A
5.75%, due 10/1/21........... 1,965,000 2,028,863
------------
VIRGINIA (0.6%)
Richmond Metropolitan
Authority
Expressway Revenue
5.25%, due 7/15/22........... 2,900,000 2,885,500
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 536
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
WASHINGTON (1.4%)
Clark County Washington Sewer
Revenue
5.70%, due 12/1/16........... $ 2,000,000 $ 2,057,500
Port Seattle Washington
Revenue, Series A
5.50%, due 10/1/17........... 2,000,000 2,030,000
Washington State Motor Vehicle
Fuel Tax, Series B
5.50%, due 6/1/20............ 2,000,000 2,007,500
------------
6,095,000
------------
WEST VIRGINIA (0.2%)
Kanawha Mercer Nicholas County
West Virginia Single Family
Mortgage Revenue
(zero coupon), due 2/1/15
(d).......................... 2,230,000 919,875
------------
WISCONSIN (0.6%)
Wisconsin State Health and
Educational Facility Revenue,
Kenosha Hospital and Medical
Center
5.625%, due 5/15/29.......... 2,590,000 2,447,550
------------
Total Long-Term Municipal
Bonds
(Cost $447,902,008).......... 436,597,379
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL BOND (0.6%)
GEORGIA (0.6%)
Burke County Georgia
Development Authority
Pollution Control
3.75%, due 4/1/32 (c)........ $ 2,900,000 $ 2,900,000
------------
Total Short-Term Municipal
Bond
(Cost $2,900,000)............ 2,900,000
------------
Total Investments
(Cost $450,802,008) (e)...... 97.8% 439,497,379(f)
Cash and Other Assets,
Less Liabilities............. 2.2 10,097,753
---- ----------
Net Assets.................... 100.0% $449,595,132
===== ============
</TABLE>
- -------
(a) Interest on these securities is subject to alternative minimum tax.
(b) Segregated or partially segregated as collateral for future contracts.
(c) Variable rate security that may be tendered back to issuer at any time
prior to maturity at par.
(d) Prerefunding Securities--issuer has or will issue new bonds and use the
proceeds to purchase Treasury securities that mature at or near the same
date as the original issue's call date.
(e) The cost for Federal income tax purposes $450,828,273.
(f) At June 30, 1999, net unrealized depreciation was $11,330,894, based on
cost for Federal tax purposes. This consisted of aggregate gross unrealized
appreciation for all investments on which there was an excess of market
value over cost of $4,846,527 and aggregate gross unrealized depreciation
for all investments on which there was an excess of cost over market value
of $16,177,421.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 537
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$450,802,008)............................................. $439,497,379
Cash........................................................ 1,193,314
Receivables:
Investment securities sold................................ 10,497,778
Interest.................................................. 6,503,785
Fund shares sold.......................................... 149,129
------------
Total assets........................................ 457,841,385
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 5,646,004
Fund shares redeemed...................................... 277,406
MainStay Management....................................... 230,726
NYLIFE Distributors....................................... 182,957
Transfer agent............................................ 31,135
Custodian................................................. 10,134
Trustees.................................................. 3,806
Accrued expenses............................................ 100,555
Dividend payable............................................ 1,763,530
------------
Total liabilities................................... 8,246,253
------------
Net assets.................................................. $449,595,132
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 21,637
Class B................................................... 442,240
Class C................................................... 247
Additional paid-in capital.................................. 465,877,039
Accumulated distribution in excess of net investment
income.................................................... (802,421)
Accumulated net realized loss on investments................ (4,638,981)
Net unrealized depreciation on investments.................. (11,304,629)
------------
Net assets.................................................. $449,595,132
============
CLASS A
Net assets applicable to outstanding shares................. $ 20,945,598
============
Shares of beneficial interest outstanding................... 2,163,687
============
Net asset value per share outstanding....................... $ 9.68
Maximum sales charge (4.50% of offering price).............. 0.46
------------
Maximum offering price per share outstanding................ $ 10.14
============
CLASS B
Net assets applicable to outstanding shares................. $428,410,674
============
Shares of beneficial interest outstanding................... 44,224,017
============
Net asset value and offering price per share outstanding.... $ 9.69
============
CLASS C
Net assets applicable to outstanding shares................. $ 238,860
============
Shares of beneficial interest outstanding................... 24,658
============
Net asset value and offering price per share outstanding.... $ 9.69
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 538
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 12,779,336
------------
Expenses:
Management................................................ 1,404,130
Distribution--Class B..................................... 560,076
Distribution--Class C..................................... 44
Service--Class A.......................................... 24,972
Service--Class B.......................................... 560,076
Service--Class C.......................................... 44
Transfer agent............................................ 202,033
Shareholder communication................................. 46,353
Recordkeeping............................................. 36,625
Custodian................................................. 29,015
Professional.............................................. 27,977
Registration.............................................. 21,434
Trustees.................................................. 7,132
Miscellaneous............................................. 16,346
------------
Total expenses.......................................... 2,936,257
------------
Net investment income....................................... 9,843,079
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from:
Security transactions..................................... (355,485)
Futures transactions...................................... (536,663)
------------
Net realized loss on investments............................ (892,148)
Net change in unrealized appreciation on investments........ (22,537,331)
------------
Net realized and unrealized loss on investments............. (23,429,479)
------------
Net decrease in net assets resulting from operations........ $(13,586,400)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 539
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,843,079 $ 21,189,965
Net realized gain (loss) on investments................... (892,148) 5,906,298
Net change in unrealized appreciation on investments...... (22,537,331) (4,593,758)
------------ ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (13,586,400) 22,502,505
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (480,966) (708,345)
Class B................................................. (10,163,486) (20,489,979)
Class C................................................. (1,048) (41)
In excess of net investment income:
Class A................................................. -- (23,223)
Class B................................................. -- (671,754)
Class C................................................. -- (1)
------------ ------------
Total dividends and distributions to shareholders..... (10,645,500) (21,893,343)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 6,639,834 7,734,640
Class B................................................. 18,327,097 38,082,025
Class C................................................. 243,369 5,300
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 280,924 595,727
Class B................................................. 5,408,404 13,369,997
Class C................................................. 112 41
------------ ------------
30,899,740 59,787,730
Cost of shares redeemed:
Class A................................................. (2,758,229) (3,521,161)
Class B................................................. (33,602,448) (72,709,355)
Class C................................................. (5,057) (2)
------------ ------------
Decrease in net assets derived from capital share
transactions......................................... (5,465,994) (16,442,788)
------------ ------------
Net decrease in net assets (29,697,894) (15,833,626)
NET ASSETS:
Beginning of period......................................... 479,293,026 495,126,652
------------ ------------
End of period............................................... $449,595,132 $479,293,026
============ ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (802,421) $ --
============ ============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 540
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ---------------------------------------------
1999+ 1998 1997 1996 1995
---------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.20 $ 10.19 $ 9.84 $ 10.02 $ 9.20
------- ------- ------- ------- ------
Net investment income..................................... 0.22 0.47 0.51 0.54 0.52
Net realized and unrealized gain (loss) on investments.... (0.50) 0.03 0.35 (0.19) 0.83
------- ------- ------- ------- ------
Total from investment operations.......................... (0.28) 0.50 0.86 0.35 1.35
------- ------- ------- ------- ------
Less dividends and distributions:
From net investment income.............................. (0.24) (0.48) (0.51) (0.53) (0.53)
In excess of net investment income...................... -- (0.01) -- -- --
From net realized gain on investments................... -- -- -- -- --
------- ------- ------- ------- ------
Total dividends and distributions......................... (0.24) (0.49) (0.51) (0.53) (0.53)
------- ------- ------- ------- ------
Net asset value at end of period.......................... $ 9.68 $ 10.20 $ 10.19 $ 9.84 $10.02
======= ======= ======= ======= ======
Total investment return (a)............................... (2.80%) 4.98% 9.02% 3.63% 15.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................. 4.45%++ 4.61% 5.14% 5.4% 5.5%
Expenses.............................................. 1.02%++ 1.02% 1.01% 1.0% 1.0%
Portfolio turnover rate................................... 48% 116% 119% 95% 110%
Net assets at end of period (in 000's).................... $20,946 $17,868 $13,017 $16,486 $9,752
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 541
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------------------------- ----------
Six months September 1 Six months
ended Year ended December 31, through Year ended ended
June 30, -------------------------------------------------- December 31, August 31, June 30,
1999+ 1998 1997 1996 1995 1994* 1994 1999+
---------- -------- -------- -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.20 $ 9.71 $ 10.39 $10.21
-------- -------- -------- -------- -------- -------- -------- ------
0.21 0.45 0.49 0.51 0.51 0.17 0.51 0.21
(0.50) 0.03 0.35 (0.19) 0.83 (0.51) (0.58) (0.50)
-------- -------- -------- -------- -------- -------- -------- ------
(0.29) 0.48 0.84 0.32 1.34 (0.34) (0.07) (0.29)
-------- -------- -------- -------- -------- -------- -------- ------
(0.23) (0.45) (0.49) (0.51) (0.51) (0.17) (0.53) (0.23)
-- (0.01) -- -- -- -- -- --
-- -- -- -- -- -- (0.08) --
-------- -------- -------- -------- -------- -------- -------- ------
(0.23) (0.46) (0.49) (0.51) (0.51) (0.17) (0.61) (0.23)
-------- -------- -------- -------- -------- -------- -------- ------
$ 9.69 $ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.20 $ 9.71 $ 9.69
======== ======== ======== ======== ======== ======== ======== ======
(2.92%) 4.83% 8.80% 3.33% 14.86% (3.53%) (0.69%) (2.92%)
4.20%++ 4.36% 4.93% 5.2% 5.2% 5.6%++ 5.4% 4.20%++
1.27%++ 1.27% 1.22% 1.2% 1.2% 1.2%++ 1.2% 1.27%++
48% 116% 119% 95% 110% 37% 92% 48%
$428,411 $461,420 $482,209 $496,231 $543,314 $513,781 $552,156 $ 239
<CAPTION>
Class C
--------------
September 1**
through
December 31,
1998
--------------
<S> <C>
$10.25
------
0.15
(0.04)
------
0.11
------
(0.15)
--(b)
--
------
(0.15)
------
$10.21
======
1.09%
4.36%++
1.27%++
116%
$ 5
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 542
MainStay Tax Free Bond Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Tax Free Bond Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to provide a high level of current income
free from regular Federal income tax, consistent with the preservation of
capital.
The ability of issuers of debt securities to meet their obligations may be
affected by economic and political developments in a specific industry or
region.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising debt securities at prices supplied by a pricing
agent selected by the subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange, (b) by appraising options and futures contracts at the
last sale price on the market where such options or futures are
20
<PAGE> 543
Notes to Financial Statements unaudited
principally traded, and (c) by appraising all other securities and other assets,
including debt securities for which prices are supplied by a pricing agent but
are not deemed by the Subadvisor to be representative of market values, but
excluding money market instruments with a remaining maturity of sixty days or
less and including restricted securities and securities for which no market
quotations are available, at fair value in accordance with procedures approved
by the Trustees. Short-term securities which mature in more than 60 days are
valued at current market quotations. Short-term securities which mature in 60
days or less are valued at amortized cost if their term to maturity at purchase
was 60 days or less, or by amortizing the difference between market value on the
61st day prior to maturity and value on maturity date if their original term to
maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio investments that occur between
the close of trading on the principal market for such investments and the
regular close of the Exchange will not be reflected in the Fund's calculation of
net asset value unless the Subadvisor believes that the particular event would
materially affect net asset value, in which case an adjustment would be made.
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to market"
such contract on a daily basis to reflect the market value of the contract at
the end of each day's trading. The Fund agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as "variation margin." When the
futures contract is closed, the Fund records a realized gain or loss equal to
the difference between the proceeds from (or cost of) the closing transaction
and the Fund's basis in the contract. The Fund has entered into contracts for
the future delivery of debt securities in order to attempt to protect against
the effects of adverse changes in interest rates or to lengthen or shorten the
average maturity or duration of the Fund's portfolio.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The contract or notional amounts and variation margin reflect the
extent of the Fund's involvement in open futures positions. Risks arise from the
possible imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts. However, the Fund's
activities in futures contracts are conducted through regulated exchanges which
minimize counterparty credit risks.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
21
<PAGE> 544
MainStay Tax Free Bond Fund
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
monthly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Interest income is
accrued daily except when collection is not expected. Premiums on securities
purchased by the Fund are amortized on the constant yield method over the life
of the respective securities or, if applicable, over the period to the first
call date. Discounts are accreted when required by Federal tax regulations.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.60% of the Fund's
average daily net assets. For the six months ended June 30, 1999, the Manager
earned $1,404,130.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.30% of
the average daily net assets of the Fund.
22
<PAGE> 545
Notes to Financial Statements unaudited (continued)
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.25% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $5,583 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $147,891
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999, amounted to $202,033.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $7,205 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$36,625 for the six months ended June 30, 1999.
23
<PAGE> 546
MainStay Tax Free Bond Fund
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1998, capital loss carryforwards of $3,720,568 which have been
deferred for Federal income tax purposes, were available to the extent provided
by the regulations to offset future realized gains through 2004. To the extent
that these loss carryforwards are used to offset future capital gains, it is
probable that the capital gains so offset will not be distributed to
shareholders.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $222,483 and $237,818,
respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
----------------------------------- ------------------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 658 1,815 25 761 3,730 1
Shares issued in reinvestment of
dividends..................... 28 535 --(a) 59 1,312 --(a)
---- ------ -- ---- ------ --
686 2,350 25 820 5,042 1
Shares redeemed................. (274) (3,336) (1) (346) (7,135) --(a)
---- ------ -- ---- ------ --
Net increase (decrease)......... 412 (986) 24 474 (2,093) 1
==== ====== == ==== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
24
<PAGE> 547
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
25
<PAGE> 548
This page intentionally left blank
<PAGE> 549
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee TAX FREE BOND FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Tax Free Bond Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSAS14-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 550
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay Total
Return Fund versus S&P 500 and
Inflation--Class A, Class B, and Class C
Shares 3
Portfolio Management Discussion and
Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 9
Financial Statements 15
Notes to Financial Statements 20
The MainStay Funds 28
</TABLE>
<PAGE> 551
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
2
<PAGE> 552
$10,000 Invested in the MainStay
Total Return Fund versus S&P 500
and Inflation
CLASS A SHARES SEC Returns: 1 Year 11.27%, 5 Year 17.59%, 10 Year 13.87%
[LINE CHART]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN CLASS
PERIOD END A SHARES S&P 500* INFLATION+
- ---------- --------------------------- -------- ----------
<S> <C> <C> <C>
6/89 9450 10000 10000
6/90 10670 11649 10467
6/91 11632 12510 10959
6/92 13282 14187 11298
6/93 15478 16121 11637
6/94 15402 16348 11926
6/95 18563 20611 12289
6/96 21662 25969 12627
6/97 25516 34983 12917
6/98 31122 45531 13134
6/99 36645 55898 13277
</TABLE>
CLASS B AND CLASS C SHARES Class B Shares SEC Returns: 1 Year 11.88%, 5 Year
18.10%, 10 Year 14.21%
Class C Shares SEC Returns: 1 Year 15.88%, 5 Year
18.31%, 10 Year 14.21%
[LINE CHART]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN CLASS
PERIOD END B & C SHARES S&P 500* INFLATION+
- ---------- --------------------------- -------- ----------
<S> <C> <C> <C>
6/89 10000 10000 10000
6/90 11291 11649 10467
6/91 12309 12510 10959
6/92 14055 14187 11298
6/93 16379 16121 11637
6/94 16299 16348 11926
6/95 19587 20611 12289
6/96 22742 25969 12627
6/97 26664 34983 12917
6/98 32321 45531 13134
6/99 37776 55898 13277
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown
assume capital gain and dividend distributions are reinvested, and in
compliance with SEC guidelines, include the maximum sales charge (see
below) and show the percentage change for each of the required periods.
Performance figures reflect certain fee waivers and/or expense limitations,
without which total return figures may have been lower. The fee waivers
and/or expense limitations are voluntary and may be discontinued at any
time. The Class A graph assumes an initial investment of $10,000 made on
6/30/89 reflecting the effect of the 5.5% up-front sales charge, thereby
reducing the amount of the investment to $9,450, and includes the
historical performance of the Class B shares for periods from 6/30/89
through 12/31/94. Performance data for the two classes vary after this date
based on differences in their load and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 6/30/89. Performance
does not reflect the Contingent Deferred Sales Charge (CDSC)--up to 5% if
shares are redeemed within the first six years of purchase--as it would not
apply for the period shown. The Class C graph assumes an initial investment
of $10,000 made on 6/30/89 and includes the historical performance of the
Class B shares for periods from 6/30/89 through 8/31/98. Performance data
for the two classes vary after this date based on differences in their
loads. Performance does not reflect the CDSC--1% if redeemed within one
year of purchase--as it would not apply for the period shown. All results
include reinvestment of distributions at net asset value and change in
share price for the stated period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in
the cost of selected goods. It does not represent an investment return.
3
<PAGE> 553
Portfolio Management Discussion and Analysis
For several years, growth stocks have shown extraordinary strength. In April of
1999, however, improving prospects for a world economic recovery turned the
market's focus to value stocks. Cyclical sectors such as energy, oils, steel,
and paper--which tend to rise quickly with economic upturns and fall quickly
when the economy slows--were selling at low valuations and advanced based on
expectations of accelerating earnings. When the Federal Reserve Board announced
in May that it was likely to raise interest rates, highly valued growth stocks
came under considerable pressure. At the end of June, the Federal Reserve Board
raised the targeted federal funds rate by a quarter of a percent in a
well-anticipated move. The Federal Reserve also shifted to a neutral stance,
which the stock market took as positive news.
The bond market was also affected by the reversal of trends in interest rates.
As the new year began, market participants realized that the Federal Reserve
Board's earlier easing policy would not continue. Many investors believed that
another world crisis was no longer imminent and rates rose approximately 0.50%
in the first quarter and another 0.50% in the second quarter.
During the first half of the year, the strength of the U.S. economy took center
stage. The consumer-led boom was fueled by large tax refunds, the wealth created
by a surging stock market, and excess cash from refinancing mortgages. Overseas,
growth seemed to pick up during the first quarter, as the rally in foreign stock
markets signaled worldwide economic improvement.
FACING CHALLENGES IN A MOVING MARKET
For the first six months of 1999, the MainStay Total Return Fund returned 4.85%
for Class A shares and 4.47% for Class B and Class C shares, excluding all sales
charges. All share classes underperformed the 5.57% return of the average
Lipper(1) balanced fund for the six months ended June 30, 1999.
The Fund's underperformance resulted primarily from sector rotation. The market
moved away from defensive sectors (such as pharmaceuticals and supermarkets,
which were overweighted in the equity portion of the Fund) and focused on
sectors which were underrepresented in this portion of the Fund, such as capital
goods and energy. In particular, the market seemed to favor those securities
with greater international and cyclical exposure.
REPOSITIONING THE EQUITY PORTION OF THE FUND
During the second quarter of 1999, we decided to reduce the Fund's equity
exposure to defensive groups. Because of deteriorating fundamentals, we sold all
of the Fund's equity securities in Eli Lilly and Monsanto in May with a negative
impact on the Fund's performance. We also reduced the Fund's positions in Kroger
and Safeway, taking profits in June. These sales allowed the Fund to pursue more
productive investments.
- -------
(1) See page 8 for additional information about Lipper, Inc.
4
<PAGE> 554
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- --------------------------
<S> <C>
12/87 0.50
12/88 7.65
12/89 14.99
12/90 5.06
12/91 36.84
12/92 3.62
12/93 10.50
12/94 -2.41
12/95 28.66
12/96 13.22
12/97 18.24
12/98 26.93
6/99 4.85
</TABLE>
Past Performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for periods 12/87 through 12/94.
See footnote * on page 8 for more information on performance.
CLASS B AND CLASS C SHARES
[PERFORMANCE CHART; LINE GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
- ---------- --------------------------
<S> <C>
12/87 0.50
12/88 7.65
12/89 14.99
12/90 5.06
12/91 36.84
12/92 3.62
12/93 10.50
12/94 -2.41
12/95 27.96
12/96 12.73
12/97 17.65
12/98 25.96
6/99 4.47
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/87
through 8/98. See footnote * on page 8 for more information on performance.
In the first half of the year, we added several stocks to the equity portion of
the Fund's portfolio, including shares of Circuit City, Omnicom, ALLTEL, and
Time Warner--all of which made positive contributions to performance.
Significant sales during the first half of the year included McKesson HBOC and
Waste Management, Inc., both of which suffered from weakening fundamentals.
Although both stocks were sold before major earnings disappointments were
announced, only the Waste Management, Inc. sale had a positive impact on the
Fund's performance. We also sold the Fund's shares of Service Corp.
International at a loss when an earnings shortfall caused a major setback for
this leading funeral and cemetery company.
5
<PAGE> 555
As interest rates rose in April and May, we reduced the Fund's financial
holdings to a slightly underweighted position by selling Conseco (insurance),
Fannie Mae (mortgages), and SouthTrust Corp. (banking). The net impact of these
sales for the quarter was neutral.
TECHNOLOGY STOCKS LEAD THE WAY
Throughout the first half of the year, the Fund remained overweighted in
technology stocks, which were particularly strong performers. Sun Microsystems
rose 65% during the first half of 1999. Cisco Systems, EMC Corp., and Microsoft
also contributed positively to performance, with returns ranging from 30% to 40%
for the first half of the year. Despite technology's general advance, however,
computer software and services provider Compuware declined substantially on
year-2000 concerns, with a negative impact on the Fund's performance.
Tyco International Ltd., a diversified manufacturing and service company, also
showed strong performance during the first half of 1999. The company benefited
from its record of acquisitions and the market's focus on capital goods stocks.
At the end of June, the Fund was overweighted in consumer staples and health
care, which had a negative impact on performance, as these sectors lagged the
market. Underweighting the basic materials, capital goods, communication
services, and energy sectors also hurt performance, as these groups advanced.
The Fund's overweighted position in technology and underweighted position in
utilities had a positive impact, as the former sector advanced and the latter
underperformed.
RESULTS IN THE INCOME PORTION OF THE FUND
During the first quarter of 1999, the average maturity of the income portion of
the Fund was in line with the market (around 7 years) or slightly shorter. The
income portion of the Fund used a shorter duration(2) to position itself
defensively in the second quarter as rates rose to 6%. Since securities with
shorter maturities suffered less than those with longer maturities when interest
rates rose, the Fund's duration strategy had a positive impact on the Fund's
performance for the first half of the year.
In a diminishing Treasury market, liquidity and size continued to expand among
agency securities, leading to an actively traded agency market. Agency yield
spreads widened relative to Treasury securities during the second quarter. We
believe this supply-induced widening has stabilized and we added several agency
positions to the income portion of the Fund's portfolio.
During the first quarter of 1999, residential and commercial mortgage-backed
bonds and asset-backed securities held by the income portion of the Fund all
performed well, contributing positively to the relative performance of this
portion of the Fund as yield spreads between mortgage-backed and Treasury
securities tightened. When interest rates increased in the second quarter,
however, mortgage-backed securities tended to have longer maturities and
less-favorable risk profiles.
To help manage this concern, the Fund favored securities that were backed by
commercial mortgages and were in the highest rating category. We believe these
securities offer investors attractive yields
- -------
(2) Duration is a measure of price sensitivity, which adjusts for the time value
of the payments investors will receive and which takes into account both
interest and principal payments. Duration is a better gauge of interest-rate
sensitivity than average maturity alone.
6
<PAGE> 556
and strong credit characteristics and may provide favorable returns going
forward.
Through April 1999, corporate bonds showed relatively strong performance. The
Federal Reserve's bias toward raising interest rates in May, however, had a
definite negative effect. Higher interest rates mean higher borrowing costs,
making it more difficult for corporations to meet their earnings projections.
Corporate bond prices declined as the differences in yield between corporate
bonds and Treasury securities widened. We believe corporate bond performance has
tended to be particularly sensitive to corporate earnings in the third quarter.
Taking this into account, at the end of June, the income portion of the Fund was
underweighted in this sector, with a cautiously balanced mix of defensive and
cyclical corporate debt securities, as well as liquid and older issues.
LOOKING FORWARD
Rising interest rates, fewer mortgage refinancing opportunities, and a reduced
flow from individual tax refunds may begin to cool the expanding economy,
bringing about the effect the Federal Reserve Board is seeking. In the income
portion of the Fund, we continue to see value in liquidity and have positioned
the Fund in actively traded securities. Slower economic growth during the second
half of 1999 may be good for both stocks and bonds and we have an optimistic
outlook for the remainder of the year. Whatever the economy and the markets may
bring, the Fund will continue to seek to realize current income consistent with
reasonable opportunity for future growth of capital and income.
Rudolph C. Carryl
Edmund C. Spelman
Edward Munshower
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 557
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 17.74% 18.93% 14.51% 14.14%
Class B 16.88% 18.31% 14.21% 13.88%
Class C 16.88% 18.31% 14.21% 13.88%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 11.27% 17.59% 13.87% 13.58%
Class B 11.88% 18.10% 14.21% 13.88%
Class C 15.88% 18.31% 14.21% 13.88%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 28 out of n/a n/a 31 out of
429 funds 224 funds
Class B 38 out of 32 out of 4 out of 12 out of
429 funds 182 funds 58 funds 47 funds
Class C n/a n/a n/a n/a
Average Lipper
balanced fund 9.98% 16.15% 12.36% 12.90%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $26.00 $0.1686 $0.0000
Class B $26.00 $0.0745 $0.0000
Class C $26.00 $0.0745 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested. Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. The fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 5.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (12/29/87) up to 12/31/94.
Performance data for the two classes after this date vary based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed within the first six years of
purchase and an annual 12b-1 fee of 1%. Class C shares, first offered to
the public on 9/1/98, are sold with no initial sales charge, but are
subject to a CDSC of 1% if redeemed within one year of purchase and an
annual 12b-1 fee of 1%. Performance figures for Class C shares include the
historical performance of the Class B shares for periods from inception
(12/29/87) up to 8/31/98. Performance data for the two classes after this
date vary based on differences in their loads.
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gain and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages are not class specific. Life of Fund rankings
reflect the performance of each share class from its initial offering date
through 6/30/99. Class A shares were first offered to the public on 1/3/95,
Class B shares on 12/29/87, and Class C shares of 9/1/98. Life of fund
return for the average Lipper peer fund is for the period from 12/29/87
through 6/30/99.
8
<PAGE> 558
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
LONG-TERM BONDS (32.1%)+
ASSET-BACKED SECURITIES (4.8%)
AIRLINES (0.2%)
America West Airlines Inc.
Series C
6.86%, due 7/2/04........... $ 3,403,189 $ 3,363,031
--------------
AIRPLANE LEASES (1.4%)
AerCo Ltd.
Series 1A Class A1
5.1775, 7/15/23 (f)......... 3,520,000 3,512,960
Aircraft Finance Trust
Series 1999-1 Class C
8.00%, due 5/15/24 (c)...... 3,930,000 3,722,968
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
6.35%, due 6/15/06 (e)(f)... 4,085,735 4,083,283
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19.......... 8,171,064 8,042,451
Morgan Stanley Aircraft
Finance
Series 1A Class A1
5.1975%, due 3/15/23 (f).... 4,540,000 4,533,962
--------------
23,895,624
--------------
AUTO LEASES (1.0%)
Premier Auto Trust
Series 1998-4 Class A3
5.69%, due 6/8/02........... 6,190,000 6,164,745
Series 1999-1 Class A3
5.69%, due 11/8/02.......... 4,860,000 4,840,171
Toyota Auto Lease Trust
Series 1998-B Class A1
5.35%, due 7/25/02.......... 6,005,000 5,950,174
--------------
16,955,090
--------------
CREDIT CARD RECEIVABLES (0.5%)
Chase Credit Card Master
Trust
Series 1997-2 Class A
6.30%, due 4/15/03.......... 4,850,000 4,873,038
Citibank Credit Card Master
Trust I
Series 1999-1 Class A
5.50%, due 2/15/06.......... 4,850,000 4,671,714
--------------
9,544,752
--------------
</TABLE>
- ----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
EQUIPMENT LOANS (0.7%)
Case Equipment Loan Trust
Series 1999-A Class A
5.77%, due 8/15/05.......... $ 4,705,000 $ 4,628,073
IKON Receivables, LLC
Series 1999-1 Class A3
5.99%, due 5/15/05.......... 6,035,000 6,010,015
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02......... 1,840,000 1,818,398
--------------
12,456,486
--------------
FINANCE (0.6%)
Green Tree Financial Corp.
Series 1999-3 Class A1
4.948%, due 6/1/00.......... 5,300,000 5,294,170
Series 1999-4 Class A4
6.64%, due 5/1/31........... 4,500,000 4,515,750
--------------
9,809,920
--------------
LEISURE TIME (0.2%)
Harley Davidson Eaglemark
Motorcycle Trust
Series 1999-1 Class A2
5.52%, due 2/15/05.......... 3,600,000 3,530,340
--------------
STUDENT LOANS (0.0%) (b)
Brazos Student Loan Finance
Corp.
Series 1997-A Class A1
5.13%, due 12/1/04 (f)...... 27,000 27,000
--------------
TRANSPORTATION (0.2%)
Federal Express Corp.
Pass-Through Certificate
Series 98-1A Class A
6.72%, due 1/15/22.......... 3,359,006 3,238,115
--------------
Total Asset-Backed Securities
(Cost $84,053,433).......... 82,820,358
--------------
CORPORATE BONDS (6.1%)
AEROSPACE (0.1%)
Newport News Shipbuilding
Inc.
8.625%, due 12/1/06......... 1,035,000 1,086,750
Wyman-Gordon Co.
8.00%, 12/15/07............. 775,000 831,188
--------------
1,917,938
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 559
MainStay Total Return Fund
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
AIRLINES (0.5%)
Atlas Air, Inc.
8.77%, due 1/2/11........... $ 7,375,000 $ 7,273,078
Northwest Airlines Corp.
7.36%, due 2/1/20........... 1,735,000 1,670,805
--------------
8,943,883
--------------
BANKS (0.3%)
Banc One Corp.
7.60%, due 5/1/07........... 2,260,000 2,338,964
BankAmerica Corp.
6.625%, due 6/15/04......... 2,640,000 2,643,722
Tokai Preferred Capital Co.
L.L.C.
Series A
9.98%, due 12/29/49
11.0914%, beginning
6/30/08 (c)................. 515,000 473,800
--------------
5,456,486
--------------
BUILDING MATERIALS (0.2%)
Vulcan Materials Co.
6.00%, due 4/1/09........... 3,095,000 2,909,795
--------------
CASINOS (0.0%) (b)
International Game Technology
Inc.
8.375%, due 5/15/09 (c)..... 720,000 706,500
--------------
CHEMICALS (0.1%)
Agriculture Minerals &
Chemicals
10.75%, due 9/30/03......... 260,000 257,725
Lyondell Chemical Co.
9.875%, due 5/1/07 (c)...... 1,150,000 1,175,875
Terra Industries Inc.
Series B
10.50%, due 6/15/05......... 470,000 451,200
--------------
1,884,800
--------------
ELECTRIC UTILITIES (0.2%)
ESI Tractebel Acquisition
Corp.
7.99%, due 12/30/11......... 800,000 761,424
Carolina Power & Light Co.
5.95%, due 3/1/09........... 3,700,000 3,459,648
--------------
4,221,072
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
ENERGY (0.2%)
AES Eastern Energy L.P.
9.00%, due 7/2/17 (c)....... $ 855,000 $ 840,038
Caithness Coso Fund Group
9.05%, due 12/15/09 (c)..... 700,000 698,250
CMS Energy Corp.
8.375%, due 7/1/03.......... 2,295,000 2,288,163
--------------
3,826,451
--------------
FINANCE (0.3%)
CB Richard Ellis Services,
Inc.
8.875%, due 6/1/06.......... 950,000 916,750
Fremont General Corp.
Series B
7.70%, due 3/17/04.......... 4,160,000 4,112,701
--------------
5,029,451
--------------
FINANCIAL SERVICES (0.2%)
Sears Roebuck Acceptance
Corp.
Medium-Term Note
Series IV
6.36%, due 12/4/01.......... 3,500,000 3,498,215
--------------
FOOD, BEVERAGES & TOBACCO (0.6%)
Coca-Cola Enterprises Inc.
6.95%, due 11/15/26......... 1,910,000 1,820,230
RJ Reynolds Tobacco Holdings
Inc.
7.75%, due 5/15/06 (c)...... 9,045,000 8,682,567
Standard Commercial Tobacco
Corp.
8.875%, due 8/1/05.......... 525,000 433,125
--------------
10,935,922
--------------
HEALTHCARE (0.1%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/2095....... 935,000 737,630
Express Scripts, Inc.
9.625%, due 6/15/09 (c)..... 840,000 850,500
--------------
1,588,130
--------------
HEAVY DUTY TRUCKS (0.2%)
Dana Corp.
7.00%, due 3/1/29........... 2,890,000 2,667,354
--------------
HOMEBUILDING (0.0%) (b)
Standard Pacific Corp.
8.50%, due 4/1/09........... 425,000 403,750
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 560
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOTEL (0.1%)
Felcor Suites LP
7.625%, due 10/1/07......... $ 600,000 $ 558,000
Starwood Hotels & Resorts
7.375%, due 11/15/15........ 495,000 425,701
--------------
983,701
--------------
INSURANCE (0.4%)
Conseco, Inc.
6.40%, due 6/15/01.......... 6,100,000 5,982,148
Willis Corroon Corp.
9.00%, due 2/1/09 (c)....... 870,000 838,463
--------------
6,820,611
--------------
INVESTMENT BANK/BROKERAGE (0.8%)
Donaldson, Lufkin & Jenrette
Inc.
5.875%, due 4/1/02.......... 6,195,000 6,102,942
Goldman Sachs Group
6.65%, due 5/15/09.......... 7,345,000 7,112,531
Lehman Brothers Holdings,
Inc.
6.625%, due 2/5/06.......... 1,370,000 1,313,227
--------------
14,528,700
--------------
MEDIA (0.3%)
CSC Holdings, Inc.
7.625%, due 7/15/18......... 530,000 490,912
Turner Broadcasting System,
Inc.
8.375%, due 7/1/13.......... 3,934,000 4,239,790
--------------
4,730,702
--------------
MINING (0.1%)
Great Central Mines, Ltd.
8.875%, due 4/1/08.......... 560,000 532,000
Murrin Murrin Holdings Pty
Ltd.
9.375%, due 8/31/07......... 465,000 411,525
--------------
943,525
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.0%) (b)
Western Gas Resources, Inc.
10.00%, due 6/15/09 (c)..... 565,000 576,300
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
OIL SERVICES (0.4%)
Conoco, Inc.
6.95%, due 4/15/29.......... $ 2,795,000 $ 2,620,313
R & B Falcon Corp.
6.95%, due 4/15/08.......... 675,000 543,375
RBF Finance Co.
11.375%, due 3/15/09 (c).... 150,000 155,250
Vastar Resources Inc.
6.50%, due 4/1/09........... 2,965,000 2,873,293
--------------
6,192,231
--------------
PAPER & FOREST PRODUCTS (0.1%)
Pope & Talbot Inc.
8.375%, due 6/1/13.......... $ 1,300,000 1,170,000
--------------
REAL ESTATE (0.3%)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07.......... 850,000 726,929
Hospitality Properties Trust
7.00%, due 3/1/08........... 600,000 520,612
Mack-Cali Realty L.P.
7.00%, due 3/15/04.......... 4,660,000 4,597,276
--------------
5,844,817
--------------
RETAIL (0.0%) (b)
K Mart Corp.
8.375%, due 7/1/22.......... 500,000 500,498
--------------
SEMICONDUCTORS (0.0%) (b)
Amkor Technologies, Inc.
9.25%, due 5/1/06 (c)....... 370,000 360,750
--------------
SPECIALIZED SERVICES (0.2%)
WPP Finance USA Corp.
6.625%, due 7/15/05......... 2,690,000 2,552,407
--------------
TELECOMMUNICATION SERVICES (0.4%)
Orange PLC
8.00%, due 8/1/08........... 730,000 697,150
Price Communications Wire
Corp.
9.125%, due 12/15/06........ 1,355,000 1,368,550
Sprint Capital Corp.
6.875%, due 11/15/28........ 5,405,000 4,938,819
--------------
7,004,519
--------------
Total Corporate Bonds
(Cost $109,215,265)......... 106,198,508
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 561
MainStay Total Return Fund
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (2.3%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (2.3%)
Asset Securitization Corp.
Series 1997-MD7 Class A1B
7.41%, due 1/13/30 (e)...... $ 7,186,000 $ 7,351,709
DLJ Commercial Mortgage Corp.
Series 1998-CF2 Class A1B
6.88%, due 7/10/08 (e)...... 5,040,000 5,102,496
LB Commercial Conduit
Mortgage Trust
Series 1998-C4 Class A1B
6.21%, due 10/15/35 (e)..... 4,790,000 4,564,583
Series 1999-C1 Class A2
6.78%, due 10/15/30 (e)..... 4,855,000 4,799,847
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C2 Class A1
7.1752%, due 6/15/21
(e)(f)...................... 4,043,991 4,064,494
Morgan Stanley Capital I
Series 1998-HF2 Class A1
6.01%, due 11/15/30 (e)..... 3,570,335 3,480,469
Nationslink Funding Corp.
Series 1999-1 Class A2
6.316%, due 1/20/31......... 6,540,000 6,278,008
SASCO Floating Rate
Commercial Mortgage Trust
Series 1998-C3A Class A1A
5.6425%, due 6/25/15
(c)(f)...................... 4,744,031 4,744,031
--------------
Total Mortgage-Backed
Securities
(Cost $40,794,112).......... 40,385,637
--------------
U.S. GOVERNMENT & FEDERAL AGENCIES (18.2%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.5%)
5.125%, due 2/13/04 (g)..... 16,800,000 16,097,088
6.375%, due 6/15/09 (g)..... 10,920,000 10,867,912
--------------
26,965,000
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (7.1%)
6.50%, due
10/1/07-12/1/27........... 41,304,928 40,249,270
6.50%, due 4/1/29 (g)....... 34,495,917 33,428,613
7.00%, due 12/1/12.......... 12,435,278 12,507,154
7.00%, due 9/15/29 TBA
(d)....................... 9,825,000 9,716,041
7.50%, due 7/14/29 TBA
(d)....................... 28,405,000 28,795,569
--------------
124,696,647
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
--------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (2.6%)
7.00%, due 9/15/28.......... $23,274,511 $ 23,056,430
7.50%, due 12/15/23-
11/25/28.................. 13,764,240 13,952,766
8.00%, due 11/25/28......... 7,893,997 8,135,790
--------------
45,144,986
--------------
UNITED STATES TREASURY BONDS (2.7%)
5.25%, due 11/15/28......... 10,310,000 9,138,887
7.625%, due 2/15/25......... 1,970,000 2,323,674
8.875%, due 8/15/17 (g)..... 14,690,000 18,766,475
9.25%, due 2/15/16 (g)...... 12,915,000 16,821,787
--------------
47,050,823
--------------
UNITED STATES TREASURY NOTES (4.3%)
5.375%, due 6/30/03 (g)..... 11,795,000 11,653,106
5.50%, due 5/15/09 (g)...... 31,665,000 30,932,589
6.25%, due 2/28/02-2/15/03
(g)....................... 31,120,000 31,593,838
--------------
74,179,533
--------------
Total U.S. Government &
Federal Agencies
(Cost $325,503,545)......... 318,036,989
--------------
YANKEE BONDS (0.7%)
CABLE (0.0%) (b)
Rogers Cablesystem, Ltd.
10.125%, due 9/1/12......... 240,000 257,100
--------------
ELECTRIC UTILITIES (0.2%)
United Utilities, PLC
6.45%, due 4/1/08........... 4,295,000 4,042,969
--------------
INDUSTRIAL (0.1%)
Stena Line AB
10.50%, due 12/15/05........ 700,000 698,250
--------------
MEDIA (0.1%)
Rogers Communications, Inc.
8.875%, due 7/15/07......... 1,060,000 1,065,300
--------------
MINING (0.0%) (b)
Glencore Nickel Property Ltd.
9.00%, due 12/1/14.......... 340,000 292,400
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 562
Portfolio of Investments unaudited (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
---------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
MULTI-INDUSTRIAL (0.3%)
Tyco International Group S.A.
7.00%, due 6/15/28.......... $ 5,295,000 $ 4,936,529
--------------
OIL SERVICES (0.0%) (b)
Husky Oil, Ltd.
8.90%, due 8/15/28.......... 85,000 82,291
--------------
TELECOMMUNICATION SERVICES (0.0%) (b)
Call-Net Enterprises, Inc.
9.375%, due 5/15/09......... 285,000 271,463
(zero coupon), due 5/15/09
10.80%, beginning
5/15/04................... 730,000 403,325
--------------
674,788
--------------
TRANSPORTATION (0.0%) (b)
Cenargo International PLC
9.75%, due 6/15/08.......... 575,000 531,875
--------------
Total Yankee Bonds
(Cost $13,547,871).......... 12,581,502
--------------
Total Long-Term Bonds
(Cost $573,114,226)......... 560,022,994
--------------
Shares
-----------
COMMON STOCKS (65.8%)
BANKS (1.3%)
Firstar Corp. ............... 190,000 5,320,000
Wells Fargo, Co. ............ 395,900 16,924,725
--------------
22,244,725
--------------
CABLE TELEVISION (0.4%)
Univision Communications Inc.
Class A (a)................. 100,000 6,600,000
--------------
COMPUTERS & OFFICE EQUIPMENT (4.6%)
EMC Corp. (a)(g)............. 635,000 34,925,000
Sun Microsystems, Inc. (a)... 653,400 45,002,925
--------------
79,927,925
--------------
COSMETICS (1.2%)
Colgate-Palmolive Co......... 212,700 21,004,125
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------------------------------
<S> <C> <C>
DRUGS (4.3%)
Elan Corp. PLC ADR
(a)(g)(h)................... 426,000 $ 11,821,500
Merck & Co., Inc. ........... 201,600 14,918,400
Pfizer, Inc.................. 160,900 17,658,775
Schering-Plough Corp......... 564,600 29,923,800
--------------
74,322,475
--------------
FINANCIAL SERVICES (5.6%)
Associates First Capital
Corp. Class A............... 635,100 28,142,869
Citigroup Inc................ 593,096 28,172,036
Equifax Inc.................. 273,000 9,742,688
Freddie Mac.................. 200,300 11,617,400
Providian Financial Corp..... 217,850 20,368,975
--------------
98,043,968
--------------
HEALTH CARE (2.0%)
Cardinal Health, Inc. (a).... 309,000 19,814,625
IMS Health Inc. ............. 513,800 16,056,250
--------------
35,870,875
--------------
HOTEL/MOTEL (0.7%)
Carnival Corp................ 264,700 12,837,950
--------------
INSURANCE (2.2%)
American International Group,
Inc......................... 331,856 38,847,893
--------------
LEISURE TIME (1.4%)
Harley-Davidson, Inc......... 455,600 24,773,250
--------------
MEDIA (1.9%)
Chancellor Media Corp.
(a)(g)...................... 252,000 13,891,500
Clear Channel Communications,
Inc. (a).................... 271,500 18,716,531
--------------
32,608,031
--------------
MEDICAL EQUIPMENT (4.9%)
Guidant Corp................. 536,000 27,570,500
Johnson & Johnson............ 276,688 27,115,424
Medtronic, Inc............... 400,000 31,150,000
--------------
85,835,924
--------------
MULTI-INDUSTRIAL (3.0%)
Tyco International Ltd....... 559,874 53,048,113
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 563
MainStay Total Return Fund
<TABLE>
<CAPTION>
Shares Value
-------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RECREATION & ENTERTAINMENT (1.1%)
Fox Entertainment Group, Inc.
(a)......................... 130,700 $ 3,520,731
Time Warner Inc.............. 219,900 15,832,800
--------------
19,353,531
--------------
RETAIL (13.1%)
Bed Bath & Beyond, Inc.
(a)......................... 396,000 15,246,000
Circuit-City Stores.......... 269,600 25,072,800
CVS Corp..................... 468,700 23,962,288
Dollar General Corp.......... 512,183 14,853,293
Home Depot, Inc. (The)....... 458,900 29,570,368
Kohl's Corp. (a)............. 442,100 34,124,593
Kroger Co. (The) (a)......... 893,600 24,964,950
Nordstrom Inc. .............. 309,500 10,368,250
Safeway, Inc. (a)............ 427,200 21,146,400
Staples, Inc. (a)............ 939,000 29,050,313
--------------
228,359,255
--------------
SOFTWARE (5.3%)
America Online Inc. (a)...... 60,000 6,630,000
Compuware Corp. (a).......... 785,200 24,979,175
Microsoft Corp. (a).......... 450,000 40,584,375
Oracle Corp. (a)............. 533,525 19,807,116
--------------
92,000,666
--------------
SPECIALIZED SERVICES (1.9%)
Cendant Corp. (a)............ 794,786 16,293,113
Omnicom Group, Inc........... 216,400 17,312,000
--------------
33,605,113
--------------
TECHNOLOGY (4.8%)
Cisco Systems, Inc. (a)...... 751,650 48,340,491
Intel Corp. ................. 335,000 19,932,500
Motorola Inc................. 160,900 15,245,275
--------------
83,518,266
--------------
TELECOMMUNICATION EQUIPMENT (2.7%)
Lucent Technologies Inc...... 690,200 46,545,363
--------------
TELECOMMUNICATION SERVICES (3.4%)
ALLTEL Corp.................. 295,600 21,135,400
MCI WorldCom, Inc. (a)....... 444,728 38,357,790
--------------
59,493,190
--------------
Total Common Stocks
(Cost $544,760,775)......... 1,148,840,638
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
-------------------------------
<S> <C> <C>
PREFERRED STOCK (0.0%) (b)
PAPER & FOREST PRODUCTS (0.0%) (b)
Paperboard Industries
International, Inc.
5.00%, Class A (c)(i)(j).... 40,000 $ 618,201
--------------
Total Preferred Stock
(Cost $665,691)............. 618,201
--------------
SHORT-TERM INVESTMENTS (4.0%)
COMMERCIAL PAPER (4.0%)
American Express Credit Corp.
4.92%, due 7/7/99........... $15,000,000 14,987,683
Chevron USA
4.94%, due 7/8/99........... 10,000,000 9,990,381
Ford Motor Credit Corp.
5.08%, due 7/15/99.......... 15,810,000 15,778,740
General Electric Capital
Corp.
5.60%, due 7/9/99........... 8,635,000 8,625,413
KFW International Finance
Inc.
5.70%, due 7/1/99........... 12,660,000 12,660,000
Salomon Smith Barney, Inc.
5.14%, due 7/21/99.......... 7,955,000 7,932,860
--------------
Total Short-Term Investments
(Cost $69,975,077).......... 69,975,077
--------------
Total Investments
(Cost $1,188,515,769)(k).... 101.9% 1,779,456,910(l)
Liabilities in Excess of
Cash and Other Assets....... (1.9) (33,690,136)
--------- -----------
Net Assets................... 100.0% $1,745,766,774
========= ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and
maturity date will be determined upon settlement.
(e) Segregated as collateral for TBA.
(f) Floating rate. Rate shown is the rate in effect at June 30, 1999.
(g) Represent securities out on loan or a portion which is out on loan.
(h) ADR--American Depository Receipt.
(i) Restricted Security
(j) Canadian Security
(k) The cost for Federal income tax purposes is $1,189,603,012.
(l) At June 30, 1999 net unrealized appreciation was $589,853,898, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $612,191,354 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $22,337,456.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 564
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,188,515,769)........................................... $1,779,456,910
Collateral held for securities loaned, at value (Note 2).... 193,713,498
Receivables:
Investment securities sold................................ 31,712,133
Dividends and interest.................................... 6,461,215
Fund shares sold.......................................... 2,592,010
--------------
Total assets.......................................... 2,013,935,766
--------------
LIABILITIES:
Securities lending collateral, at value (Note 2)............ 193,713,498
Payables:
Investment securities purchased........................... 65,127,663
Fund shares redeemed...................................... 3,550,987
NYLIFE Distributors....................................... 1,278,940
MainStay Management....................................... 861,676
Transfer agent............................................ 322,837
Custodian................................................. 128,154
Trustees.................................................. 12,864
Accrued expenses............................................ 219,418
Dividends payable........................................... 2,952,955
--------------
Total liabilities..................................... 268,168,992
--------------
Net assets.................................................. $1,745,766,774
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 67,471
Class B................................................... 603,043
Class C................................................... 1,034
Additional paid-in capital.................................. 1,099,836,294
Accumulated undistributed net investment income............. 101,785
Accumulated undistributed net realized gain on
investments............................................... 54,216,006
Net unrealized appreciation on investments.................. 590,941,141
--------------
Net assets.................................................. $1,745,766,774
==============
CLASS A
Net assets applicable to outstanding shares................. $ 175,424,131
==============
Shares of beneficial interest outstanding................... 6,747,088
==============
Net asset value per share outstanding....................... $ 26.00
Maximum sales charge (5.50% of offering price).............. 1.51
--------------
Maximum offering price per share outstanding................ $ 27.51
==============
CLASS B
Net assets applicable to outstanding shares................. $1,567,654,510
==============
Shares of beneficial interest outstanding................... 60,304,277
==============
Net asset value and offering price per share outstanding.... $ 26.00
==============
CLASS C
Net assets applicable to outstanding shares................. $ 2,688,133
==============
Shares of beneficial interest outstanding................... 103,431
==============
Net asset value and offering price per share outstanding.... $ 26.00
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 565
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 2,457,542
Interest.................................................. 18,494,989
-----------
Total income............................................ 20,952,531
-----------
Expenses:
Distribution--Class B..................................... 5,671,867
Distribution--Class C..................................... 5,228
Management................................................ 5,385,866
Service--Class A.......................................... 211,607
Service--Class B.......................................... 1,890,482
Service--Class C.......................................... 1,765
Transfer agent............................................ 1,814,683
Shareholder communication................................. 135,973
Recordkeeping............................................. 97,378
Custodian................................................. 93,125
Professional.............................................. 55,243
Registration.............................................. 51,695
Trustees.................................................. 25,575
Miscellaneous............................................. 27,354
-----------
Total expenses before waiver............................ 15,467,841
Fees waived by Manager...................................... (237,438)
-----------
Net expenses............................................ 15,230,403
-----------
Net investment income....................................... 5,722,128
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 44,920,762
Net change in unrealized appreciation on investments........ 23,654,105
-----------
Net realized and unrealized gain on investments............. 68,574,867
-----------
Net increase in net assets resulting from operations........ $74,296,995
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 566
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 5,722,128 $ 13,883,951
Net realized gain on investments.......................... 44,920,762 105,931,200
Net change in unrealized appreciation on investments...... 23,654,105 218,222,952
-------------- --------------
Net increase in net assets resulting from operations...... 74,296,995 338,038,103
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (1,147,857) (2,124,948)
Class B................................................. (4,499,616) (11,787,858)
Class C................................................. (6,060) (451)
From net realized gain on investments:
Class A................................................. -- (10,013,091)
Class B................................................. -- (98,019,575)
Class C................................................. -- (22,717)
-------------- --------------
Total dividends and distributions to shareholders..... (5,653,533) (121,968,640)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 51,272,781 47,181,125
Class B................................................. 140,001,785 192,230,492
Class C................................................. 2,462,945 333,029
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 526,625 11,361,962
Class B................................................. 2,082,685 107,387,116
Class C................................................. 1,945 23,067
-------------- --------------
196,348,766 358,516,791
Cost of shares redeemed:
Class A................................................. (35,846,253) (33,765,899)
Class B................................................. (118,540,338) (211,986,554)
Class C................................................. (207,352) --
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 41,754,823 112,764,338
-------------- --------------
Net increase in net assets............................ 110,398,285 328,833,801
NET ASSETS:
Beginning of period......................................... 1,635,368,489 1,306,534,688
-------------- --------------
End of period............................................... $1,745,766,774 $1,635,368,489
============== ==============
Accumulated undistributed net investment income at end of
period.................................................... $ 101,785 $ 33,190
============== ==============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 567
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ------------------------------------------------
1999+ 1998 1997 1996 1995
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 24.96 $ 21.44 $ 20.09 $ 18.53 $ 14.76
-------- -------- -------- ------- -------
Net investment income..................................... 0.17 0.39 0.40 0.37 0.42
Net realized and unrealized gain (loss) on investments.... 1.04 5.29 3.19 2.07 3.77
-------- -------- -------- ------- -------
Total from investment operations.......................... 1.21 5.68 3.59 2.44 4.19
-------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income.............................. (0.17) (0.39) (0.40) (0.37) (0.42)
From net realized gain on investments................... -- (1.77) (1.84) (0.51) --
-------- -------- -------- ------- -------
Total dividends and distributions......................... (0.17) (2.16) (2.24) (0.88) (0.42)
-------- -------- -------- ------- -------
Net asset value at end of period.......................... $ 26.00 $ 24.96 $ 21.44 $ 20.09 $ 18.53
======== ======== ======== ======= =======
Total investment return (a)............................... 4.85% 26.93% 18.24% 13.22% 28.66%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................. 1.35%++ 1.66% 1.86% 1.9% 2.5%
Net expenses.......................................... 1.13%++ 1.16% 1.15% 1.1% 1.1%
Expenses (before waiver).............................. 1.16%++ 1.18% 1.15% 1.1% 1.1%
Portfolio turnover rate................................... 62% 169% 182% 173% 228%
Net assets at end of period (in 000's).................... $175,424 $152,598 $108,329 $68,975 $19,206
</TABLE>
- -------
<TABLE>
<C> <S>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 568
<TABLE>
<CAPTION>
Class B Class C
- ---------------------------------------------------------------------------------------- ---------------------------
Six months September 1 Six months September 1**
ended Year ended December 31, through Year ended ended through
June 30, ----------------------------------------------- December 31 August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998
- ---------- ---------- ---------- ---------- -------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24.96 $ 21.45 $ 20.10 $ 18.53 $ 14.76 $ 15.28 $ 15.42 $24.96 $21.70
- ---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
0.07 0.21 0.29 0.27 0.33 0.11 0.38 0.07 0.11
1.04 5.28 3.19 2.08 3.77 (0.52) (0.02) 1.04 5.03
- ---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
1.11 5.49 3.48 2.35 4.10 (0.41) 0.36 1.11 5.14
- ---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
(0.07) (0.21) (0.29) (0.27) (0.33) (0.11) (0.37) (0.07) (0.11)
-- (1.77) (1.84) (0.51) -- -- (0.13) -- (1.77)
- ---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
(0.07) (1.98) (2.13) (0.78) (0.33) (0.11) (0.50) (0.07) (1.88)
- ---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
$ 26.00 $ 24.96 $ 21.45 $ 20.10 $ 18.53 $ 14.76 $ 15.28 $26.00 $24.96
========== ========== ========== ========== ======== ======== ======== ====== ======
4.47% 25.96% 17.65% 12.73% 27.96% (2.65%) 2.41% 4.47% 23.94%
0.60%++ 0.91% 1.36% 1.4% 2.0% 2.5%++ 2.5% 0.60%++ 0.91%++
1.88%++ 1.91% 1.65% 1.6% 1.7% 1.7%++ 1.7% 1.88%++ 1.91%++
1.91%++ 1.93% 1.65% 1.6% 1.7% 1.7%++ 1.7% 1.91%++ 1.93%++
62% 169% 182% 173% 228% 74% 273% 62% 169%
$1,567,655 $1,482,411 $1,198,206 $1,029,878 $860,881 $648,725 $639,619 $2,688 $ 359
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 569
MainStay Total Return Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Total Return Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on December 29, 1987
and September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to realize current income consistent with
reasonable opportunity for future growth of capital and income.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities
20
<PAGE> 570
Notes to Financial Statements unaudited
not quoted on the NASDAQ system at prices supplied by the pricing agent or
brokers selected by the Subadvisor, if these prices are deemed to be
representative of market values at the regular close of business of the
Exchange, (e) by appraising debt securities at prices supplied by a pricing
agent selected by the Subadvisor, whose prices reflect broker/dealer supplied
valuations and electronic data processing techniques if those prices are deemed
by the Subadvisor to be representative of market values at the regular close of
business of the Exchange and (f) by appraising all other securities and other
assets, including debt securities for which prices are supplied by a pricing
agent but are not deemed by the Subadvisor to be representative of market
values, but excluding money market instruments with a remaining maturity of
sixty days or less and including restricted securities and securities for which
no market quotations are available, at fair value in accordance with procedures
approved by the Trustees. Short-term securities which mature in more than 60
days are valued at current market quotations. Short-term securities which mature
in 60 days or less are valued at amortized cost if their term to maturity at
purchase was 60 days or less, or by amortizing the difference between market
value on the 61st day prior to maturity and value on maturity date if their
original term to maturity at purchase exceeded 60 days.
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933. Disposal of these
securities may involve time-consuming negotiations and expenses, and prompt sale
at an acceptable price may be difficult.
The issuers of the securities will bear the costs involved in registration under
the 1933 Act and in connection with the disposition of such securities. The Fund
does not have the right to demand that such securities be registered. The Fund
may not invest more than 10% of its net assets in illiquid securities.
Restricted security held at June 30, 1999:
<TABLE>
<CAPTION>
Percent
Acquisition 6/30/99 of
Security Date Shares Cost Value Net Assets
-------- ----------- ------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Paperboard Industries International, Inc. 5.00%,
Class A Preferred Stock....................... 5/4/98 40,000 $665,691 $618,201 0.0%(a)
======== ======== ====
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
</TABLE>
MORTGAGE DOLLAR ROLLS. The fund enters into mortgage dollar roll ("MDR")
transactions for which it sells mortgage-backed securities ("MBS") from its
portfolio to a counterparty from whom it simultaneously agrees to buy a similar
security on a delayed delivery basis. The MDR transactions of the Fund are
classified as purchase and sale transactions. The securities sold in connection
with the MDRs are removed from the portfolio and a realized gain or loss is
recognized. The securities the Fund has agreed to acquire are included at market
value in the portfolio of investments and liabilities for such purchase
commitments
21
<PAGE> 571
MainStay Total Return Fund
are included as payables for investments purchased. The fund maintains a
segregated account with its custodian containing securities from its portfolio
having a value not less than the repurchase price, including accrued interest.
MDR transactions involve certain risks, including the risk that the MBS returned
to the Fund at the end of the roll, while substantially similar, could be
inferior to what was initially sold to the counterparty.
SECURITIES LENDING. The Fund may lend its securities to broker-dealers and
financial institutions. The loans are secured by collateral (cash or securities)
at least equal at all times to the market value of the securities loaned. The
Fund may bear the risk of delay in recovery of, or loss of rights in, the
securities loaned should the borrower of the securities fail financially. The
Fund receives compensation for lending its securities in the form of fees or it
retains a portion of interest on the investment of any cash received as
collateral. The Fund also continues to receive interest and dividends on the
securities loaned and any gain or loss in the market price of the securities
loaned that may occur during the term of the loan will be for the account of the
Fund.
At June 30, 1999, the Fund had portfolio securities with a fair market value of
$187,638,236 on loan to broker-dealers and government securities dealers.
Cash collateral received by the Fund is invested in investment grade commercial
paper, or other securities in accordance with the Fund's securities lending
procedures. Such investments are included as an asset and a corresponding
liability in the Statement of Assets and Liabilities. While the Fund invests
cash collateral in investment grade securities or other "high quality"
investment vehicles, the Fund bears the risk that liability for the collateral
may exceed the value of the investment.
Net income earned on securities lending amounted to $186,978, net of broker fees
and rebates, for the six months ended June 30, 1999, which is included as
interest income on the Statement of Operations.
22
<PAGE> 572
Notes to Financial Statements unaudited (continued)
Investments made with cash collateral at June 30, 1999:
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Amsterdam Funding Corp.
5.127%, due 8/18/99...................................... $15,000,000 $ 14,862,417
Atlantis One Funding Corp.
5.104%, due 7/1/99....................................... 10,000,000 9,991,500
British Gas Int'l Finance BV
4.988%, due 9/8/99....................................... 10,000,000 10,123,100
Cincinnati Bell
5.901%, due 7/1/99....................................... 11,090,000 11,088,182
Countrywide Home
5.307%, due 7/9/99....................................... 15,000,000 14,980,125
Liberty Lighthouse Funding
5.16%, due 11/5/99....................................... 20,000,000 19,991,197
MBNA Master Credit Card Trust
5.038%, due 7/15/99...................................... 8,547,500 8,550,839
Park Avenue Receivables
5.123%, due 8/13/99...................................... 3,500,00 3,470,367
Park Avenue Receivables
5.376%, due 7/7/99....................................... 25,000,000 24,973,896
Textron Financial Corp.
5.255%, due 11/24/99..................................... 15,000,000 14,997,836
Thames Asset Global Securitization
5.373%, due 7/15/99...................................... 6,700,000 6,684,039
------------
139,713,498
------------
REPURCHASE AGREEMENTS
Bear Stearns Securities Corp.
6.09%, due 12/31/99
(Collateralized by
$38,415,000 CS First Boston
Mortgage Securities Corp. 1997-C1 CI A1A
6.09%, due 1/20/04, Market Value $30,636,316).... 30,000,000 30,000,000
</TABLE>
23
<PAGE> 573
MainStay Total Return Fund
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (Continued)
Lehman Brothers, Inc.
6.20%, due 12/31/99
(Collateralized by
$8,466,461 Green Tree Financial Corp. 1994-B CI A
7.85%, due 7/15/04, Market Value $8,509,788
$9,090,000 WMC Mortgage Loan 1998-1 CI B
6.32%, due 4/20/29, Market Value $8,731,854
$3,980,000 Green Tree Financial Corp. 1995-3 CI M1
7.95%, due 7/15/25, Market Value $3,660,565
$3,055,000 Green Tree Financial Corp. 1993-3 CI A6
6.10%, due 10/15/18, Market Value $2,999,155
$141,003 Green Tree Financial Corp. 1994-A CI A
6.90%, due 2/15/04, Market Value $140,515
$565,000 Green Tree Financial Corp. 1996-2 CI M1
7.60%, due 4/15/27, Market Value $566,836
$160,000 Green Tree Financial Corp. 1995-1 CI B2
9.20%, due 6/15/25, Market Value $161,019
$975 Green Tree Home Improvement Loan Trust 1994-D CI B2
9.30%, due 3/15/09, Market Value $893)............. $24,000,000 $ 24,000,000
------------
$193,713,498
============
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method and include gains
and losses from repayments of principal on mortgage backed securities. Dividend
income is recognized on the ex-dividend date and interest income is accrued
daily except when collection is not expected. Discounts on securities purchased
for the Fund are accreted on the constant yield method over
24
<PAGE> 574
Notes to Financial Statements unaudited (continued)
the life of the respective securities or, if applicable, over the period to the
first call date. Premiums on securities purchased are not amortized for this
Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.64% of the Fund's
average daily net assets. The Manager has voluntarily established a fee
breakpoint, which may be discontinued at any time, of 0.60% on assets in excess
of $500 million. For the six months ended June 30, 1999 the Manager earned
$5,385,866 and waived $237,438 of its fees.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee of 0.32% of
the average daily net assets of the Fund on assets up to $500 million. To the
extent that the Manager has voluntarily established a fee breakpoint, the
Subadvisor has voluntarily agreed to do so proportionately.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of
25
<PAGE> 575
MainStay Total Return Fund
0.25% of the average daily net assets of the Fund's Class A shares, which is an
expense of the Class A shares of the Fund for distribution or service activities
as designated by the Distributor. Pursuant to the Class B and Class C Plans, the
Fund pays the Distributor a monthly fee, which is an expense of the Class B and
Class C shares of the Fund, at the annual rate of 0.75% of the average daily net
assets of the Fund's Class B and Class C shares. The Distribution Plan provides
that the Class B and Class C shares of the Fund also incur a service fee at the
annual rate of 0.25% of the average daily net asset value of the Class B or
Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $74,148 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $600,797 and $228, respectively, for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $1,814,683.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $25,290 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$97,378 for the six months ended June 30, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of U.S.
Government securities, other than short-term securities, were $615,323,258 and
$609,972,711, respectively. Purchases and sales of securities, other than U.S.
Government securities, securities subject to repurchase transactions and
short-term securities, were $497,077,828 and $472,109,910, respectively.
26
<PAGE> 576
Notes to Financial Statements unaudited (continued)
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......................... 2,020 5,503 97 2,028 8,196 13
Shares issued in reinvestment of
dividends and distributions........ 20 81 --(a) 470 4,431 1
------ ------ -- ------ ------ --
2,040 5,584 97 2,498 12,627 14
Shares redeemed...................... (1,406) (4,668) (8) (1,437) (9,102) --
------ ------ -- ------ ------ --
Net increase......................... 634 916 89 1,061 3,525 14
====== ====== == ====== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand shares.
</TABLE>
27
<PAGE> 577
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
28
<PAGE> 578
This page intentionally left blank
<PAGE> 579
This page intentionally left blank
<PAGE> 580
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee TOTAL RETURN FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Total Return Fund. It may be given to others
only when preceded or accompanied by an effective MainStay
Funds prospectus. This report does not offer to sell any securities
or solicit orders to buy them.
(c)1999. All rights reserved. MSSAS15-08/99
[RECYCLED PAPER LOGO]
</TABLE>
<PAGE> 581
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Value
Fund versus S&P 500 and Inflation--Class
A, Class B, and Class C Shares 4
Portfolio Management Discussion and
Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay Funds 23
</TABLE>
<PAGE> 582
This page intentionally left blank
2
<PAGE> 583
President's Letter
This report outlines the key events that affected your MainStay Fund in the
first half of 1999. Throughout this period, each MainStay Fund continued to be
managed with a consistent, disciplined process, seeking competitive returns in
all market environments. Our Funds invest across a wide range of issuers and
most are also diversified by industry, market sector, or geographic region.
During the six-month reporting period, the U.S. stock market provided returns
well above historical norms, reaching new highs in mid-May, then backing off
before surging ahead again at the end of June. Coming on the heels of three
consecutive years of above-average returns, recent stock market advances have
been impressive, supported by an expanding economy, relatively low interest
rates, and benign inflation. To maintain realistic expectations, however,
MainStay recommends consulting with your investment professional to better
understand longer-term market trends and volatility patterns. While the past
doesn't guarantee the direction of future results, knowledge of historical
return relationships can help investors prepare for the possibility of both up
and down markets.
Recent performance shifts among international stocks have provided a case in
point. Asian and Latin American stocks, which had experienced severe setbacks in
1998, showed strong recoveries in the first half of 1999, bringing performance
trends more closely in line with historical norms.
A long-term perspective could also benefit income investors, who saw prices on
most domestic bonds decline as yields rose throughout the first half of the
year. After carefully signaling its intentions, the Federal Reserve Board moved
to raise the targeted federal funds rate by 0.25% at the end of June. In Europe,
bonds also suffered primarily due to weakness in the euro and uncertainty over
Kosovo. Emerging market bonds, on the other hand, generally recovered during the
first half of the year.
By offering a wide range of Funds with different investment objectives and
portfolio management styles, MainStay can help you diversify your portfolio,
which may help to cushion the effects of volatility in any single market. In
June, we were pleased to introduce the MainStay MAP Equity Fund, to further
broaden our Fund selection and give you access to an additional subadvisor,
Markston International, LLC.
On the following pages, you'll review the results of your specific MainStay
investment, with commentary from the portfolio managers. Your investment
professional can help you assess these short-term results in light of
longer-term trends and evaluate any adjustments that may be appropriate as we
approach the new millennium.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 1999
3
<PAGE> 584
$10,000 Invested in the
MainStay Value Fund versus
S&P 500 and Inflation
CLASS A SHARES SEC Returns: 1 Year -2.58%, 5 Year 14.01%, 10 Year 13.83%
<TABLE>
<CAPTION>
PERIOD END MAINSTAY VALUE FUND S&P 500* INFLATION+
- ---------- ------------------- -------- ----------
<S> <C> <C> <C>
6/89 9450.00 10000.00 10000.00
6/90 10058.00 11649.00 10467.00
6/91 11254.00 12510.00 10959.00
6/92 14049.00 14187.00 10298.00
6/93 16870.00 16121.00 11637.00
6/94 17910.00 16348.00 11926.00
6/95 20597.00 20611.00 12289.00
6/96 24640.00 25969.00 12627.00
6/97 31034.00 34983.00 12917.00
6/98 35415.00 45531.00 13134.00
6/99 36508.00 55898.00 13277.00
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year -2.69%, 5 Year 14.44%, 10
Year 14.15% Class C SEC Returns: 1 Year 1.31%, 5 Year 14.67%, 10 Year 14.15%
<TABLE>
<CAPTION>
PERIOD END MAINSTAY VALUE FUND S&P 500* INFLATION+
- ---------- ------------------- -------- ----------
<S> <C> <C> <C>
6/89 10000 10000 10000
6/90 10643 11649 10467
6/91 11909 12510 10959
6/92 14866 14187 11298
6/93 17852 16121 11637
6/94 18952 16348 11926
6/95 21731 20611 12289
6/96 25859 25969 12627
6/97 32389 34984 12917
6/98 36728 45531 13134
6/99 37577 55898 13277
</TABLE>
- -------
Past performance is no guarantee of future results. SEC returns shown assume
capital gain and dividend distributions are reinvested, and in compliance
with SEC guidelines, include the maximum sales charge (see below) and show
the percentage change for each of the required periods. The Class A graph
assumes an initial investment of $10,000 made on 6/30/89 reflecting the
effect of the 5.5% up-front sales charge, thereby reducing the amount of the
investment to $9,450, and includes the historical performance of the Class B
shares for periods from 6/30/89 through 12/31/94. Performance data for the
two classes vary after this date based on differences in their load and
expense structures. The Class B graph assumes an initial investment of
$10,000 made on 6/30/89. Performance does not reflect the Contingent
Deferred Sales Charge (CDSC)--up to 5% if shares are redeemed within the
first six years of purchase--as it would not apply for the period shown. The
Class C graph assumes an initial investment of $10,000 made on 6/30/89 and
includes the historical performance of the Class B shares for periods from
6/30/89 through 8/31/98. Performance data for the two classes vary after
this date based on differences in their loads. Performance does not reflect
the CDSC--1% if redeemed within one year of purchase--as it would not apply
for the period shown. All results include reinvestment of distributions at
net asset value and change in share price for the stated period.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
+ Inflation is represented by the Consumer Price Index (CPI), which is a
commonly used measure of the rate of inflation and shows the changes in the
cost of selected goods. It does not represent an investment return.
4
<PAGE> 585
Portfolio Management Discussion and Analysis
During the first six months of 1999, continued strength in the U.S. economy and
a visible recovery in Asian markets underscored the earnings prospects for most
value sectors. Volatility continued, fueled by concerns about inflation, rising
interest rates, and whether large-capitalization stocks with record-high
valuations could appreciate further. As a result, value stocks--with record-low
valuations and improving fundamentals--outperformed the broad market during
periods of increased volatility. At the end of June, the Federal Reserve
Board's shift from a tightening bias to a neutral stance sent most sectors of
the equity markets higher.
RESULTS AHEAD OF THE AVERAGE PEER FUND
For the first half of 1999, the MainStay Value Fund returned 15.49% for Class A
shares and 15.06% for Class B and Class C shares, excluding all sales charges.
All share classes strongly outperformed the 10.93% return of the average
Lipper(1) growth & income fund for the six months ended June 30, 1999.
The MainStay Value Fund was able to perform strongly as a result of its
overweighted positions in traditional value sectors, including basic materials,
energy, and consumer cyclicals--all of which showed impressive advances as Asian
markets recovered and commodity prices increased.
Leading the Fund's results were the following stocks. Adaptec is a manufacturer
of computer data-flow systems whose stock price benefited as the company reduced
expenses, restructured assets, and experienced strong demand for its products.
The stock of Union Pacific Resources, an oil and gas company, advanced with
rising oil prices, but also benefited from the company's restructuring and debt
reductions. Nippon Telegraph & Telephone shares rose with the Japanese economic
recovery, while management focused on increasing shareholder value.
Other strong performers for the Fund included United Healthcare, which had
positive earnings momentum as it actively repurchased stock, and
Georgia-Pacific, which also showed positive performance during the first half
of the year, with higher volume, robust pricing, and efficient operations that
helped lower costs.
Weak performers included Service Corp. International, one of the world's leading
funeral services companies, which the Fund purchased after a sharp price
decline. Despite cost-cutting initiatives that should enhance future earnings,
the stock did not perform well during the reporting period. Shaw Industries, a
floor covering manufacturer that is leaving its retail business to focus on
manufacturing, suffered as the market adjusted to its new strategy. Philip
Morris, which we believe continues to trade at a significant discount to asset
value, suffered from continuing litigation concerns. Even so, we believe the
outlook for the company is improving.
- -------
(1) See page 9 for additional information about Lipper, Inc.
5
<PAGE> 586
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[CLASS A BAR CHART]
<TABLE>
<CAPTION>
Period End Total Return %
<S> <C>
12/86 -9.51
12/87 -2.57
12/88 16.11
12/89 21.38
12/90 -6.05
12/91 41.26
12/92 19.52
12/93 13.55
12/94 -0.22
12/95 28.74
12/96 21.84
12/97 21.88
12/98 -7.41
6/99 15.49
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for the periods 12/86 through
12/94. See footnote * on page 8 for more information on performance.
CLASS B AND CLASS C SHARES
[CLASS B AND CLASS C BAR CHART]
<TABLE>
<CAPTION>
Period End Total Return %
<S> <C>
12/86 -9.51
12/87 -2.57
12/88 16.11
12/89 21.38
12/90 -6.05
12/91 41.26
12/92 19.52
12/93 13.55
12/94 -0.22
12/95 28.01
12/96 21.11
12/97 21.29
12/98 -8.09
6/99 15.06
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods 12/86
through 8/98. See footnote * on page 8 for more information on performance.
SOLID STRATEGY, SHIFTING HOLDINGS
The Mainstay Value Fund remains overweighted in traditional value sectors, with
a commitment to securities that appear to be priced well below their asset value
or earnings potential and exhibit a catalyst or stimulus for positive change.
In keeping with this core strategy, during the first half of 1999, the Fund
purchased shares of Seagate Technology, a data communications and management
company. Seagate has a clean balance sheet and strong earnings momentum and is
using excess cash to aggressively repurchase shares. Another stock the Fund
purchased was Smurfit-Stone Container, a paper and packaging company that may
benefit from the turnaround in Asian markets. The company is reducing costs
6
<PAGE> 587
and selling noncore assets and the stock has rebounded from its depressed
valuations, which had a positive impact on the Fund's performance.
The Fund also had some significant sales during the first half of 1999. When
telephone service provider US West faced disappointing earnings, we sold the
Fund's position in the stock at a profit. When Bank One's stock reached the
Fund's target valuation, we sold the Fund's position in a profitable transaction
for the Fund. The Fund also benefited when LucasVarity PLC was taken over by
TRW, and we used the proceeds of the sale of LucasVarity shares to purchase
additional securities for the Fund.
LOOKING AHEAD
The Federal Reserve Board's decision to remain neutral bodes well for a summer
stock market rally, but the pace of corporate earnings will remain the key to
assessing value. We believe the recent price corrections in selective technology
and financial stocks have opened some new research opportunities and may lead to
new investments in these sectors. If the Asian recovery continues, we may
consider seeking more opportunities in the commodity-driven areas of traditional
value sectors. The Fund remains committed to realizing maximum long-term total
return from a combination of capital growth and income.
Denis Laplaige
Richard A. Rosen
Portfolio Managers
MacKay Shields Financial Corporation
Past performance is no guarantee of future results.
7
<PAGE> 588
Returns and Lipper Rankings as of 6/30/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 3.09% 15.31% 14.47% 12.22%
Class B 2.31% 14.67% 14.15% 11.98%
Class C 2.31% 14.67% 14.15% 11.98%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A -2.58% 14.01% 13.83% 11.73%
Class B -2.69% 14.44% 14.15% 11.98%
Class C 1.31% 14.67% 14.15% 11.98%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/99
<S> <C> <C> <C> <C>
Class A 779 out of n/a n/a 355 out of
842 funds 379 funds
Class B 784 out of 313 out of 107 out of 94 out of
842 funds 323 funds 149 funds 112 funds
Class C n/a n/a n/a n/a
Average Lipper
growth &
income fund 14.49% 21.72% 15.13% 13.77%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/99
<TABLE>
<CAPTION>
NAV 6/30/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $19.74 $0.0723 $0.0000
Class B $19.72 $0.0109 $0.0000
Class C $19.72 $0.0109 $0.0000
</TABLE>
- -------
* Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost. Total returns shown are based on NAV
and assume no deduction for CDSC or applicable sales charges. In compliance
with SEC guidelines, SEC returns include the maximum sales charge and show
the percentage change for each of the required periods. All returns assume
capital gain and dividend distributions are reinvested.
Class A shares, first offered to the public on 1/3/95, are sold with a
maximum initial sales charge of 5.5% and an annual 12b-1 fee of .25%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) up to 12/31/94.
Performance data for the two classes after this date vary based on
differences in their load and expense structures. Class B shares of the
Fund are sold with no initial sales charge, but are subject to a maximum
CDSC of up to 5% if shares are redeemed during the first six years of
purchase and an annual 12b-1 fee of 1%. Class C shares, first offered to
the public on 9/1/98, are sold with no initial sales charge, but are
subject to a CDSC of 1% if redeemed within one year of purchase and an
annual 12b-1 fee of 1%. Performance figures for Class C shares include the
historical performance of the Class B shares for periods from inception
(5/1/86) up to 8/31/98. Performance data for the two classes after this
date vary based on differences in their loads.
8
<PAGE> 589
+ Lipper, Inc. is an independent monitor of mutual fund performance. Its
rankings are based on total returns with capital gains and dividend
distributions reinvested. Results do not reflect any deduction of sales
charges. Lipper averages listed are not class specific. Life of Fund
rankings reflect the performance of each share class from its initial
offering date through 6/30/99. Class A shares were first offered to the
public on 1/3/95, Class B shares on 5/1/86, and Class C shares on 9/1/98.
Life of fund return for the average Lipper peer fund is for the period
from 5/1/86 through 6/30/99.
9
<PAGE> 590
MainStay Value Fund
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
COMMON STOCKS (98.5%)+
AEROSPACE/DEFENSE (1.6%)
Raytheon Co. Class A.......... 300,000 $ 20,662,500
--------------
AIRLINES (1.4%)
Northwest Airlines Corp. Class
A (a)........................ 566,000 18,395,000
--------------
ALUMINUM (1.7%)
Reynolds Metals Co. .......... 374,400 22,089,600
--------------
BANKS (4.1%)
Bank of America Corp. ........ 392,986 28,810,786
Washington Mutual, Inc. ...... 722,800 25,569,050
--------------
54,379,836
--------------
BUILDING MATERIALS (1.1%)
Sherwin-Williams Co. (The).... 512,800 14,230,200
--------------
CHEMICALS (1.3%)
IMC Global Inc. .............. 959,020 16,902,727
--------------
COMPUTER SYSTEMS (1.3%)
Seagate Technology, Inc.
(a).......................... 686,300 17,586,437
--------------
COMPUTERS--NETWORKING (2.2%)
Adaptec Inc. (a).............. 806,000 28,461,875
--------------
CONTAINERS--METAL & GLASS (1.8%)
Owens-Illinois Inc. (a)....... 717,310 23,447,071
--------------
CONTAINERS--PAPER (2.8%)
Smurfit-Stone Container Corp.
(a).......................... 1,154,500 23,739,406
Temple-Inland Inc. ........... 189,100 12,906,075
--------------
36,645,481
--------------
ELECTRIC POWER COMPANIES (7.8%)
DTE Energy Co. ............... 432,700 17,308,000
Energy East Corp. ............ 566,200 14,721,200
Illinova Corp. ............... 723,700 19,720,825
Niagara Mohawk Holdings, Inc.
(a).......................... 1,247,400 20,036,363
Texas Utilities Co. .......... 750,000 30,937,500
--------------
102,723,888
--------------
</TABLE>
- -------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (1.4%)
Honeywell Inc. ............... 164,000 $ 19,003,500
--------------
ENGINEERING & CONSTRUCTION (1.6%)
Fluor Corp. .................. 521,600 21,124,800
--------------
FINANCIAL--MISCELLANEOUS (4.7%)
Citigroup Inc. ............... 564,750 26,825,625
Equitable Cos., Inc. (The).... 332,050 22,247,350
SLM Holding Corp. ............ 277,800 12,726,713
--------------
61,799,688
--------------
FOOD (1.0%)
ConAgra, Inc. ................ 494,700 13,171,387
--------------
HEALTH CARE (3.0%)
United Healthcare Corp. ...... 631,200 39,528,900
--------------
HEAVY DUTY TRUCKS & PARTS (0.9%)
Dana Corp. ................... 266,510 12,276,117
--------------
HOTEL/MOTEL (2.0%)
Harrah's Entertainment, Inc.
(a).......................... 1,198,100 26,358,200
--------------
INSURANCE (9.0%)
Allstate Corp. (The).......... 831,580 29,832,933
Chubb Corp. .................. 328,945 22,861,677
CIGNA Corp. .................. 281,500 25,053,500
Conseco, Inc. ................ 577,100 17,565,481
MGIC Investment Corp. ........ 499,900 23,432,813
--------------
118,746,404
--------------
MACHINERY--DIVERSIFIED (2.6%)
American Standard Cos. Inc.
(a).......................... 721,200 34,166,850
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (5.5%)
Coastal Corp. (The)........... 714,900 28,596,000
Consolidated Natural Gas
Co. ......................... 246,700 14,987,025
El Paso Energy Corp. ......... 459,200 16,158,100
KeySpan Corp. ................ 453,728 11,967,076
--------------
71,708,201
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 591
Portfolio of Investments June 30, 1999 unaudited
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS SERVICES (16.0%)
Kerr-McGee Corp. ............. 518,360 $ 26,015,193
Noble Affiliates, Inc. ....... 772,900 21,786,119
Ocean Energy, Inc. (a)........ 1,950,000 18,768,750
Santa Fe Synder Corp. (a)..... 1,454,500 11,090,562
Texaco Inc. .................. 418,500 26,156,250
Tosco Corp. .................. 1,040,000 26,975,000
Union Pacific Resources Group
Inc. ........................ 2,106,000 34,354,125
Unocal Corp. ................. 700,850 27,771,181
Valero Energy Corp. .......... 852,800 18,281,900
--------------
211,199,080
--------------
PAPER & FOREST PRODUCTS (2.9%)
Bowater Inc. ................. 171,635 8,109,754
Georgia-Pacific Corp. ........ 346,800 16,429,650
International Paper Co. ...... 279,900 14,134,950
--------------
38,674,354
--------------
POLLUTION CONTROL (1.8%)
Browning-Ferris Industries
Inc. ........................ 556,300 23,920,900
--------------
RETAIL (4.8%)
Federated Department Stores,
Inc. (a)..................... 546,870 28,949,931
Kmart Corp. (a)............... 1,063,800 17,486,213
Payless ShoeSource, Inc.
(a).......................... 171,000 9,148,500
Saks Inc. (a)................. 269,900 7,793,362
--------------
63,378,006
--------------
SPECIALIZED SERVICES (1.5%)
Service Corp. International... 992,400 19,103,700
--------------
STEEL (2.3%)
UCAR International Inc. (a)... 465,000 11,741,250
USX Corp. .................... 669,000 18,063,000
--------------
29,804,250
--------------
TELECOMMUNICATIONS--LONG DISTANCE (1.8%)
AT&T Corp. ................... 418,950 23,382,647
--------------
TELEPHONE (2.0%)
Nippon Telegraph & Telephone
Corp. ADR (b)(c)............. 410,700 25,720,087
--------------
TEXTILES--APPAREL MANUFACTURERS (1.5%)
Liz Claiborne, Inc. .......... 547,500 19,983,750
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
--------------------------------
<S> <C> <C>
TEXTILES--HOME FURNISHINGS (0.9%)
Shaw Industries, Inc. (a)..... 721,000 $ 11,896,500
--------------
TOBACCO (3.1%)
Philip Morris Cos. ........... 945,060 37,979,599
R.J. Reynolds Tobacco
Holdings, Inc. (a)........... 84,260 2,654,190
--------------
40,633,789
--------------
TOYS (1.1%)
Mattel, Inc. ................. 567,600 15,005,925
--------------
Total Common Stocks
(Cost $1,146,160,799)........ 1,296,111,650
--------------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.4%)
COMMERCIAL PAPER (1.4%)
Ford Motor Credit Co.
5.65%, due 7/1/99............ $9,245,000 9,245,000
Merrill Lynch & Co. Inc.
4.97%, due 7/8/99............ 9,515,000 9,505,792
--------------
Total Short-Term Investments
(Cost $18,750,792)........... 18,750,792
--------------
Total Investments
(Cost $1,164,911,591) (d).... 99.9% 1,314,862,442(e)
Cash and Other Assets,
Less Liabilities............. 0.1 1,779,038
----- -----------
Net Assets.................... 100.0% $1,316,641,480
========== ==============
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Segregated as collateral for foreign currency forward contract.
(d) The cost for Federal income tax purposes is $1,167,071,279.
(e) At June 30, 1999, net unrealized appreciation was $147,791,163, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $197,488,306 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $49,697,143.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 592
Statement of Assets and Liabilities as of June 30, 1999 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,164,911,591)........................................... $1,314,862,442
Cash........................................................ 1,304
Receivables:
Investment securities sold................................ 10,805,286
Fund shares sold.......................................... 4,107,773
Dividends................................................. 2,752,315
Unrealized appreciation on foreign currency forward
contract.................................................. 104,409
--------------
Total assets........................................ 1,332,633,529
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 12,003,027
Fund shares redeemed...................................... 1,675,466
NYLIFE Distributors....................................... 1,010,830
MainStay Management....................................... 629,314
Transfer agent............................................ 257,904
Custodian................................................. 14,373
Trustees.................................................. 10,692
Accrued expenses............................................ 212,556
Dividends payable........................................... 177,887
--------------
Total liabilities................................... 15,992,049
--------------
Net assets.................................................. $1,316,641,480
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 62,636
Class B................................................... 604,778
Class C................................................... 228
Additional paid-in capital.................................. 1,157,169,635
Accumulated distribution in excess of net investment
income.................................................... (474,858)
Accumulated undistributed net realized gain on
investments............................................... 8,262,983
Accumulated undistributed net realized gain on foreign
currency forward contract................................. 960,818
Net unrealized appreciation on investments.................. 149,950,851
Net unrealized appreciation on foreign currency forward
contract.................................................. 104,409
--------------
Net assets.................................................. $1,316,641,480
==============
CLASS A
Net assets applicable to outstanding shares................. $ 123,627,302
==============
Shares of beneficial interest outstanding................... 6,263,626
==============
Net asset value per share outstanding....................... $ 19.74
Maximum sales charge (5.50% of offering price).............. 1.15
--------------
Maximum offering price per share outstanding................ $ 20.89
==============
CLASS B
Net assets applicable to outstanding shares................. $1,192,565,044
==============
Shares of beneficial interest outstanding................... 60,477,830
==============
Net asset value and offering price per share outstanding.... $ 19.72
==============
CLASS C
Net assets applicable to outstanding shares................. $ 449,134
==============
Shares of beneficial interest outstanding................... 22,777
==============
Net asset value and offering price per share outstanding.... $ 19.72
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 593
Statement of Operations for the six months ended June 30, 1999 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 11,609,878
Interest.................................................. 335,902
------------
Total income............................................ 11,945,780
------------
Expenses:
Distribution--Class B..................................... 4,261,272
Distribution--Class C..................................... 661
Management................................................ 3,569,188
Transfer agent............................................ 1,566,615
Service--Class A.......................................... 143,279
Service--Class B.......................................... 1,420,424
Service--Class C.......................................... 220
Shareholder communication................................. 119,021
Recordkeeping............................................. 75,781
Custodian................................................. 61,643
Professional.............................................. 44,338
Registration.............................................. 33,031
Trustees.................................................. 18,490
Miscellaneous............................................. 22,838
------------
Total expenses.......................................... 11,336,801
------------
Net investment income....................................... 608,979
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY FORWARD CONTRACT TRANSACTION:
Net realized gain from:
Security transactions..................................... 2,241,540
Foreign currency forward contract transaction............. 960,818
------------
Net realized gain on investments and foreign currency
forward contract transaction.............................. 3,202,358
------------
Net change in unrealized depreciation on investments:
Security transactions..................................... 169,602,555
Foreign currency forward contract......................... 426,879
------------
Net unrealized gain on investments and foreign currency
forward contract.......................................... 170,029,434
------------
Net realized and unrealized gain on investments............. 173,231,792
------------
Net increase in net assets resulting from operations........ $173,840,771
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 594
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, December 31,
1999* 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 608,979 $ 5,231,671
Net realized gain on investments.......................... 2,241,540 145,578,486
Net realized gain on foreign currency forward contract
transaction............................................. 960,818 --
Net change in unrealized depreciation on investments...... 169,602,555 (275,500,485)
Net change in unrealized depreciation on foreign currency
forward contract........................................ 426,879 (322,470)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations.............................................. 173,840,771 (125,012,798)
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (444,336) (1,398,114)
Class B................................................. (675,123) (4,044,247)
Class C................................................. (64) (99)
From net realized gain on investments:
Class A................................................. -- (15,558,746)
Class B................................................. -- (159,288,098)
Class C................................................. -- (10,773)
-------------- --------------
Total dividends and distributions to shareholders..... (1,119,523) (180,300,077)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 75,104,856 53,394,132
Class B................................................. 75,530,043 224,286,153
Class C................................................. 380,200 78,500
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 275,640 16,141,993
Class B................................................. 657,770 159,214,986
Class C................................................. 42 10,864
-------------- --------------
151,948,551 453,126,628
Cost of shares redeemed:
Class A................................................. (82,762,663) (51,885,082)
Class B................................................. (214,797,592) (329,969,309)
Class C................................................. (27,231) (2)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (145,638,935) 71,272,235
-------------- --------------
Net increase (decrease) in net assets................. 27,082,313 (234,040,640)
NET ASSETS:
Beginning of period......................................... 1,289,559,167 1,523,599,807
-------------- --------------
End of period............................................... $1,316,641,480 $1,289,559,167
============== ==============
Accumulated undistributed net investment income (excess
distribution) at end of period............................ $ (474,858) $ 35,686
============== ==============
</TABLE>
- -------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 595
This page intentionally left blank
15
<PAGE> 596
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ------------------------------------------------
1999+ 1998 1997 1996 1995
---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................. $ 17.16 $ 21.76 $ 20.34 $ 18.25 $ 14.66
-------- -------- -------- ------- -------
Net investment income................................... 0.07 0.23 0.27 0.30 0.29
Net realized and unrealized gain (loss) on
investments........................................... 2.58 (1.92) 4.10 3.66 3.91
-------- -------- -------- ------- -------
Total from investment operations........................ 2.65 (1.69) 4.37 3.96 4.20
-------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income............................ (0.07) (0.23) (0.27) (0.30) (0.29)
From net realized gain on investments................. -- (2.68) (2.68) (1.57) (0.32)
-------- -------- -------- ------- -------
Total dividends and distributions....................... (0.07) (2.91) (2.95) (1.87) (0.61)
-------- -------- -------- ------- -------
Net asset value at end of period........................ $ 19.74 $ 17.16 $ 21.76 $ 20.34 $ 18.25
======== ======== ======== ======= =======
Total investment return (a)............................. 15.49% (7.41%) 21.88% 21.84% 28.74%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............................... 0.78%++ 1.03% 1.22% 1.6% 1.5%
Expenses............................................ 1.13%++ 1.09% 1.11% 1.1% 1.2%
Portfolio turnover rate................................. 30% 83% 61% 47% 48%
Net assets at end of period (in 000's).................. $123,627 $114,925 $124,011 $73,259 $25,258
</TABLE>
- -------
<TABLE>
<S> <C>
* The Fund changed its fiscal year end from August 31 to
December 31.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 597
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------------------- ---------------------------
Six months September 1 Six months September 1,**
ended Year ended December 31, through Year Ended ended through
June 30, ----------------------------------------------- December 31, August 31, June 30, December 31,
1999+ 1998 1997 1996 1995 1994* 1994 1999+ 1998
---------- ---------- ---------- ---------- -------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 17.15 $ 21.74 $ 20.32 $ 18.25 $ 14.66 $ 16.30 $ 15.90 $17.15 $18.16
---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
0.01 0.06 0.15 0.20 0.19 0.04 0.06 0.01 0.03
2.57 (1.91) 4.10 3.64 3.91 (1.03) 1.04 2.57 1.67
---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
2.58 (1.85) 4.25 3.84 4.10 (0.99) 1.10 2.58 1.70
---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
(0.01) (0.06) (0.15) (0.20) (0.19) (0.03) (0.06) (0.01) (0.03)
-- (2.68) (2.68) (1.57) (0.32) (0.62) (0.64) -- (2.68)
---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
(0.01) (2.74) (2.83) (1.77) (0.51) (0.65) (0.70) (0.01) (2.71)
---------- ---------- ---------- ---------- -------- -------- -------- ------ ------
$ 19.72 $ 17.15 $ 21.74 $ 20.32 $ 18.25 $ 14.66 $ 16.30 $19.72 $17.15
========== ========== ========== ========== ======== ======== ======== ====== ======
15.06% (8.09%) 21.29% 21.11% 28.01% (6.03%) 7.26% 15.06% 9.88%
0.03%++ 0.28% 0.70% 1.1% 0.9% 0.8%++ 0.5% 0.03%++ 0.28%++
1.88%++ 1.84% 1.63% 1.6% 1.8% 1.8%++ 1.9% 1.88%++ 1.84%++
30% 83% 61% 47% 48% 11% 53% 30% 83%
$1,192,565 $1,174,554 $1,399,589 $1,019,307 $708,840 $472,365 $449,789 $ 449 $ 80
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 598
MainStay Value Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Value Fund (the "Fund").
The Fund currently offers three classes of shares. Class A shares, whose
distribution commenced on January 3, 1995, are offered at net asset value per
share plus an initial sales charge. Class B shares and Class C shares are
offered without an initial sales charge, although a declining contingent
deferred sales charge may be imposed on redemptions made within six years of
purchase of Class B shares and within one year of purchase of Class C shares.
Distribution of Class B shares and Class C shares commenced on May 1, 1986 and
September 1, 1998, respectively. Class A shares, Class B shares and Class C
shares bear the same voting (except for issues that relate solely to one class),
dividend, liquidation and other rights and conditions except that the Class B
shares and Class C shares are subject to higher distribution fee rates. Each
class of shares bears distribution and/or service fee payments under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act.
The Fund's investment objective is to realize maximum long-term total return
from a combination of capital growth and income.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Fund:
VALUATION OF FUND SHARES. The net asset value per share of each class of shares
is calculated on each day the New York Stock Exchange (the "Exchange") is open
for trading as of the close of regular trading on the Exchange. The net asset
value per share of each class of shares is determined by taking the assets
attributable to a class of shares, subtracting the liabilities attributable to
that class, and dividing the result by the outstanding shares of that class. The
Fund's net asset value will fluctuate and an investor could lose money by
investing in the Fund.
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, and (d) by appraising over-the-counter securities not
quoted on the NASDAQ system at prices supplied by the pricing agent or brokers
selected
18
<PAGE> 599
Notes to Financial Statements unaudited
by the Subadvisor, if these prices are deemed to be representative of market
values at the regular close of business of the Exchange. Short-term securities
which mature in more than 60 days are valued at current market quotations.
Short-term securities which mature in 60 days or less are valued at amortized
cost if their term to maturity at purchase was 60 days or less, or by amortizing
the difference between market value on the 61st day prior to maturity and value
on maturity date if the original term to maturity at purchase exceeded 60 days.
Events affecting the values of certain portfolio securities that occur between
the close of trading on the principal market for such securities (foreign
exchanges and over-the-counter markets) and the regular close of the Exchange
will not be reflected in the Fund's calculation of net asset value unless the
Subadvisor believes that the particular event would materially affect net asset
value, in which case an adjustment would be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the foreign
currency forward contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract. The Fund enters into foreign
currency forward contracts in order to hedge its foreign currency denominated
investments.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contract open at June 30, 1999:
<TABLE>
<CAPTION>
Contract Contract
Amount Amount Unrealized
Sold Purchased Appreciation
-------------- ----------- ------------
<S> <C> <C> <C>
Foreign Currency Sale Contract
- ------------------------------
Japanese Yen vs. U.S. Dollar, expiring 9/16/99.......... Y1,722,000,000 $14,498,611 $104,409
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no Federal income tax provision is required.
19
<PAGE> 600
MainStay Value Fund
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the Distribution Plan)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
USE OF ESTIMATES. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management, Inc. (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager pursuant to a management agreement and provides
offices and conducts clerical, recordkeeping and bookkeeping services, and keeps
most of the financial and accounting records required for the Fund. The Manager
has delegated its portfolio management responsibilities to MacKay-Shields
Financial Corporation (the "Subadvisor"), a registered investment adviser and
indirect wholly owned subsidiary of New York Life. Under the supervision of the
Trust's Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.72% of the Fund's
average daily net assets on assets up to $200 million, 0.65% on assets from $200
million to $500 million and 0.50% on assets in excess of $500 million. For the
six months ended June 30, 1999 the Manager earned $3,569,188.
20
<PAGE> 601
Notes to Financial Statements unaudited (continued)
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay-Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.36% on assets up to $200 million, 0.325% on assets from $200 million
to $500 million and 0.25% on assets in excess of $500 million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors (the "Distributor"). The Fund,
with respect to each class of shares, has adopted a Distribution Plan (the
"Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plan provides that the Class B and Class C shares of
the Fund also incur a service fee at the annual rate of 0.25% of the average
daily net asset value of the Class B or Class C shares of the Fund.
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $36,425 for the six months ended
June 30, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $936,172
for the six months ended June 30, 1999.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
1999 amounted to $1,566,615.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $18,878 for the six months ended
June 30, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$75,781 for the six months ended June 30, 1999.
21
<PAGE> 602
MainStay Value Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund intends to elect, to the extent provided by the regulations, to treat
$322,470 of qualifying capital losses that arose during the prior year as if
they arose on January 1, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $368,811 and $516,448,
respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit with The Bank of
New York in order to secure a source of funds for temporary purposes to meet
unanticipated or excessive shareholder redemption requests. The funds pay a
commitment fee, at an annual rate of 0.065% of the average commitment amount,
regardless of usage. Such commitment fees are allocated amongst the funds based
upon net assets and other factors. Interest on any revolving credit loan is
charged based upon the Federal Funds Advances rate. There were no borrowings on
the line of credit at June 30, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Period ended
June 30, 1999+ December 31, 1998
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................ 4,277 4,107 20 2,517 10,295 4
Shares issued in reinvestment of
dividends and distributions.......... 16 40 --(a) 959 9,561 1
------ ------- ------ ------ ------- --
4,293 4,147 20 3,476 19,856 5
Shares redeemed........................ (4,727) (12,146) (2) (2,478) (15,747) --
------ ------- ------ ------ ------- --
Net increase (decrease)................ (434) (7,999) 18 998 4,109 5
====== ======= ====== ====== ======= ==
</TABLE>
- -------
<TABLE>
<S> <C>
+ Unaudited.
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
22
<PAGE> 603
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
INCOME FUNDS
MainStay High Yield Corporate Bond Fund
MainStay Strategic Income Fund
MainStay Government Fund
MainStay California Tax Free Fund
MainStay New York Tax Free Fund
MainStay Tax Free Bond Fund
MainStay Money Market Fund
MAINSTAY'S FUND MANAGER
MAINSTAY MANAGEMENT, INC.(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS FINANCIAL CORPORATION(1)
New York, New York
DALTON, GREINER, HARTMAN, MAHER & CO.
New York, New York
GABELLI ASSET MANAGEMENT COMPANY
Rye, New York
JOHN A. LEVIN & CO., INC.
New York, New York
MADISON SQUARE ADVISORS, INC.(1)
New York, New York
MONITOR CAPITAL ADVISORS, INC.(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
23
<PAGE> 604
<TABLE>
<CAPTION>
OFFICERS & TRUSTEES* [THE MAINSTAY FUNDS LOGO]
<S> <C> <C>
Richard M. Kernan, Jr. Chairman and Trustee
Stephen C. Roussin President, Chief Executive
Officer, and Trustee
Mark Gordon Trustee
Edward J. Hogan Trustee
Harry G. Hohn Trustee
Nancy Maginnes Kissinger Trustee
Terry L. Lierman Trustee
John B. McGuckian Trustee
Donald E. Nickelson Trustee
Donald K. Ross Trustee MAINSTAY
Richard S. Trutanic Trustee VALUE FUND
Anthony W. Polis Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Sara L. Badler Secretary
Dechert Price & Rhoads
Legal Counsel
* As of June 30, 1999.
</TABLE>
<TABLE>
<S> <C>
SEMIANNUAL REPORT
[MAINSTAY INVESTMENTS LOGO] UNAUDITED
JUNE 30, 1999
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayfunds.com
NYLIFE Distributors Inc., member NASD, is an indirect wholly
owned subsidiary of New York Life Insurance Company.
This report is provided for the information of shareholders of
the MainStay Value. It may be given to others only when preceded
or accompanied by an effective MainStay Funds prospectus. This
report does not offer to sell any securities or solicit orders
to buy them.
(c)1999. All rights reserved. MSSA16-08/99
[RECYCLED PAPER LOGO]
</TABLE>
