<PAGE> 1
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$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 4
Portfolio Management Discussion and
Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 20
Report of Independent Accountants 26
The MainStay Funds 27
</TABLE>
<PAGE> 2
This page intentionally left blank
2
<PAGE> 3
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 4
$10,000 Invested in the MainStay California
Tax Free Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -10.98%, 5 Years 3.80%, Since Inception 4.36%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX LEHMAN BROTHERS
FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
----------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 9550 10000 10000
12/91 9748 10335 10051
12/92 10516 11247 10349
12/93 11852 12628 10632
12/94 11273 11975 10908
12/95 12984 14066 11192
12/96 13430 14689 11563
12/97 14491 16038 11758
12/98 15263 17077 11947
12/99 14227 16513 12267
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year -11.59%, 5 Years 4.17%, Since Inception 4.79%
Class C SEC Returns: 1 Year -7.87%, 5 Years 4.51%, Since Inception 4.79%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX LEHMAN BROTHERS
FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
----------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 10000 10000 10000
12/91 10207 10335 10051
12/92 11011 11247 10349
12/93 12410 12628 10632
12/94 11804 11975 10908
12/95 13564 14066 11192
12/96 13984 14689 11563
12/97 15050 16038 11758
12/98 15813 17077 11947
12/99 14716 16513 12267
</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 figures for the two classes vary after this
date based on differences in their loads 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
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.
4
<PAGE> 5
* 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.
5
<PAGE> 6
Portfolio Management Discussion and Analysis
Events of the preceding two years, especially the currency crises in Asia,
Russia, and Latin America and the resulting stresses on global financial
markets, set the stage for robust U.S. economic growth in 1999. Real gross
domestic product (GDP) expanded at about 4% for the year, while a combination of
low interest rates, a strong dollar, low commodity prices, and a rising stock
market allowed consumers to continue spending at a strong pace. Meanwhile,
inflation remained subdued, despite a tight labor market and rising oil prices.
This raises the important question: Why is inflation so modest when demand is
strong? We think several explanations can be offered, including a lack of
pricing power, capacity utilization that is below inflationary levels,
price-conscious consumers, and modest growth in base wages, despite high
employment levels. At the same time, productivity gains resulting from the
technological revolution have continued to help keep inflation in check.
Even with all of that, the Federal Reserve Board argued that the pace of the
economy could not be indefinitely supported by labor-force growth and
productivity gains. Concerned about the potential for inflation, the Federal
Reserve raised the targeted federal funds rate by 0.25% three times in 1999--on
June 30, August 24, and November 16--to close the year with a targeted rate of
5.50%.
The Federal Reserve's influence was clearly felt by the bond market during 1999.
While the municipal markets were impacted to a less-dramatic degree than taxable
bonds, including U.S. Treasuries, yields on municipal securities nevertheless
rose by over 1.00% during the twelve months ended December 31, 1999.
California's economic outlook was strengthened by the recovery in Asian markets.
As the stock market focused on technology, companies throughout Silicon Valley
continued to prosper. The state benefited from strong consumer spending and a
broadening economic base, even as rising interest rates pushed municipal bond
prices lower.
FUND PERFORMANCE
For the year ended December 31, 1999, the MainStay California Tax Free Fund
returned -6.79% for Class A shares and -6.94% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -5.16% return
of the average Lipper(1) California municipal debt fund and the -2.06% return of
the Lehman Brothers Municipal Bond Index(2) during the annual period.
STRATEGIC MANAGEMENT DECISIONS
The Fund's strategy during the first three quarters of the year focused on the
relative value of long-term municipal bonds versus U.S. Treasuries. At the close
- -------
(1) See footnote and table on page 10 for more information on Lipper Inc.
(2) See footnote and table on page 5 for more information on the Lehman Brothers
Municipal Bond Index.
6
<PAGE> 7
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
<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
12/99 -6.79
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 10
for more information on performance.
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS B & C SHARES
------------------
<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
12/99 -6.94
</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 shares returns reflect the historical performance of the Class B shares
for the periods 12/91 through 8/98. See footnote * on page 10 for more
information on performance.
of 1998, municipals were providing almost the same yields as comparable Treasury
securities. When adjusted for taxes, municipals at that time actually provided
substantially higher yields than Treasuries. Our goal for the Fund was to take
advantage of the attractiveness of long-term municipals by extending into longer
maturities. We believed these securities would be the greatest beneficiaries if
the market returned to a more traditional relationship between Treasuries and
municipals. As interest rates rose, however, the price of long-term municipals
declined, which had a negative impact on Fund performance.
7
<PAGE> 8
Personnel and investment-strategy changes were implemented in the fall of 1999
to help enhance the total-return profile of the Fund. The investment focus
shifted to reducing the portfolio's duration and to applying tactical
yield-curve strategies--all while maintaining the high credit quality of the
bonds in the Fund's portfolio. The positive results of these changes began to
become evident in the improved Fund performance for the fourth quarter of 1999.
During the fourth quarter, all share classes outperformed the average Lipper
California municipal debt fund, and in December the improvement relative to the
average fund in this Lipper universe was even more pronounced.
PORTFOLIO CHARACTERISTICS
In a generally declining market, we sought relative value for the Fund in
utility bonds, believing that continuing deregulation and strong demand could
provide a reliable revenue stream. Significant positions included Los Angeles
County Water and Power bonds and Los Angeles Waste Water Systems bonds. The Fund
also overweighted education bonds, with a variety of issues serving various
areas in the state. Transportation bonds were also overweighted, with
significant positions at year-end in San Joaquin Hills transportation bonds and
San Francisco City & County airport bonds.
With interest rates rising, we chose to underweight the Fund in housing issues
to pursue relative value elsewhere in the California municipal market. As the
pace of environmental regulation had eased, the Fund also underweighted
industrial pollution bonds. The Fund continues to seek broad diversification by
issuer, county, municipal sector, coupon, and maturity to help manage risk in a
geographically restricted portfolio.
LOOKING AHEAD
As the Federal Reserve's 1999 interest-rate increases filter through the
economy, we believe they may help keep inflationary pressures under control and
slow economic growth in the first half of 2000. Although consumers remain
confident, we believe higher borrowing costs and modest wage growth will likely
temper individuals' spending patterns. Current 30-year mortgage rates, for
example, offer far less incentive to refinance than those available at the
beginning of 1999. Business spending, however, may be on the rise in 2000, as
cash budgeted for potential Y2K compliance issues may be redirected to capital
spending.
8
<PAGE> 9
Recent comments by Federal Reserve officials indicate that they view the tight
labor market as an imminent inflationary risk. They believe that the old rules
of supply and demand will continue to influence the market. Thus, we expect the
Federal Reserve to raise rates in the first several months of 2000. We believe
the result will likely be a slightly flatter yield curve in the municipal bond
market. We also expect demand for municipals to increase, as investors begin to
lock in attractive long-term rates with substantial equity-market gains garnered
over the last five years. As of year-end 1999, an investor in the highest tax
bracket could invest in a 30-year callable municipal bond at a yield exceeding
6%. That is equivalent to a 10% yield on a taxable investment.
We currently intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the difference in yield between securities rated
AAA and those rated BBB(3) is enough to justify taking on the added credit risk.
We also intend to continue seeking yield advantages and diversification by
county, municipal sector, coupon, and maturity as opportunities arise. Whatever
the markets may bring, the Fund will continue to 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. We believe our recent
strategy changes will better enable us to meet this objective.
Edward Munshower
Portfolio Manager
MacKay Shields LLC
TARGETED DIVIDEND POLICY
As far as possible, the MainStay California Tax Free Fund seeks to maintain
a fixed dividend, with changes made only on an infrequent basis. In the
first eight months of 1999, however, the Fund distributed more income to
shareholders than it had received. As a result, the Fund adjusted its
dividend downward effective August 31, 1999. No taxable distributions from
net investment income were made to shareholders during the year. Decreasing
the dividend had a stabilizing impact on the Fund's net asset value. Since
the Fund's portfolio managers did not engage in additional trading to
accommodate dividend payments, the Fund's portfolio turnover rate and
transaction costs were not affected.
- -------
(3) 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. Debt rated
BBB exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
When applied to Fund holdings, 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.
9
<PAGE> 10
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -6.79% 4.77% 4.95%
Class B -6.94% 4.51% 4.79%
Class C -6.94% 4.51% 4.79%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -10.98% 3.80% 4.36%
Class B -11.59% 4.17% 4.79%
Class C -7.87% 4.51% 4.79%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 90 out of 74 out of 39 out of
107 funds 78 funds 44 funds
Class B 92 out of 77 out of 77 out of
107 funds 78 funds 78 funds
Class C 92 out of n/a 94 out of
107 funds 106 funds
Average Lipper
CA municipal
debt fund -5.16% 6.08% 5.57%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.89 $0.4088 $0.0215
Class B $8.87 $0.3850 $0.0215
Class C $8.87 $0.3850 $0.0215
</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. 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. 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, 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 figures for the two
classes vary after this date based on differences in their loads 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
10
<PAGE> 11
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 figures for the classes vary after these
dates based on differences in their loads 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
11
<PAGE> 12
MainStay California Tax Free Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.4%)+
CALIFORNIA (85.1%)
California Educational
Facilities
Authority Revenue
Pooled College & University
Projects, Series A
5.625%, due 7/1/23............. $1,100,000 $ 978,219
Project B
6.30%, due 4/1/21 (b).......... 500,000 499,300
Stanford University, Series N
5.20%, due 12/1/27 (b)......... 1,200,000 1,062,984
University of Southern
California
5.50%, due 10/1/27............. 1,000,000 929,030
California Housing Finance
Agency
Single Family Mortgage
Series D2
(zero coupon), due 2/1/29
(a)............................ 3,000,000 476,160
California Pollution Control
Financing Authority Revenue
San Diego Gas & Electric
Series A
5.90%, due 6/1/14.............. 400,000 409,948
California State Department
Water
Resources Center Valley Project
Revenue, Water System
Series I
6.95%, due 12/1/25 (d)......... 2,000,000 2,054,580
California State Public Works
Board Lease Revenue
Department of Corrections
State Prisons
Series A
5.00%, due 12/1/19............. 1,000,000 886,220
California State University
Revenue & Colleges
Housing Systems
5.90%, due 11/1/21............. 1,200,000 1,196,232
California Statewide Community
Development Authority
Partnership
5.50%, due 8/15/31............. 1,000,000 913,160
Catholic HealthCare West
6.50%, due 7/1/20.............. 1,000,000 965,370
Escondido California
Union High School District
(zero coupon), due 11/1/12..... 1,350,000 672,449
Los Angeles California
Department of Water & Power
Electric Plant Revenue
6.375%, due 2/1/20............. 2,000,000 2,067,480
- -------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
Los Angeles California Waste
Water
Systems Revenue, Series A
5.00%, due 6/1/28.............. $1,000,000 $ 853,270
Los Angeles County California
Transportation Commission
Sales Tax Revenue
Series A
6.00%, due 7/1/23 (d).......... 950,000 1,002,079
Oakland California
General Obligation, Measure K
5.90%, due 12/15/22............ 1,000,000 996,850
San Diego County Water Authority
Revenue, Series A
4.75%, due 5/1/20.............. 1,000,000 838,200
San Francisco California
City & County Airports
Commission
International Airport Revenue
Second Series, Issue 6
6.60%, due 5/1/20 (a)(b)....... 1,000,000 1,055,180
Issue 2
6.75%, due 5/1/20.............. 500,000 527,485
San Joaquin Hills California
Transportation Corridor Agency
Senior Lien Toll Road Revenue
(zero coupon), due 1/1/22
(d)............................ 3,000,000 797,280
San Marino California Unified
School District, Series B
5.00%, due 6/1/23.............. 1,000,000 868,810
Santa Monica-Malibu Unified
School District
5.25%, due 8/1/17.............. 1,000,000 943,500
-----------
20,993,786
-----------
PUERTO RICO (8.3%)
Puerto Rico Electric Power
Authority
Power Revenue, Series U
6.00%, due 7/1/14.............. 1,060,000 1,078,338
Puerto Rico Municipal Finance
Agency Series A
5.50%, due 8/1/17.............. 1,000,000 977,380
-----------
2,055,718
-----------
VIRGIN ISLANDS (4.0%)
Virgin Islands Public Finance
Authority
Gross Receipts Taxes, Series A
6.50%, due 10/1/24............. 1,000,000 990,160
-----------
Total Long-Term Municipal Bonds
(Cost $25,491,810)............. 24,039,664
-----------
</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
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL BOND (1.3%)
California Health Facilities
Financing Authority Revenue
St. Joseph Health Systems,
Series B
4.20%, due 7/1/13 (c)......... $ 300,000 $ 300,000
-----------
Total Short-Term Municipal Bond
(Cost $300,000)................ 300,000
-----------
Total Investments
(Cost $25,791,810) (e)......... 98.7% 24,339,664(f)
Cash and Other Assets
Less Liabilities............... 1.3 323,147
----- -----------
Net Assets...................... 100.0% $24,662,811
===== ===========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT APPRECIATION (g)
- ------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)(h)
Municipal Bond
March 2000 (30
Year).............. (22) $19,437
-------
Total Futures
Contracts
(Settlement Value
$2,053,750)......... $19,437
=======
</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 December 31, 1999, net unrealized depreciation was $1,452,146, 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 $32,947 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,485,093.
(g) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1999.
(h) 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.
13
<PAGE> 14
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$25,791,810).............................................. $24,339,664
Cash........................................................ 66,523
Receivables:
Interest.................................................. 319,665
Variation margin on futures contracts..................... 687
Fund shares sold.......................................... 80
-----------
Total assets........................................ 24,726,619
-----------
LIABILITIES:
Payables:
Shareholder communication................................. 19,101
MainStay Management....................................... 17,936
NYLIFE Distributors....................................... 7,787
Transfer agent............................................ 4,557
Custodian................................................. 3,483
Trustees.................................................. 201
Accrued expenses............................................ 10,743
-----------
Total liabilities................................... 63,808
-----------
Net assets.................................................. $24,662,811
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,673
Class B................................................... 11,925
Class C................................................... 1,175
Additional paid-in capital.................................. 27,239,683
Accumulated net realized loss on investments................ (1,171,936)
Net unrealized depreciation on investments and futures
contracts................................................. (1,432,709)
-----------
Net assets.................................................. $24,662,811
===========
CLASS A
Net assets applicable to outstanding shares................. $13,047,992
===========
Shares of beneficial interest outstanding................... 1,467,359
===========
Net asset value per share outstanding....................... $ 8.89
Maximum sales charge (4.50% of offering price).............. 0.42
-----------
Maximum offering price per share outstanding................ $ 9.31
===========
CLASS B
Net assets applicable to outstanding shares................. $10,572,676
===========
Shares of beneficial interest outstanding................... 1,192,517
===========
Net asset value and offering price per share outstanding.... $ 8.87
===========
CLASS C
Net assets applicable to outstanding shares................. $ 1,042,143
===========
Shares of beneficial interest outstanding................... 117,557
===========
Net asset value and offering price per share outstanding.... $ 8.87
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 15
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 1,523,377
-----------
Expenses:
Management................................................ 138,140
Transfer agent............................................ 50,567
Service--Class A.......................................... 39,369
Service--Class B.......................................... 28,668
Service--Class C.......................................... 1,033
Distribution--Class B..................................... 28,668
Distribution--Class C..................................... 1,033
Professional.............................................. 27,393
Shareholder communication................................. 27,235
Recordkeeping............................................. 12,599
Custodian................................................. 10,154
Registration.............................................. 5,810
Trustees.................................................. 765
Miscellaneous............................................. 19,076
-----------
Total expenses before reimbursement..................... 390,510
Expense reimbursement from Manager.......................... (18,223)
-----------
Net expenses............................................ 372,287
-----------
Net investment income....................................... 1,151,090
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions..................................... (1,273,128)
Futures transactions...................................... 101,192
-----------
Net realized loss on investments............................ (1,171,936)
Net change in unrealized appreciation on investments:
Security transactions..................................... (1,892,369)
Futures transactions...................................... 19,437
-----------
Net unrealized loss on investments.......................... (1,872,932)
-----------
Net realized and unrealized loss on investments............. (3,044,868)
-----------
Net decrease in net assets resulting from operations........ $(1,893,778)
===========
</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
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,151,090 $ 1,201,368
Net realized gain (loss) on investments................... (1,171,936) 194,967
Net change in unrealized appreciation on investments...... (1,872,932) 33,522
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (1,893,778) 1,429,857
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (669,100) (829,959)
Class B................................................. (466,785) (371,405)
Class C................................................. (17,129) (4)
From net realized gain on investments:
Class A................................................. (31,459) (51,770)
Class B................................................. (25,724) (28,842)
Class C................................................. (2,513) --
----------- -----------
Total dividends and distributions to shareholders..... (1,212,710) (1,281,980)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 2,594,754 3,054,557
Class B................................................. 2,819,909 4,619,693
Class C................................................. 1,230,588 250
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 374,661 461,490
Class B................................................. 282,622 228,712
Class C................................................. 19,069 3
----------- -----------
7,321,603 8,364,705
Cost of shares redeemed:
Class A................................................. (7,416,573) (2,614,618)
Class B................................................. (2,225,311) (1,139,633)
Class C................................................. (155,491) --
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... (2,475,722) 4,610,454
----------- -----------
Net increase (decrease) in net assets................. (5,582,210) 4,758,331
NET ASSETS:
Beginning of year........................................... 30,245,021 25,486,690
----------- -----------
End of year................................................. $24,662,811 $30,245,021
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 17
This page intentionally left blank
17
<PAGE> 18
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
Year ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period..................... $ 9.98 $ 9.93 $ 9.78 $ 9.95 $ 9.10
------- ------- ------- ------- -------
Net investment income...................................... 0.41 0.44 0.48 0.49 0.50
Net realized and unrealized gain (loss) on investments..... (1.07) 0.08 0.27 (0.16) 0.85
------- ------- ------- ------- -------
Total from investment operations........................... (0.66) 0.52 0.75 0.33 1.35
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............................... (0.41) (0.46) (0.48) (0.50) (0.50)
From net realized gain on investments.................... (0.02) (0.01) (0.12) -- --
------- ------- ------- ------- -------
Total dividends and distributions.......................... (0.43) (0.47) (0.60) (0.50) (0.50)
------- ------- ------- ------- -------
Net asset value at end of period........................... $ 8.89 $ 9.98 $ 9.93 $ 9.78 $ 9.95
======= ======= ======= ======= =======
Total investment return (a)................................ (6.79%) 5.33% 7.90% 3.44% 15.18%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.................................. 4.27% 4.42% 4.88% 5.0% 5.3%
Net expenses........................................... 1.24% 1.24% 1.24% 1.24% 1.24%
Expenses (before reimbursement)........................ 1.31% 1.40% 1.26% 1.3% 1.4%
Portfolio turnover rate.................................... 123% 104% 108% 79% 107%
Net assets at end of period (in 000's)..................... $13,048 $19,204 $18,199 $18,098 $19,825
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ 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.
18
<PAGE> 19
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------------- ------------------------------
September 1*
Year ended December 31, Year ended through
-------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
------- ------- ------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 9.10 $ 9.95 $ 9.95
------- ------- ------ ------ ------ ------ ------
0.38 0.42 0.45 0.45 0.52 0.38 0.13
(1.05) 0.07 0.27 (0.16) 0.81 (1.05) 0.02
------- ------- ------ ------ ------ ------ ------
(0.67) 0.49 0.72 0.29 1.33 (0.67) 0.15
------- ------- ------ ------ ------ ------ ------
(0.39) (0.43) (0.45) (0.45) (0.52) (0.39) (0.14)
(0.02) (0.01) (0.12) -- -- (0.02) (0.01)
------- ------- ------ ------ ------ ------ ------
(0.41) (0.44) (0.57) (0.45) (0.52) (0.41) (0.15)
------- ------- ------ ------ ------ ------ ------
$ 8.87 $ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 8.87 $ 9.95
======= ======= ====== ====== ====== ====== ======
(6.94%) 5.07% 7.63% 3.10% 14.91% (6.94%) 1.51%
4.02% 4.17% 4.63% 4.7% 5.1% 4.02% 4.17%+
1.49% 1.49% 1.49% 1.49% 1.49% 1.49% 1.49%+
1.56% 1.65% 1.51% 1.6% 1.7% 1.56% 1.65%+
123% 104% 108% 79% 107% 123% 104%
$10,573 $11,040 $7,288 $5,089 $1,963 $1,042 --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 20
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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's investment objective is to seek to provide a high level of current
income exempt from regular federal income tax and California personal income
tax, consistent with preservation of capital.
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.
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 Fund's subadvisor, whose prices
20
<PAGE> 21
Notes to Financial Statements (continued)
reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by the Fund's 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
which prices are supplied by a pricing agent but are not deemed by the Fund's
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 Fund's 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.
21
<PAGE> 22
MainStay California Tax Free 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 and nontaxable 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 distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. A permanent book-tax difference of $1,924 is an increase to
undistributed net investment income. In addition, decreases of $2,038 and $114
have been made to additional paid-in capital and accumulated net realized loss
on investments, respectively. These book-tax differences are due to a
recharacterization of distributions.
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 LLC (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.
22
<PAGE> 23
Notes to Financial Statements (continued)
The Manager has delegated its portfolio management responsibilities to MacKay
Shields LLC (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 year ended December
31, 1999 the Manager earned $138,140 and reimbursed the Fund $18,223.
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 0.25% 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, 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 0.25% 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 $5,727 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemptions of Class B and Class C shares
of $15,817 and $624, respectively, for the year ended December 31, 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
23
<PAGE> 24
MainStay California Tax Free Fund
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 year ended December 31, 1999 amounted to $50,567.
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 December 31, 1999, the Distributor beneficially held shares of
Class A of the Fund with a net asset value of $2,410,277, which represents 18.5%
of the Class A net assets at year 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 $765 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$12,599 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $757,283 which have been deferred for Federal income tax
purposes, were available to the extent provided by the regulations to offset
future realized gains through 2007. 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. In addition, the Fund intends
to elect, to the extent provided by the regulations, to treat $395,216 of
qualifying capital losses that arose during the year after October 31, 1999 as
if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $33,191 and $35,143, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
24
<PAGE> 25
Notes to Financial Statements (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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............................ 273 290 132 308 465 --
Shares issued in reinvestment of
dividends and distributions.......... 39 30 2 46 23 --
---- ---- --- ---- ---- ---
312 320 134 354 488 --
Shares redeemed........................ (769) (237) (17) (263) (115) --
---- ---- --- ---- ---- ---
Net increase (decrease)................ (457) 83 117 91 373 --(a)
==== ==== === ==== ==== ===
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
25
<PAGE> 26
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay California Tax Free Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
26
<PAGE> 27
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 28
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN04-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
California Tax Free Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 29
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay Capital
Appreciation Fund versus the S&P 500 Index
and Inflation--Class A, Class B, and Class C
Shares 3
Portfolio Management Discussion and Analysis 4
Year-by-Year Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
Report of Independent Accountants 23
The MainStay Funds 24
</TABLE>
<PAGE> 30
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2
<PAGE> 31
$10,000 Invested in the MainStay
Capital Appreciation Fund
versus the S&P 500 Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 18.03%, 5 Years 26.97%, 10 Years 21.84%
<TABLE>
<CAPTION>
MAINSTAY CAPITAL
YEAR END APPRECIATION FUND S&P 500 INDEX* INFLATION (CPI)(+)
- -------- ----------------- -------------- ----------------
<S> <C> <C> <C>
12/89 9450.00 10000.00 10000.00
12/90 9839.00 9690.00 10625.00
12/91 16565.00 12636.00 10942.00
12/92 18387.00 13597.00 11265.00
12/93 20964.00 14963.00 11574.00
12/94 20644.00 15160.00 11875.00
12/95 28032.00 20851.00 12184.00
12/96 33403.00 25634.00 12587.00
12/97 41453.00 34186.00 12801.00
12/98 57721.00 43956.00 13007.00
12/99 72092.00 53205.00 13356.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year 18.90%, 5 Years 27.47%, 10 Years 22.15%
Class C SEC Returns: 1 Year 22.90%, 5 Years 27.62%, 10 Years 22.15%
<TABLE>
<CAPTION>
MAINSTAY CAPITAL
YEAR END APPRECIATION FUND S&P 500 INDEX* INFLATION (CPI)(+)
- -------- ----------------- -------------- ----------------
<S> <C> <C> <C>
12/89 10000.00 10000.00 10000.00
12/90 10411.00 9690.00 10625.00
12/91 17529.00 12636.00 10942.00
12/92 19457.00 13597.00 11265.00
12/93 22184.00 14963.00 11574.00
12/94 21846.00 15160.00 11875.00
12/95 29515.00 20851.00 12184.00
12/96 34993.00 25634.00 12587.00
12/97 43199.00 34186.00 12801.00
12/98 59680.00 43956.00 13007.00
12/99 73947.00 53205.00 13356.00
</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
12/31/89 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 12/31/89
through 12/31/94. Performance figures for the two classes vary after this
date based on differences in their loads and expense structures. The Class
B graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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> 32
Portfolio Management Discussion and Analysis
In 1999, the S&P 500 Composite Stock Price Index(1) recorded a 21.04% gain,
marking the fifth consecutive year of returns over 20%. Early in the year, many
investors rotated out of growth stocks into value equities. As the year
progressed, however, many investors became enamored with Internet and technology
stocks, causing growth stocks to largely outperform other domestic asset
classes. Around the world, stock markets soared as global economies recovered
from the crisis in 1998.
On the economic front, we believe three Federal Reserve targeted federal funds
rate increases triggered much of the stock market's volatility, as the Fed tried
to slow economic growth and keep inflation in check. Although surging oil prices
raised inflation concerns, in most sectors pricing power remained limited and
inflation was low. We believe the combination of a strong economy and modest
inflation led many investors to buy stocks in the face of rising interest rates.
As many investors began to sense that Y2K concerns were perhaps overblown, they
flocked to stocks at the end of the year.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Capital Appreciation Fund
returned 24.90% for Class A shares and 23.90% for Class B and Class C shares,
excluding all sales charges. All share classes outperformed the 21.04% return of
the S&P 500 Index over the same period, but underperformed the 38.01% return of
the average Lipper(2) large-cap growth fund.
It is worth noting that Morningstar(3) rated the MainStay Capital Appreciation
Fund Class B shares five stars overall as of December 31, 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 December 31, 1999, from among 3,469, 2,180,
and 770 domestic equity funds, respectively.
TECHNOLOGY STOCKS
Technology stocks led the market's advance throughout most of 1999. Sun
Microsystems (+262%)(4) was the Fund's best-performing stock in 1999, as well as
its fifth-largest holding. Other strong technology stocks included Oracle
(+290%), EMC (+160%), and Cisco Systems (+138%). All of these stocks were among
the Fund's largest holdings and had a major positive impact on performance.
Key technology purchases in 1999 included Motorola, Texas Instruments, and
Nextel. Each of these three companies benefited from tremendous market growth in
wireless technology and contributed positively to the Fund's performance.
- -------
(1) See footnote on page 3 for more information on the S&P 500(R) Index.
(2) See footnote and table on page 8 for more information on Lipper Inc.
(3) 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) 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 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. Funds (or share classes) are not rated until
they have three years of performance history.
(4) Returns reflect performance for the one-year period ended 12/31/99.
4
<PAGE> 33
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[LINE GRAPH]
<TABLE>
<CAPTION>
YEAR 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
12/99 24.90
</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
[LINE GRAPH]
<TABLE>
<CAPTION>
YEAR 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
12/99 23.90
</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.
RADIO, CABLE, MEDIA, AND OTHER
Throughout the year, the Fund benefited from increased exposure to radio, cable,
and media companies that would enjoy increasing revenue and income growth from
higher advertising spending and advanced technology.
During the third quarter, we began purchasing Corning for the Fund. Corning is a
largely misunderstood company whose value lies in its fast-growing fiber-optic
cable and photonics businesses. Corning is a major supplier to telecom carriers
and related equipment companies and is a major beneficiary of the drive to
increase bandwidth through optical technology. Since its initial purchase, the
stock has almost doubled.
5
<PAGE> 34
In January through June, we purchased Omnicom for the Fund, one of the world's
largest advertising agencies. The company is capitalizing on Internet trends and
stands to benefit in 2000 from advertising spending for the Olympics and the
Presidential election. In the utility sector, we purchased AES Corp., one of the
world's largest independent power generators, for the Fund. The company is
benefiting from energy deregulation and contracts to provide energy at
competitive prices.
HEALTH CARE AND PHARMACEUTICALS
Shares of Genentech, a large biotechnology company, have doubled in price since
their initial purchase by the Fund. The company delivered two promising cancer
drugs to market and moved several products closer to FDA approval. We also
purchased shares of Amgen, one of the world's largest biotech companies, for the
Fund as new products due in 2000 moved the company into an accelerating growth
phase.
While biotech companies soared, traditional drug stocks showed poor performance
throughout the year. Wholesale drug distributor Cardinal Health and
pharmaceutical companies Eli Lilly, Pfizer, and Schering-Plough were among the
Fund's worst performers. We sold the Fund's Eli Lilly holdings during the second
quarter and the stock continued to decline after the sale. In December, we sold
Pfizer and trimmed all of the Fund's health care holdings. We believe election
debates on health care issues will make these stocks more controversial in the
coming year.
OTHER SECTORS
Retailers had varied results. Home Depot showed accelerating revenue and
earnings growth of greater than 40% and capitalized on a strong housing market
to return 69% for the year. Although Nordstrom held out the promise of a
restructuring that would result in an earnings turnaround, we sold the Fund's
holdings in the department store chain when anticipated changes failed to
materialize.
Consumer staples had a negative impact on the Fund's performance. Kroger and
Safeway, the nation's two largest supermarket chains, declined significantly in
1999. In December, Kroger reported disappointing earnings, which led us to sell
both of these supermarket stocks for the Fund. Since the market was moving away
from defensive stocks as Y2K approached, the sales helped position the portfolio
positively for the year ahead.
While some financial stocks such as Citigroup and AIG performed well in 1999, we
saw rising interest rates as a reason to sell the Fund's holdings in Fannie Mae,
Southtrust, and Conseco early in the year. We also sold Freddie Mac in the
6
<PAGE> 35
third quarter and Associates First Capital in the fourth. Although some of these
sales were at a loss for the year, the proceeds were used to purchase more
productive assets, so we believe they were beneficial for the Fund.
LOOKING AHEAD
As we enter the new year, we continue to favor technology, media, and
telecommunications companies. In health care, regulatory concerns have prompted
us to shift our focus more towards biotechnology stocks. Since we anticipate
further tightening moves by the Federal Reserve, the Fund will enter 2000
underweighted in financials.
No matter what the economy or the markets may bring, the Fund will continue to
seek long-term growth of capital. Dividend income, if any, is an incidental
consideration.
Rudolph C. Carryl
Edmund C. Spelman
Portfolio Managers
MacKay Shields LLC
Past performance is no guarantee of future results.
7
<PAGE> 36
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 24.90% 28.42% 22.53% 17.71%
Class B 23.90% 27.62% 22.15% 17.44%
Class C 23.90% 27.62% 22.15% 17.44%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 18.03% 26.97% 21.84% 17.22%
Class B 18.90% 27.47% 22.15% 17.44%
Class C 22.90% 27.62% 22.15% 17.44%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 294 out of 93 out of n/a 93 out of
363 funds 149 funds 149 funds
Class B 307 out of 106 out of 7 out of 16 out of
363 funds 149 funds 51 funds 37 funds
Class C 307 out of n/a n/a 271 out of
363 funds 339 funds
Average Lipper
large-cap growth
fund(++) 38.01% 30.14% 19.36% 17.04%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $57.12 $0.0000 $3.6044
Class B $55.15 $0.0000 $3.6044
Class C $55.15 $0.0000 $3.6044
</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. 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. 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 figures for the two classes after this date vary based
8
<PAGE> 37
on differences in their loads 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 figures 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999, is
reflected in this material.
9
<PAGE> 38
MainStay Capital Appreciation Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C> <C>
COMMON STOCKS (98.1%)+
BANKS (1.8%)
Firstar Corp. ............... 1,256,900 $ 26,552,013
Wells Fargo & Co. ........... 1,183,200 47,845,650
--------------
74,397,663
--------------
BIOTECHNOLOGY (2.0%)
Genentech, Inc. (a).......... 500,000 67,250,000
Millennium Pharmaceuticals,
Inc. (a).................... 130,000 15,860,000
--------------
83,110,000
--------------
BROADCAST/MEDIA (7.9%)
AMFM Inc. (a)................ 759,000 59,391,750
CBS Corp. (a)................ 672,000 42,966,000
Clear Channel Communications,
Inc. (a).................... 1,009,400 90,088,950
Comcast Corp. Class A........ 1,102,300 55,735,044
Fox Entertainment Group, Inc.
Class A (a)................. 595,000 14,837,812
USA Networks Inc. (a)........ 590,900 32,647,225
Univision Communications Inc.
Class A (a)................. 255,000 26,057,813
--------------
321,724,594
--------------
COMMUNICATIONS--EQUIPMENT (6.6%)
Cisco Systems, Inc. (a)...... 1,340,300 143,579,638
Lucent Technologies Inc. .... 1,664,000 124,488,000
--------------
268,067,638
--------------
COMPUTER SOFTWARE & SERVICES (10.3%)
America Online, Inc. (a)..... 678,100 51,154,169
Compuware Corp. (a).......... 2,261,000 84,222,250
Microsoft Corp. (a).......... 1,215,300 141,886,275
Oracle Corp. (a)............. 1,296,200 145,255,412
--------------
422,518,106
--------------
COMPUTER SYSTEMS (7.2%)
EMC Corp. (a)................ 1,397,600 152,687,800
Sun Microsystems, Inc. (a)... 1,833,700 141,997,144
--------------
294,684,944
--------------
ELECTRIC POWER COMPANIES (1.8%)
AES Corp. (The) (a).......... 1,006,700 75,250,825
--------------
ELECTRICAL EQUIPMENT (2.4%)
General Electric Co. ........ 625,800 96,842,550
--------------
ELECTRONICS--INSTRUMENTATION (0.5%)
PE Corp-PE Biosystems
Group....................... 150,000 18,046,875
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C> <C>
ELECTRONICS--SEMICONDUCTORS (6.4%)
Intel Corp. ................. 1,023,200 $ 84,222,150
Motorola, Inc. .............. 555,800 81,841,550
Texas Instruments Inc. ...... 1,008,700 97,717,812
--------------
263,781,512
--------------
ENTERTAINMENT (2.0%)
Time Warner Inc. ............ 1,120,900 81,195,194
--------------
FINANCE (2.4%)
Citigroup Inc. .............. 1,781,700 98,995,706
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.5%)
Cardinal Health, Inc. ....... 444,050 21,258,894
--------------
HEALTH CARE--DRUGS (2.4%)
Merck & Co., Inc. ........... 560,400 37,581,825
Schering-Plough Corp. ....... 1,463,700 61,749,844
--------------
99,331,669
--------------
HEALTH CARE--MEDICAL PRODUCTS (2.9%)
Guidant Corp. (a)............ 1,263,200 59,370,400
Medtronic, Inc. ............. 1,607,400 58,569,637
--------------
117,940,037
--------------
HEALTH CARE--MISCELLANEOUS (2.5%)
Amgen Inc. (a)............... 1,022,500 61,413,906
Johnson & Johnson............ 427,284 39,790,822
--------------
101,204,728
--------------
HOTEL/MOTEL (1.3%)
Carnival Corp. .............. 1,134,200 54,228,937
--------------
HOUSEHOLD PRODUCTS (2.3%)
Colgate-Palmolive Co. ....... 1,463,100 95,101,500
--------------
INSURANCE (3.0%)
American International Group,
Inc. ....................... 992,685 107,334,066
Marsh & McLennan Cos.,
Inc. ....................... 172,200 16,477,387
--------------
123,811,453
--------------
INVESTMENT BANK/BROKERAGE (0.6%)
Goldman Sachs Group Inc. .... 240,000 22,605,000
--------------
LEISURE TIME (2.2%)
Harley-Davidson, Inc. ....... 1,420,700 91,013,594
--------------
</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.
10
<PAGE> 39
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING--DIVERSIFIED (6.3%)
Corning Inc. ................ 767,500 $ 98,959,531
Honeywell International,
Inc. ....................... 1,089,137 62,829,591
Tyco International Ltd. ..... 2,480,634 96,434,647
--------------
258,223,769
--------------
PERSONAL LOANS (1.5%)
Providian Financial Corp. ... 652,950 59,459,259
--------------
RETAIL (11.2%)
Bed Bath & Beyond Inc. (a)... 1,180,800 41,032,800
Circuit City Stores-Circuit
City Group.................. 1,595,000 71,874,688
CVS Corp. ................... 771,200 30,799,800
Dollar General Corp. ........ 1,602,401 36,454,623
Home Depot, Inc. (The)....... 2,087,550 143,127,647
Kohl's Corp. (a)............. 1,158,700 83,643,656
Staples, Inc. (a)............ 2,529,150 52,479,862
--------------
459,413,076
--------------
SPECIALIZED SERVICES (3.8%)
Cendant Corp. (a)............ 1,722,628 45,757,306
IMS Health Inc. ............. 1,717,600 46,697,250
Omnicom Group Inc. .......... 643,800 64,380,000
--------------
156,834,556
--------------
TELECOMMUNICATIONS (4.0%)
Global Crossing Ltd. (a)..... 741,300 37,065,000
MCI WorldCom, Inc. (a)....... 1,977,420 104,926,849
Nextel Communications Inc.
Class A (a)................. 218,000 22,481,250
--------------
164,473,099
--------------
TELEPHONE (1.8%)
ALLTEL Corp. ................ 912,200 75,427,538
--------------
TRANSPORTATION (0.5%)
United Parcel Service, Inc.
Class B..................... 275,000 18,975,000
--------------
Total Common Stocks
(Cost $2,203,424,908)....... 4,017,917,716
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
COMMERCIAL PAPER (1.1%)
Associates Corp.
4.00%, due 1/3/00........... $4,550,000 $ 4,548,989
Ford Motor Credit Corp.
5.68%, due 1/12/00.......... 20,000,000 19,965,272
General Electric Capital
Corp.
6.60%, due 1/13/00.......... 20,000,000 19,955,960
--------------
Total Commercial Paper
(Cost $44,470,221).......... 44,470,221
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
----------
<S> <C> <C>
INVESTMENT COMPANY (1.2%)
Merrill Lynch Premier
Institutional Fund.......... 51,145,000 51,145,000
--------------
Total Investment Company
(Cost $51,145,000).......... 51,145,000
--------------
Total Short-Term Investments
(Cost $95,615,221).......... 95,615,221
--------------
Total Investments
(Cost $2,299,040,129) (b)... 100.4% 4,113,532,937(c)
Liabilities in Excess of
Cash, and Other Assets...... (0.4) (16,175,584)
----- -----------
Net Assets................... 100.0% $4,097,357,353
===== ==============
</TABLE>
- -------
(a) Non-income producing security.
(b) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(c) At December 31, 1999, net unrealized appreciation was $1,814,492,808, 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 $1,845,579,488 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $31,086,680.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 40
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$2,299,040,129)........................................... $4,113,532,937
Cash........................................................ 2,842
Receivables:
Investment securities sold................................ 17,699,201
Fund shares sold.......................................... 5,444,039
Dividends................................................. 1,373,606
Other assets................................................ 1,527
--------------
Total assets........................................ 4,138,054,152
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 30,907,289
Fund shares redeemed...................................... 4,114,895
NYLIFE Distributors....................................... 2,976,385
MainStay Management....................................... 1,772,592
Transfer agent............................................ 524,215
Trustees.................................................. 28,768
Custodian................................................. 22,953
Accrued expenses............................................ 349,702
--------------
Total liabilities................................... 40,696,799
--------------
Net assets.................................................. $4,097,357,353
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 102,885
Class B................................................... 632,205
Class C .................................................. 4,214
Additional paid-in capital.................................. 2,018,582,758
Accumulated undistributed net realized gain on
investments............................................... 263,542,483
Net unrealized appreciation on investments.................. 1,814,492,808
--------------
Net assets.................................................. $4,097,357,353
==============
CLASS A
Net assets applicable to outstanding shares................. $ 587,632,708
==============
Shares of beneficial interest outstanding................... 10,288,494
==============
Net asset value and offering price per share outstanding.... $ 57.12
Maximum sales charge (5.50% of offering price).............. 3.32
--------------
Maximum offering price per share outstanding................ $ 60.44
==============
CLASS B
Net assets applicable to outstanding shares................. $3,486,486,351
==============
Shares of beneficial interest outstanding................... 63,220,504
==============
Net asset value and offering price per share outstanding.... $ 55.15
==============
CLASS C
Net assets applicable to outstanding shares................. $ 23,238,294
==============
Shares of beneficial interest outstanding................... 421,356
==============
Net asset value and offering price per share outstanding.... $ 55.15
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 41
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 13,092,154
Interest.................................................. 5,430,815
------------
Total income............................................ 18,522,969
------------
Expenses:
Management................................................ 24,968,917
Distribution--Class B..................................... 22,458,493
Distribution--Class C..................................... 92,768
Service--Class A.......................................... 1,152,676
Service--Class B.......................................... 7,486,164
Service--Class C.......................................... 30,923
Transfer agent............................................ 5,957,777
Shareholder communication................................. 537,508
Recordkeeping............................................. 373,458
Custodian................................................. 304,303
Registration.............................................. 238,836
Professional.............................................. 198,554
Trustees.................................................. 102,624
Miscellaneous............................................. 111,905
------------
Total expenses before waiver............................ 64,014,906
Fees waived by Manager...................................... (6,739,391)
------------
Net expenses............................................ 57,275,515
------------
Net investment loss......................................... (38,752,546)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 502,721,524
Net change in unrealized appreciation on investments........ 327,050,222
------------
Net realized and unrealized gain on investments............. 829,771,746
------------
Net increase in net assets resulting from operations........ $791,019,200
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 42
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (38,752,546) $ (25,136,058)
Net realized gain on investments.......................... 502,721,524 127,423,848
Net change in unrealized appreciation on investments...... 327,050,222 738,696,408
-------------- --------------
Net increase in net assets resulting from operations...... 791,019,200 840,984,198
-------------- --------------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. (33,915,675) (16,348,271)
Class B................................................. (215,135,762) (118,109,099)
Class C................................................. (1,404,342) (53,596)
-------------- --------------
Total distributions to shareholders................... (250,455,779) (134,510,966)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 899,579,615 605,025,203
Class B................................................. 712,233,735 625,714,322
Class C................................................. 20,574,280 1,433,793
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. 30,937,086 15,045,166
Class B................................................. 209,660,459 115,889,976
Class C................................................. 983,032 44,608
-------------- --------------
1,873,968,207 1,363,153,068
Cost of shares redeemed:
Class A................................................. (813,609,261) (528,505,344)
Class B................................................. (650,816,257) (477,612,621)
Class C................................................. (2,209,178) (3,507)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 407,333,511 357,031,596
-------------- --------------
Net increase in net assets............................ 947,896,932 1,063,504,828
NET ASSETS:
Beginning of year........................................... 3,149,460,421 2,085,955,593
-------------- --------------
End of year................................................. $4,097,357,353 $3,149,460,421
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 43
This page intentionally left blank
15
<PAGE> 44
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------
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).................... (0.24) (0.14) (0.16) (0.08) 0.03
Net realized and unrealized gain on investments..... 12.22 14.42 7.48 5.05 6.81
-------- -------- -------- -------- -------
Total from investment operations.................... 11.98 14.28 7.32 4.97 6.84
-------- -------- -------- -------- -------
Less distributions:
From net realized gain on investments............. (3.60) (2.14) (1.28) (0.31) (0.05)
-------- -------- -------- -------- -------
Net asset value at end of period.................... $ 57.12 $ 48.74 $ 36.60 $ 30.56 $ 25.90
======== ======== ======== ======== =======
Total investment return (b)......................... 24.90% 39.24% 24.10% 19.16% 35.79%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss).................... (0.47%) (0.34%) (0.48%) (0.3%) 0.2%
Expenses........................................ 1.19% 1.23% 1.09% 1.1% 1.1%
Net Expenses (after waiver)..................... 1.00% 1.04% 1.09% 1.1% 1.1%
Portfolio turnover rate............................. 41% 29% 35% 16% 29%
Net assets at end of period (in 000's).............. $587,633 $394,848 $216,292 $126,958 $44,434
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ 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> 45
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------ -------------------------------
September 1*
Year ended December 31, Year ended through
------------------------------------------------------------------------ December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 19.11 $ 47.54 $36.15
---------- ---------- ---------- ---------- -------- ------- ------
(0.61) (0.45) (0.34) (0.22) (0.08) (0.61) (0.10)
11.82 14.11 7.39 5.01 6.79 11.82 13.63
---------- ---------- ---------- ---------- -------- ------- ------
11.21 13.66 7.05 4.79 6.71 11.21 13.53
---------- ---------- ---------- ---------- -------- ------- ------
(3.60) (2.14) (1.28) (0.31) (0.05) (3.60) (2.14)
---------- ---------- ---------- ---------- -------- ------- ------
$ 55.15 $ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 55.15 $47.54
========== ========== ========== ========== ======== ======= ======
23.90% 38.15% 23.45% 18.56% 35.11% 23.90% 37.66%
(1.22%) (1.09%) (1.00%) (0.8%) (0.4%) (1.22%) (1.09%)+
1.94% 1.98% 1.61% 1.6% 1.7% 1.94% 1.98%+
1.75% 1.79% 1.61% 1.6% 1.7% 1.75% 1.79%+
41% 29% 35% 16% 29% 41% 29%
$3,486,486 $2,753,012 $1,869,664 $1,342,578 $856,221 $23,238 $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> 46
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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
18
<PAGE> 47
Notes to Financial Statements
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 Fund's 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
Fund's 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $38,752,546 are decreases of
both accumulated net investment loss and additional paid-in capital. Those
book-tax differences are due to net investment loss incurred by the Fund in
1999.
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.
19
<PAGE> 48
MainStay Capital Appreciation 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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year
ended December 31, 1999 the Manager earned $24,968,917 and waived $6,739,391 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, 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.
20
<PAGE> 49
Notes to Financial Statements (continued)
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 $247,175 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $18,107, $3,035,227 and $16,997, respectively, for the year ended
December 31, 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 year ended December 31, 1999
amounted to $5,957,777.
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 $89,170 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$373,458 for the year ended December 31, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $1,506,515 and $1,359,209, respectively.
21
<PAGE> 50
MainStay Capital Appreciation Fund
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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.............................. 17,460 14,271 412 14,362 15,214 33
Shares issued in reinvestment of
distributions.......................... 564 3,960 18 321 2,531 1
------- ------- ---- ------- ------- --
18,024 18,231 430 14,683 17,745 34
Shares redeemed.......................... (15,836) (12,923) (43) (12,493) (11,731) --
------- ------- ---- ------- ------- --
Net increase............................. 2,188 5,308 387 2,190 6,014 34
======= ======= ==== ======= ======= ==
</TABLE>
- -------
* First offered on September 1, 1998.
22
<PAGE> 51
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Capital Appreciation Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
23
<PAGE> 52
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
24
<PAGE> 53
This page intentionally left blank
<PAGE> 54
This page intentionally left blank
<PAGE> 55
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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 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)2000. All rights reserved. MSAN05-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MAINSTAY
CAPITAL APPRECIATION FUND
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 56
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 Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 15
Notes to Financial Statements 20
Report of Independent Accountants 28
The MainStay Funds 29
</TABLE>
<PAGE> 57
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2
<PAGE> 58
$10,000 Invested in the MainStay
Convertible Fund versus First Boston
Convertible Securities Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 26.54%, 5 Years 14.63%, 10 Years 14.31%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CONVERTIBLE FIRST BOSTON CONVERTIBLE
FUND SECURITIES INDEX* INFLATION (CPI)+
-------------------- ------------------------ ----------------
<S> <C> <C> <C>
12/89 9450.00 10000.00 10000.00
12/90 8817.00 9313.00 10625.00
12/91 13091.00 12026.00 10942.00
12/92 14807.00 14141.00 11265.00
12/93 18429.00 16766.00 11574.00
12/94 18182.00 15974.00 11875.00
12/95 22495.00 19679.00 12184.00
12/96 25223.00 22023.00 12587.00
12/97 28089.00 25690.00 12801.00
12/98 28435.00 28685.00 13007.00
12/99 38077.00 38297.00 13356.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year 27.90%, 5 Years 14.94%, 10 Years 14.57%
Class C SEC Returns: 1 Year 31.90%, 5 Years 15.17%, 10 Years 14.57%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CONVERTIBLE FIRST BOSTON CONVERTIBLE
FUND SECURITIES INDEX* INFLATION (CPI)+
-------------------- ------------------------ ----------------
<S> <C> <C> <C>
12/89 10000.00 10000.00 10000.00
12/90 9330.00 9313.00 10625.00
12/91 13853.00 12026.00 10942.00
12/92 15668.00 14141.00 11265.00
12/93 19502.00 16766.00 11574.00
12/94 19241.00 15974.00 11875.00
12/95 23671.00 19679.00 12184.00
12/96 26367.00 22023.00 12587.00
12/97 29181.00 25690.00 12801.00
12/98 29334.00 28685.00 13007.00
12/99 38985.00 38297.00 13356.00
</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 12/31/89
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 12/31/89 through
12/31/94. Performance for the two classes vary after this date based on
differences in their loads and expense structures. The Class B graph
assumes an initial investment of $10,000 made on 12/31/89. 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 12/31/89 and includes the historical performance of the
Class B shares for periods from 12/31/89 through 8/31/98. 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> 59
- -------
(1) The NASDAQ Composite Index is an unmanaged, market-value weighted index that
measures all NASDAQ domestic and non-U.S. based common stocks listed on The
NASDAQ Stock Market and includes over 5,000 companies. Each company's
security affects the Index in proportion to its market value. The market
value, the last sale price multiplied by total shares outstanding, is
calculated throughout the trading day and is related to the total value of
the Index. An investment cannot be made directly into an index.
(2) See footnote and table on page 7 for more information on Lipper Inc.
(3) See footnote on page 3 for more information on the First Boston Convertible
Securities Index.
(4) 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) to five
(high) stars are based on a fund's three-, five-, and ten-year average
annual returns (if applicable) with fee adjustments in excess of 90-day
Treasury bill returns, and a risk factor that reflects fund performance
below 90-day Treasury bill 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. Funds (or share classes) are not rated until they have
three years of performance history.
Portfolio Management Discussion and Analysis
The most significant factor influencing the convertible market in 1999 was the
dramatic upsurge in NASDAQ stocks,(1) which rose 85.59% during the year. Since
convertibles have a high correlation with small- and mid-cap stocks, the
performance of NASDAQ stocks greatly influences the performance of the
convertible market.
The NASDAQ's strength was propelled by advances in the technology and
telecommunications sectors, both of which are well represented in the
convertible market. These factors--combined with solid economic growth, modest
inflation, and stable credit spreads--helped to make 1999 an outstanding year
for convertible securities.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Convertible Fund returned
33.91% for Class A shares and 32.90% for Class B and Class C shares, excluding
all sales charges. All share classes outperformed the 30.77% return of the
average Lipper(2) convertible securities fund. The Fund's outperformance was
largely due to careful security selection and a heavy weighting in technology
and telecommunications convertibles. Class A shares outperformed and Class B and
Class C shares slightly underperformed the 33.51% return of the First Boston
Convertible Securities Index.(3)
It is worth noting that Morningstar(4) rated the MainStay Convertible Fund Class
B shares four stars overall as of December 31, 1999. The Fund's Class B shares
received three stars for the three- and five-year periods and four stars for the
ten-year period ended December 31, 1999, from among 3,469, 2,180, and 770
domestic equity funds, respectively.
Although the Federal Reserve moved to tighten interest rates three times during
the year, our bottom-up investment strategy allowed us to largely ignore these
macroeconomic changes, which had little impact on market enthusiasm for small-
and mid-cap stocks. We continued to concentrate the Fund on securities with
strong upside potential and risk-limiting factors, drawing on MacKay Shields'
strengths in growth, value, high-yield, and international investing.
The Fund's strongest-performing security was a United Global Communications
convertible. The stock rose 633% in 1999 as the company built a global cable
footprint and profitably leveraged its last-mile infrastructure. Our early
access to analysis of the company's high-yield bond potential allowed the Fund
to participate in the stock's rise long before the company drew wide attention
from some other equity analysts.
4
<PAGE> 60
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Total Return %
--------------
<S> <C>
12/86 1.03
12/87 -8.58
12/88 9.78
12/89 6.74
12/90 -6.7
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
12/99 33.91
</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
[BAR GRAPH]
<TABLE>
<CAPTION>
Total Return %
--------------
<S> <C>
12/86 1.03
12/87 -8.58
12/88 9.78
12/89 6.74
12/90 -6.7
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
12/99 32.90
</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 7 from more information on performance.
An Amkor Technology convertible was another top-performer for the Fund in 1999.
Amkor is a Korean semiconductor packaging company based in Pennsylvania that was
hurt during the Asian financial crisis of 1998. Careful equity and credit
research showed that the company had strong fundamentals, little downside risk,
and strong upside potential. Our timely purchase for the Fund paid off for
shareholders as both the common stock and bond values appreciated.
5
<PAGE> 61
Past performance is
no guarantee of
future results.
SIGNIFICANT PURCHASES, SALES, AND SECTOR WEIGHTINGS
We purchased Oracle common stock for the Fund in the fourth quarter, when Y2K
fears depressed the company's stock price. As these concerns were alleviated,
the stock rose sharply.
At the end of October, we purchased US Internetworking bonds for the Fund. The
company hosts software on its servers, allowing small and medium-size businesses
to reduce their costs through software rentals. The Fund was able to establish a
large position in the bonds at attractive prices. With the subsequent Internet
rally, both the company's stock and bonds more than doubled in price by
year-end.
The Fund was overweighted in the oil-services sector in April. At the time, we
believed the group was oversold, primarily due to a warm winter and a lack of
drilling. From April through the end of the year, the group performed well, as
Asian economies recovered and demand for oil increased. During this period,
better discipline from OPEC led to a recovery in the price of oil and natural
gas, causing oil-related stock prices to rise. The overweighted position
contributed positively to the Fund's performance and the Fund remained
overweighted in oil services as of year-end.
LOOKING AHEAD
In light of high equity valuations, we anticipate increasing volatility in the
stock market, which may translate into substantial downside risk. We believe
that convertibles should exhibit less volatility than stocks and may participate
in any market rise. The Fund will continue to look for convertibles that we
believe can participate in a substantial portion of the common stock's upside
potential while limiting exposure to downside risk.
The Fund will continue its bottom-up approach to the convertible market,
focusing on the fundamental characteristics of individual securities rather than
on general economic trends. Whatever the economy or the markets may bring, the
Fund will continue to seek capital appreciation together with current income.
Edmund C. Spelman
Thomas Wynn
Portfolio Managers
MacKay Shields LLC
6
<PAGE> 62
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 33.91% 15.93% 14.95% 11.37%
Class B 32.90% 15.17% 14.57% 11.10%
Class C 32.90% 15.17% 14.57% 11.10%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 26.54% 14.63% 14.31% 10.91%
Class B 27.90% 14.94% 14.57% 11.10%
Class C 31.90% 15.17% 14.57% 11.10%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 25 out of 15 out of n/a 15 out of
60 funds 29 funds 29 funds
Class B 27 out of 20 out of 6 out of 5 out of
60 funds 29 funds 17 funds 7 funds
Class C 27 out of n/a n/a 29 out of
60 funds 56 funds
Average Lipper
convertible
securities
fund 30.77% 17.63% 13.12% 10.13%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $14.53 $0.5190 $1.5376
Class B $14.53 $0.4132 $1.5376
Class C $14.53 $0.4132 $1.5376
</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 figures for the two classes vary after this date based on
differences in their loads 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 figures 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
7
<PAGE> 63
MainStay Convertible Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (76.0%)+
CONVERTIBLE BONDS (41.8%)
ADVERTISING (1.0%)
Lamar Advertising Co.
5.25%, due 9/15/06............ $5,000,000 $ 7,312,500
------------
AUTO PARTS & EQUIPMENT (1.6%)
Mark IV Industries, Inc.
4.75%, due 11/1/04............ 4,500,000 3,673,125
MascoTech, Inc.
4.50%, due 12/15/03........... 7,700,000 5,640,250
Tower Automotive Inc.
5.00%, due 8/1/04............. 2,000,000 1,667,500
------------
10,980,875
------------
BANKS (2.0%)
European Bank for
Reconstruction & Development
0.75%, due 7/2/01 (d)......... 7,590,000 8,216,175
Mitsubishi Bank Limited
International Finance
(Bermuda) Trust
3.00%, due 11/30/02........... 5,350,000 5,971,937
------------
14,188,112
------------
BIOMEDICAL (0.4%)
Inhale Therapeutic Systems,
Inc.
6.75%, due 10/13/06 (c)....... 2,000,000 2,825,000
------------
BIOTECHNOLOGY (1.4%)
Centocor, Inc.
4.75%, due 2/15/05............ 4,000,000 5,345,000
Human Genome Sciences, Inc.
5.00%, due 12/15/06 (c)....... 4,000,000 4,820,000
------------
10,165,000
------------
BROADCAST/MEDIA (1.7%)
Clear Channel Communications,
Inc.
1.50%, due 12/1/02............ 6,000,000 6,165,000
News America Holdings, Inc.
(zero coupon), due 3/11/13
(e)........................... 7,400,000 5,832,162
------------
11,997,162
------------
CHEMICALS (0.6%)
Aventis S.A.
3.25%, due 10/22/03 (d)....... 3,831,300 4,219,727
------------
- --------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
COMMUNICATIONS--EQUIPMENT (3.8%)
American Tower Corp.
6.25%, due 10/15/09........... $3,000,000 $ 4,211,250
Aspect Communications Corp.
(zero coupon), due 8/10/18.... 25,000,000 10,000,000
Comverse Technology, Inc.
4.50%, due 7/1/05............. 1,325,000 4,519,906
DSC Communications Corp.
7.00%, due 8/1/04............. 4,000,000 4,200,000
Tekelec, Inc.
3.25%, due 11/2/04 (c)........ 2,750,000 3,564,688
------------
26,495,844
------------
COMPUTERS & OFFICE EQUIPMENT (0.0%) (b)
Applied Magnetics Corp.
7.00%, due 3/15/06............ 4,805,000 120,125
------------
COMPUTER SOFTWARE & SERVICES (4.7%)
America Online, Inc.
(zero coupon), due 12/6/19.... 12,000,000 6,840,000
Baan Co. N.V.
4.50%, due 12/15/01 (f)....... E7,250,000 6,506,875
BEA Systems, Inc.
4.00%, due 12/15/06 (c)....... $2,000,000 2,342,500
Citrix Systems, Inc.
(zero coupon), due 3/22/19.... 2,700,000 2,396,250
i2 Technologies, Inc
5.25%, due 12/15/06 (c)....... 2,000,000 2,872,500
Network Associates, Inc.
(zero coupon), due 2/13/18.... 22,000,000 8,305,000
USinternetworking, Inc.
7.00%, due 11/1/04 (c)........ 1,425,000 4,171,688
------------
33,434,813
------------
ELECTRICAL EQUIPMENT (1.5%)
Antec Corp.
4.50%, due 5/15/03............ 1,100,000 1,769,625
ASE Test Ltd.
1.00%, due 7/1/04 (c)......... 6,000,000 6,585,000
Solectron Corp.
(zero coupon), due 1/27/19
(e)........................... 2,950,000 2,230,938
------------
10,585,563
------------
ELECTRONICS--INSTRUMENTATION (0.8%)
Thermo Instrument Systems, Inc.
Series RG
4.00%, due 1/15/05............ 6,750,000 5,340,937
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 64
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
ELECTRONICS--SEMICONDUCTORS (5.2%)
Adaptec, Inc.
4.75%, due 2/1/04............. $3,900,000 $ 4,236,375
Amkor Technologies, Inc.
5.75%, due 5/1/03............. 1,250,000 2,687,500
Cymer, Inc.
3.50%, due 8/6/04
7.25%, beginning 8/5/00....... 6,500,000 7,231,250
Cypress Semiconductor Corp.
6.00%, due 10/1/02............ 1,798,000 2,595,862
Integrated Process Equipment
Corp.
6.25%, due 9/15/04............ 2,300,000 1,658,875
Lattice Semiconductor Corp.
4.75%, due 11/1/06 (c)........ 4,000,000 5,245,000
LSI Logic Corp.
4.25%, due 3/15/04............ 850,000 1,930,563
Photronics, Inc.
6.00%, due 6/1/04............. 6,000,000 7,005,000
S3, Incorporated
5.75%, due 10/1/03............ 4,665,000 4,355,944
------------
36,946,369
------------
FINANCE (0.5%)
Belgelec Finance S.A.
1.50%, due 8/4/04............. E1,173,480 1,161,706
Mannesmann Finance B.V.
1.00%, due 10/13/04........... 2,000,000 2,455,870
------------
3,617,576
------------
FINANCIAL--MISCELLANEOUS (2.3%)
Morgan Stanley Dean Witter &
Co.
(zero coupon), due 8/17/05.... $7,000,000 6,111,630
(zero coupon), due 10/19/06... 3,800,000 7,353,000
Texaco Capital, Inc.
3.50%, due 8/5/04 (d)......... 2,550,000 2,497,725
------------
15,962,355
------------
FINANCIAL SERVICES (1.0%)
Berkshire Hathaway, Inc.
1.00%, due 12/2/01............ 2,705,000 6,776,025
------------
GOLD & PRECIOUS METAL MINING (0.6%)
Coeur d'Alene Mines Corp.
7.25%, due 10/31/05........... 8,150,000 4,482,500
------------
HEALTH CARE (0.5%)
Elan Finance Corp. Ltd.
(zero coupon), due 12/14/18
(e)(f)........................ 4,000,000 2,120,000
Sunrise Assisted Living, Inc.
5.50%, due 6/15/02............ 2,000,000 1,575,000
------------
3,695,000
------------
INSURANCE--PROPERTY & CASUALTY (0.2%)
Loews Corp.
3.125%, due 9/15/07........... 2,000,000 1,630,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
INTERNET SOFTWARE & SERVICE (0.3%)
Exodus Communications, Inc.
4.75%, due 7/15/08 (c)........ $1,500,000 $ 2,079,375
------------
INVESTMENT BANK/BROKERAGE (1.3%)
Merrill Lynch & Co., Inc.
0.25%, due 5/10/06............ 5,600,000 5,376,000
1.00%, due 7/20/06............ 4,000,000 3,640,000
------------
9,016,000
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.5%)
Devon Energy Corp.
4.95%, due 8/15/08............ 3,910,000 3,812,250
------------
PAPER & FOREST PRODUCTS (0.4%)
Thermo Fibertek, Inc.
4.50%, due 7/15/04 (c)........ 3,000,000 2,430,000
------------
PERSONNEL SERVICES (0.2%)
Personnel Group of America,
Inc.
5.75%, due 7/1/04............. 2,000,000 1,632,500
------------
REAL ESTATE (0.7%)
Macerich Co. (The)
7.25%, due 12/15/02 (c)....... 2,591,000 2,160,246
Series BREG
7.25%, due 12/15/02 (d)....... 2,340,000 1,950,975
New World Capital Finance
3.00%, due 6/9/04 (d)......... 1,000,000 960,000
------------
5,071,221
------------
RETAIL STORES--SPECIALTY (0.2%)
Office Depot, Inc.
(zero coupon), due 11/1/08
(e)........................... 2,250,000 1,530,000
------------
SEMICONDUCTORS (0.7%)
Advanced Energy Industries,
Inc.
5.25%, due 11/15/06........... 4,000,000 4,780,000
------------
SPECIALIZED SERVICES (1.3%)
CUC International, Inc.
3.00%, due 2/15/02............ 5,350,000 5,403,500
Interpublic Group of Companies,
Inc.
1.80%, due 9/16/04............ 1,000,000 1,575,000
1.87%, due 6/1/06............. 2,000,000 2,272,500
------------
9,251,000
------------
SPECIALTY PRINTING (1.5%)
World Color Press, Inc.
6.00%, due 10/1/07............ 10,450,000 10,371,625
------------
TECHNOLOGY (0.0%) (b)
Cirrus Logic, Inc.
6.00%, due 12/15/03........... 200,000 168,250
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 65
MainStay Convertible Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
TELECOMMUNICATIONS SERVICES (3.1%)
Echostar Communications Corp.
4.875%, due 1/1/07 (c)........ $2,000,000 $ 2,462,500
Gilat Satellite Networks Ltd.
6.50%, due 6/3/04 (d)......... 500,000 1,426,250
Global TeleSystems Group, Inc.
5.75%, due 7/1/10 (d)......... 2,000,000 2,685,000
ITC Deltacom, Inc.
4.50%, due 5/15/06............ 5,500,000 6,600,000
NTL, Inc.
5.75%, due 12/15/09 (c)....... 5,000,000 5,400,000
Versatel Telecom International
B.V.
4.00%, due 12/17/04 (c)....... E3,500,000 3,482,073
------------
22,055,823
------------
TELEPHONE (1.8%)
Corecomm Ltd.
6.00%, due 10/1/06............ $2,500,000 3,912,500
Bell Atlantic Financial
Services, Inc.
4.25%, due 9/15/05 (c)........ 6,900,000 8,530,125
------------
12,442,625
------------
Total Convertible Bonds
(Cost $274,228,686)........... 295,416,152
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (34.2%)
AUTO PARTS & EQUIPMENT (1.0%)
Federal Mogul Financial Trust
7.00%......................... 69,600 2,331,600
Tower Automotive Capital Trust
6.75%......................... 116,000 4,379,000
------------
6,710,600
------------
BANKS (0.9%)
Sovereign Capital Trust II
7.50%......................... 130,000 6,402,500
------------
BROADCAST/MEDIA (2.5%)
Cox Communications, Inc.
7.00%......................... 50,000 3,400,000
Emmis Communications Corp.
6.25%, Series A............... 60,000 4,770,000
Entercom Communications Capital
Trust
6.25%......................... 85,000 6,895,625
Mediaone Group, Inc.
6.25%......................... 25,000 2,700,000
------------
17,765,625
------------
BUILDING MATERIALS (0.2%)
Owens Corning Capital L.L.C.
6.50% (c)..................... 50,000 1,731,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
CABLE TV (0.7%)
UnitedGlobalCom, Inc.
7.00%, Series C (j1).......... 37,500 $ 3,412,500
7.00%, Series D (j2).......... 30,000 1,833,750
------------
5,246,250
------------
CHEMICALS (0.8%)
Hercules Trust II
6.50% (g)(k).................. 5,000 3,978,150
Monsanto Co.
6.50%......................... 50,000 1,656,250
------------
5,634,400
------------
CONSUMER PRODUCTS (0.5%)
Newell Financial Trust I
5.25%......................... 100,000 3,812,500
------------
CONSUMER SERVICES (0.1%)
Carriage Services Capital Trust
7.00%......................... 30,000 870,000
------------
CONTAINERS--METAL & GLASS (0.1%)
Owens-Illinois, Inc.
4.75%......................... 25,000 781,250
------------
ELECTRIC POWER COMPANIES (2.0%)
CMS Energy Trust II
8.75%......................... 98,000 3,319,750
Calpine Capital Trust
5.75%......................... 160,000 10,500,000
------------
13,819,750
------------
ENERGY (0.1%)
Chesapeake Energy Corp.
7.00%......................... 30,000 761,250
------------
ENTERTAINMENT (0.3%)
Seagram Co. Ltd.
7.50%......................... 52,000 2,340,000
------------
FOOD (1.4%)
Chiquita Brands International,
Inc.
$2.875, Series A.............. 40,300 785,850
$3.75, Series B............... 49,700 1,236,288
Suiza Capital Trust II
5.50%......................... 225,000 7,762,500
------------
9,784,638
------------
FOOD & HEALTH CARE DISTRIBUTORS (0.4%)
Owens & Minor Trust I
5.375%, Series A.............. 86,600 2,727,900
------------
HEALTH CARE (0.0%) (b)
Sun Financing I
7.00% (c)(h).................. 240,000 12,000
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 66
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
HOMEBUILDING (0.1%)
Kaufman & Broad Home Corp.
8.25%......................... 100,000 $ 787,500
------------
INSURANCE (1.8%)
American General Delaware
L.L.C.
6.00%, Series A............... 62,500 5,882,813
PLC Capital Trust II
6.50%......................... 123,000 6,503,625
------------
12,386,438
------------
INSURANCE--LIFE (0.2%)
Lincoln National Corp.
7.75%......................... 65,000 1,430,000
------------
INVESTMENT BANK/BROKERAGE (0.1%)
Merrill Lynch & Co., Inc.
6.25%, Series IGL (i)......... 38,800 693,550
------------
MACHINERY--DIVERSIFIED (0.8%)
Ingersoll-Rand Co.
6.75%......................... 221,100 5,638,050
------------
METALS--MINING (0.1%)
Freeport McMoRan Copper & Gold,
Inc.
7.00% (j3).................... 18,000 343,125
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (1.8%)
Coastal Corp. (The)
6.625%........................ 200,000 4,662,500
El Paso Energy Capital Trust I
4.75%......................... 105,200 5,299,450
Enron Corp.
7.00%......................... 130,000 2,437,500
------------
12,399,450
------------
OIL & GAS--DRILLING (2.2%)
Newfield Financial Trust I
6.50%......................... 80,000 3,740,000
Weatherford International, Inc.
5.00%......................... 293,400 11,772,675
------------
15,512,675
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.9%)
Apache Corp.
6.50% (j4).................... 107,500 3,816,250
Unocal Capital Trust
6.25%......................... 48,400 2,359,500
------------
6,175,750
------------
OIL--INTEGRATED INTERNATIONAL (0.2%)
Pogo Trust I
6.50%, Series A............... 35,000 1,723,750
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (1.3%)
Georgia-Pacific Group
7.50%......................... 60,000 $ 3,067,500
International Paper Co.
5.25%......................... 107,600 5,864,200
------------
8,931,700
------------
PUBLISHING--NEWSPAPERS (0.5%)
Tribune Co.
2.00%......................... 125,000 2,203,125
6.25%......................... 9,000 1,431,000
------------
3,634,125
------------
RAILROADS (1.1%)
Canadian National Railway Co.
5.25%......................... 68,500 2,877,000
Union Pacific Capital Trust
6.25%......................... 119,300 4,965,862
------------
7,842,862
------------
REAL ESTATE (2.1%)
Archstone Communities Trust
$1.75, Series A............... 46,700 1,313,437
General Growth Properties, Inc.
7.25% (l)(j5)................. 460,100 9,202,000
Lodgian Capital Trust I
7.00% (k)..................... 173,000 3,935,750
------------
14,451,187
------------
RESTAURANTS (0.7%)
Wendy's Financing I
5.00%, Series A (m)........... 110,000 5,266,250
------------
RETAIL (0.7%)
CVS Auto Exchange Trust
6.00%......................... 45,100 3,213,375
Kmart Financing I
7.75%......................... 45,000 1,968,750
------------
5,182,125
------------
STEEL (1.5%)
Bethlehem Steel Corp.
$3.50 (c)..................... 240,000 6,720,000
Timet Capital Trust I
6.625%........................ 35,000 411,250
WHX Corp.
$3.75, Series B............... 123,200 3,180,100
------------
10,311,350
------------
TELECOMMUNICATIONS--LONG DISTANCE (0.5%)
Global Crossing Ltd.
6.375% (c).................... 2,000 253,250
7.00% (c)..................... 11,000 3,099,250
------------
3,352,500
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 67
MainStay Convertible Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATIONS SERVICES (5.0%)
Adelphia Communications Corp.
5.50%, Series D............... 32,600 $ 6,141,025
Amdocs Automatic Common
Exchange Security Trust
6.75%......................... 226,300 7,269,887
DECS Trust V
7.25%......................... 114,000 3,277,500
DECS Trust VI
6.25%......................... 100,000 4,650,000
Global TeleSystems Group, Inc.
7.25% (n)..................... 46,000 2,622,000
Loral Space & Communications
Ltd.
6.00%, Series C............... 15,800 1,021,075
McLeodUSA Incorporated
6.75%, Series A............... 9,000 4,635,000
Metromedia International Group
7.25%......................... 44,000 1,320,000
Qwest Trends Trust
5.75% (c)..................... 66,000 4,644,750
------------
35,581,237
------------
UTILITIES (0.4%)
National Grid Group, PLC
6.00%......................... 75,000 3,150,000
------------
UTILITY--ELECTRIC (1.2%)
AES Trust III
6.75%......................... 132,000 8,134,500
------------
Total Convertible Preferred
Stocks
(Cost $250,409,766)........... 241,328,037
------------
Total Convertible Securities
(Cost $524,638,452)........... 536,744,189
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CORPORATE BONDS (0.2%)
BANKS (0.1%)
Westfed Holdings, Inc.
15.50%, due 9/15/99 (o)....... $4,500,000 922,500
------------
COMPUTERS & OFFICE EQUIPMENT (0.1%)
Businessland, Inc.
5.50%, due 3/1/07............. 1,936,000 677,600
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
HOUSING (0.0%) (b)
UDC Homes, Inc.
Series C
(zero coupon), due 11/1/00
(a)(p)(q)..................... $ 18,799 $ 2
------------
Total Corporate Bonds
(Cost $4,893,509)............. 1,600,102
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCKS (17.2%)
AUTOMOTIVE PARTS & EQUIPMENT (0.3%)
Federal-Mogul Corp............. 95,000 1,911,875
------------
CHEMICALS (0.3%)
RPM, Inc. of Ohio.............. 177,078 1,803,982
------------
COMMUNICATIONS--EQUIPMENT (0.3%)
Scientific-Atlanta, Inc........ 33,000 1,835,625
------------
COMPUTERS & OFFICE EQUIPMENT (0.1%)
Trikon Technologies, Inc.
(a)........................... 80,000 850,001
------------
COMPUTER SOFTWARE & SERVICES (1.7%)
Baan Company, N.V. (a)......... 60,000 843,750
Intertrust Technologies Corp.
(a)........................... 5,000 588,125
Manugistics Group, Inc. (a).... 100,000 3,231,250
Microsoft Corp. (a)............ 52,983 6,185,765
Peoplesoft, Inc. (a)........... 50,000 1,065,625
------------
11,914,515
------------
COMPUTER SYSTEMS (0.9%)
Comdisco, Inc.................. 115,000 4,283,750
Unisys Corp. (a)............... 71,713 2,290,334
------------
6,574,084
------------
DRUGS (0.2%)
Teva Pharmaceutical Industries
Ltd.
ADR (s)....................... 21,000 1,505,438
------------
ELECTRICAL EQUIPMENT (0.1%)
ASE Test Limited (a)........... 15,000 367,500
------------
ELECTRIC POWER COMPANIES (0.7%)
Citizens Utilities Company
(a)........................... 200,000 2,837,500
Consolidated Edison, Inc....... 50,000 1,725,000
OGE Energy Corp. .............. 37,500 712,500
------------
5,275,000
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 68
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS--SEMICONDUCTORS (0.5%)
Photronics, Inc. (a)........... 35,000 $ 1,001,875
S3, Incorporated (a)........... 215,000 2,485,938
------------
3,487,813
------------
ENTERTAINMENT (0.0%) (b)
Alliance Gaming Corp. (a)...... 110,898 301,509
------------
FINANCE (2.7%)
AMC Financial Inc. (a)......... 26,157 117,183
Nasdaq-100 Shares (a).......... 23,750 4,340,312
S&P 500 Depositary Receipt..... 100,000 14,687,500
------------
19,144,995
------------
HEALTH CARE--HMO'S (0.5%)
Wellpoint Health Networks, Inc.
(a)........................... 50,000 3,296,875
------------
HEALTH CARE--MISCELLANEOUS (0.6%)
Beverly Enterprises, Inc.
(a)........................... 285,400 1,248,625
Health Management Associates,
Inc. (a)...................... 100,000 1,337,500
HEALTHSOUTH Corp. (a).......... 50,000 268,750
Manor Care, Inc. (a)........... 100,000 1,600,000
Meditrust Companies............ 6,000 33,000
------------
4,487,875
------------
HEAVY DUTY TRUCKS (0.2%)
Navistar International Corp.
(a)........................... 25,000 1,184,375
------------
INSURANCE--LIFE (0.5%)
Jefferson-Pilot Corp........... 50,000 3,412,500
------------
MACHINERY (0.5%)
Helix Technology Corp.......... 75,000 3,360,938
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.1%)
Coastal Corp. (The)............ 12,000 425,250
Columbia Energy Group.......... 4,300 271,975
------------
697,225
------------
OIL & GAS--DRILLING (0.2%)
BJ Services Co. (a)............ 40,000 1,672,500
------------
OIL & GAS--EQUIPMENT & SERVICES (1.0%)
Baker Hughes Inc. ............. 200,000 4,212,500
Cooper Cameron Corp. (a)....... 60,000 2,936,250
------------
7,148,750
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.7%)
Santa Fe Snyder Corp. (a)...... 313,360 2,506,880
Union Pacific Resources Group,
Inc. ......................... 165,500 2,110,125
------------
4,617,005
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
OIL & GAS--REFINING (0.4%)
Valero Energy Corp............. 150,000 $ 2,981,250
------------
OIL--INTEGRATED DOMESTIC (0.8%)
Amerada Hess Corp. ............ 36,800 2,088,400
Sunoco, Inc. .................. 80,000 1,880,000
Tosco Corp..................... 50,000 1,359,375
------------
5,327,775
------------
PAPER & FOREST PRODUCTS (0.1%)
Repap Enterprises, Inc.
(a)(r)........................ 9,294,809 512,357
------------
REAL ESTATE (1.3%)
Equity Office Properties
Trust......................... 62,000 1,526,750
Health Care Property Investors,
Inc. ......................... 7,400 176,675
Healthcare Realty Trust,
Inc. ......................... 60,000 937,500
Highwoods Properties, Inc. .... 101,300 2,355,225
Nationwide Health Properties,
Inc. ......................... 60,000 825,000
Simon Property Group, Inc. .... 89,200 2,046,025
Spieker Properties, Inc. ...... 43,000 1,566,813
------------
9,433,988
------------
RETAIL (1.7%)
Borders Group, Inc. (a)........ 90,000 1,445,625
Home Depot, Inc. (The)......... 68,213 4,676,820
Office Depot, Inc. (a)......... 370,000 4,046,875
Rite Aid Corp.................. 150,000 1,678,125
------------
11,847,445
------------
SPECIALIZED SERVICES (0.0%) (b)
Veritas DGC, Inc. (a).......... 9,700 135,800
------------
STEEL (0.1%)
Worthington Industries,
Inc. ......................... 36,700 607,844
------------
STEEL, ALUMINUM & OTHER METALS (0.1%)
National Steel Corp. Class B... 60,000 446,250
------------
TELECOMMUNICATIONS SERVICES (0.5%)
ICG Communications, Inc. (a)... 50,000 937,500
Intermedia Communications, Inc.
(a)........................... 75,000 2,910,938
------------
3,848,438
------------
TEXTILES--APPAREL MANUFACTURERS (0.0%) (b)
Burlington Industries, Inc.
(a)........................... 28,200 112,800
------------
TOBACCO (0.0%) (b)
Philip Morris Companies,
Inc. ......................... 13,500 313,031
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 69
MainStay Convertible Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UTILITY--GAS (0.1%)
El Paso Electric Co. (a)....... 43,500 $ 426,844
KeySpan Corp. ................. 18,112 419,972
------------
846,816
------------
Total Common Stocks
(Cost $115,960,308)........... 121,264,174
------------
PREFERRED STOCK (0.6%)
METALS--MINING (0.6%)
Freeport McMoRan Copper & Gold,
Inc.
7.00%, Series Silver (t)(u)... 330,000 4,145,625
------------
Total Preferred Stock
(Cost $5,626,500)............. 4,145,625
------------
<CAPTION>
NUMBER OF
CONTRACTS
-----------
<S> <C> <C>
PURCHASED PUT OPTIONS (0.0%) (b)
TELECOMMUNICATION SERVICES (0.0%) (b)
Winstar Communications, Inc.... 200 3,750
------------
Total Purchased Put Options
(Cost $90,650)................ 3,750
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.1%)
COMMERCIAL PAPER (2.5%)
Goldman Sachs Group LP
6.46%, due 1/31/00 (v)........ $9,725,000 9,672,534
Wells Fargo Company
6.30%, due 1/10/00............ 8,000,000 7,987,362
------------
Total Commercial Paper
(Cost $17,659,896)............ 17,659,896
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
INVESTMENT COMPANY (3.6%)
Merrill Lynch Premier
Institutional Fund............ 25,211,688 25,211,688
------------
Total Investment Company
(Cost $25,211,688)............ 25,211,688
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
Total Short-Term Investments
(Cost $42,871,584)............ $ 42,871,584
------------
Total Investments
(Cost $694,081,003) (w)....... 100.1% 706,629,424(x)
Liabilities in Excess of
Cash and Other Assets......... (0.1) (850,152)
----------- ------------
Net Assets..................... 100.0% $705,779,272
=========== ============
</TABLE>
- -------
<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) Yankee bonds.
(g) 5,000 Units--each unit consists of 1 preferred stock and
1 warrant to acquire 23.4192 shares of common stock at
$42.70 at a future date.
(h) TIPS--Trust Issued Preferred Stock.
(i) STRYPES--Structured Yield Product Exchangeable for IMC
Global, Inc. common stock.
(j1) Depository Shares--each share represents 0.05 shares of
7.00%, Series C Senior Cumulative convertible preferred
stock.
(j2) Depository Shares--each share represents 0.05 shares of
7.00%, Series D Senior Cumulative convertible preferred
stock.
(j3) Depository Shares--each share represents 0.05 shares of
step-up preferred stock.
(j4) Depository Shares--each share represents 0.02 shares of
preferred stock.
(j5) Depository Shares--each share represents 0.025 shares of
7.25%, Series A Preferred Income Equity Redeemable
Stock.
(k) CRESTS--Convertible Redeemable Equity Structured Trust
Securities.
(l) PIERS--Preferred Income Equity Redeemable Stock.
(m) TECONS--Term Convertible Security.
(n) Depository Shares--each share represents 0.01 shares of
preferred stock.
(o) Issue in default.
(p) Issuer in bankruptcy.
(q) Fair valued security.
(r) Canadian security.
(s) ADR--American Depository Receipt.
(t) Depository Shares--each share represents 0.025 shares of
a share of silver denominated preferred stock.
(u) Dividend equals U.S. dollar equivalent of 0.04125 oz. of
silver per share.
(v) Segregated as collateral for foreign currency forward
contracts.
(w) The cost for Federal income tax purposes is
$696,245,143.
(x) At December 31, 1999 net unrealized appreciation was
$10,384,281, 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 $72,033,188 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $61,648,907.
(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.
14
<PAGE> 70
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$694,081,003)............................................. $706,629,424
Cash........................................................ 65,393
Receivables:
Dividends and interest.................................... 2,997,375
Investment securities sold................................ 2,381,111
Fund shares sold.......................................... 745,909
Unrealized appreciation on foreign currency forward
contracts................................................. 461,938
------------
Total assets........................................ 713,281,150
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 4,672,225
Fund shares redeemed...................................... 587,448
NYLIFE Distributors....................................... 548,641
MainStay Management....................................... 423,180
Transfer agent............................................ 111,069
Custodian................................................. 6,923
Trustees.................................................. 5,126
Accrued expenses............................................ 201,466
Unrealized depreciation on foreign currency forward
contracts................................................. 945,800
------------
Total liabilities................................... 7,501,878
------------
Net assets.................................................. $705,779,272
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 31,836
Class B................................................... 452,918
Class C................................................... 914
Additional paid-in capital.................................. 649,201,741
Accumulated undistributed net investment income............. 875,955
Accumulated undistributed net realized gain on
investments............................................... 43,153,551
Net unrealized appreciation on investments.................. 12,548,421
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (486,064)
------------
Net assets.................................................. $705,779,272
============
CLASS A
Net assets applicable to outstanding shares................. $ 46,253,695
============
Shares of beneficial interest outstanding................... 3,183,580
============
Net asset value per share outstanding....................... $ 14.53
Maximum sales charge (5.50% of offering price).............. 0.85
------------
Maximum offering price per share outstanding................ $ 15.38
============
CLASS B
Net assets applicable to outstanding shares................. $658,196,571
============
Shares of beneficial interest outstanding................... 45,291,769
============
Net asset value and offering price per share outstanding.... $ 14.53
============
CLASS C
Net assets applicable to outstanding shares................. $ 1,329,006
============
Shares of beneficial interest outstanding................... 91,459
============
Net asset value and offering price per share outstanding.... $ 14.53
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 71
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 16,376,844
Interest.................................................. 17,194,308
------------
Total income............................................ 33,571,152
------------
Expenses:
Management................................................ 4,706,942
Distribution--Class B..................................... 4,602,855
Distribution--Class C..................................... 2,040
Service--Class A.......................................... 99,395
Service--Class B.......................................... 1,534,280
Service--Class C.......................................... 680
Transfer agent............................................ 1,393,571
Professional.............................................. 204,148
Dividends on securities sold short........................ 104,603
Shareholder communication................................. 93,634
Recordkeeping............................................. 92,042
Stock borrowing fee on securities sold short.............. 81,570
Custodian................................................. 49,810
Registration.............................................. 42,329
Trustees.................................................. 18,284
Miscellaneous............................................. 31,268
------------
Total expenses.......................................... 13,057,451
------------
Net investment income....................................... 20,513,701
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 147,148,541
Securities sold short..................................... 9,727,046
Option transactions....................................... (30,924,939)
Foreign currency transactions............................. (728,187)
------------
Net realized gain on investments and foreign currency
transactions.............................................. 125,222,461
------------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... 48,697,684
Securities sold short and options written................. (6,695,426)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 691,358
------------
Net unrealized gain on investments and foreign currency
transactions.............................................. 42,693,616
------------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 167,916,077
------------
Net increase in net assets resulting from operations........ $188,429,778
============
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Dividends recorded net of foreign withholding taxes of
$9,541.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 72
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 20,513,701 $ 25,482,513
Net realized gain on investments.......................... 147,148,541 36,017,831
Net realized gain (loss) on short sale transactions....... 9,727,046 (9,323,900)
Net realized loss on option transactions.................. (30,924,939) (7,713,320)
Net realized gain (loss) on foreign currency
transactions............................................ (728,187) 1,539,153
Net change in unrealized appreciation (depreciation) on
security transactions................................... 48,697,684 (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
translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 691,358 (2,226,953)
------------- -------------
Net increase in net assets resulting from operations...... 188,429,778 8,428,097
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (1,474,632) (2,145,731)
Class B................................................. (17,931,053) (25,154,338)
Class C................................................. (9,726) (7)
From net realized gain on investments:
Class A................................................. (4,372,928) (2,062,425)
Class B................................................. (63,118,328) (32,356,830)
Class C................................................. (121,115) (20)
------------- -------------
Total dividends and distributions to shareholders..... (87,027,782) (61,719,351)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 8,434,825 7,399,467
Class B................................................. 30,485,720 36,028,870
Class C................................................. 1,224,187 1,293
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 5,526,918 3,886,678
Class B................................................. 73,686,440 51,651,324
Class C................................................. 117,744 18
------------- -------------
119,475,834 98,967,650
Cost of shares redeemed:
Class A................................................. (16,196,518) (30,109,058)
Class B................................................. (198,039,708) (222,144,381)
Class C................................................. (69,526) (907)
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (94,829,918) (153,286,696)
------------- -------------
Net increase (decrease) in net assets................. 6,572,078 (206,577,950)
NET ASSETS:
Beginning of year........................................... 699,207,194 905,785,144
------------- -------------
End of year................................................. $705,779,272 $ 699,207,194
============= =============
Accumulated undistributed net investment income at end of
year...................................................... $ 875,955 $ 259,745
============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 73
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------
Year ended December 31,
-----------------------------------------------
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...................................... 0.55 0.57 0.60 0.57 0.59
Net realized and unrealized gain (loss) on investments..... 3.55 (0.38) 0.91 1.02 2.14
Net realized and unrealized gain (loss) on foreign currency
transactions............................................. (0.00)(b) (0.02) 0.03 0.02 (0.00)(b)
------- ------- ------- ------- -------
Total from investment operations........................... 4.10 0.17 1.54 1.61 2.73
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............................... (0.52) (0.57) (0.60) (0.62) (0.55)
From net realized gain on investments.................... (1.54) (0.64) (1.22) (0.63) (0.40)
------- ------- ------- ------- -------
Total dividends and distributions.......................... (2.06) (1.21) (1.82) (1.25) (0.95)
------- ------- ------- ------- -------
Net asset value at end of period........................... $ 14.53 $ 12.49 $ 13.53 $ 13.81 $ 13.45
======= ======= ======= ======= =======
Total investment return (a)................................ 33.91% 1.23% 11.36% 12.13% 23.72%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.................................. 3.84% 3.74% 4.10% 4.4% 4.9%
Expenses............................................... 1.29% 1.40% 1.45% 1.5% 1.5%
Portfolio turnover rate.................................... 374% 347% 273% 296% 243%
Net assets at end of period (in 000's)..................... $46,254 $42,376 $64,246 $56,621 $26,836
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C Shares were first offered on September 1, 1998.
+ 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.
18
<PAGE> 74
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- -------------------------------
September 1*
Year ended December 31, Year ended through
---------------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 11.67 $ 12.49 $ 12.64
-------- -------- -------- -------- -------- -------- --------
0.44 0.46 0.51 0.48 0.51 0.44 0.26
3.55 (0.37) 0.91 1.02 2.14 3.55 0.47
(0.00)(b) (0.02) 0.03 0.02 (0.00)(b) (0.00)(b) 0.02
-------- -------- -------- -------- -------- -------- --------
3.99 0.07 1.45 1.52 2.65 3.99 0.75
-------- -------- -------- -------- -------- -------- --------
(0.41) (0.46) (0.51) (0.54) (0.47) (0.41) (0.26)
(1.54) (0.64) (1.22) (0.63) (0.40) (1.54) (0.64)
-------- -------- -------- -------- -------- -------- --------
(1.95) (1.10) (1.73) (1.17) (0.87) (1.95) (0.90)
-------- -------- -------- -------- -------- -------- --------
$ 14.53 $ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 14.53 $ 12.49
======== ======== ======== ======== ======== ======== ========
32.90% 0.53% 10.67% 11.39% 23.02% 32.90% 6.06%
3.09% 2.99% 3.47% 3.8% 4.3% 3.09% 2.99%+
2.04% 2.15% 2.08% 2.1% 2.1% 2.04% 2.15%+
374% 347% 273% 296% 243% 374% 347%
$658,197 $656,831 $841,540 $797,243 $427,461 $ 1,329 $ --(c)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 75
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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. 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.
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
20
<PAGE> 76
Notes to Financial Statements
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 Fund's 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 Fund's
subadvisor, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by the Fund's
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 Fund's 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
Fund's 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.
21
<PAGE> 77
MainStay Convertible Fund
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 year end to credit loss in the event of a counterparty's failure to
perform its obligations.
Foreign currency forward contracts open at December 31, 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 2/15/00............... E 8,645,000 $9,158,334 $ 461,938
Japanese Yen vs. U.S. Dollar, expiring 2/15/00....... Y719,600,000 $6,405,036 (679,871)
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
------------ ----------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Euro vs. U.S. Dollar, expiring 2/15/00............... E 3,860,000 $4,148,878 (265,929)
---------
Net unrealized depreciation on foreign currency
forward contracts.................................. $(483,862)
=========
</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.
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
22
<PAGE> 78
Notes to Financial Statements (continued)
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.
Written option activity for the year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
--------- ---------
<S> <C> <C>
Options outstanding at December 31, 1998.................... (52,902) $(111,900)
Options--expired............................................ 49,452 108,043
Options--written............................................ (7,627) (7,220)
Options--purchased.......................................... 11,077 11,077
------- ---------
Options outstanding at December 31, 1999.................... 0 $ 0
======= =========
</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 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.
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.
23
<PAGE> 79
MainStay Convertible Fund
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. A permanent book/tax difference of $209,171 is an increase to
accumulated undistributed net realized gain on investments. In addition,
decreases of $482,080, $728,187 and $455,278 have been made to accumulated
undistributed net investment income, net realized loss on foreign currency
transactions and additional paid-in capital, respectively. These book/tax
differences are due to the recharacterization of distributions of long-term
capital gains and the tax treatment of foreign currency losses.
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 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, LLC (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
24
<PAGE> 80
Notes to Financial Statements (continued)
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 LLC (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 year ended December 31, 1999 the Manager
earned $4,706,942.
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, 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 $6,210 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $4,609, $1,336,476 and $317, respectively, for the year ended December
31, 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
25
<PAGE> 81
MainStay Convertible Fund
responsible. Transfer agent expense accrued for the year ended December 31, 1999
amounted to $1,393,571.
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 $17,451 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$92,042 for the year ended December 31, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $2,315,477 and $2,457,970,
respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
26
<PAGE> 82
Notes to Financial Statements (continued)
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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......................... 598 2,193 88 545 2,621 --
Shares issued in reinvestment of
dividends and distributions....... 396 5,271 8 301 4,032 --
------ ------- -- ------ ------- ---
994 7,464 96 846 6,653 --
Shares redeemed..................... (1,203) (14,753) (5) (2,202) (16,303) --
------ ------- -- ------ ------- ---
Net increase (decrease)............. (209) (7,289) 91 (1,356) (9,650) --(a)
====== ======= == ====== ======= ===
</TABLE>
- -------
* First offered on September 1, 1998.
(a) Less than one thousand.
27
<PAGE> 83
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Convertible Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
28
<PAGE> 84
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 85
This page intentionally left blank
<PAGE> 86
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN06-02/00
[RECYCLE LOGO]
[THE MAINSTAY LOGO]
MainStay
Convertible Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 87
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay
Equity Index Fund versus the S&P 500 Index
and Inflation 3
Portfolio Management Discussion and Analysis 4
Year-by-Year Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 16
Notes to Financial Statements 20
Report of Independent Accountants 25
The MainStay Funds 26
</TABLE>
<PAGE> 88
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2
<PAGE> 89
$10,000 Invested in the MainStay
Equity Index Fund versus the S&P 500 Index
and Inflation
CLASS A SHARES SEC Returns: 1 Year 16.39%, 5 Years 26.66%, Since Inception
19.13%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY EQUITY INDEX
FUND CLASS A SHARES S&P 500 INDEX* INFLATION (CPI)+
--------------------- -------------- ----------------
<S> <C> <C> <C>
12/20/90 9700.00 10000.00 10000.00
12/91 12430.00 13040.00 10298.00
12/92 13200.00 14032.00 10603.00
12/93 14391.00 15441.00 10893.00
12/94 14463.00 15645.00 11177.00
12/95 19657.00 21518.00 11467.00
12/96 23988.00 26454.00 11847.00
12/97 31728.00 35280.00 12047.00
12/98 40514.00 45361.00 12241.00
12/99 48613.00 54913.00 12568.00
</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 through
4/98 reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. 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
LLC. 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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> 90
- -------
(1) See footnote on page 3 for more information on the S&P 500(R) Index.
(2) See footnote and table on page 7 for more information on Lipper Inc.
(3) 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) to five
(high) stars are based on a fund's three-, five-, and ten-year average
annual returns (if applicable) with fee adjustments in excess of 90-day
Treasury bill returns, and a risk factor that reflects fund performance
below 90-day Treasury bill 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. Funds (or share classes) are not rated until they have
three years of performance history.
Portfolio Management Discussion and Analysis
In 1999, the S&P 500 Composite Stock Price Index(1) appreciated more than 20%
for a record fifth consecutive year. Once again, large-capitalization, growth-
oriented stocks outperformed their value counterparts during most of the year.
The S&P 500 Index was bolstered by a fourth-quarter rally driven by the
technology sector. In fact, the real division in the market during 1999 was not
based on investment style but rather on whether stocks were tied to the "new
economy" with close relations to technology. For example, technology stocks such
as QUALCOMM, Sprint PCS, and Nextel at least tripled in value, while traditional
blue chip bellwethers such as Coca-Cola, Gillette, Ford, and Merck each posted
losses for the year. Interestingly, the number of S&P 500 Index stocks that
declined in value in 1999 exceeded the number that appreciated, which means that
most of the market's positive performance came from a limited number of stocks.
Two other factors that impacted the market in 1999 were tame inflation and
strong corporate earnings by many companies, which combined to create an aptly
named Goldilocks economy. The Federal Reserve's three interest-rate cuts in the
fall of 1998 set the stage for the market's strong performance in the first half
of 1999. By late spring, however, Federal Reserve Chairman Alan Greenspan began
expressing concern that economic growth was perhaps too strong and that
inflationary pressures may not be far behind. Seeking to keep inflation in
check, the Federal Reserve raised the targeted federal funds rate by 0.25% once
on June 30 and again on August 24, 1999. The stock market quickly gave back some
of its gains from the prior six months. The trend again reversed itself in
October with the release of lower-than-expected Consumer Price Index and gross
domestic product (GDP) statistics. With the threat of inflationary pressure
apparently diminishing, even a third Federal Reserve tightening on November 16,
1999, couldn't prevent the market from surging almost 15% in the final three
months of the year.
PERFORMANCE REVIEW
For the twelve months ended December 31, 1999, the MainStay Equity Index Fund
returned 19.99% for Class A shares, excluding all sales charges. The Fund
slightly underperformed the average Lipper(2) S&P 500 Index objective fund,
which returned 20.22% for the same period. The Fund also underperformed the S&P
500 Index, which returned 21.04% for the twelve months ended December 31, 1999.
Investors should anticipate a slight lag, since the Fund incurs expenses that a
hypothetical investment in an index does not.
It is worth noting that Morningstar(3) rated the MainStay Equity Index Fund
Class A shares four stars overall as of December 31, 1999. The Fund's Class A
shares received four stars for the three- and five-year periods ended
4
<PAGE> 91
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
<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
12/99 19.99
</TABLE>
- -----
Past performance is no guarantee of future results. See footnote * on page
7 for more information on performance.
December 31, 1999, from among 3,469 and 2,180 domestic equity funds,
respectively. The Fund is offered only as Class A shares.
KEY SECTORS AND SECURITIES
Technology dominated S&P 500 Index performance by virtually any measure. Within
the technology sector, the highest returns came from electronic instruments,
communications equipment, semiconductors, and computer software. With a
2,619.40%(4) annual return, QUALCOMM, a high speed communications equipment
provider, topped the list of high flyers in 1999. Still, QUALCOMM added just
0.68% to the S&P 500 Index return, since it first joined the Index in July 1999.
Three other communications-related companies were among the S&P 500 Index's
top-performing stocks: Sprint PCS (+343.24%), Nextel (+336.51%), and Nortel
(+304.00%). A chip maker, LSI Logic (+318.60%), rounded out the top five. The
metals industry, in the midst of rapid consolidation, also did well in 1999,
especially aluminum and miscellaneous metals. Based on their S&P 500 Index
weightings, the individual securities with the greatest impact on the S&P 500's
performance included Microsoft (+68.36%), Cisco Systems (+130.84%), General
Electric (+51.72%), Wal-Mart (+69.76%), and Oracle (+289.78%).
At the other end of the spectrum, pollution-control stocks, a rather small S&P
500 Index component, had the worst performance of any sector in 1999, with a
loss of 55.67%. Tobacco, down 54.24%, suffered from ongoing litigation and the
threat of new taxes. Philip Morris, in particular, was one of the S&P 500
Index's worst performers, returning -57.01%. Makers of office equipment
- -------
(4) Returns reflect performance for the one-year period ended 12/31/99
5
<PAGE> 92
Past performance is no guarantee of future results.
(-50.87%), operators of retail food stores (-42.12%), and food distributors
(-40.77%), also performed poorly. Based on their S&P 500 Index weightings,
pharmaceuticals, especially Pfizer (-22.15%) and Eli Lilly (-25.18%), and
regional banks, particularly First Union (-45.84%), had the greatest negative
impact on the performance of the S&P 500 Index and the Fund. The hardest-hit
individual stocks, due primarily to missed earnings targets, were Service Corp.
International (-81.77%), Rite Aid (-77.64%), McKesson HBOC & Co. (-71.54%), and
HEALTHSOUTH (-65.18%).
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 merger and
acquisition activity. As a result of market appreciation, however, the
characteristics of the S&P 500 Index changed considerably during the second half
of the year. As of December 31, 1999, technology stocks represented more than
25% of the S&P 500 Index, a larger weighting than at any point in the past. This
shift parallels the increasing importance of technology within the global
economy. The S&P 500 Index was also more concentrated in large-capitalization
names than it was a year ago.
LOOKING AHEAD
The extraordinary performance of U.S. stocks over the past several years has
left the market at valuation levels never before seen, especially when measured
using such traditional yardsticks as price-to-earnings and price-to-book ratios.
Some critics view the high valuations like past bubbles that formed and later
burst in real estate, biotechnology stocks, and Japanese equities. To more
optimistic investors, the market has just begun to enter a new era in which
technology has rendered traditional valuation measures obsolete.
Of course, as index investors, we do not evaluate or respond to changing
economic and market conditions or concern ourselves with market psychology.
Whatever the markets or the economy may bring, the Fund will continue 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 S&P 500 Index.
Jefferson C. Boyce
Stephen B. Killian
Portfolio Managers
Monitor Capital Advisors LLC
6
<PAGE> 93
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 19.99% 27.44% 19.53%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 16.39% 26.66% 19.13%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Equity Index Fund 83 out of 41 out of 13 out of
107 funds 44 funds 13 funds
Average Lipper S&P
500 Index
objective fund 20.22% 27.96% 20.30%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $47.36 $0.1958 $0.9936
</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. Performance figures through 4/98
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. 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 12/31/99. Lipper returns and
rankings are unaudited.
7
<PAGE> 94
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (98.9%)+
AEROSPACE/DEFENSE (0.9%)
Boeing Co. (The)................. 93,957 $ 3,905,088
General Dynamics Corp. .......... 20,013 1,055,686
Goodrich (B.F.) Co. (The)........ 11,091 305,002
Lockheed Martin Corp. ........... 39,800 870,625
Northrop Grumman Corp. .......... 7,009 378,924
Raytheon Co. Class B............. 34,077 905,170
Rockwell International Corp. .... 19,324 925,137
United Technologies Corp. ....... 48,578 3,157,570
--------------
11,503,202
--------------
AIRLINES (0.2%)
AMR Corp. (a).................... 15,545 1,041,515
Delta Air Lines, Inc. ........... 14,138 704,249
Southwest Airlines Co. .......... 50,783 822,050
US Airways Group, Inc. (a)....... 7,432 238,289
--------------
2,806,103
--------------
ALUMINUM (0.4%)
Alcan Aluminum Ltd. ............. 22,763 937,551
Alcoa Inc........................ 37,043 3,074,569
Reynolds Metals Co. ............. 6,503 498,292
--------------
4,510,412
--------------
AUTO PARTS & EQUIPMENT (0.1%)
Cooper Tire & Rubber Co. ........ 7,680 119,520
Delphi Automotive Systems
Corp. .......................... 56,736 893,592
Genuine Parts Co. ............... 18,076 448,511
Goodyear Tire & Rubber Co.
(The)........................... 15,720 443,107
--------------
1,904,730
--------------
AUTOMOBILES (0.9%)
Ford Motor Co. .................. 122,117 6,525,627
General Motors Corp. ............ 64,414 4,682,093
--------------
11,207,720
--------------
BANKS--MAJOR REGIONAL (3.3%)
AmSouth Bancorp.................. 39,493 762,709
Bank of New York Co., Inc.
(The)........................... 73,825 2,953,000
Bank One Corp. .................. 115,309 3,697,095
BB&T Corp. ...................... 31,757 869,348
Comerica Inc. ................... 15,682 732,153
Fifth Third Bancorp.............. 30,368 2,228,252
Firstar Corp. ................... 98,514 2,081,108
FleetBoston Financial Corp. ..... 92,937 3,235,369
Huntington Bancshares Inc. ...... 23,290 556,049
KeyCorp.......................... 45,174 999,475
Mellon Financial Corp. .......... 52,538 1,789,576
National City Corp. ............. 63,328 1,500,082
Northern Trust Corp. ............ 22,672 1,201,616
Old Kent Financial Corp. ........ 12,000 424,500
- --------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (CONTINUED)
PNC Bank Corp. .................. 30,535 $ 1,358,807
Regions Financial Corp. ......... 22,561 566,845
Republic New York Corp. ......... 10,609 763,848
SouthTrust Corp. ................ 16,747 633,246
State Street Corp. .............. 16,236 1,186,243
Summit Bancorp................... 17,376 532,140
SunTrust Banks, Inc. ............ 32,436 2,232,002
Synovus Financial Corp. ......... 27,275 542,091
Union Planters Corp. ............ 14,262 562,458
U.S. Bancorp..................... 73,274 1,744,837
Wachovia Corp. .................. 20,486 1,393,048
Wells Fargo Co. ................. 166,740 6,742,549
--------------
41,288,446
--------------
BANKS--MONEY CENTER (1.6%)
Bank of America Corp. ........... 171,640 8,614,183
Chase Manhattan Corp. (The)...... 83,644 6,498,093
First Union Corp. ............... 97,622 3,203,222
Morgan (J.P.) & Co., Inc. ....... 17,955 2,273,552
--------------
20,589,050
--------------
BANKS--SAVINGS & LOANS (0.2%)
Golden West Financial Corp. ..... 17,097 572,749
Washington Mutual, Inc. ......... 58,131 1,511,406
--------------
2,084,155
--------------
BEVERAGES--ALCOHOLIC (0.3%)
Anheuser-Busch Cos., Inc. ....... 46,958 3,328,148
Brown-Forman Corp.
Class B......................... 6,915 395,884
Coors (Adolph) Co.
Class B......................... 3,704 194,460
--------------
3,918,492
--------------
BEVERAGES--SOFT DRINKS (1.6%)
Coca-Cola Co. (The) (c).......... 248,421 14,470,523
Coca-Cola Enterprises Inc. ...... 42,806 861,471
PepsiCo, Inc..................... 146,900 5,178,225
--------------
20,510,219
--------------
BROADCAST/MEDIA (1.3%)
CBS Corp. (a).................... 77,280 4,941,090
Clear Channel Communications,
Inc. (a)........................ 33,539 2,993,356
Comcast Corp. Special Class A.... 74,656 3,774,794
MediaOne Group Inc. (a).......... 61,137 4,696,086
--------------
16,405,326
--------------
BUILDING MATERIALS (0.2%)
Masco Corp. ..................... 44,594 1,131,573
Owens Corning.................... 5,476 105,755
Sherwin-Williams Co. (The)....... 17,074 358,554
Vulcan Materials Co. ............ 10,200 407,363
--------------
2,003,245
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 95
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS (1.3%)
Air Products & Chemicals,
Inc. ........................... 23,228 $ 779,590
Dow Chemical Co. (The)........... 22,251 2,973,290
Du Pont (E.I.) De Nemours &
Co. ............................ 104,801 6,903,766
Eastman Chemical Co. ............ 7,996 381,309
Hercules Inc. ................... 10,147 282,848
Monsanto Co. .................... 63,704 2,269,455
Praxair, Inc. ................... 15,863 798,107
Rohm & Haas Co. ................. 21,332 867,946
Union Carbide Corp. ............. 13,447 897,587
--------------
16,153,898
--------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ............ 11,449 834,346
Engelhard Corp. ................. 12,582 237,485
FMC Corp. (a).................... 3,312 189,819
PPG Industries, Inc. ............ 17,435 1,090,777
--------------
2,352,427
--------------
CHEMICALS--SPECIALTY (0.1%)
Grace (W.R.) & Co. (a)........... 6,989 96,972
Great Lakes Chemical Corp. ...... 5,861 223,817
Sigma-Aldrich Corp. ............. 10,141 304,864
--------------
625,653
--------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (7.5%)
ADC Telecommunications, Inc.
(a)............................. 15,100 1,095,694
Andrew Corp. (a)................. 8,300 157,181
Cabletron Systems, Inc. (a)...... 18,635 484,510
Cisco Systems, Inc. (a).......... 328,946 35,238,340
Comverse Technology, Inc. (a).... 7,100 1,027,725
General Instrument Corp. (a)..... 17,374 1,476,790
Lucent Technologies Inc. ........ 315,057 23,570,202
Network Appliance, Inc. (a)...... 14,800 1,229,325
Nortel Networks Corp. ........... 133,798 13,513,598
QUALCOMM, Inc. (a)............... 66,400 11,694,700
Scientific-Atlanta, Inc. ........ 7,599 422,695
Tellabs, Inc. (a)................ 39,568 2,539,771
3Com Corp. (a)................... 34,657 1,628,879
--------------
94,079,410
--------------
COMPUTER SOFTWARE & SERVICES (10.3%)
Adobe Systems Inc. .............. 12,260 824,485
America Online Inc. (a).......... 225,162 16,985,658
Autodesk, Inc. .................. 5,920 199,800
Automatic Data Processing,
Inc. ........................... 62,430 3,363,416
BMC Software, Inc. (a)........... 23,800 1,902,513
Ceridian Corp. (a)............... 14,555 313,842
Citrix Systems, Inc. (a)......... 8,900 1,094,700
Computer Associates
International, Inc. ............ 54,080 3,782,220
Computer Sciences Corp. (a)...... 16,094 1,522,895
Compuware Corp. (a).............. 37,007 1,378,511
Electronic Data Systems Corp. ... 47,344 3,169,089
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
Equifax Inc. .................... 14,515 $ 342,010
First Data Corp. ................ 43,496 2,144,897
Microsoft Corp. (a)(c)........... 518,828 60,573,169
Novell, Inc. (a)................. 34,014 1,358,434
Oracle Corp. (a)................. 143,142 16,040,850
Parametric Technology Corp.
(a)............................. 27,329 739,591
Paychex, Inc. ................... 24,760 990,400
PeopleSoft, Inc. (a)............. 25,433 542,041
Shared Medical Systems Corp. .... 2,698 137,429
Yahoo! Inc. (a).................. 26,400 11,422,950
--------------
128,828,900
--------------
COMPUTER SYSTEMS (6.3%)
Apple Computer, Inc. (a)......... 16,037 1,648,804
Compaq Computer Corp. ........... 171,505 4,641,354
Dell Computer Corp. (a).......... 255,799 13,045,749
EMC Corp. (a).................... 102,054 11,149,400
Gateway Inc. (a)................. 31,668 2,282,075
Hewlett-Packard Co. ............. 102,002 11,621,853
International Business Machines
Corp. .......................... 181,894 19,644,552
Lexmark International Group, Inc.
(a)............................. 12,900 1,167,450
Seagate Technology, Inc. (a)..... 21,012 978,371
Silicon Graphics, Inc. (a)....... 18,989 186,330
Sun Microsystems, Inc. (a)....... 156,132 12,090,472
Unisys Corp. (a)................. 30,760 982,397
--------------
79,438,807
--------------
CONGLOMERATES (0.1%)
Textron Inc...................... 15,218 1,167,030
--------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. ...................... 3,050 120,094
Crown Cork & Seal Co., Inc. ..... 12,408 277,629
Owens-Illinois, Inc. (a)......... 15,747 394,659
--------------
792,382
--------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ................. 5,373 187,383
Pactiv Corp. (a)................. 17,084 181,518
Temple-Inland Inc. .............. 5,583 368,129
--------------
737,030
--------------
COSMETICS/PERSONAL CARE (0.5%)
Alberto-Culver Co. Class B....... 5,703 147,209
Avon Products, Inc. ............. 26,454 872,982
Gillette Co. (The)............... 108,422 4,465,631
International Flavors &
Fragrances Inc.................. 10,650 402,037
--------------
5,887,859
--------------
ELECTRIC POWER COMPANIES (1.5%)
Ameren Corp. .................... 13,806 452,147
American Electric Power Co.,
Inc. ........................... 19,319 620,623
Carolina Power & Light Co. ...... 16,094 489,861
Central & South West Corp. ...... 21,465 429,300
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 96
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC POWER COMPANIES (CONTINUED)
Cinergy Corp. ................... 16,061 $ 387,472
CMS Energy Corp. ................ 11,800 368,012
Consolidated Edison, Inc. ....... 22,874 789,153
Constellation Energy Group,
Inc. ........................... 15,058 436,682
Dominion Resources, Inc. ........ 19,302 757,603
DTE Energy Co. .................. 14,628 458,954
Duke Energy Corp. ............... 36,737 1,841,442
Edison International............. 35,036 917,505
Entergy Corp. ................... 24,817 639,038
FirstEnergy Corp. ............... 23,700 537,694
Florida Progress Corp. .......... 9,900 418,894
FPL Group, Inc. ................. 18,216 779,873
GPU, Inc. ....................... 12,658 378,949
New Century Energies Inc. ....... 11,535 350,376
Niagara Mohawk Holdings Inc.
(a)............................. 18,877 263,098
Northern States Power Co. ....... 15,404 300,378
PECO Energy Co. ................. 19,291 670,362
PG&E Corp. ...................... 38,708 793,514
Pinnacle West Capital Corp. ..... 8,500 259,781
PP&L Resources, Inc. ............ 15,894 363,575
Public Service Enterprise Group
Inc. ........................... 22,127 770,296
Reliant Energy, Inc. ............ 29,870 683,276
Southern Co. (The)............... 70,397 1,654,330
Texas Utilities Co. ............. 28,265 1,005,174
Unicom Corp. .................... 21,853 732,075
--------------
18,549,437
--------------
ELECTRICAL EQUIPMENT (4.7%)
Cooper Industries, Inc. ......... 9,560 386,582
Emerson Electric Co. ............ 43,856 2,516,238
General Electric Co. (c)......... 330,413 51,131,412
Grainger (W.W.), Inc. ........... 9,479 453,215
Molex Inc. ...................... 15,600 884,325
Solectron Corp. (a).............. 29,511 2,807,234
Thomas & Betts Corp. ............ 5,758 183,536
--------------
58,362,542
--------------
ELECTRONICS--DEFENSE (0.0%) (b)
PerkinElmer, Inc. ............... 4,552 189,762
--------------
ELECTRONICS--INSTRUMENTATION
(0.1%)
PE Corp.-PE Biosystems Group..... 10,300 1,239,219
Tektronix, Inc. ................. 4,716 183,334
--------------
1,422,553
--------------
ELECTRONICS--SEMICONDUCTORS
(4.7%)
Adaptec, Inc. (a)................ 10,100 503,738
Advanced Micro Devices, Inc.
(a)............................. 14,843 429,519
Analog Devices, Inc. (a)......... 17,300 1,608,900
Applied Materials, Inc. (a)...... 37,604 4,763,957
Intel Corp. ..................... 335,990 27,656,177
KLA-Tencor Corp. (a)............. 8,812 981,436
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
ELECTRONICS--SEMICONDUCTORS (CONTINUED)
LSI Logic Corp. (a).............. 14,448 $ 975,240
Micron Technology, Inc. (a)...... 27,141 2,110,213
Motorola, Inc. .................. 60,897 8,967,083
National Semiconductor Corp.
(a)............................. 16,951 725,715
Teradyne, Inc. (a)............... 17,200 1,135,200
Texas Instruments Inc. .......... 80,678 7,815,681
Xilinx, Inc. (a)................. 31,800 1,445,908
--------------
59,118,767
--------------
ENGINEERING & CONSTRUCTION (0.0%) (b)
Fluor Corp. ..................... 7,617 349,430
Foster Wheeler Corp. ............ 4,100 36,387
--------------
385,817
--------------
ENTERTAINMENT (1.7%)
Seagram Co. Ltd. (The)........... 43,137 1,938,469
Time Warner Inc. ................ 130,235 9,433,898
Viacom Inc. Class B (a).......... 69,664 4,210,318
Walt Disney Co. (The)............ 207,707 6,075,430
--------------
21,658,115
--------------
FINANCIAL--MISCELLANEOUS (4.3%)
AFLAC Inc. ...................... 26,800 1,264,625
American Express Co. ............ 45,001 7,481,416
American General Corp. .......... 25,286 1,918,575
Associates First Capital Corp.
Class A......................... 73,379 2,013,337
Citigroup Inc. .................. 340,173 18,900,863
Fannie Mae....................... 103,310 6,450,418
Franklin Resources Inc. ......... 25,362 813,169
Freddie Mac...................... 70,090 3,298,611
MBIA Inc. ....................... 10,057 531,135
MBNA Corp. ...................... 80,865 2,203,571
Morgan Stanley Dean Witter &
Co. ............................ 56,035 7,998,996
Price (T. Rowe) Associates,
Inc. ........................... 12,800 472,800
SLM Holding Corp. ............... 16,451 695,055
--------------
54,042,571
--------------
FOOD (1.4%)
Bestfoods........................ 28,113 1,477,689
Campbell Soup Co. ............... 43,930 1,699,542
ConAgra, Inc. ................... 49,211 1,110,323
General Mills, Inc. ............. 30,802 1,101,171
Heinz (H.J.) Co. ................ 36,199 1,441,173
Hershey Foods Corp. ............. 14,040 666,900
Kellogg Co. ..................... 40,858 1,258,937
Nabisco Group Holdings Corp. .... 32,761 348,086
Quaker Oats Co. (The)............ 13,617 893,616
Ralston-Ralston Purina Group..... 32,840 915,415
Sara Lee Corp. .................. 91,106 2,010,026
Unilever N.V. ................... 57,652 3,138,431
Wrigley (Wm.) Jr. Co. ........... 11,668 967,715
--------------
17,029,024
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 97
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD & HEALTH CARE DISTRIBUTORS (0.3%)
Cardinal Health, Inc. ........... 27,348 $ 1,309,286
McKesson HBOC, Inc. ............. 27,993 631,592
SUPERVALU Inc. .................. 12,063 241,260
SYSCO Corp. ..................... 33,335 1,318,816
--------------
3,500,954
--------------
GOLD & PRECIOUS METALS MINING (0.1%)
Barrick Gold Corp. .............. 39,415 697,153
Homestake Mining Co. ............ 26,254 205,109
Newmont Mining Corp. ............ 16,887 413,732
Placer Dome Inc. ................ 32,900 353,675
--------------
1,669,669
--------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)....... 8,816 460,636
Snap-on Inc. .................... 6,562 174,303
Stanley Works (The).............. 8,950 269,619
--------------
904,558
--------------
HEALTH CARE--DIVERSIFIED (3.5%)
Abbott Laboratories.............. 153,311 5,567,106
Allergan, Inc. .................. 13,248 659,088
American Home Products Corp. .... 124,354 4,904,211
Bristol-Myers Squibb Co. ........ 200,273 12,855,023
Johnson & Johnson................ 139,844 13,022,972
Mallinckrodt Inc. ............... 7,169 228,064
Warner-Lambert Co. .............. 85,758 7,026,796
--------------
44,263,260
--------------
HEALTH CARE--DRUGS (3.6%)
Lilly (Eli) & Co. ............... 109,802 7,301,833
Merck & Co., Inc. ............... 235,662 15,804,083
Pfizer Inc. ..................... 389,318 12,628,503
Pharmacia & Upjohn, Inc. ........ 51,026 2,296,170
Schering-Plough Corp. ........... 148,059 6,246,239
Watson Pharmaceuticals, Inc.
(a)............................. 9,700 347,381
--------------
44,624,209
--------------
HEALTH CARE--HMOS (0.2%)
Aetna Inc. ...................... 15,033 839,029
Humana Inc. (a).................. 16,878 138,189
United Healthcare Corp. ......... 17,419 925,384
Wellpoint Health Networks Inc.
(a)............................. 6,800 448,375
--------------
2,350,977
--------------
HEALTH CARE--HOSPITAL MANAGEMENT (0.2%)
Columbia/HCA Healthcare Corp. ... 57,281 1,679,049
Tenet Healthcare Corp. (a)....... 31,290 735,315
--------------
2,414,364
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
HEALTH CARE--MEDICAL PRODUCTS (0.8%)
Bard (C.R.), Inc. ............... 5,199 $ 275,547
Bausch & Lomb Inc. .............. 5,789 396,185
Baxter International Inc. ....... 29,415 1,847,630
Becton, Dickinson & Co. ......... 25,230 674,902
Biomet, Inc. .................... 11,355 454,200
Boston Scientific Corp. (a)...... 39,948 873,862
Guidant Corp. (a)................ 30,465 1,431,855
Medtronic, Inc. ................. 120,188 4,379,350
St. Jude Medical, Inc. (a)....... 8,529 261,734
--------------
10,595,265
--------------
HEALTH CARE--MISCELLANEOUS (0.6%)
ALZA Corp. (a)................... 10,155 351,617
Amgen Inc. (a)................... 103,312 6,205,177
HEALTHSOUTH Corp. (a)............ 41,903 225,229
Manor Care, Inc. (a)............. 11,142 178,272
Quintiles Transnational Corp.
(a)............................. 11,600 216,775
--------------
7,177,070
--------------
HEAVY DUTY TRUCKS & PARTS (0.2%)
Cummins Engine Co., Inc. ........ 4,289 207,212
Dana Corp. ...................... 16,689 499,627
Eaton Corp. ..................... 7,232 525,224
ITT Industries, Inc. ............ 8,789 293,882
Navistar International Corp.
(a)............................. 6,658 315,423
PACCAR Inc. ..................... 7,909 350,468
--------------
2,191,836
--------------
HOMEBUILDING (0.0%) (B)
Centex Corp. .................... 5,963 147,212
Kaufman & Broad Home Corp. ...... 4,823 116,656
Pulte Corp. ..................... 4,352 97,920
--------------
361,788
--------------
HOTEL/MOTEL (0.3%)
Carnival Corp. .................. 61,854 2,957,394
Harrah's Entertainment, Inc.
(a)............................. 12,913 341,387
Hilton Hotels Corp. ............. 36,363 349,990
Marriott International, Inc.
Class A......................... 25,151 793,829
--------------
4,442,600
--------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World Industries,
Inc. ........................... 3,988 133,100
Leggett & Platt, Inc. ........... 20,200 433,037
Maytag Corp. .................... 8,874 425,952
Whirlpool Corp. ................. 7,651 497,793
--------------
1,489,882
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 98
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOUSEHOLD PRODUCTS (1.9%)
Clorox Co. (The)................. 23,680 $ 1,192,880
Colgate-Palmolive Co. ........... 59,092 3,840,980
Fort James Corp. ................ 22,226 608,437
Kimberly-Clark Corp. ............ 53,601 3,497,465
Procter & Gamble Co. (The)....... 133,427 14,618,596
--------------
23,758,358
--------------
HOUSEWARES (0.1%)
Fortune Brands, Inc. ............ 16,871 557,798
Newell Rubbermaid Inc. .......... 28,592 829,168
Tupperware Corp. ................ 5,805 98,322
--------------
1,485,288
--------------
INSURANCE BROKERS (0.3%)
Aon Corp. ....................... 25,826 1,033,040
Marsh & McLennan Cos., Inc. ..... 26,585 2,543,852
--------------
3,576,892
--------------
INSURANCE--LIFE (0.3%)
Conseco, Inc. ................... 32,639 583,422
Jefferson-Pilot Corp. ........... 10,767 734,848
Lincoln National Corp. .......... 20,326 813,040
Torchmark Corp. ................. 13,464 391,298
UNUMProvident Corp. ............. 24,148 774,245
--------------
3,296,853
--------------
INSURANCE--MULTI-LINE (1.6%)
American International Group,
Inc. ........................... 156,215 16,890,747
CIGNA Corp. ..................... 18,747 1,510,305
Hartford Financial Services
Group, Inc. (The)............... 22,884 1,084,130
--------------
19,485,182
--------------
INSURANCE--PROPERTY & CASUALTY (0.5%)
Allstate Corp. (The)............. 81,346 1,952,304
Chubb Corp. (The)................ 17,714 997,520
Cincinnati Financial Corp. ...... 16,590 517,400
Loews Corp. ..................... 10,993 667,138
MGIC Investment Corp. ........... 11,072 666,396
Progressive Corp. (The).......... 7,422 542,734
SAFECO Corp. .................... 13,773 342,603
St. Paul Cos., Inc. (The)........ 22,750 766,391
--------------
6,452,486
--------------
INVESTMENT BANK/BROKERAGE (0.7%)
Bear Stearns Cos., Inc. (The).... 12,364 528,561
Lehman Brothers Holdings Inc. ... 11,909 1,008,543
Merrill Lynch & Co., Inc. ....... 37,094 3,097,349
Paine Webber Group Inc. ......... 14,600 566,663
Schwab (Charles) Corp. (The)..... 82,416 3,162,714
--------------
8,363,830
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
LEISURE TIME (0.0%) (b)
Brunswick Corp. ................. 9,191 $ 204,500
Mirage Resorts, Inc. (a)......... 20,039 306,847
--------------
511,347
--------------
MACHINE TOOLS (0.0%) (b)
Milacron Inc. ................... 3,735 57,426
--------------
MACHINERY--DIVERSIFIED (0.3%)
Briggs & Stratton Corp. ......... 2,377 127,467
Caterpillar Inc. ................ 35,808 1,685,214
Deere & Co. ..................... 23,411 1,015,452
Ingersoll-Rand Co. .............. 16,744 921,966
NACCO Industries, Inc. Class A... 800 44,450
Thermo Electron Corp. (a)........ 16,010 240,150
Timken Co. (The)................. 6,221 127,142
--------------
4,161,841
--------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc. ..... 3,500 72,188
--------------
MANUFACTURING--DIVERSIFIED (1.3%)
Crane Co. ....................... 6,915 137,436
Danaher Corp. ................... 13,613 656,827
Dover Corp. ..................... 21,484 974,837
Honeywell International Inc. .... 79,609 4,592,444
Illinois Tool Works Inc. ........ 29,996 2,026,605
Johnson Controls, Inc. .......... 8,540 485,712
Millipore Corp. ................. 4,508 174,121
Pall Corp. ...................... 12,569 271,019
Parker-Hannifin Corp. ........... 10,984 563,617
Sealed Air Corp. (a)............. 8,410 435,743
Tyco International Ltd. ......... 169,034 6,571,197
--------------
16,889,558
--------------
METALS--MINING (0.1%)
Freeport-McMoRan Copper & Gold
Inc. Class B (a)................ 16,522 349,027
Inco Ltd. (a).................... 19,367 455,125
Phelps Dodge Corp. .............. 7,883 529,146
--------------
1,333,298
--------------
MISCELLANEOUS (0.8%)
AES Corp. (The) (a).............. 20,779 1,553,230
American Greetings Corp. Class
A............................... 6,830 161,359
Archer-Daniels-Midland Co. ...... 62,234 758,477
Corning Inc. .................... 24,515 3,160,903
Jostens, Inc. ................... 3,391 82,444
Minnesota Mining & Manufacturing
Co. ............................ 40,607 3,974,410
TRW, Inc. ....................... 12,094 628,132
--------------
10,318,955
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.7%)
Coastal Corp. (The).............. 21,553 763,785
Columbia Energy Group............ 8,413 532,122
Consolidated Natural Gas Co. .... 9,731 631,907
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 99
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NATURAL GAS DISTRIBUTORS & PIPELINES (CONTINUED)
Eastern Enterprises.............. 2,323 $ 133,427
El Paso Energy Corp. ............ 23,164 899,053
Enron Corp. ..................... 71,398 3,168,286
NICOR Inc. ...................... 4,919 159,868
ONEOK, Inc. ..................... 3,219 80,877
Peoples Energy Corp. ............ 3,574 119,729
Sempra Energy.................... 24,275 421,778
Williams Cos., Inc. (The)........ 43,435 1,327,482
--------------
8,238,314
--------------
OFFICE EQUIPMENT & SUPPLIES
(0.2%)
Pitney Bowes Inc. ............... 27,051 1,306,901
Xerox Corp. ..................... 66,747 1,514,323
--------------
2,821,224
--------------
OIL & GAS DRILLING (0.0%) (b)
Rowan Cos., Inc. (a)............. 8,466 183,606
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.2%)
Anadarko Petroleum Corp. ........ 12,269 418,680
Apache Corp. .................... 11,241 415,215
Burlington Resources Inc. ....... 21,447 709,091
Union Pacific Resources Group,
Inc. ........................... 25,396 323,799
Unocal Corp. .................... 24,511 822,650
--------------
2,689,435
--------------
OIL & WELL--EQUIPMENT & SERVICES
(0.5%)
Baker Hughes Inc. ............... 32,955 694,115
Halliburton Co. ................. 44,338 1,784,604
McDermott International, Inc. ... 5,946 53,886
Schlumberger Ltd. ............... 55,092 3,098,925
Transocean Sedco Forex Inc. ..... 20,866 702,917
--------------
6,334,447
--------------
OIL--INTEGRATED DOMESTIC (0.7%)
Amerada Hess Corp. .............. 9,210 522,667
Ashland Inc. .................... 7,537 248,250
Atlantic Richfield Co. .......... 32,420 2,804,330
Conoco Inc. Class B.............. 63,045 1,568,244
Kerr-McGee Corp. ................ 8,672 537,664
Occidental Petroleum Corp. ...... 35,060 758,173
Phillips Petroleum Co. .......... 25,439 1,195,633
Sunoco Inc. ..................... 9,124 214,414
Tosco Corp. ..................... 15,300 415,969
USX-Marathon Group............... 31,185 769,880
--------------
9,035,224
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL
(4.0%)
Chevron Corp. ................... 66,035 $ 5,720,282
Exxon Mobil Corp. ............... 347,263 27,976,375
Royal Dutch Petroleum Co. ADR
(d)............................. 216,233 13,068,582
Texaco Inc. ..................... 55,496 3,014,127
--------------
49,779,366
--------------
PAPER & FOREST PRODUCTS (0.6%)
Boise Cascade Corp. ............. 5,564 225,342
Champion International Corp. .... 9,767 604,944
Georgia-Pacific Group............ 17,288 877,366
International Paper Co. ......... 41,407 2,336,908
Louisiana-Pacific Corp. ......... 10,791 153,772
Mead Corp. (The)................. 10,287 446,842
Potlatch Corp. .................. 2,959 132,045
Westvaco Corp. .................. 10,098 329,447
Weyerhaeuser Co. ................ 23,784 1,707,988
Willamette Industries, Inc. ..... 11,127 516,710
--------------
7,331,364
--------------
PERSONAL LOANS (0.4%)
Capital One Financial Corp. ..... 19,838 955,944
Countrywide Credit Industries,
Inc. ........................... 11,329 286,057
Household International, Inc. ... 48,314 1,799,696
Providian Financial Corp. ....... 14,268 1,299,280
--------------
4,340,977
--------------
PHOTOGRAPHY/IMAGING (0.2%)
Eastman Kodak Co. ............... 31,787 2,105,889
IKON Office Solutions, Inc. ..... 15,044 102,487
Polaroid Corp. .................. 4,454 83,791
--------------
2,292,167
--------------
POLLUTION CONTROL (0.1%)
Allied Waste Industries, Inc.
(a)............................. 18,900 166,556
Waste Management, Inc. .......... 61,452 1,056,207
--------------
1,222,763
--------------
PUBLISHING (0.1%)
Harcourt General Inc. ........... 7,254 291,974
McGraw-Hill Cos., Inc. (The)..... 19,871 1,224,550
Meredith Corp. .................. 5,296 220,777
--------------
1,737,301
--------------
PUBLISHING--NEWSPAPER (0.5%)
Dow Jones & Co., Inc. ........... 9,089 618,052
Gannett Co., Inc. ............... 28,163 2,297,044
Knight-Ridder, Inc. ............. 7,916 471,002
New York Times Co. (The) Class
A............................... 17,791 873,983
Times Mirror Co. (The) Class A... 5,939 397,913
Tribune Co. ..................... 23,836 1,312,470
--------------
5,970,464
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 100
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RAILROADS (0.4%)
Burlington Northern Santa Fe
Corp. .......................... 47,331 $ 1,147,777
CSX Corp. ....................... 21,874 686,297
Kansas City Southern Industries,
Inc. ........................... 11,100 828,337
Norfolk Southern Corp. .......... 38,267 784,473
Union Pacific Corp. ............. 24,940 1,088,008
--------------
4,534,892
--------------
RESTAURANTS (0.5%)
Darden Restaurants, Inc. ........ 13,465 244,053
McDonald's Corp. ................ 136,757 5,513,017
Tricon Global Restaurants, Inc.
(a)............................. 15,503 598,803
Wendy's International, Inc. ..... 12,422 256,204
--------------
6,612,077
--------------
RETAIL STORES--APPAREL (0.4%)
Gap, Inc. (The).................. 86,535 3,980,610
Limited, Inc. (The).............. 21,467 929,789
TJX Cos., Inc. (The)............. 32,420 662,584
--------------
5,572,983
--------------
RETAIL STORES--DEPARTMENT (0.4%)
Dillard's, Inc. Class A.......... 10,893 219,903
Federated Department Stores, Inc.
(a)............................. 21,015 1,062,571
Kohl's Corp. (a)................. 16,401 1,183,947
May Department Stores Co.
(The)........................... 33,660 1,085,535
Nordstrom, Inc. ................. 14,262 373,486
Penney (J.C.) Co., Inc. ......... 26,495 528,244
--------------
4,453,686
--------------
RETAIL STORES--DRUGS (0.3%)
Longs Drug Stores Corp. ......... 3,869 99,869
Rite Aid Corp. .................. 26,157 292,631
Walgreen Co. .................... 100,621 2,943,164
--------------
3,335,664
--------------
RETAIL STORES--FOOD (0.4%)
Albertson's, Inc. ............... 42,484 1,370,109
Great Atlantic & Pacific Tea Co.,
Inc. (The)...................... 3,778 105,312
Kroger Co. (The) (a)............. 83,272 1,571,759
Safeway Inc. (a)................. 50,154 1,783,601
Winn-Dixie Stores, Inc. ......... 15,059 360,475
--------------
5,191,256
--------------
RETAIL STORES--GENERAL MERCHANDISE (2.9%)
Dayton Hudson Corp. ............. 44,712 3,283,538
Kmart Corp. (a).................. 49,847 501,585
Sears, Roebuck & Co. ............ 38,440 1,170,017
Wal-Mart Stores, Inc. ........... 448,512 31,003,392
--------------
35,958,532
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
RETAIL STORES--SPECIALTY (2.2%)
AutoZone, Inc. (a)............... 15,190 $ 490,827
Bed Bath & Beyond Inc. (a)....... 13,500 469,125
Best Buy Co. Inc. (a)............ 20,600 1,033,863
Circuit City Stores-Circuit City
Group........................... 20,336 916,391
Consolidated Stores Corp. (a).... 11,048 179,530
Costco Wholesale Corp. (a)....... 22,082 2,014,982
CVS Corp. ....................... 39,425 1,574,536
Dollar General Corp. ............ 26,708 607,607
Home Depot, Inc. (The)........... 229,794 15,755,251
Lowe's Cos., Inc. ............... 37,462 2,238,355
Office Depot, Inc. (a)........... 37,700 412,344
Pep Boys-Manny, Moe & Jack
(The)........................... 5,322 48,563
Staples Inc. (a)................. 46,863 972,407
Tandy Corp. ..................... 19,742 971,060
Toys "R" Us, Inc. (a)............ 25,053 358,571
--------------
28,043,412
--------------
SHOES (0.1%)
NIKE, Inc. Class B............... 28,541 1,414,563
Reebok International Ltd. (a).... 5,603 45,875
--------------
1,460,438
--------------
SPECIALIZED SERVICES (0.6%)
Block (H&R), Inc. ............... 9,794 428,487
Cendant Corp. (a)................ 72,311 1,920,761
Dun & Bradstreet Corp. (The)..... 16,495 486,602
Ecolab Inc. ..................... 13,125 513,516
IMS Health Inc. ................. 31,920 867,825
Interpublic Group of Cos., Inc.
(The)........................... 28,372 1,636,710
National Service Industries,
Inc. ........................... 4,213 124,284
Omnicom Group Inc. .............. 18,036 1,803,600
Service Corp. International...... 27,523 190,941
--------------
7,972,726
--------------
SPECIALTY PRINTING (0.0%) (b)
Deluxe Corp. .................... 7,833 214,918
Donnelley (R.R.) & Sons Co. ..... 13,243 328,592
--------------
543,510
--------------
STEEL (0.1%)
Allegheny Technologies Inc. ..... 9,688 217,375
Bethlehem Steel Corp. (a)........ 13,172 110,316
Nucor Corp. ..................... 8,873 486,351
USX-U.S. Steel Group............. 8,924 294,492
Worthington Industries, Inc. .... 9,202 152,408
--------------
1,260,942
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 101
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (3.6%)
AT&T Corp. ...................... 321,297 $ 16,305,823
Global Crossing Ltd. (a)......... 77,133 3,856,650
MCI WorldCom, Inc. (a)........... 285,443 15,146,293
Sprint Corp. (FON Group)......... 87,232 5,871,804
Sprint Corp. (PCS Group) (a)..... 43,377 4,446,142
--------------
45,626,712
--------------
TELECOMMUNICATIONS--SERVICES
(0.3%)
Nextel Communications, Inc. Class
A (a)........................... 36,377 3,751,378
--------------
TELEPHONE (3.9%)
ALLTEL Corp. .................... 31,572 2,610,610
Bell Atlantic Corp. ............. 156,586 9,639,826
BellSouth Corp. ................. 189,423 8,867,364
CenturyTel, Inc. ................ 13,900 658,512
GTE Corp. ....................... 97,739 6,896,708
SBC Communications Inc. ......... 344,109 16,775,314
US West Inc. .................... 50,775 3,655,800
--------------
49,104,134
--------------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Liz Claiborne, Inc. ............. 6,287 236,548
Russell Corp. ................... 3,409 57,101
Springs Industries, Inc. Class
A............................... 1,820 72,686
V.F. Corp. ...................... 12,075 362,250
--------------
728,585
--------------
TOBACCO (0.5%)
Philip Morris Cos. Inc. ......... 240,087 5,567,018
UST Inc. ........................ 17,820 448,841
--------------
6,015,859
--------------
TOYS (0.1%)
Hasbro, Inc. .................... 19,661 374,788
Mattel, Inc. .................... 42,062 552,064
--------------
926,852
--------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
FDX Corp. (a).................... 30,020 1,228,944
Ryder System, Inc. .............. 6,464 157,964
--------------
1,386,908
--------------
Total Common Stocks (Cost
$809,390,051)................... 1,239,760,216(e)
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.1%)
COMMERCIAL PAPER (0.7%)
Bridgestone/Firestone Inc.
7.00%, due 1/10/00 (c)....... $7,400,000 $ 7,387,040
Repsol International Finance
B.V. 7.10%, due 1/14/00 (c).. 1,000,000 997,434
--------------
Total Commercial Paper (Cost
$8,384,474).................. 8,384,474
--------------
U.S. GOVERNMENT (0.4%)
United States Treasury Bills
4.70%, due 1/20/00 (c)....... 2,000,000 1,994,984
4.86%, due 1/27/00 (c)....... 3,200,000 3,189,020
--------------
Total U.S. Government
(Cost $5,184,004)............ 5,184,004
--------------
Total Short-Term Investments
(Cost $13,568,478)........... 13,568,478
--------------
Total Investments
(Cost $822,958,529) (f)...... 100.0% 1,253,328,694(g)
Cash and Other Assets,
Less Liabilities............. 0.0(b) 689,443
----- -----------
Net Assets.................... 100.0% $1,254,018,137
===== ==============
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION(h)
-------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%) (b)
Standard & Poor's 500
March 2000............ 36 $ 63,173
Mini March 2000....... 4 612
------------
Total Futures Contracts
(Settlement Value
$13,654,640) (e)...... $ 63,785
============
</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 100% of net assets.
(f) The cost for Federal income tax purposes is $823,481,821.
(g) At December 31, 1999, net unrealized appreciation was $429,846,873, 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 $472,018,673 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $42,171,800.
(h) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1999.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 102
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$822,958,529)............................................. $1,253,328,694
Cash........................................................ 42,170
Receivables:
Fund shares sold.......................................... 3,242,927
Dividends and interest.................................... 1,105,985
Investment securities sold................................ 386,655
Variation margin receivable on futures contracts............ 31,188
Other assets................................................ 12,139
--------------
Total assets........................................ 1,258,149,758
--------------
LIABILITIES:
Payables:
Fund shares redeemed...................................... 2,617,479
MainStay Management....................................... 529,021
Investment securities purchased........................... 345,612
NYLIFE Distributors....................................... 258,213
Transfer agent............................................ 153,441
Custodian................................................. 33,000
Trustees.................................................. 8,984
Accrued expenses............................................ 185,871
--------------
Total liabilities................................... 4,131,621
--------------
Net assets.................................................. $1,254,018,137
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized.......... $ 264,789
Additional paid-in capital.................................. 821,489,510
Accumulated undistributed net investment income............. 134,637
Accumulated undistributed net realized gain on
investments............................................... 1,695,251
Net unrealized appreciation on investments.................. 430,433,950
--------------
Net assets applicable to outstanding shares................. $1,254,018,137
==============
Shares of beneficial interest outstanding................... 26,478,939
==============
Net asset value per share outstanding....................... $ 47.36
Maximum sales charge (3.00% of offering price).............. 1.46
--------------
Maximum offering price per share outstanding................ $ 48.82
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 103
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 12,981,287
Interest.................................................. 2,233,564
------------
Total income............................................ 15,214,851
------------
Expenses:
Management................................................ 5,255,558
Distribution.............................................. 2,627,779
Transfer agent............................................ 1,281,482
Shareholder communication................................. 171,193
Custodian................................................. 150,315
Registration.............................................. 139,322
Recordkeeping............................................. 131,779
Professional.............................................. 79,235
Trustees.................................................. 30,648
Miscellaneous............................................. 54,616
------------
Total expenses.......................................... 9,921,927
------------
Net investment income....................................... 5,292,924
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions..................................... 14,182,786
Futures transactions...................................... 7,721,097
------------
Net realized gain on investments............................ 21,903,883
------------
Net change in unrealized appreciation on investments:
Security transactions..................................... 168,573,492
Futures transactions...................................... (403,401)
------------
Net unrealized gain on investments.......................... 168,170,091
------------
Net realized and unrealized gain on investments............. 190,073,974
------------
Net increase in net assets resulting from operations........ $195,366,898
============
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $165,451.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 104
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 5,292,924 $ 4,145,683
Net realized gain on investments.......................... 21,903,883 10,457,429
Net change in unrealized appreciation on investments...... 168,170,091 135,090,904
-------------- ------------
Net increase in net assets resulting from operations...... 195,366,898 149,694,016
-------------- ------------
Dividends and distributions to shareholders:
From net investment income................................ (5,158,287) (4,229,242)
From net realized gain on investments..................... (26,146,715) (8,583,224)
-------------- ------------
Total dividends and distributions to shareholders....... (31,305,002) (12,812,466)
-------------- ------------
Capital share transactions:
Net proceeds from sale of shares.......................... 739,024,365 469,003,594
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. 31,295,583 12,268,427
-------------- ------------
770,319,948 481,272,021
Cost of shares redeemed................................... (477,483,720) (256,722,364)
-------------- ------------
Increase in net assets derived from capital share
transactions........................................... 292,836,228 224,549,657
-------------- ------------
Net increase in net assets.............................. 456,898,124 361,431,207
NET ASSETS:
Beginning of year........................................... 797,120,013 435,688,806
-------------- ------------
End of year................................................. $1,254,018,137 $797,120,013
============== ============
Accumulated undistributed net investment income at end of
year...................................................... $ 134,637 $ --
============== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 105
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year..................... $ 39.47 $ 30.91 $ 23.37 $ 19.15 $ 14.09
---------- -------- -------- -------- --------
Net investment income.................................... 0.20 0.21 0.30 0.30 0.24
Net realized and unrealized gain on investments.......... 7.69 8.35 7.24 3.92 4.82
---------- -------- -------- -------- --------
Total from investment operations......................... 7.89 8.56 7.54 4.22 5.06
---------- -------- -------- -------- --------
Less dividends and distributions:
From net investment income............................... (0.20) (0.21) (0.30) (0.54) (0.27)
From net realized gain on investments.................... (0.99) (0.43) (0.41) (0.82) (0.27)
---------- -------- -------- -------- --------
Total dividends and distributions........................ (1.19) (0.64) (0.71) (1.36) (0.54)
---------- -------- -------- -------- --------
Reverse share split...................................... 1.19 0.64 0.71 1.36 0.54
---------- -------- -------- -------- --------
Net asset value at end of year........................... $ 47.36 $ 39.47 $ 30.91 $ 23.37 $ 19.15
========== ======== ======== ======== ========
Total investment return (a).............................. 19.99% 27.69% 32.26% 22.04% 35.91%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................ 0.50% 0.68% 1.25% 1.8% 1.7%
Net expenses......................................... 0.94% 0.96% 0.80% 0.8% 1.1%
Expenses (before reimbursement)...................... 0.94% 0.99% 0.99% 1.0% 1.1%
Portfolio turnover rate.................................. 3% 4% 3% 3% 4%
Net assets at end of year (in 000's)..................... $1,254,018 $797,120 $435,689 $225,750 $109,308
</TABLE>
- -------
(a) Total return is calculated exclusive of sales charge.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 106
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.
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, (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 Fund's subadvisor, if
these prices are deemed to be representative of market values at the regular
close of business of the Exchange, and (e) by appraising options and futures
contracts at the last sale price on the market where such options or futures are
principally traded. 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
Fund's
20
<PAGE> 107
Notes to Financial Statements
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 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 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.
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.
The Fund went ex-dividend on December 21, 1999, and also underwent a reverse
share split on that day. The reverse share split rate was 0.9743 per share
outstanding calculated on fund shares outstanding immediately after reinvestment
of dividends.
21
<PAGE> 108
MainStay Equity Index 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.
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 LLC (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 LLC (the
"Subadvisor"), a registered investment advisor 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 year ended December 31, 1999, the Manager
earned $5,255,558.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and Monitor, the Manager pays the Subadvisor a monthly fee at an annual rate of
0.10% of the Fund's average daily net assets.
DISTRIBUTION FEES. The Trust, on behalf of the Fund, has a Distribution
Agreement with NYLIFE Distributors Inc. (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 Fund's average daily net assets, 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.
22
<PAGE> 109
Notes to Financial Statements (continued)
SALES CHARGE. The Fund was advised that the amount of sales charge retained by
the Distributor was $643,812 for the year ended December 31, 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 year ended December 31, 1999
amounted to $1,281,482.
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 $25,739 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$131,779 for the year ended December 31, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $304,516 and $30,441, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
23
<PAGE> 110
MainStay Equity Index Fund
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Shares sold........................................... 17,456 13,478
Shares issued in reinvestment of dividends and
distributions....................................... 695 323
------------ ------
18,151 13,801
Shares redeemed....................................... (11,173) (7,362)
Reduction of shares due to reverse shares split....... (695) (338)
------------ ------
Net increase.......................................... 6,283 6,101
============ ======
</TABLE>
NOTE 7--GUARANTEE:
NYLIFE LLC ("NYLIFE"), a Delaware limited liability company 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, on the day 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
during that 10-year period ("Guarantee Share"), is less than the public offering
price initially paid for the share including any sales charge paid ("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> 111
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Equity Index Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
25
<PAGE> 112
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 113
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN07-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
Equity Index Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 114
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in the MainStay Government
Fund versus Lehman Brothers Government Bond
Index and Inflation--Class A, Class B, and
Class C Shares 3
Portfolio Management Discussion and Analysis 4
Year-by-Year Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
Report of Independent Accountants 27
The MainStay Funds 28
</TABLE>
<PAGE> 115
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.(*)
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
(*) Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2
<PAGE> 116
$10,000 Invested in the MainStay
Government Fund versus Lehman Brothers
Government Bond Index and Inflation
CLASS A SHARES SEC Returns: 1 Year -7.18%, 5 Years 5.42%, 10 Years 5.36%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GOVERNMENT LEHMAN BROTHERS
FUND GOVERNMENT BOND INDEX(*) INFLATION (CPI)(+)
------------------- ---------------------- ----------------
<S> <C> <C> <C>
12/89 9550 10000 10000
12/90 10211 10872 10625
12/91 11579 12538 10942
12/92 12021 13444 11265
12/93 12728 14877 11574
12/94 12366 14374 11875
12/95 14391 17011 12184
12/96 14674 17482 12587
12/97 16013 19158 12801
12/98 17345 21045 13007
12/99 16857 20576 13356
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year -8.42%, 5 Years 5.35%, 10
Years
5.49%
Class C SEC Returns: 1 Year -4.56%, 5 Years 5.68%,
10
Years
5.49%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GOVERNMENT LEHMAN BROTHERS
FUND GOVERNMENT BOND INDEX(*) INFLATION (CPI)(+)
------------------- ---------------------- ----------------
<S> <C> <C> <C>
12/89 10000 10000 10000
12/90 10692 10872 10625
12/91 12125 12538 10942
12/92 12588 13444 11265
12/93 13328 14877 11574
12/94 12948 14374 11875
12/95 14980 17011 12184
12/96 15168 17482 12587
12/97 16463 19158 12801
12/98 17701 21045 13007
12/99 17064 20576 13356
</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 12/31/89
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 12/31/89 through
12/31/94. Performance figures for the two classes vary after this date
based on differences in their loads and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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.
3
<PAGE> 117
Portfolio Management Discussion and Analysis
The U.S. economy showed considerable strength in 1999, with gross domestic
product continuing to expand and inflation remaining modest. With consumer
spending on the rise and a tight labor market, many investors paid close
attention to inflation indicators throughout the year--including oil prices,
wages, commodity values, producer prices, and the cost of consumer goods and
services.
The Federal Reserve moved to slow economic growth and reduce inflationary
pressures by raising the targeted federal funds rate in successive 25
basis-point moves in June, August, and November. Since bond prices decline when
interest rates rise, Federal Reserve activity had a negative impact on domestic
bond markets.
As these rate increases filter through the economy, they should restrain
inflationary pressures and keep growth at moderate levels in the first half of
2000. Although the consumer remains confident, higher borrowing costs and fewer
opportunities to increase disposable income are likely to temper spending
patterns. For example, the current 7 3/4%, no points, 30-year mortgage rate
offers far less incentive to refinance than the 6 3/4% rate at the beginning of
the year. We believe business spending, however, might be on the rise in the
first quarter of 2000 as cash freed in budgets from Y2K compliance issues could
be redirected to capital spending.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Government Fund returned
- -2.81% for Class A shares and -3.60% for Class B and Class C shares, excluding
all sales charges. Class A shares outperformed and Class B and Class C shares
underperformed the -3.02% return of the average Lipper(1) general U.S.
government fund and the -2.23% return of the Lehman Brothers Government Bond
Index.(2)
Federal Reserve action had a major influence on both the bond markets and the
Fund's performance during 1999. Interest rates rose approximately 170 basis
points for 2-year Treasuries and 135 basis points for 30-year Treasuries,
flattening the yield curve by 35 basis points. The Fund was positioned
defensively throughout the year. Early in the second quarter of 1999, we
positioned the Fund very defensively by shortening duration and emphasizing the
long end of the yield curve. This strategy helped to protect the portfolio as
interest rates rose and the yield curve flattened.
Throughout 1999, liquidity and supply dynamics played an important role in the
Fund's investment strategy. With a continuing budget surplus allowing the
government to pay down Treasury debt, 30-year Treasuries became increasingly
- -------
(1) See footnote and table on page 8 for more information on Lipper Inc.
(2) See footnote on page 3 for more information on the Lehman Brothers
Government Bond Index.
4
<PAGE> 118
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Year End Total Percent %
- -------------- ------------------
<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
12/99 -2.81
</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
[BAR GRAPH]
<TABLE>
<CAPTION>
Year End Total Percent %
- -------------- ------------------
<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
12/99 -3.6
</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.
scarce--and hence, increasingly valuable--relative to 5-year and 10-year
Treasuries. The Fund's 30-year Treasury position was further enhanced later in
the year by increasing demand among investors we believe were seeking a measure
of Y2K protection and liquidity.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
During the first quarter of 1999, mortgage-backed securities, collateralized
mortgage obligations, and asset-backed securities all performed well as yield
spreads relative to Treasuries tightened. As interest rates rose during the
second
5
<PAGE> 119
quarter, however, mortgage-backed securities tended to extend maturities,
creating unfavorable risk profiles. To help manage this concern and help reduce
credit risk, we favored AAA-rated(3) commercial mortgage-backed securities and
U.S. Treasury securities for the Fund. In the second quarter of 1999, securities
backed by commercial mortgages provided attractive returns relative to agency
mortgage-backed securities.
Unfortunately, remaining underweighted in agency mortgage-backed securities
detracted from the Fund's relative performance in the second half of the year,
as a change in Federal Reserve repurchase guidelines caused spreads to tighten
dramatically throughout the mortgage-backed securities market. Overall, we
reduced the Fund's commitment to mortgage-backed securities from 48% of net
assets at the end of 1998 to just 39% of net assets at the end of 1999.
LOOKING AHEAD
Although inflation has remained modest, the Federal Reserve continues to view a
tight labor market as an imminent inflationary risk. As a result, we anticipate
additional Federal Reserve tightening in early 2000, which may result in a
slightly flatter yield curve. As 2000 unfolds, we believe AAA-rated commercial
mortgage-backed securities and asset-backed securities will outperform agency
mortgage-backed issues, and we have positioned the Fund accordingly.
Whatever the economy, the markets, or inflation 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 LLC
- -------
(3) 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. When applied
to Fund holdings, 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.
6
<PAGE> 120
NONTAXABLE DISTRIBUTION
As far as possible, the MainStay Government Fund seeks to maintain a fixed
dividend, with changes made only on an infrequent basis. During 1999, it was
hoped that rising interest rates would allow the Fund to earn sufficient net
income to cover its regular dividend payments. Unfortunately, however, for
the year ended December 31, 1999, dividends paid by the MainStay Government
Fund exceeded net income earned. As a result, a portion of the dividends
paid in 1999 have been reclassified as a return of capital as shown in the
table below. The return of capital to shareholders had no material impact on
the Fund's performance or net asset value. Since the Fund's portfolio
managers did not engage in additional trading to accommodate dividend
payments, the Fund's portfolio turnover rate and transaction costs were not
affected.
<TABLE>
<CAPTION>
SHARE CLASS RETURN OF CAPITAL AMOUNT PERCENT OF TOTAL INCOME DIVIDENDS PAID IN 1999
-------------- ------------------------- ----------------------------------------------
<S> <C> <C>
Class A shares $0.0565 per share 11.79%
Class B shares $0.0480 per share 11.79%
Class C shares $0.0480 per share 11.79%
</TABLE>
Whenever a Fund returns capital to you, the cost basis of your Fund holdings
is reduced by the amount of the nontaxable distribution. Accurate cost-basis
accounting is important in determining any capital gains or losses when
shares are eventually sold. You should consult with your tax advisor for
additional information on determining the cost basis of your mutual fund
shares. This material is provided for informational purposes only.
Shareholders should refer to their 1999 Form 1099-DIV for the total amount
of their distributions that are taxable and nontaxable.
7
<PAGE> 121
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS(*)
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A -2.81% 6.39% 5.85% 6.31%
Class B -3.60% 5.68% 5.49% 6.05%
Class C -3.60% 5.68% 5.49% 6.05%
</TABLE>
FUND SEC RETURNS(*)
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A -7.18% 5.42% 5.36% 5.96%
Class B -8.42% 5.35% 5.49% 6.05%
Class C -4.56% 5.68% 5.49% 6.05%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 82 out of 61 out of n/a 61 out of
178 funds 117 funds 117 funds
Class B 123 out of 99 out of 47 out of 27 out of
178 funds 117 funds 49 funds 31 funds
Class C 123 out of n/a n/a 126 out of
178 funds 177 funds
Average Lipper
general U.S.
government fund -3.02% 6.50% 6.63% 6.73%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $7.75 $0.4764 $0.0000
Class B $7.73 $0.4115 $0.0000
Class C $7.73 $0.4115 $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 figures for the two classes after this date vary based on
differences in their loads 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
8
<PAGE> 122
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
figures 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
9
<PAGE> 123
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (92.5%)+
ASSET-BACKED SECURITIES (13.9%)
AIRPLANE LEASES (6.3%)
AerCo Ltd.
Series IX Class A1
6.6525%, due 7/15/23 (a)(d)... $ 4,185,000 $ 4,180,062
Aircraft Finance Trust
Series 1999-1A Class C
8.00%, due 5/15/24 (a)........ 4,210,000 3,751,868
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
6.7875%, due 6/15/06 (d)...... 5,588,614 5,476,842
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/11............ 12,200,687 10,933,524
Morgan Stanley Aircraft Finance
Series 1 Class A1
6.6725%, due 3/15/23 (d)...... 8,190,000 8,187,543
------------
32,529,839
------------
AUTO LEASES (1.1%)
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02............ 5,470,000 5,399,382
------------
CONSUMER LOANS (0.2%)
Green Tree Recreational
Equipment & Consumer Trust
Series 1996-C Class A1
6.7025%, due 10/15/17 (d)..... 827,299 826,389
------------
ELECTRIC UTILITIES (0.9%)
Boston Edison Co.
Series 1999-1 Class A2
6.45%, due 9/15/03............ 4,715,000 4,646,868
------------
EQUIPMENT LOANS (2.6%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05............ 5,280,000 5,121,970
Ikon Receivables, LLC
Series 1999-1 Class A3
5.99%, due 5/15/05............ 6,440,000 6,356,666
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02 (d)....... 2,245,000 2,217,005
------------
13,695,641
------------
FINANCE (0.9%)
Green Tree Financial Corp.
Series 1999-4 Class A4
6.64%, due 5/1/31............. 4,750,000 4,682,170
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
HOME EQUITY LOANS (1.5%)
Conseco Finance Securitizations
Corp.
Series 1999-F Class A2
6.72%, due 10/15/14 (d)....... $ 3,035,000 $ 3,010,477
Saxon Asset Securities Trust
Series 1997-3 Class AF1
6.6413%, due 10/25/20 (d)..... 165,718 165,679
Southern Pacific Secured
Assets Corp.
Series 1997-1 Class A1
6.6713%, due 4/25/27 (d)...... 4,818,267 4,800,198
------------
7,976,354
------------
STUDENT LOANS (0.4%)
Nellie Mae, Inc.
Series 1996-1 Class A1
6.6325%, due 12/15/04 (d)..... 2,238,581 2,233,656
------------
Total Asset-Backed Securities
(Cost $74,793,641)............ 71,990,299
------------
MORTGAGE-BACKED SECURITIES (11.1%)
COMMERCIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE OBLIGATIONS)
(11.1%)
Asset Securitization Corp.
Series 1997-MD7 Class A1B
7.41%, due 1/13/30............ 5,477,000 5,307,268
Commercial Mortgage Asset Trust
Series 1999-C2 Class A2
7.546%, due 11/17/32.......... 3,080,000 3,052,496
CS First Boston Mortgage
Securities Corp.
Series 1999-C1 Class A2
7.29%, due 9/15/41............ 3,800,000 3,733,500
GMAC Commercial Mortgage
Securities, Inc.
Series 1998-C2 Class A2
6.42%, due 5/15/35............ 7,550,000 7,041,659
Series 1996-C1 Class A2A
6.79%, due 10/15/28........... 2,473,205 2,453,148
GS Mortgage Securities Corp. II
Series 1997-GL Class A2B
6.86%, due 7/13/30............ 2,835,000 2,794,941
Lehman Large Loan
Series 1997-LLI Class A1
6.79%, due 10/12/34........... 8,091,501 8,010,829
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
- -------
(+) Percentages indicated are based on Fund net assets.
Mainstay Government Fund
10
<PAGE> 124
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
Merrill Lynch Mortgage
Investors, Inc.
Series 1998-C2 Class A1
6.22%, due 2/15/30............ $ 5,715,025 $ 5,523,286
Series 1995-C2 Class A1
7.0793%, due 6/15/21 (d)...... 3,600,621 3,584,850
Series 1999-C2 Class A1
7.56%, due 11/15/31........... 3,070,000 3,060,053
Nationslink Funding Corp.
Series 1999-2 Class A2C
7.229%, due 6/20/31........... 3,070,000 3,008,385
PNC Mortgage Acceptance Corp.
Series 1999-CM1 Class A1B
7.33%, due 12/10/32........... 5,105,000 5,027,710
SASCO Floating Rate
Commercial Mortgage
Series 1999-C3 Class A
6.8613%, due 10/21/13
(a)(d)........................ 4,981,088 4,981,087
------------
Total Mortgage-Backed
Securities
(Cost $58,595,682)............ 57,579,212
------------
U.S. GOVERNMENT & FEDERAL AGENCIES (67.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (3.7%)
5.375%, due 3/15/02........... 9,280,000 9,053,383
5.625%, due 3/15/01........... 10,000,000 9,907,500
------------
18,960,883
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (20.5%)
6.50%, due 5/1/13-9/1/28
(c)......................... 32,149,692 30,801,218
6.50%, due 4/1/29............. 5,577,966 5,257,233
7.00%, due 11/1/12-11/1/29.... 26,160,472 25,389,852
7.50%, due 10/1/29............ 21,928,462 21,688,564
7.50%, due 1/19/30 TBA (b).... 23,640,000 23,381,378
------------
106,518,245
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (3.8%)
7.00%, due 9/15/28 (e)........ 20,179,608 19,492,290
------------
UNITED STATES TREASURY BONDS (23.2%)
6.125%, due 8/15/29 (e)....... 101,965,000 97,201,195
8.75%, due 8/15/20 (e)........ 11,190,000 13,557,356
8.875%, due 8/15/17 (e)....... 8,072,000 9,755,738
------------
120,514,289
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES (16.3%)
5.875%, due 11/30/01 (e)...... $ 77,085,000 $ 76,590,885
6.00%, due 8/15/09 (e)........ 6,465,000 6,262,969
7.00%, due 7/15/06............ 1,520,000 1,556,480
------------
84,410,334
------------
Total U.S. Government &
Federal Agencies
(Cost $360,762,199)........... 349,896,041
------------
Total Long-Term Investments
(Cost $494,151,522)........... 479,465,552
------------
SHORT-TERM INVESTMENTS (11.5%)
FEDERAL AGENCIES (11.5%)
Federal Home Loan Bank
(Discount Note)
1.30%, due 1/3/00............. 3,400,000 3,399,755
4.75%, due 1/12/00............ 5,000,000 4,992,741
Federal Mortgage Corp.
(Discount Note)
5.71%, due 1/13/00-1/27/00.... 46,000,000 45,845,413
Federal National Mortgage
Association
(Discount Note)
5.64%, due 1/14/00............ 5,460,000 5,448,848
------------
Total Short-Term Investments
(Cost $59,686,757)............ 59,686,757
------------
Total Investments
(Cost $553,838,279) (f)....... 104.0% 539,152,309(g)
Liabilities in Excess of
Cash and Other Assets......... (4.0) (21,009,261)
----- -----------
Net Assets..................... 100.0% $518,143,048
===== ===========
</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 December 31, 1999.
(e) Represents securities out on loan or a portion of which is out on loan.
(See note 2)
(f) The cost for Federal income tax purposes is $553,977,311.
(g) At December 31, 1999 net unrealized depreciation was $14,825,002, 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 $30,334 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $14,855,336.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 125
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$553,838,279)............................................. $ 539,152,309
Collateral held for securities loaned, at value (Note 2).... 165,608,025
Cash........................................................ 64,536
Receivables:
Interest.................................................. 5,074,205
Fund shares sold.......................................... 525,288
-------------
Total assets........................................ 710,424,363
-------------
LIABILITIES:
Securities lending collateral (Note 2)...................... 165,608,025
Payables:
Investment securities purchased........................... 25,013,334
Fund shares redeemed...................................... 734,711
NYLIFE Distributors....................................... 426,404
MainStay Management....................................... 274,906
Transfer agent............................................ 83,053
Custodian................................................. 49,827
Trustees.................................................. 4,205
Accrued expenses............................................ 86,850
-------------
Total liabilities................................... 192,281,315
-------------
Net assets.................................................. $ 518,143,048
=============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 44,036
Class B................................................... 625,098
Class C................................................... 688
Additional paid-in capital.................................. 669,089,477
Accumulated net realized loss on investments................ (136,930,281)
Net unrealized depreciation on investments.................. (14,685,970)
-------------
Net assets.................................................. $ 518,143,048
=============
CLASS A
Net assets applicable to outstanding shares................. $ 34,115,926
=============
Shares of beneficial interest outstanding................... 4,403,641
=============
Net asset value per share outstanding....................... $ 7.75
Maximum sales charge (4.50% of offering price).............. 0.36
-------------
Maximum offering price per share outstanding................ $ 8.11
=============
CLASS B
Net assets applicable to outstanding shares................. $ 483,495,176
=============
Shares of beneficial interest outstanding................... 62,509,851
=============
Net asset value and offering price per share outstanding.... $ 7.73
=============
CLASS C
Net assets applicable to outstanding shares................. $ 531,946
=============
Shares of beneficial interest outstanding................... 68,772
=============
Net asset value and offering price per share outstanding.... $ 7.73
=============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 126
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 35,982,449
------------
Expenses:
Distribution--Class B..................................... 4,074,658
Distribution--Class C..................................... 2,195
Management................................................ 3,430,152
Service--Class A.......................................... 70,277
Service--Class B.......................................... 1,358,219
Service--Class C.......................................... 732
Transfer agent............................................ 1,157,767
Shareholder communication................................. 101,875
Custodian................................................. 86,717
Recordkeeping............................................. 83,835
Professional.............................................. 65,358
Registration.............................................. 55,689
Trustees.................................................. 16,261
Miscellaneous............................................. 17,434
------------
Total expenses.......................................... 10,521,169
------------
Net investment income....................................... 25,461,280
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments............................ (29,290,292)
Net change in unrealized appreciation on investments........ (16,969,853)
------------
Net realized and unrealized loss on investments............. (46,260,145)
------------
Net decrease in net assets resulting from operations........ $(20,798,865)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 127
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 25,461,280 $ 27,879,194
Net realized gain (loss) on investments................... (29,290,292) 30,978,483
Net change in unrealized appreciation on investments...... (16,969,853) (13,940,211)
------------- -------------
Net increase (decrease) in net assets resulting from
operations.............................................. (20,798,865) 44,917,466
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (1,500,555) (961,126)
Class B................................................. (24,305,589) (26,599,772)
Class C................................................. (14,601) (904)
Return of capital:
Class A................................................. (200,587) (121,741)
Class B................................................. (3,249,055) (3,369,262)
Class C................................................. (1,952) (115)
------------- -------------
Total dividends and distributions to shareholders..... (29,272,339) (31,052,920)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 44,753,027 20,636,346
Class B................................................. 68,966,524 107,139,254
Class C................................................. 672,418 95,045
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 1,429,048 973,289
Class B................................................. 21,630,528 22,960,831
Class C................................................. 10,429 462
------------- -------------
137,461,974 151,805,227
Cost of shares redeemed:
Class A................................................. (31,746,715) (16,901,003)
Class B................................................. (150,154,715) (189,497,366)
Class C................................................. (222,503) --
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (44,661,959) (54,593,142)
------------- -------------
Net decrease in net assets............................ (94,733,163) (40,728,596)
NET ASSETS:
Beginning of year........................................... 612,876,211 653,604,807
------------- -------------
End of year................................................. $518,143,048 $ 612,876,211
============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 128
This page intentionally left blank
15
<PAGE> 129
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
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................................... 0.42 0.43 0.50 0.50 0.58
Net realized and unrealized gain (loss) on
investments........................................... (0.65) 0.24 0.21 (0.35) 0.65
------- ------- ------- ------- -------
Total from investment operations........................ (0.23) 0.67 0.71 0.15 1.23
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............................ (0.42) (0.43) (0.50) (0.50) (0.58)
In excess of net investment income.................... -- -- -- -- (0.00)(b)
Return of capital..................................... (0.06) (0.05) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions....................... (0.48) (0.48) (0.50) (0.50) (0.58)
------- ------- ------- ------- -------
Net asset value at end of period........................ $ 7.75 $ 8.46 $ 8.27 $ 8.06 $ 8.41
======= ======= ======= ======= =======
Total investment return (a)............................. (2.81)% 8.32% 9.12% 1.97% 16.38%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............................... 5.17% 5.20% 6.23% 6.3% 7.3%
Expenses............................................ 1.13% 1.12% 1.09% 1.0% 1.0%
Portfolio turnover rate................................. 255% 371% 338% 307% 540%
Net assets at end of period (in 000's).................. $34,116 $22,189 $17,114 $16,413 $12,784
</TABLE>
- -------
(*) Class C shares were first offered on September 1, 1998.
(+) Annualized.
Total return is calculated exclusive of sales charges and is
(a) not annualized.
(b) Less than one cent per share.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 130
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- -------------------------------
September 1,(*)
Year ended December 31, Year ended through
---------------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.76 $ 8.44 $ 8.43
-------- -------- -------- -------- -------- -------- --------
0.36 0.37 0.45 0.46 0.54 0.36 0.12
(0.66) 0.24 0.21 (0.37) 0.65 (0.66) 0.03
-------- -------- -------- -------- -------- -------- --------
(0.30) 0.61 0.66 0.09 1.19 (0.30) 0.15
-------- -------- -------- -------- -------- -------- --------
(0.36) (0.37) (0.45) (0.46) (0.54) (0.36) (0.12)
-- -- -- -- (0.00)(b) -- --
(0.05) (0.05) -- -- -- (0.05) (0.02)
-------- -------- -------- -------- -------- -------- --------
(0.41) (0.42) (0.45) (0.46) (0.54) (0.41) (0.14)
-------- -------- -------- -------- -------- -------- --------
$ 7.73 $ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.73 $ 8.44
======== ======== ======== ======== ======== ======== ========
(3.60%) 7.52% 8.54% 1.25% 15.69% (3.60%) 1.75%
4.42% 4.45% 5.67% 5.7% 6.7% 4.42% 4.45%(+)
1.88% 1.87% 1.65% 1.6% 1.7% 1.88% 1.87%(+)
255% 371% 338% 307% 540% 255% 371%
$483,495 $590,592 $636,491 $782,970 $990,184 $ 532 $ 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> 131
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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 Fund's subadvisor, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Fund's 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 Fund's 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
18
<PAGE> 132
Notes to Financial Statements
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 and the regular
close of the Exchange will not be reflected in the Fund's calculation of net
asset value unless the Fund's 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 experience financial
difficulty. 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 December 31, 1999, the Fund had portfolio securities on loan with a market
value of $171,720,410 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 the obligation to
return the cash collateral is recorded as a 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> 133
MainStay Government Fund
Net income earned by the Fund for securities lending transactions amounted to
$470,499, net of broker fees and rebates, for the year ended December 31, 1999,
which is included as interest income on the Statement of Operations.
Investments made with cash collateral at December 31, 1999:
<TABLE>
<CAPTION>
SHARES VALUE
------------ ------------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group............................... 1,027,450 $ 1,027,450
------------
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Austra Corp.
5.83%, due 2/4/00......................................... $ 3,500,000 3,480,828
5.84%, due 2/8/00......................................... 3,000,000 2,981,633
------------
6,462,461
------------
Checkpoint Charlie Financial, Inc.
6.17%, due 1/14/00........................................ 2,000,000 1,995,580
Concord Minuteman Capital Co. LLC
5.83%, due 2/4/00......................................... 5,201,000 5,172,510
Galaxy Funding Inc.
5.60%, due 1/3/00......................................... 7,200,000 7,197,760
Lexington Parker Capital Co. LLC
6.66%, due 2/15/00........................................ 20,000,000 20,000,000
Variable Funding Capital Corp.
6.01%, due 1/18/00........................................ 8,250,000 8,227,014
------------
49,055,325
------------
REPURCHASE AGREEMENTS
Bear Stearns & Co., Inc.
4.60%, due 1/3/00
(Collateralized by
$2,905,902 Fannie Mae, Series 1999-60, Class CH
6.00%, due 12/18/29 Market Value $2,922,060
$665,072 Fannie Mae, Series G93-19, Class K
6.50%, due 6/15/19 Market Value $668,571
$4,390,593 Fannie Mae, Series 1999-49, Class YM
6.50%, due 9/15/29 Market Value $4,414,304
$2,790,518 Fannie Mae, Series 1999-60, Class PD
7.00%, due 6/25/26 Market Value $2,806,561
$3,677,146 Freddie Mac, Series 1574, Class OA
5.91%, due 9/15/23 Market Value $3,686,396
$3,046,344 Freddie Mac, Series 1179, Class H
7.50%, due 11/15/21 Market Value $3,064,791
$1,527,115 Freddie Mac, Series 1869, Class C
8.00%, due 8/15/26 Market Value $1,536,846)............. 18,279,000 18,279,000
</TABLE>
20
<PAGE> 134
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Deutsche Bank Securities
4.60%, due 1/3/00
(Collateralized by
$8,631,936 Xerox Capital Trust I
8.00%, due 2/1/27 Market Value $8,947,313).............. 8,521,250 8,521,250
Donaldson, Lufkin, & Jenrette Securities Corp.
4.57%, due 1/3/00
(Collateralized by
$106,125 Citicorp Mortgage Securities Inc.
10.50%, due 6/25/19 Market Value $106,970
$505,125 Donaldson, Lufkin, & Jenrette Inc.
6.87%, due 9/25/22 Market Value $517,239
$2,243,992 Donaldson, Lufkin, & Jenrette Inc.
6.93%, due 12/28/25 Market Value $2,258,261
$936,662 Donaldson, Lufkin, & Jenrette Inc.
7.767%, due 12/25/23 Market Value $937,699
$2,280,545 First Nationwide Trust
6.67%, due 4/25/29 Market Value $2,293,097
$163,695 First Nationwide Trust
6.75%, due 7/25/29 Market Value $164,656
$4,181,432 GNMA
6.50%, due 3/15/29 Market Value $4,204,593
$1,100,688 Impac Secured Asset Owner Trust
6.85%, due 7/25/28 Market Value $1,107,495
$3,872,536 PNC Mortgage Securities Corp.
7.138%, due 6/25/29 Market Value $3,896,210
$4,196,822 PNC Mortgage Securities Corp.
7.936%, due 12/26/29 Market Value $4,227,520)........... 19,200,000 19,200,000
Morgan (J.P.) Securities Inc.
4.45%, due 1/3/00
(Collateralized by
$16,949,250 Ahold Finance USA Inc.
6.25%, due 5/1/09 Market Value $17,140,871
$2,652,952 Capital One Bank
7.45%, due 1/1/04 Market Value $2,652,952
$704,752 First Chicago NBD
6.14%, due 9/5/00 Market Value $707,428)................ 19,525,000 19,525,000
</TABLE>
21
<PAGE> 135
MainStay Government Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Lehman Brothers Inc.
4.57%, due 1/3/00
(Collateralized by
$21,450,266 SASCO Floating Rate Commercial Mortgage Trust
7.0313%, due 3/25/02 Market Value $21,469,341
$4,049,454 SASCO Floating Rate Commercial Mortgage Trust
7.2575%, due 7/22/02 Market Value $4,049,454)........... $ 25,000,000 $ 25,000,000
Prudential Securities Inc.
4.38%, due 1/3/00
(Collateralized by
$2,000,000 Banco LatinoAmeric
6.42%, due 5/15/00 Market Value $2,000,000
$2,058,514 Central Fidelity Bank
8.15%, due 11/15/02 Market Value $2,079,113
$4,521,290 Fannie Mae, Series 1999-6, Class MA
6.50%, due 2/25/28 Market Value $4,547,243
$2,675,420 Fleet Boston Financial Corp.
6.625%, due 2/1/04 Market Value $2,750,671
$7,480,285 Freddie Mac, Series 2130, Class KB
6.375%, due 3/15/29 Market Value $7,522,342
$2,929,500 Potiatch Corp.
9.125%, due 12/1/09 Market Value $2,949,695
$3,911,822 Viacom Inc.
7.50%, due 1/15/02 Market Value $4,045,949)............. 25,000,000 25,000,000
------------
115,525,250
------------
Total investment made with cash collateral.................. $165,608,025
============
</TABLE>
Non-cash collateral received and held by the Fund at December 31, 1999:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------
<S> <C> <C>
United States Treasury Bonds
6.125%, due 11/15/27...................................... $ 200,000 $ 187,563
6.25%, due 8/15/23........................................ 100,000 96,625
6.875%, due 8/15/25....................................... 60,000 62,625
7.50%, due 11/15/24....................................... 12,300,000 13,541,531
7.875%, due 11/15/04...................................... 460,000 492,344
------------
Total non-cash collateral................................... $ 14,380,688
============
Total collateral............................................ $179,988,713
============
</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
22
<PAGE> 136
Notes to Financial Statements (continued)
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 distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. A permanent book/tax difference of $359,465 is an increase to
accumulated net realized loss on investments. In addition decreases of
$3,811,059 and $3,451,594 have been made to accumulated distribution in excess
of net investment income and additional paid-in-capital. These book/tax
differences are due to a return of capital distribution and the tax treatment of
gains (losses) on paydowns.
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 LLC (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 LLC
(the "Subadvisor"), a registered investment adviser and indirect wholly owned
subsidiary of New York Life.
23
<PAGE> 137
MainStay Government Fund
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 year ended December 31, 1999 the Manager earned
$3,430,152. It was not necessary for the Manager to waive part of its fee in
1999.
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 Fund's average daily net assets 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.
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 $17,079 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemption of Class A, Class B and Class C
shares of $1,167, $470,807 and $9, respectively, for the year ended December 31,
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 year ended December 31, 1999
amounted to $1,157,767.
24
<PAGE> 138
Notes to Financial Statements (continued)
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 $24,266 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$83,835 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $136,500,819 were available, as shown in the table below, to
the extent provided by regulations to offset future realized gains of the Fund
through 2007. 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........................................................ 1,897
2007........................................................ 30,060
--------
$136,501
========
</TABLE>
The Fund intends to treat for Federal income tax purposes approximately $290,430
of qualifying capital losses that arose during the year as if they arose on
January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of U.S. Government
securities were $1,226,100 and $1,473,125, respectively. Purchases and sales of
securities other than U.S. Government securities and short-term securities, were
$171,507 and $167,889, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. Such commitment fees are allocated amongst the funds
based upon net assets and other
25
<PAGE> 139
MainStay Government Fund
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 during the
year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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............................... 5,540 8,457 85 2,439 12,725 11
Shares issued in reinvestment of dividends
and distributions....................... 178 2,696 1 116 2,741 --
------ ------- --- ------ ------- --
5,718 11,153 86 2,555 15,466 11
Shares redeemed........................... (3,938) (18,629) (28) (2,001) (22,634) --
------ ------- --- ------ ------- --
Net increase (decrease)................... 1,780 (7,476) 58 554 (7,168) 11
====== ======= === ====== ======= ==
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
</TABLE>
26
<PAGE> 140
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Government Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
27
<PAGE> 141
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 142
This page intentionally left blank
<PAGE> 143
This page intentionally left blank
<PAGE> 144
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN08-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
Government Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 145
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 Performance 6
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 24
Notes to Financial Statements 30
Report of Independent Accountants 41
The MainStay Funds 42
</TABLE>
<PAGE> 146
This page intentionally left blank
2
<PAGE> 147
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 148
4
$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 5.36%, 5 Years 11.04%, 10 Years 11.95%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD FIRST BOSTON HIGH YIELD
CORPORATE BOND FUND INDEX* INFLATION (CPI)+
------------------- ----------------------- ----------------
<S> <C> <C> <C>
12/89 9550.00 10000.00 10000.00
12/90 8801.00 9363.00 10625.00
12/91 11641.00 13459.00 10942.00
12/92 14161.00 15703.00 11265.00
12/93 17227.00 18671.00 11574.00
12/94 17485.00 18492.00 11875.00
12/95 21031.00 21709.00 12184.00
12/96 24465.00 24403.00 12587.00
12/97 27451.00 27485.00 12801.00
12/98 28019.00 27645.00 13007.00
12/99 30913.00 28552.00 13356.00
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year 4.51%, 5 Years 11.10%,
10 Years 12.10%
Class C SEC Returns: 1 Year 8.51%, 5 Years 11.36%, 10 Years 12.10%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD FIRST BOSTON HIGH YIELD
CORPORATE BOND FUND INDEX* INFLATION (CPI)+
------------------- ----------------------- ----------------
<S> <C> <C> <C>
12/89 10000.00 10000.00 10000.00
12/90 9215.00 9363.00 10625.00
12/91 12189.00 13459.00 10942.00
12/92 14828.00 15703.00 11265.00
12/93 18038.00 18671.00 11574.00
12/94 18308.00 18492.00 11875.00
12/95 21918.00 21709.00 12184.00
12/96 25331.00 24403.00 12587.00
12/97 28257.00 27485.00 12801.00
12/98 28627.00 27645.00 13007.00
12/99 31350.00 28552.00 13356.00
</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
12/31/89 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 12/31/89
through 12/31/94. Performance figures for the two classes vary after this
date based on differences in their loads and expense structures. The Class
B graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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> 149
Portfolio Management Discussion and Analysis
The stock market continued to rise in 1999 with the S&P 500 Composite Stock
Price Index(1) recording its fifth consecutive year with returns over 20%. In
the bond market, however, things weren't quite as rosy. The Federal Reserve
moved to raise the targeted federal funds rate in June, August, and November,
causing higher-quality bonds to provide negative total returns for the year.
Despite continuing volatility and below-average liquidity, the high-yield bond
market fared considerably better, remaining strong through most of the year.
Default rates increased substantially, nearly tripling to 5.5% for 1999,
according to statistics from Moody's Investors Services.
Navigating in this environment required careful credit analysis, meticulous
security selection, and ongoing monitoring, as many well-established companies
faced difficulties during the year. Many managers shunned single-B issuers in
favor of higher-quality BB issues,(2) while other managers were unable to dodge
the abundant credit problems that plagued the market.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay High Yield Corporate Bond
Fund returned 10.33% for Class A shares and 9.51% for Class B and Class C
shares, excluding all sales charges. All share classes outperformed the 4.53%
return of the average Lipper(3) high current yield fund for the same period, to
rank in the top 10% of all funds in the Lipper high current yield universe. All
share classes also outperformed the 3.28% annual return of the First Boston High
Yield Index.(4)
It is worth noting that Morningstar(5) rated the MainStay High Yield Corporate
Bond Fund Class B shares five stars overall as of December 31, 1999. The Fund's
Class B shares received three stars for the three-year period and fives stars
for the five- and ten-year periods ended December 31, 1999, from among 1,617,
1,221, and 387 taxable bond funds, respectively.
The Fund outperformed its peers because we were able to overweight the single-B
portion of the market without experiencing a higher default rate in 1999. We had
conviction in our investment process and used the market's uncertainty to add to
our favorite names at discounted prices. The Fund was rewarded when several of
its holdings in telecom, cable, and media went public or were acquired by
stronger credits. Additionally, our focus on managing the Fund through asset
coverage and free cash flow, helped minimize mistakes.
STRONG AND WEAK PERFORMERS
UIH Australia zero-coupon bonds had the greatest positive impact on performance
during 1999. The Fund owned the bonds of this pay-television service and
- -------
(1) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock market performance. Results assume the reinvestment of
all income and capital gain distributions. An investment cannot be made
directly into an index.
(2) According to Standard & Poor's, currently debt rated BB is less vulnerable
to nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation. Debt rated B is more vulnerable to
nonpayment than obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligations.
Ratings may be modified with a plus or minus sign to show relative standing
within the major rating categories. When applied to Fund investments, 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.
(3) See footnote and table on page 10 for more information on Lipper Inc.
(4) See footnote on page 4 for more information on the First Boston High Yield
Index.
5
<PAGE> 150
- -------
(5) 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) to five
(high) stars are based on a fund's three-, five-, and ten-year average
annual 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. Funds (or share classes) are not rated until they have three years of
performance history.
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION> Total 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
12/99 10.33
</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 10 for more information on performance.
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION> Total 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
12/99 9.51
</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
though 8/98. See footnote * on page 10 for more information of performance.
programming company in 1998 and we increased the position during the second half
of 1998, believing the company's asset value was improving and competition was
waning. Our view was confirmed when the company's parent went public in July
1999. The Fund continues to have a large position in these securities because we
feel that the company will refinance the bonds when the issue begins to pay a
cash coupon.
Spanish Broadcasting is a domestic Spanish-language radio broadcasting company.
The Fund owned Spanish Broadcasting bonds and preferred stock when
6
<PAGE> 151
the company went public during the year and offered to purchase both securities
at significant premiums to the Fund's investment cost.
American Telecasting is a wireless cable company that owned wireless spectrum in
several major markets. We bought American Telecasting bonds for the Fund at
deeply discounted prices in 1998, believing the spectrum had untapped value. Our
assessment proved correct when Sprint acquired American Telecasting in 1999,
generating a solid return on the Fund's investment.
Tokai Bank is a large, regional Japanese bank with a dominant share of the
markets in which it operates. In 1998, we bought Tokai Bank bonds for the Fund
in the secondary market at a substantial discount, believing the bank was well
capitalized, would issue a secondary equity offering, and would benefit from
Japanese fiscal reform. As these premises proved true, the bonds traded up
substantially during the year.
Telehub Communications is a start-up company that suffered delays in
implementing its software strategy and performed poorly for the Fund in 1999.
The Fund continues to hold the bonds, believing the company's technology can be
profitably sold to a more-established telecom firm.
IPC Magazines is a U.K.-based publisher of specialty magazines that failed to
meet its projections for circulation, ad pages, and cash-flow growth. When the
company announced poor earnings, the Fund's bond investment declined sharply.
Since the company has strong equity sponsorship, good market share, significant
asset coverage, and the possibility of an initial public offering in 2000, the
Fund continues to hold the bonds.
SIGNIFICANT PURCHASES AND SALES
During 1999, we found more value in existing Fund positions than in new names.
One such position was United Pan-Europe Communications (UPC), owned by United
International Holdings (UIH) and UIH's most valuable asset. We traded the Fund's
UIH position during the year for the UPC credit, which we believed offered a
more attractive risk/reward profile.
We also added to the Fund's existing position in ICG Services, making it one of
the Fund's larger telecommunications positions. Although the company's
traditional business is struggling, ICG has moved into dial-up Internet access,
with customers including Microsoft Network and Qwest Communications. With
unlimited demand for the company's Internet offering and over 80% of forecast
additions already in backlog, we believe ICG's securities are likely to
outperform the market in 2000.
We increased the Fund's position in Millicom International Cellular, a cellular
network owner/operator in Europe, Asia, Latin America, and Africa. We were
impressed with its rapidly growing subscriber base and telecommunication assets
7
<PAGE> 152
- -------
(6) According to Standard & Poor's, debt rated CCC is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation. When applied to Fund
investments, 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.
in Europe that are more than sufficient to cover the Fund's bond investment. In
light of global wireless consolidation, we believe these bonds will outperform
in 2000 and will be retired when they begin to pay a cash coupon.
The Fund purchased a new issue from CD Radio, now called Sirius Satellite Radio,
due to launch its commercial-free radio access later in 2000 or early 2001. We
are attracted to the company because it has little competition and a strong
business model that we anticipate will break even and cover interest expense
even with very low penetration levels.
The Fund's position in Marcus Cable, an owner and operator of cable systems, was
purchased in a tender by the company following its acquisition by Vulcan
Ventures, the investment arm of Paul Allen. We sold the Fund's position in Tokai
Bank when it reached our price target. We also sold the Fund's holdings in
American Telecasting following the company's acquisition by Sprint.
AVOIDING DEFAULTS
Entering 1999, we believed that the high-yield market was oversold due to weak
technicals brought on by Russia's default and ongoing difficulties at a major
hedge fund. In hindsight, wide spreads on high-yield securities were a signal
that default rates would rise dramatically during the year. While this was not
surprising, the magnitude was much greater than we anticipated, with defaults
nearly tripling to 5.5% in 1999, according to Moody's statistics.
Credit difficulties were not limited to weak single-B credits or securities
rated CCC.(6) Several issuers rated BB- or higher also faced debt-service
problems, with several well-established companies among the market's worst
performers, including Fruit of the Loom, Harnischfeger, Pillowtex, Rite Aid,
Service Corp. International, and Sun Healthcare. During the reporting period,
the Fund owned a small position in Harnischfeger.
SECTOR WEIGHTINGS
The Fund continued to invest in industries with high barriers to entry or
companies with large market share. Cable and media continued to dominate the
Fund, and this sector had a positive impact on performance. Utilities and REITs
were also overweighted during the year. While these sectors were impacted by
rising rates, spreads tightened considerably on the Fund's holdings. The Fund
was also overweighted in health care, one of the worst-performing sectors during
the year.
Although telecommunications was the Fund's largest industry holding, the Fund
was underweighted in this sector, which outperformed in 1999. The Fund, however,
was not adversely affected, since it owned several top-performing names
including CD Radio, Millicom, and HighwayMaster.
8
<PAGE> 153
Past performance is
no guarantee of
future results.
Given our belief that we are in the later stages of an economic cycle, the Fund
underweighted cyclicals during 1999. Underweighting paper manufacturers hurt
performance, since the sector performed well as demand increased with the global
economic recovery. The Fund has underweighted retailers and supermarkets, which
have continued to flounder--and gaming and energy, based on their valuations.
As of year-end, the average credit quality of the securities in the Fund's
investment portfolio was single-B. We believe single-B securities offer the
greatest value and potential to funds that can manage defaults through stringent
credit analysis.
LOOKING AHEAD
With high-yield spreads offering nearly an 80% premium to Treasuries at year-
end, we believe the market is undervalued and that spreads may tighten. While we
expect default rates to remain above their historical averages, we believe they
may decline during the year with positive implications for the market. Positive
credit events, including mergers and acquisitions, are likely to continue in the
telecommunications sector. And despite poor performance in 1999, the health
care, transportation, and textile sectors appear to be stabilizing.
As always, the corporate earnings environment and the health of the economy will
play a significant role in high-yield returns. We continue to believe that we
are in the later stages of the economic cycle and that corporate earnings growth
is slowing. Whatever the market may bring, the Fund will continue to seek
maximum current income through investment in a diversified portfolio of
high-yield debt securities. Capital appreciation is a secondary objective.
Steven Tananbaum
Donald Morgan
Portfolio Managers
MacKay Shields LLC
ADDITIONAL DIVIDEND PAYMENT
The MainStay High Yield Corporate Bond Fund seeks to maintain a fixed
dividend, with changes made only on an infrequent basis. During 1999, the
Fund earned more income than the amount targeted for payment to
shareholders, resulting in an additional income dividend distribution to
shareholders of record on December 20, 1999. The additional income had a
positive impact on the overall performance of the Fund but did not
materially affect the Fund's net asset value. Since the Fund's portfolio
managers did not engage in additional trading to provide this additional
dividend distribution, the Fund's portfolio turnover rate and transaction
costs were not affected. Shareholders should refer to their 1999 Form 1099-
DIV for the total amount of their distributions that are taxable and
nontaxable.
9
<PAGE> 154
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 10.33% 12.07% 12.46% 10.21%
Class B 9.51% 11.36% 12.10% 9.95%
Class C 9.51% 11.36% 12.10% 9.95%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 5.36% 11.04% 11.95% 9.84%
Class B 4.51% 11.10% 12.10% 9.95%
Class C 8.51% 11.36% 12.10% 9.95%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 28 out of 4 out of n/a 4 out of
339 funds 113 funds 113 funds
Class B 33 out of 8 out of 4 out of 3 out of
339 funds 113 funds 54 funds 33 funds
Class C 33 out of n/a n/a 19 out of
339 funds 298 funds
Average Lipper high
current yield fund 4.53% 8.84% 10.03% 8.68%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $7.41 $0.8494 $0.0322
Class B $7.40 $0.7912 $0.0322
Class C $7.40 $0.7912 $0.0322
</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. 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. 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 figures for the two classes vary after this date based on
differences in their loads 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
10
<PAGE> 155
shares include the historical performance of the Class B shares for periods
from inception (5/1/86) up to 8/31/98. Performance figures 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
11
<PAGE> 156
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (82.3%)+
ASSET-BACKED SECURITIES (1.8%)
ELECTRIC POWER COMPANIES
(1.0%)
AES Eastern Energy, L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17 (c)........ $ 19,080,000 $ 17,971,452
9.67%, due 1/2/29 (c)........ 20,000,000 18,952,000
--------------
36,923,452
--------------
ENTERTAINMENT (0.2%)
United Artists Theatre Co.
Pass-Through Certificates
Series 95-A
9.30%, due 7/1/15............ 8,342,237 5,972,207
--------------
EQUIPMENT LOANS (0.2%)
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04 (c)(d).... 8,546,680 8,443,436
--------------
UTILITY--ELECTRIC (0.4%)
Midland Funding Corp. I
Series C-91
10.33%, due 7/23/02.......... 11,632,829 12,172,685
Series C-94
10.33%, due 7/23/02.......... 2,413,039 2,525,023
--------------
14,697,708
--------------
Total Asset-Backed Securities
(Cost $68,463,408)........... 66,036,803
--------------
CONVERTIBLE BONDS (3.1%)
CELLULAR TELEPHONES (0.7%)
Metro Pacific Capital Ltd.
2.50%, due 4/11/03 (e)....... 22,314,000 23,875,980
2.50%, due 4/11/03 (c)(e).... 3,100,000 3,317,000
--------------
27,192,980
--------------
ELECTRICAL EQUIPMENT (0.1%)
Checkpoint Systems, Inc.
5.25%, due 11/1/05........... 5,000,000 3,506,250
--------------
FOOD, BEVERAGES & TOBACCO
(0.1%)
Triarc Consumer Products
Group, L.L.C.
(zero coupon), due 2/9/18.... 11,960,000 2,691,000
--------------
HEALTH CARE (0.1%)
Sunrise Assisted Living, Inc.
5.50%, due 6/15/02........... 6,000,000 4,725,000
--------------
- -----------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
HEALTH CARE--DRUGS (0.1%)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02........... $ 2,205,000 $ 1,786,050
--------------
HOTEL/MOTEL (0.1%)
Hilton Hotels Corp.
5.00%, due 5/15/06........... 1,125,000 859,219
MeriStar Hospitality Corp.
4.75%, due 10/15/04.......... 3,663,000 2,843,404
--------------
3,702,623
--------------
MINING (0.1%)
Battle Mountain Gold Co.
6.00%, due 1/4/05 (e)........ 2,270,000 1,464,150
TVX Gold, Inc.
5.00%, due 3/28/02........... 3,750,000 2,793,750
--------------
4,257,900
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.1%)
Friede Goldman Halter, Inc.
4.50%, due 9/15/04........... 3,525,000 2,167,875
--------------
PAPER & FOREST PRODUCTS (0.2%)
Sappi BVI Finance Ltd.
7.50%, due 8/1/02 (e)........ 9,880,000 9,311,900
--------------
TECHNOLOGY (1.3%)
Cirrus Logic, Inc.
6.00%, due 12/15/03.......... 52,260,000 43,963,725
6.00%, due 12/15/03 (c)...... 5,000,000 4,206,250
--------------
48,169,975
--------------
TELECOMMUNICATION SERVICES (0.2%)
Technology Resources
Industries Berhad
(zero coupon), due 10/31/04
(f).......................... 5,685,000 3,979,500
2.75%, due 11/28/04 (e)(f)... 4,195,000 3,146,250
--------------
7,125,750
--------------
Total Convertible Bonds
(Cost $111,284,938).......... 114,637,303
--------------
CORPORATE BONDS (55.1%)
AEROSPACE/DEFENSE (0.8%)
Newport News Shipbuilding,
Inc.
8.625%, due 12/1/06.......... 17,175,000 16,960,313
9.25%, due 12/1/06........... 4,300,000 4,289,250
Pacific Aerospace &
Electronics, Inc.
11.25%, due 8/1/05........... 15,970,000 9,582,000
--------------
30,831,563
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 157
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
AIRLINES (0.1%)
Valujet, Inc.
10.25%, due 4/15/01.......... $ 5,680,000 $ 4,906,100
--------------
AUTO PARTS & EQUIPMENT (0.9%)
Gentek, Inc.
11.00%, due 8/1/09 (c)....... 25,610,000 26,634,400
Titan Tire Corp.
7.00%, due 2/11/00 (d)....... 6,542,838 6,510,124
--------------
33,144,524
--------------
BANKS (1.4%)
B.F. Saul Real Estate
Investment
Trust, Series B
9.75%, due 4/1/08............ 34,830,000 31,825,912
Local Financial Corp.
11.00%, due 9/8/04........... 19,985,000 20,784,400
RB Asset, Inc.
Series A
8.00%, due 1/15/06
8.50%, beginning 1/15/02
(g).......................... 778,200 750,012
--------------
53,360,324
--------------
BROADCAST/MEDIA (3.5%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02.... 98,295,000 55,536,675
14.50%, due 5/15/09.......... 47,510,000 43,055,937
Comcast Corp.
9.50%, due 1/15/08........... 1,490,000 1,534,700
Maxwell Communications Corp.,
PLC
Facility A (f)(h)(i)......... 9,973,584 448,811
Pratama Datakom Asia B.V.
12.75%, due 7/15/05 (c)...... 22,550,000 4,284,500
Radio Unica Corp.
(zero coupon), due 8/1/06
11.75%, beginning 8/1/02..... 12,470,000 8,136,675
Telemundo Holdings, Inc.
Series B
(zero coupon), due 8/15/08
11.50%, beginning 8/15/03.... 13,960,000 8,306,200
Young America Corp.
Series B
11.625%, due 2/15/06......... 12,965,000 9,983,050
--------------
131,286,548
--------------
BUILDING MATERIALS (0.3%)
RH Cement Finance, PLC
32.24%, due 3/10/00 (c)...... 6,000,000 6,720,000
Tapco International Corp.
12.50%, due 8/1/09 (c)....... 6,000,000 5,835,000
--------------
12,555,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
BUILDINGS--MAINTENANCE & SERVICES (0.4%)
Building One Services Corp.
10.50%, due 5/1/09........... $ 15,270,000 $ 14,659,200
--------------
CABLE TV (5.3%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03.... 43,290,000 27,272,700
Diamond Cable Communications,
PLC
13.25%, due 9/30/04.......... 11,200,000 11,998,000
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01.... 154,225,000 133,404,625
Series D
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01.... 14,430,000 12,481,950
United International Holdings,
Inc.
Series B
(zero coupon), due 2/15/08
10.75%, beginning 2/15/03.... 18,255,000 11,683,200
--------------
196,840,475
--------------
CASINOS (2.0%)
Capital Gaming International,
Inc.
12.00%, due 5/28/01.......... 907,800 272,340
El Comandante Capital Corp.
11.75%, due 12/15/03......... 17,186,051 15,123,725
International Game Technology
7.875%, due 5/15/04.......... 5,250,000 5,079,375
8.375%, due 5/15/09.......... 3,635,000 3,480,512
Louisiana Casino Cruises, Inc.
Series B
11.00%, due 12/1/05.......... 8,985,000 9,254,550
Penn National Gaming, Inc.
10.625%, due 12/15/04........ 11,910,000 12,267,300
President Casinos, Inc.
12.00%, due 9/15/01 (c)(d)... 10,097,000 10,097,000
13.00%, due 9/15/01.......... 21,698,000 17,358,400
Treasure Bay Gaming & Resorts
10.00%, due 11/1/03.......... 1,593,022 1,433,720
Trump Castle Funding, Inc.
13.875%, due 11/15/05 (j).... 319 260
--------------
74,367,182
--------------
CELLULAR TELEPHONES (0.4%)
Celcaribe S.A.
13.50%, due 3/15/04.......... 2,340,000 1,942,200
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01
(d)(h)....................... 10,000,000 1,000,000
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03..... 30,445,000 12,178,000
--------------
15,120,200
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 158
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CHEMICALS (1.1%)
Agriculture Minerals &
Chemicals Inc.
10.75%, due 9/30/03.......... $ 22,790,000 $ 15,953,000
Borden Chemicals & Plastics
L.P.
9.50%, due 5/1/05............ 10,084,000 9,378,120
Lyondell Chemical Co.
Series B
9.875%, due 5/1/07........... 2,580,000 2,631,600
10.875%, due 5/1/09.......... 11,625,000 11,973,750
--------------
39,936,470
--------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS
(0.4%)
CellNet Data Systems, Inc.
(zero coupon), due 10/1/07
14.00%, beginning 10/1/02.... 8,390,000 1,006,800
EV International, Inc.
Series A
11.00%, due 3/15/07.......... 7,160,000 4,510,800
Metromedia Fiber Network, Inc.
10.00%, due 12/15/09......... 3,695,000 3,787,375
Pinnacle Holdings, Inc.
(zero coupon), due 3/15/08
10.00%, beginning 3/15/03.... 6,970,000 4,565,350
--------------
13,870,325
--------------
COMPUTER SYSTEMS (0.2%)
Unisys Corp.
11.75%, due 10/15/04......... 5,500,000 6,008,750
--------------
COMPUTERS & OFFICE EQUIPMENT (0.4%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05........... 14,260,000 15,008,650
--------------
CONSUMER PRODUCTS (0.7%)
Selmer Co., Inc.
11.00%, due 5/15/05.......... 22,680,000 23,814,000
11.00%, due 5/15/05 (c)...... 1,500,000 1,575,000
--------------
25,389,000
--------------
COSMETICS/PERSONAL CARE (0.8%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08........... 30,400,000 29,336,000
--------------
ELECTRIC POWER COMPANIES
(1.2%)
CMS Energy Corp.
8.00%, due 7/1/01............ 27,780,000 27,454,835
8.375%, due 7/1/03........... 17,000,000 16,617,517
--------------
44,072,352
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
ELECTRONICS--SEMICONDUCTORS (0.3%)
Micron Technology, Inc.
6.50%, due 9/30/05 (c)....... $ 13,000,000 $ 10,335,000
--------------
ENERGY (0.6%)
Caithness Coso Funding Corp.
Series B
9.05%, due 12/15/09.......... 11,390,000 11,333,050
Conproca, S.A.
12.00%, due 6/16/10 (c)...... 12,400,000 12,462,000
--------------
23,795,050
--------------
ENGINEERING & CONSTRUCTION (0.8%)
Cathay International Ltd.
13.50%, due 4/15/08 (c)...... 46,250,000 23,240,625
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(f).... 13,438,000 6,383,050
--------------
29,623,675
--------------
ENTERTAINMENT (2.1%)
Affinity Group Holding, Inc.
11.00%, due 4/1/07........... 2,935,000 2,788,250
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (f)(h)... 42,087,000 420,870
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04......... 34,830,000 32,217,750
Loews Cineplex Entertainment
Corp.
8.875%, due 8/1/08........... 4,335,000 3,825,638
Marvel Enterprises, Inc.
12.00%, due 6/15/09.......... 29,780,000 27,397,600
Sports Club Company, Inc.
(The)
Series B
11.375%, due 3/15/06......... 1,545,000 1,533,412
Town Sports International,
Inc.
Series B
9.75%, due 10/15/04.......... 7,870,000 7,673,250
United Artists Theatre Co.
Series B
10.5525%, due 10/15/07 (k)... 3,000,000 585,000
--------------
76,441,770
--------------
FINANCE (0.4%)
ASAT Finance L.L.C.
12.50%, due 11/1/06 (c)(l)... 8,680 9,331,000
ContiFinancial Corp.
7.50%, due 3/15/02........... 800,000 90,000
8.375%, due 8/15/03.......... 6,000,000 675,000
Ocwen Asset Investment Corp.
11.50%, due 7/1/05........... 7,895,000 6,631,800
--------------
16,727,800
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 159
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
FOOD, BEVERAGES & TOBACCO (0.6%)
Buenos Aires Embotelladora
Sociedad Anonima
Series A
(zero coupon), due 9/1/05
11.00%, beginning 9/1/01
(e).......................... $ 430,000 $ 322,500
Colorado Prime Corp.
12.50%, due 5/1/04........... 33,325,000 4,915,438
Standard Commercial Corp.
8.875%, due 8/1/05........... 21,995,000 17,211,087
--------------
22,449,025
--------------
HEALTH CARE (5.9%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02........... 17,355,000 17,029,594
Alaris Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03.... 12,940,000 5,321,575
Fountain View, Inc.
Series B
11.25%, due 4/15/08.......... 12,905,000 10,065,900
Genesis Health Ventures, Inc.
9.75%, due 6/15/05........... 10,695,000 4,384,950
Hanger Orthopedic Group, Inc.
11.25%, due 6/15/09.......... 6,680,000 6,947,200
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03..... 36,555,000 10,783,725
Magellan Health Services, Inc.
9.00%, due 2/15/08........... 23,365,000 18,925,650
Medaphis Corp.
Series B
9.50%, due 2/15/05........... 56,421,000 44,572,590
Meditrust Co. (The)
7.375%, due 7/15/00.......... 4,895,000 4,628,399
MedPartners, Inc.
6.875%, due 9/1/00........... 80,000 76,800
7.375%, due 10/1/06.......... 25,516,000 21,178,280
MultiCare Companies, Inc.
(The)
9.00%, due 8/1/07............ 27,108,000 5,421,600
Quest Diagnostics, Inc.
10.75%, due 12/15/06......... 46,174,000 48,482,700
Team Health, Inc.
12.00%, due 3/15/09 (c)...... 18,580,000 18,301,300
Unilab Corp.
12.75%, due 10/1/09 (c)...... 5,015,000 5,190,525
--------------
221,310,788
--------------
HEALTH CARE--DRUGS (0.3%)
ICN Pharmaceuticals, Inc.
8.75%, due 11/15/08 (c)...... 10,920,000 10,428,600
--------------
HEALTH CARE--HOSPITAL MANAGEMENT (0.9%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95 (w)...... 46,825,000 34,304,510
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
HEALTH CARE--MEDICAL PRODUCTS (0.6%)
DJ Orthopedics L.L.C.
12.625%, due 6/15/09......... $ 20,910,000 $ 20,491,800
--------------
HOMEBUILDING (0.2%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (g)...... 9,278,353 9,231,961
--------------
HOTEL/MOTEL (0.8%)
FelCor Suites, L.P.
7.625%, due 10/1/07.......... 625,000 543,112
Florida Panthers Holdings,
Inc.
9.875%, due 4/15/09.......... 24,830,000 24,085,100
Starwood Hotels & Resorts
Worldwide, Inc.
7.375%, due 11/15/15......... 9,760,000 7,463,853
--------------
32,092,065
--------------
HOUSING (0.0%) (b)
UDC Homes, Inc.
Series C
(zero coupon)
due 11/1/00 (h)(m)........... 108,500 11
--------------
INDUSTRIAL (0.3%)
Morris Materials Handling,
Inc.
9.50%, due 4/1/08............ 18,470,000 5,725,700
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03..... 2,585,000 1,182,638
Woods Equipment Co.
Series B
12.00%, due 7/15/09.......... 4,305,000 3,874,500
--------------
10,782,838
--------------
INSURANCE--MULTI-LINE (0.3%)
Willis Corroon Group, PLC
9.00%, due 2/1/09............ 11,645,000 9,694,462
--------------
INVESTMENT BANK/BROKERAGE (0.0%) (b)
LaBranche & Co., Inc.
9.50%, due 8/15/04 (c)....... 250,000 242,500
--------------
LEISURE TIME (0.5%)
Bally Total Fitness Holding
Corp.
Series D
9.875%, due 10/15/07......... 20,738,000 20,115,860
--------------
MACHINE TOOLS (0.1%)
Grove Worldwide L.L.C.
9.25%, due 5/1/08............ 7,660,000 2,144,800
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 160
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
MACHINERY--DIVERSIFIED (0.2%)
Generac Portable Products
L.L.C.
11.25%, due 7/1/06........... $ 2,105,000 $ 2,147,100
Harnischfeger Industries, Inc.
7.25%, due 12/15/25 (f)(h)... 2,455,000 932,900
8.70%, due 6/15/22 (f)(h).... 8,000,000 3,040,000
--------------
6,120,000
--------------
MANUFACTURING--MISCELLANEOUS
(0.2%)
Desa International, Inc.
9.875%, due 12/15/07......... 11,005,000 8,033,650
--------------
MINING (0.8%)
Great Central Mines Ltd.
8.875%, due 4/1/08........... 30,897,000 28,502,482
--------------
OIL & GAS--DOMESTIC (0.5%)
Houston Exploration Co. (The)
Series B
8.625%, due 1/1/08........... 6,525,000 6,296,625
Queens Sand Resources, Inc.
12.50%, due 7/1/08........... 25,620,000 13,578,600
--------------
19,875,225
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.4%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (f)(h).... 5,210,000 2,422,650
R&B Falcon Corp.
Series B
6.95%, due 4/15/08........... 895,000 775,294
RBF Finance Co.
11.375%, due 3/15/09......... 10,300,000 11,021,000
--------------
14,218,944
--------------
OIL & GAS--EXPLORATION AND PRODUCTION (0.6%)
Contour Energy Co.
14.00%, due 4/15/03.......... 11,836,750 11,600,015
Petro Stopping Centers
Holdings L.P.
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04
(c)(n)....................... 24,460 12,230,000
--------------
23,830,015
--------------
PAPER & FOREST PRODUCTS (0.4%)
Pope & Talbot, Inc.
8.375%, due 6/1/13........... 790,000 695,152
SD Warren Co.
Series B
12.00%, due 12/15/04......... 12,095,000 12,609,038
--------------
13,304,190
--------------
PUBLISHING (0.6%)
General Media, Inc.
10.625%, due 12/31/00........ 27,091,000 23,027,350
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
REAL ESTATE (2.4%)
CB Richard Ellis Services,
Inc.
8.875%, due 6/1/06........... $ 18,405,000 $ 16,380,450
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07........... 56,860,000 47,022,424
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 7,924,950
--------------
89,968,024
--------------
RESTAURANTS (3.3%)
Advantica Restaurant Group,
Inc.
11.25%, due 1/15/08.......... 49,461,582 36,601,571
Avado Brands, Inc.
11.75%, due 6/15/09.......... 12,130,000 9,158,150
CKE Restaurants, Inc.
9.125%, due 5/1/09........... 4,305,000 3,196,462
FRI-MRD Corp.
14.00%, due 1/24/02 (c)(d)... 19,000,000 18,715,000
15.00%, due 1/24/02 (c)(d)... 55,050,000 54,906,000
--------------
122,577,183
--------------
RETAIL (0.5%)
G&G Retail, Inc.
11.00%, due 5/15/06.......... 8,070,000 6,869,587
Pathmark Stores, Inc.
9.625%, due 5/1/03........... 9,020,000 6,765,000
11.625%, due 6/15/02......... 3,550,000 1,171,500
United Auto Group, Inc.
Series A
11.00%, due 7/15/07.......... 250,000 235,000
Series B
11.00%, due 7/15/07.......... 4,069,000 3,824,860
--------------
18,865,947
--------------
RETAIL STORES--GENERAL MERCHANDISE (0.1%)
Kmart Corp.
8.375%, due 7/1/22........... 3,779,000 3,395,866
--------------
SPECIALIZED SERVICES (0.3%)
Weight Watchers International,
Inc.
13.00%, due 10/1/09 (c)...... 10,975,000 11,098,469
--------------
STEEL, ALUMINUM & OTHER METALS (0.5%)
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05.......... 18,682,000 19,522,690
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 161
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TECHNOLOGY (0.6%)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00..... $ 12,790,000 $ 2,813,800
Knowles Electronics Holdings,
Inc.
13.125%, due 10/15/09 (c).... 19,410,000 18,245,400
--------------
21,059,200
--------------
TELECOMMUNICATION SERVICES (6.8%)
Arch Communications, Inc.
13.75%, due 4/15/08.......... 7,499,000 6,083,564
Globalstar L.P. Capital Corp.
11.50%, due 6/1/05........... 24,600,000 16,728,000
GlobeNet Communications Group
Ltd.
13.00%, due 7/15/07 (c)...... 14,500,000 14,771,875
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05.......... 32,595,000 14,667,750
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03..... 37,935,000 19,631,363
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03.... 25,325,000 13,675,500
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (f)(h).... 21,190,000 9,959,300
15.00%, due 8/1/05
(f)(h)(o).................... 14,260 6,702,200
Level 3 Communications, Inc.
(zero coupon), due 12/1/08
10.50%, beginning 12/1/03.... 4,640,000 2,807,200
NTL, Inc.
Series A
(zero coupon), due 4/15/05
12.75%, beginning 4/15/00.... 18,515,000 18,607,575
Series B
(zero coupon), due 4/1/08
9.75%, beginning 4/1/03...... 17,640,000 12,171,600
Series B
(zero coupon), due 2/1/06
11.50%, beginning 2/1/01..... 3,209,000 2,936,235
Series B
(zero coupon), due 10/1/08
12.375%, beginning 10/1/03... 13,500,000 9,551,250
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02.... 60,020,000 29,109,700
PageMart Nationwide, Inc.
(zero coupon), due 2/1/05
15.00%, beginning 2/1/00..... 13,000,000 11,700,000
RCN Corp.
Series B
(zero coupon), due 2/15/08
9.80%, beginning 2/15/03..... 3,900,000 2,554,500
(zero coupon), due 7/1/08
11.00%, beginning 7/1/03..... 3,420,000 2,240,100
(zero coupon), due 10/15/07
11.125%, beginning
10/15/02..................... 19,820,000 13,923,550
10.125%, due 1/15/10......... 8,065,000 8,024,675
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
T/SF Communications Corp.
Series B
10.375%, due 11/1/07......... $ 12,955,000 $ 12,436,800
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01... 33,715,000 3,371,500
United Pan-Europe
Communications N.V.
(zero coupon), due 11/1/09
13.375%, beginning 11/1/04
(c).......................... 26,985,000 15,111,600
10.875%, due 11/1/07 (c)..... 7,650,000 7,879,500
--------------
254,645,337
--------------
TEXTILES--APPAREL MANUFACTURERS (0.3%)
Norton McNaughton, Inc.
12.50%, due 6/1/05........... 3,800,000 3,196,750
St. John Knits International,
Inc.
12.50%, due 7/1/09........... 6,350,000 5,619,750
TPE International Finance Co.
B.V.
9.015%, due 5/15/02
(e)(f)(h)(k)................. 4,800,000 1,440,000
--------------
10,256,500
--------------
TRANSPORTATION (0.6%)
Equimar Shipholdings Ltd.
9.875%, due 7/1/07........... 1,000,000 630,000
Pacer International, Inc.
Series B
11.75%, due 6/1/07........... 22,620,000 22,846,200
--------------
23,476,200
--------------
UTILITIES (0.9%)
PSEG Energy Holdings, Inc.
10.00%, due 10/1/09 (c)...... 33,280,000 34,112,100
--------------
UTILITY--ELECTRIC (0.4%)
ESI Tractebel Acquisition
Corp.
Series B
7.99%, due 12/30/11.......... 15,800,000 14,220,000
--------------
UTILITY--GAS (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)...... 10,330,000 4,751,800
--------------
Total Corporate Bonds
(Cost $2,257,392,393)........ 2,055,766,350
--------------
FOREIGN BONDS (5.3%)
ADVERTISING (0.1%)
Go Outdoor Systems Holdings
S.A.
10.50%, due 7/15/09 (c)...... E 2,000,000 2,120,068
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 162
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS (CONTINUED)
BROADCAST/MEDIA (1.1%)
Central European Media
Enterprises Ltd.
Series BR
8.125%, due 8/15/04.......... DM 25,287,000 $ 5,184,006
Diamond Holdings, PLC
10.00%, due 2/1/08........... L 10,000,000 15,853,669
Maxwell Communications Corp.,
PLC
Facility B (f)(h)(i)......... 1,131,066 82,033
TDL Infomedia Group Ltd.
12.125%, due 10/15/09 (c).... 12,250,000 19,718,731
--------------
40,838,439
--------------
CELLULAR TELEPHONES (0.2%)
Dolphin Telecom, PLC
(zero coupon), due 6/1/08
11.625%, beginning 6/1/03.... E 18,215,000 8,672,855
--------------
MINING (0.1%)
Greenstone Resources Ltd.
9.00%, due 2/28/02 (f)....... C$ 6,000,000 1,860,368
--------------
PUBLISHING (2.1%)
IPC Magazines Group, PLC
(zero coupon), due 3/15/08
10.75%, beginning 3/15/03.... L 42,825,000 20,706,406
9.625%, due 3/15/08.......... 13,970,000 12,608,706
Regional Independent Media
Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03.... 42,025,000 45,827,394
--------------
79,142,506
--------------
TELECOMMUNICATION SERVICES (1.7%)
Global TeleSystems Group, Inc.
11.00%, due 12/1/09 (c)...... E 27,710,000 27,984,716
NTL, Inc.
9.875%, due 11/15/09 (c)..... 16,670,000 16,793,491
Tele1 Europe B.V.
11.875%, due 12/1/09 (c)..... 5,880,000 5,938,294
United Pan-Europe
Communications N.V.
10.875%, due 11/1/07 (c)..... 7,345,000 7,583,477
Versatel Telecom International
B.V.
4.00%, due 12/17/04 (c)(p)... 6,500,000 6,466,707
--------------
64,766,685
--------------
Total Foreign Bonds
(Cost $242,122,285).......... 197,400,921
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
LOAN ASSIGNMENTS & PARTICIPATIONS (5.4%)
AUTO PARTS & EQUIPMENT (0.1%)
Global Motorsport Group, Inc.
Bank debt, Tranche B
9.75%, due 10/31/05
(d)(i)(k).................... $ 4,950,000 $ 4,925,250
--------------
BUILDING MATERIALS (0.2%)
Tapco International Corp.
Bank debt, Term Loan B
8.76%, due 6/23/07
(d)(i)(k).................... 1,995,000 1,992,506
Bank debt, Term Loan C
9.01%, due 6/23/08
(d)(i)(k).................... 4,987,500 4,981,266
--------------
6,973,772
--------------
CASINOS (0.2%)
Isle of Capri Casinos, Inc.
Bank debt, Tranche A
8.6619%, due 4/23/04
(d)(i)(k).................... 9,045,238 9,045,238
--------------
CONGLOMERATES (0.3%)
First Pacific Capital Ltd.
Bank debt
7.4375%, due 1/23/00
(d)(k)....................... 10,160,000 9,550,400
--------------
ENTERTAINMENT (0.9%)
Affinity Group, Inc.
Bank debt, Tranche B
10.125%, due 6/30/06
(d)(i)(k).................... 8,613,000 8,569,935
Euro Disneyland S.N.C.
Phase 1, Bank debt
Tranche A
4.3269%, due 11/30/06
(d)(i)(k).................... FF 15,674,827 1,886,328
Tranche D
4.479%, due 11/30/06
(d)(i)(k).................... 20,711,631 2,492,464
United Artists Theatre Co.
Bank debt, Term Loan B
10.3067%, due 4/21/06
(d)(i)(k).................... $ 12,097,451 8,921,870
Bank debt, Term Loan C
10.3693%, due 4/21/07
(d)(i)(k).................... 15,680,037 11,564,027
--------------
33,434,624
--------------
HEALTH CARE (0.9%)
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
9.40%, due 9/30/04
(d)(i)(k).................... 1,557,248 1,136,791
Bank debt, Term Loan C
9.494%, due 6/1/05
(d)(i)(k).................... 1,553,594 1,134,124
Multicare Companies, Inc.
(The)
Bank debt, Term Loan B
9.7052%, due 9/30/04
(d)(i)(k).................... 1,546,613 1,129,028
Bank debt, Term Loan C
10.35%, due 6/1/05
(d)(i)(k).................... 514,219 375,380
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 163
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
HEALTH CARE (CONTINUED)
Quest Diagnostics, Inc.
Bank debt, Term Loan B
9.3655%, due 8/16/06
(d)(i)(k).................... $ 9,916,279 $ 9,922,477
Bank debt, Term Loan C
9.7809%, due 8/16/07
(d)(i)(k).................... 9,153,488 9,159,209
Unilab Corp.
Bank debt, Term Loan B
10.00%, due 11/23/06
(d)(i)(k).................... 11,167,013 11,097,219
--------------
33,954,228
--------------
HOTEL/MOTEL (0.3%)
Blackstone Hotel Acquisitions
Co.
Bank debt
10.1065%, due 6/30/03
(d)(k)....................... L 8,390,000 12,102,388
--------------
MANUFACTURING--MISCELLANEOUS
(0.1%)
Foamex L.P.
Bank debt, Term Loan B
9.6875%, due 6/30/05
(d)(i)(k).................... $ 1,284,023 1,227,847
Bank debt, Term Loan C
9.9375%, due 6/30/05
(d)(i)(k).................... 1,167,293 1,116,224
Bank debt, Term Loan D
10.0625%, due 6/30/05
(d)(i)(k).................... 2,535,928 2,424,981
--------------
4,769,052
--------------
OIL & GAS--DOMESTIC (0.2%)
Transtexas Gas Corp.
Bank debt
13.00%, due 12/31/01 (d)..... 5,666,667 5,666,667
--------------
PAPER & FOREST PRODUCTS (0.1%)
Stone Container Corp.
Bank debt, Term Loan E
9.5313%, due 10/1/03
(d)(i)(k).................... 3,893,794 3,897,578
--------------
REAL ESTATE (0.1%)
245 Park Ave.
Bank debt
13.00%, due 12/10/02
(d)(k)....................... 4,832,105 4,421,376
--------------
TELECOMMUNICATION SERVICES (0.5%)
Orius Corp.
Bridge Loan
13.00%, due 12/15/00
(d)(k)....................... 18,340,000 18,340,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION (1.5%)
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12
(d)(i)(k).................... FF 227,888,211 $ 27,511,413
7.03%, due 12/31/12
(d)(i)(k).................... L 21,046,644 26,797,609
--------------
54,309,022
--------------
Total Loan Assignments &
Participations
(Cost $207,177,253).......... 201,389,595
--------------
U.S. GOVERNMENT (0.3%)
UNITED STATES TREASURY BOND (0.3%)
5.25%, due 2/15/29........... $ 13,170,000 10,889,878
--------------
Total U.S. Government
(Cost $11,554,773)........... 10,889,878
--------------
YANKEE BONDS (11.3%)
BROADCAST/MEDIA (0.3%)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04.......... 7,285,000 3,059,700
TV Azteca, S.A. de C.V.
Series B
10.50%, due 2/15/07.......... 8,995,000 7,803,163
--------------
10,862,863
--------------
CABLE TV (0.6%)
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 7,180,022
Rogers Cablesystems Ltd.
10.00%, due 12/1/07.......... 285,000 303,881
10.125%, due 9/1/12.......... 7,715,000 8,139,325
11.00%, due 12/1/15.......... 7,185,000 8,137,013
--------------
23,835,796
--------------
CELLULAR TELEPHONES (2.1%)
Dolphin Telecom, PLC
(zero coupon), due 6/1/08
11.50%, beginning 6/1/03..... 7,735,000 3,751,475
Series B
(zero coupon), due 5/15/09
14.00%, beginning 5/15/04.... 12,935,000 5,820,750
Millicom International
Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01..... 72,655,000 59,940,375
Rogers Cantel, Inc.
9.375%, due 6/1/08........... 10,000,000 10,400,000
--------------
79,912,600
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 164
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
CHEMICALS (0.9%)
Brunner Mond Group, PLC
11.00%, due 7/15/08.......... 15,940,000 $ 7,651,200
Marsulex, Inc.
9.625%, due 7/1/08........... 6,355,000 6,084,913
Octel Developments, PLC
10.00%, due 5/1/06........... 21,255,000 21,042,450
--------------
34,778,563
--------------
HOMEBUILDING (0.5%)
Amatek Industries Pty Ltd.
12.00%, due 2/15/08.......... 20,000,000 19,000,000
--------------
MINING (0.3%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27........... 15,020,000 9,012,000
Glencore Nickel Pty Ltd.
9.00%, due 12/1/14........... 910,000 782,600
--------------
9,794,600
--------------
OIL & GAS--DOMESTIC (0.3%)
Husky Oil Ltd.
8.90%, due 8/15/28
11.1875%, beginning
8/15/08...................... 12,800,000 12,032,000
--------------
PAPER & FOREST PRODUCTS (0.4%)
Doman Industries Ltd.
12.00%, due 7/1/04........... 14,420,000 15,014,825
--------------
SPECIALIZED SERVICES (0.2%)
Intertek Testing Services Ltd.
12.00%, due 11/1/07
(c)(d)(j).................... 5,717,810 5,374,741
--------------
STEEL, ALUMINUM & OTHER METALS (1.1%)
Ivaco, Inc.
11.50%, due 9/15/05.......... 37,636,000 40,740,970
--------------
TELECOMMUNICATION SERVICES (3.4%)
Call-Net Enterprises, Inc.
(zero coupon), due 8/15/07
9.27%, beginning 8/15/02..... 4,885,000 2,894,363
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04.... 23,255,000 11,453,088
9.375%, due 5/15/09.......... 20,465,000 16,832,462
Hermes Europe Railtel B.V.
11.50%, due 8/15/07.......... 5,115,000 5,268,450
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
NTL, Inc.
(zero coupon), due 11/15/07
11.20%, beginning 11/15/00... 23,220,000 $ 22,117,050
United Pan-Europe
Communications N.V.
(zero coupon), due 8/1/09
12.50%, beginning 8/1/04..... 46,780,000 26,196,800
Series B
10.875%, due 8/1/09.......... 42,585,000 43,436,700
--------------
128,198,913
--------------
TRANSPORTATION (1.2%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (f)...... 47,578,600 13,797,794
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08 (f)...... 49,015,000 18,625,700
Pegasus Shipping (Hellas) Ltd.
Series A
11.875%, due 11/15/04 (f).... 31,410,000 11,307,600
Sea Containers Ltd.
10.75%, due 10/15/06......... 685,000 685,000
--------------
44,416,094
--------------
Total Yankee Bonds
(Cost $496,670,625).......... 423,961,965
--------------
Total Long-Term Bonds
(Cost $3,394,665,675)........ 3,070,082,815
--------------
<CAPTION>
SHARES
-------------
<S> <C> <C>
COMMON STOCKS (4.8%)
BROADCAST/MEDIA (0.8%)
Spanish Broadcasting System,
Inc.
Class B (a)(c)............... 1,062,300 31,205,063
--------------
CABLE TV (0.0%) (b)
CS Wireless Systems, Inc.
(a)(c)....................... 5,180 62
--------------
CASINOS (0.0%) (b)
Capital Gaming International,
Inc. (a)..................... 66,333 663
Equus Gaming Co., L.P.
Class A (a).................. 114,320 117,892
--------------
118,555
--------------
CELLULAR TELEPHONES (0.1%)
Celcaribe, S.A. (a)(c)........ 751,212 1,126,818
Tele Sudeste Celular
Participacoes S.A. ADR (q)... 3,922 152,223
Telesp Celular Participacoes
S.A. ADR (q)................. 7,844 332,389
--------------
1,611,430
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 165
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS (0.3%)
Millennium Chemicals Inc...... 498,055 $ 9,836,586
--------------
ENTERTAINMENT (0.1%)
Alliance Entertainment Corp.
(a).......................... 1,095,385 2,852,316
Loews Cineplex Entertainment
Corp. (a).................... 196,500 1,154,438
--------------
4,006,754
--------------
FINANCE (0.2%)
AMC Financial, Inc. (a)....... 1,412,162 6,326,486
--------------
FOOD, BEVERAGES & TOBACCO (0.3%)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (v).................. 1,264,157 5,689,275
Dr. Pepper Bottling Holdings,
Inc.
Class A (a).................. 200,000 6,000,000
TLC Beatrice International
Holdings Inc. (a)............ 25,000 75,000
--------------
11,764,275
--------------
GOLD & PRECIOUS METALS MINING (0.1%)
Placer Dome Inc. ............. 427,540 4,596,055
--------------
HEALTH CARE (0.3%)
General Healthcare Group Ltd.
(a)(r)....................... 821 39,696
Quest Diagnostics, Inc. (a)... 393,375 12,022,523
--------------
12,062,219
--------------
HOTEL/MOTEL (0.5%)
Starwood Hotels & Resorts
Worldwide, Inc. ............. 838,400 19,702,400
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.3%)
Union Pacific Resources Group,
Inc. ........................ 790,775 10,082,381
--------------
PAPER & FOREST PRODUCTS (0.1%)
TimberWest Forest Corp.
(s)(t)....................... 372,135 2,435,940
--------------
PUBLISHING (0.1%)
Medianews Group Inc. (a)...... 28,000 3,500,000
--------------
REAL ESTATE (1.2%)
Equity Office Properties
Trust........................ 1,280,730 31,537,976
Highwoods Properties, Inc. ... 80,070 1,861,628
HRPT Properties Trust......... 200,000 1,800,000
Metropolis Realty Trust,
Inc. ........................ 357,335 9,290,710
--------------
44,490,314
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
RETAIL (0.0%) (b)
Loehmann's Holdings, Inc.
Series B (a)................. 43,750 $ 43,750
--------------
STEEL (0.2%)
USX-U.S. Steel Group.......... 252,540 8,333,820
--------------
TELECOMMUNICATION SERVICES (0.2%)
Call-Net Enterprises, Inc.
Series B (a)(s).............. 2,385,120 7,395,462
Embratel Participacoes S.A.
ADR (q)...................... 19,480 530,830
Tele Centro Sul Participacoes
S.A. ADR (q)................. 3,913 355,105
Tele Norte Leste Participacoes
S.A. ADR (q)................. 19,492 497,046
Telecommunicacoes de Sao Paulo
ADR (q)...................... 19,593 478,804
--------------
9,257,247
--------------
TEXTILES--APPAREL MANUFACTURERS (0.0%) (b)
Hosiery Corp. of America, Inc.
(a).......................... 17,400 696,000
--------------
Total Common Stocks
(Cost $173,108,727).......... 180,069,337
--------------
PREFERRED STOCKS (4.1%)
BROADCAST/MEDIA (1.3%)
Paxson Communications Corp.
12.50% (j)................... 45,699 46,613,041
--------------
ENTERTAINMENT (0.0%) (b)
Alliance Entertainment Corp.
Series A1 (a)................ 447 447,000
Series A2 (a)................ 503 503,000
--------------
950,000
--------------
EQUIPMENT LOANS (0.6%)
GPA Group, PLC (a)(d)......... 41,600,000 21,632,000
--------------
FINANCIAL SERVICES (0.0%) (b)
North Atlantic Trading Co.
12.00% (j)................... 88,325 1,523,612
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.4%)
R&B Falcon Corp.
13.875% (j).................. 14,168 14,947,367
--------------
PAPER & FOREST PRODUCTS (0.1%)
Paperboard Industries
International Inc.
5.00%, Class A (c)(d)(s)..... 219,308 3,485,005
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 166
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
REAL ESTATE (0.3%)
Crown American Realty Trust
11.00%, Series A............. 294,930 $ 10,433,149
--------------
RETAIL (0.0%) (b)
Loehmann's Holdings, Inc.
$0.056, Series A (j)......... 2,297 1,148
--------------
TECHNOLOGY (0.0%) (b)
Metawave Communications Corp.
Series D (a)(c)(d)(x)........ 259,831 1,442,062
--------------
TELECOMMUNICATION SERVICES (1.4%)
ICG Holdings, Inc.
14.25% (j)................... 30,570 29,270,785
Nextel Communications, Inc.
13.00%, Series D (j)......... 21,453 22,954,742
--------------
52,225,527
--------------
Total Preferred Stocks
(Cost $152,156,878).......... 153,252,911
--------------
WARRANTS (0.5%)
BROADCAST/MEDIA (0.4%)
CD Radio, Inc.
expire 5/15/09 (a)(c)........ 146,415 11,896,219
expire 5/15/09 (a)(c)........ 570 46,312
--------------
11,942,531
--------------
CABLE TV (0.0%) (b)
UIH Australia/Pacific, Inc.
expire 5/15/06 (a)........... 24,315 607,875
--------------
CASINOS (0.0%) (b)
Belle Casino, Inc. (a)(c)..... 5,500 55
Isle of Capri Casinos, Inc.
expire 5/3/01 (a)............ 36,808 368
--------------
423
--------------
CELLULAR TELEPHONES (0.0%) (b)
Occidente y Caribe Celular,
S.A.
expire 3/15/04 (a)(c)........ 28,380 425,700
--------------
FINANCIAL SERVICES (0.0%) (b)
North Atlantic Trading Co.
expire 6/15/07 (a)(c)........ 66 1
--------------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)....... 18,825 188
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
HOMEBUILDING (0.0%) (b)
Amatek Industries Pty Ltd.
Common Rights (a)............ 6,000 $ 3,300
Preferred Rights (a)......... 1,422,153 782,184
--------------
785,484
--------------
LEISURE TIME (0.0%) (b)
HF Holdings, Inc.
expire 7/15/02 (a)........... 68,380 102,570
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.1%)
R&B Falcon Corp.
expire 5/1/09 (a)(c)......... 11,745 3,288,600
--------------
PUBLISHING (0.0%) (b)
General Media, Inc.
expire 12/21/03 (a)(c)....... 34,486 345
--------------
RETAIL (0.0%) (b)
G&G Retail, Inc.
expire 5/15/06 (a)(c)........ 8,070 12,105
--------------
SPECIALIZED SERVICES (0.0%) (b)
Intertek Testing Services Ltd.
(a)(d)....................... 691 221,120
--------------
TELECOMMUNICATION SERVICES (0.0%) (b)
ICO Global Communications
Holdings Ltd.
expire 8/1/05 (a)............ 21,190 212
Telehub Communications Corp.
expire 7/31/05 (a)(c)........ 34,895 349
--------------
561
--------------
TELECOMMUNICATIONS--LONG DISTANCE (0.0%) (b)
Sprint Corp.
expire 6/1/00 (a)............ 300 3
--------------
Total Warrants
(Cost $26,591,529)........... 17,387,506
--------------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.1%)
COMMERCIAL PAPER (4.8%)
Ford Motor Credit Co.
6.05%, due 1/18/00........... $ 18,115,000 18,063,054
Goldman Sachs Group L.P.
6.46%, due 1/31/00........... 23,055,000 22,930,619
Merrill Lynch & Co., Inc.
6.02%, due 1/28/00........... 23,555,000 23,448,239
Morgan Stanley Dean Witter &
Co.
4.55%, due 6/7/00 (k)........ 30,000,000 30,000,000
6.15%, due 1/11/00........... 29,500,000 29,449,440
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 167
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
Salomon Smith Barney Holdings,
Inc.
6.00%, due 1/24/00........... $ 30,000,000 $ 29,884,500
Wells Fargo & Co.
6.30%, due 1/10/00........... 24,000,000 23,962,087
--------------
Total Commercial Paper
(Cost $177,737,939).......... 177,737,939
--------------
<CAPTION>
SHARES
-------------
<S> <C> <C>
INVESTMENT COMPANY (1.1%)
Merrill Lynch Premier
Institutional Fund........... 41,964,906 41,964,906
--------------
Total Investment Company
(Cost $41,964,906)........... 41,964,906
--------------
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<S> <C> <C>
SHORT-TERM BONDS (0.0%) (b)
TEXTILES--APPAREL MANUFACTURERS (0.0%) (b)
Alpargatas S.A.I.C.
11.75%, due 8/18/98
(c)(f)(u).................... $ 800,000 40,000
--------------
Total Short-Term Bonds
(Cost $656,350).............. 40,000
--------------
SHORT-TERM LOAN ASSIGNMENT (0.2%)
HEALTH CARE--MEDICAL PRODUCTS (0.2%)
Inamed Corp.
Bridge Loan
13.4763%, due 6/2/00
(d)(k)....................... 9,532,417 9,532,417
--------------
Total Short-Term Loan
Assignment
(Cost $9,474,343)............ 9,532,417
--------------
Total Short-Term Investments
(Cost $229,833,538).......... 229,275,262
--------------
Total Investments
(Cost $3,976,356,347) (y).... 97.8% 3,650,067,831(z)
Cash and Other Assets,
Less Liabilities............. 2.2 80,814,948
------- --------------
Net Assets.................... 100.0% $3,730,882,779
======= ==============
</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) Issue in default.
(g) CIK ("Cash in Kind")--interest payment is made with cash
or additional securities.
(h) Issuer in bankruptcy.
(i) Multiple tranche facilities.
(j) PIK ("Payment in Kind")--interest or dividend payment is
made with additional securities.
(k) Floating rate. Rate shown is the rate in effect at
December 31, 1999.
(l) 8,680 Units--each unit reflects $1,000 principal amount
of 12.50% Senior Notes plus 1 warrant to acquire 2.3944
shares of common stock of ASAT Holding Corp. at $18.60
per share at a future date.
(m) Fair valued security.
(n) 24,460 Units--each unit reflects $1,000 principal amount
of (zero coupon), due 8/1/08, 15.00%, beginning 8/1/04
Senior Discounted Notes plus 1 warrant to acquire common
stock at an average price of $156.11 per share at a
future date.
(o) 14,260 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) Convertible bond.
(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) The company defaulted on the payment of principal to its
creditors on maturity date.
(v) Argentinean security
(w) Partially segregated as collateral for loan
participations and assignments.
(x) Illiquid security.
(y) The cost for Federal income tax purposes is
$3,980,447,769.
(z) At December 31, 1999, net unrealized depreciation was
$330,379,938, 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 $142,832,034 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $473,211,972.
DM--Security denominated in Deutsche Mark.
E --Security denominated in Euro.
FF--Security denominated in French Franc.
L --Security denominated in Pound Sterling.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 168
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$3,976,356,347)........................................... $3,650,067,831
Cash........................................................ 50,056
Receivables:
Dividends and interest.................................... 74,580,347
Investment securities sold................................ 7,977,890
Fund shares sold.......................................... 5,536,891
Unrealized appreciation on foreign currency forward
contracts................................................. 6,549,097
--------------
Total assets........................................ 3,744,762,112
--------------
LIABILITIES:
Payables:
Fund shares redeemed...................................... 5,907,651
NYLIFE Distributors....................................... 2,943,083
MainStay Management....................................... 1,802,983
Transfer agent............................................ 382,714
Investment securities purchased........................... 364,444
Custodian................................................. 43,253
Trustees.................................................. 29,013
Accrued expenses............................................ 644,602
Unrealized depreciation on foreign currency forward
contracts................................................. 1,761,590
--------------
Total liabilities................................... 13,879,333
--------------
Net assets.................................................. $3,730,882,779
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 498,098
Class B................................................... 4,450,692
Class C................................................... 90,758
Additional paid-in capital.................................. 4,050,648,155
Accumulated distribution in excess of net investment
income.................................................... (20,915,791)
Accumulated undistributed net realized gain on
investments............................................... 17,718,213
Net unrealized depreciation on investments.................. (326,288,516)
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 4,681,170
--------------
Net assets.................................................. $3,730,882,779
==============
CLASS A
Net assets applicable to outstanding shares................. $ 369,275,245
==============
Shares of beneficial interest outstanding................... 49,809,757
==============
Net asset value per share outstanding....................... $ 7.41
Maximum sales charge (4.50% of offering price).............. 0.35
--------------
Maximum offering price per share outstanding................ $ 7.76
==============
CLASS B
Net assets applicable to outstanding shares................. $3,294,426,839
==============
Shares of beneficial interest outstanding................... 445,069,175
==============
Net asset value and offering price per share outstanding.... $ 7.40
==============
CLASS C
Net assets applicable to outstanding shares................. $ 67,180,695
==============
Shares of beneficial interest outstanding................... 9,075,817
==============
Net asset value and offering price per share outstanding.... $ 7.40
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 169
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 25,846,933
Interest.................................................. 396,524,369
------------
Total income............................................ 422,371,302
------------
Expenses:
Distribution--Class B..................................... 25,231,213
Distribution--Class C..................................... 268,773
Management................................................ 22,309,768
Service--Class A.......................................... 795,741
Service--Class B.......................................... 8,410,401
Service--Class C.......................................... 89,591
Transfer agent............................................ 4,592,905
Professional.............................................. 669,849
Shareholder communication................................. 555,153
Custodian................................................. 512,905
Recordkeeping............................................. 398,497
Registration.............................................. 155,030
Trustees.................................................. 106,174
Miscellaneous............................................. 111,657
------------
Total expenses before waiver............................ 64,207,657
Fees waived by Manager...................................... (1,609,147)
------------
Net expenses............................................ 62,598,510
------------
Net investment income....................................... $359,772,792
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 74,993,291
Foreign currency transactions............................. 3,489,059
------------
Net realized gain on investments and foreign currency
transactions.............................................. 78,482,350
------------
Net change in unrealized depreciation on:
Security transactions..................................... (105,150,459)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 5,932,094
------------
Net unrealized loss on investments and foreign currency
transactions.............................................. (99,218,365)
------------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (20,736,015)
------------
Net increase in net assets resulting from operations........ $339,036,777
============
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $36,089.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
25
<PAGE> 170
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 359,772,792 $ 321,932,272
Net realized gain (loss) on investments................... 74,993,291 (31,587,296)
Net realized loss on securities sold short................ -- (466,913)
Net realized gain (loss) on foreign currency
transactions............................................ 3,489,059 (2,190,133)
Net change in unrealized appreciation (depreciation) on
security transactions................................... (105,150,459) (239,041,166)
Net change in unrealized appreciation (depreciation) on
translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 5,932,094 (1,911,179)
-------------- --------------
Net increase in net assets resulting from operations...... 339,036,777 46,735,585
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (34,495,477) (25,394,563)
Class B................................................. (328,351,161) (291,897,896)
Class C................................................. (4,257,732) (193,731)
From net realized gain on investments and foreign currency
transactions:
Class A................................................. (1,561,674) (1,191,922)
Class B................................................. (14,116,121) (13,960,446)
Class C................................................. (277,698) (38,713)
In excess of net investment income:
Class A................................................. (1,965,382) (223,928)
Class B................................................. (18,707,825) (2,573,493)
Class C................................................. (242,584) (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..... (403,975,654) (339,463,737)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 274,231,217 187,918,095
Class B................................................. 568,260,794 778,004,123
Class C................................................. 70,334,833 9,786,436
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 26,644,022 19,432,795
Class B................................................. 235,753,550 209,916,586
Class C................................................. 2,452,343 169,443
-------------- --------------
1,177,676,759 1,205,227,478
Cost of shares redeemed:
Class A................................................. (203,043,969) (150,819,881)
Class B................................................. (762,717,121) (783,310,124)
Class C................................................. (13,688,417) (55,072)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 198,227,252 271,042,401
-------------- --------------
Net increase (decrease) in net assets................. 133,288,375 (21,685,751)
NET ASSETS:
Beginning of year........................................... 3,597,594,404 3,619,280,155
-------------- --------------
End of year................................................. $3,730,882,779 $3,597,594,404
============== ==============
Accumulated distribution in excess of net investment income
at end of year............................................ $ (20,915,791) $ (3,671,347)
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
26
<PAGE> 171
This page intentionally left blank
27
<PAGE> 172
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------
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.............................. 0.79 0.75 0.74 0.72 0.84
Net realized and unrealized gain (loss) on
investments...................................... (0.06) (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................... 0.75 0.17 0.97 1.24 1.45
-------- -------- -------- -------- -------
Less dividends and distributions:
From net investment income....................... (0.80) (0.74) (0.74) (0.71) (0.84)
From net realized gain on investments............ (0.03) (0.03) (0.34) (0.18) (0.10)
In excess of net investment income............... (0.05) (0.01) -- -- (0.01)
In excess of net realized gain on investments.... -- (0.01) -- -- (0.02)
-------- -------- -------- -------- -------
Total dividends and distributions.................. (0.88) (0.79) (1.08) (0.89) (0.97)
-------- -------- -------- -------- -------
Net asset value at end of period................... $ 7.41 $ 7.54 $ 8.16 $ 8.27 $ 7.92
======== ======== ======== ======== =======
Total investment return (a)........................ 10.33% 2.07% 12.20% 16.33% 20.28%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.......................... 10.36% 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............................ 83% 128% 128% 118% 137%
Net assets at end of period (in 000's)............. $369,275 $278,181 $238,841 $116,805 $42,850
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) 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.
28
<PAGE> 173
<TABLE>
<CAPTION>
Class B Class C
-------------------------------------------------------------------------- -------------------------------
September 1*
Year ended December 31, Year ended through
-------------------------------------------------------------------------- December 31, December 31
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.44 $ 7.53 $ 7.43
---------- ---------- ---------- ---------- ---------- ------- -------
0.73 0.69 0.69 0.67 0.81 0.73 0.27
(0.06) (0.57) 0.23 0.52 0.61 (0.06) 0.15
0.02 (0.01) (0.00)(b) (0.00)(b) (0.00)(b) 0.02 (0.01)
---------- ---------- ---------- ---------- ---------- ------- -------
0.69 0.11 0.92 1.19 1.42 0.69 0.41
---------- ---------- ---------- ---------- ---------- ------- -------
(0.75) (0.68) (0.69) (0.67) (0.81) (0.75) (0.27)
(0.03) (0.03) (0.34) (0.18) (0.10) (0.03) (0.03)
(0.04) (0.01) -- -- (0.01) (0.04) --
-- (0.01) -- -- (0.02) -- (0.01)
---------- ---------- ---------- ---------- ---------- ------- -------
(0.82) (0.73) (1.03) (0.85) (0.94) (0.82) (0.31)
---------- ---------- ---------- ---------- ---------- ------- -------
$ 7.40 $ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.40 $ 7.53
========== ========== ========== ========== ========== ======= =======
9.51% 1.31% 11.55% 15.58% 19.71% 9.51% 5.58%
9.61% 8.65% 8.18% 8.4% 9.5% 9.61% 8.65%
1.75% 1.75% 1.62% 1.6% 1.6% 1.75% 1.75%
1.79% 1.79% 1.62% 1.6% 1.6% 1.79% 1.79%
83% 128% 128% 118% 137% 83% 128%
$3,294,427 $3,309,389 $3,380,439 $2,441,180 $1,601,238 $67,181 $10,025
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
29
<PAGE> 174
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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 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
30
<PAGE> 175
Notes to Financial Statements
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.
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 Fund's 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 Fund's
Subadvisor, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by the Fund's
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 Fund's 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
Fund's 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 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
31
<PAGE> 176
MainStay High Yield Corporate Bond Fund
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.
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 year end to credit loss in the event of a counterparty's failure to
perform its obligations.
Foreign currency forward contracts open at December 31, 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 2/7/00....................... E78,214,009 $81,278,162 $2,647,647
Euro vs. U.S. Dollar, expiring 2/7/00....................... E39,320,000 $42,300,543 2,771,156
Pound Sterling vs. U.S. Dollar, expiring 3/1/00............. L27,322,853 $45,170,194 1,130,294
Pound Sterling vs. U.S. Dollar, expiring 3/1/00............. L45,162,000 $71,871,936 (921,705)
</TABLE>
<TABLE>
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
----------- -----------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Euro vs. U.S. Dollar, expiring 2/7/00....................... E15,975,045 $16,900,000 (839,885)
----------
Net unrealized appreciation on foreign currency forward
contracts................................................. $4,787,507
==========
</TABLE>
32
<PAGE> 177
Notes to Financial Statements (continued)
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.
At December 31, 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.
Restricted securities held at December 31, 1999:
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 12/31/99 of
Security Acquisition Shares Cost Value Net Assets
- ----------------------------------------- ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
245 Park Ave.
Bank debt
13.00%, due 12/10/02................... 10/28/99 $ 4,832,105 $ 4,426,444 $ 4,421,376 0.1%
Affinity Group, Inc.
Bank debt, Tranche B
10.125%, due 6/30/06................... 12/17/98 8,613,000 8,613,000 8,569,935 0.2
Blackstone Hotel Acquisitions Co.
Bank debt
10.1065%, due 6/30/03.................. 5/18/99 L 8,390,000 12,224,298 12,102,388 0.3
Euro Disneyland S.N.C.
Phase 1, Bank debt
Tranche A
4.3269%, due 11/30/06.................. 7/21/99-12/10/99 FF 15,674,827 1,812,424 1,886,328 0.1
Tranche D
4.479%, due 11/30/06................... 7/21/99-12/10/99 20,711,631 2,383,850 2,492,464 0.1
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12.................... 10/28/98-9/8/99 227,888,211 31,145,660 27,511,413 0.8
7.03%, due 12/31/12.................... 3/23/99-9/8/99 L 21,046,644 28,151,218 26,797,609 0.7
First Pacific Capital Ltd.
Bank debt
7.4375%, due 1/23/00................... 8/13/98 $ 10,160,000 10,078,870 9,550,400 0.3
</TABLE>
33
<PAGE> 178
MainStay High Yield Corporate Bond Fund
RESTRICTED SECURITIES (CONTINUED):
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 12/31/99 of
Security Acquisition Shares Cost Value Net Assets
- ----------------------------------------- ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Foamex L.P.
Bank debt, Term Loan B
9.6875%, due 6/30/05................... 11/23/99 $ 1,284,023 $ 1,154,979 $ 1,227,847 0.0%(a)
Bank debt, Term Loan C
9.9375%, due 6/30/05................... 11/23/99 1,167,293 1,049,908 1,116,224 0.0(a)
Bank debt, Term Loan D
10.0625%, due 6/30/05.................. 11/23/99 2,535,928 2,280,098 2,424,981 0.1
FRI-MRD Corp.
14.00%, due 1/24/02.................... 10/30/98 19,000,000 19,481,161 18,715,000 0.5
15.00%, due 1/24/02.................... 8/12/97-12/17/99 55,050,000 54,814,419 54,906,000 1.5
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
9.40%, due 9/30/04..................... 12/20/99 1,557,248 1,147,306 1,136,791 0.0(a)
Bank debt, Term Loan C
9.494%, due 6/1/05..................... 12/20/99 1,553,594 1,144,121 1,134,124 0.0(a)
Global Motorsport Group, Inc.
Bank debt, Tranche B
9.75%, due 10/31/05.................... 12/15/98 4,950,000 4,950,000 4,925,250 0.1
GPA Group, PLC
Preferred Stock........................ 3/7/96-12/23/97 41,600,000 16,177,800 21,632,000 0.6
Inamed Corp.
Bridge Loan
13.4763%, due 6/2/00................... 9/2/99 9,532,417 9,474,343 9,532,417 0.2
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01............. 6/17/98 10,000,000 2,596,173 1,000,000 0.0(a)
Intertek Testing Services Ltd.
12.00%, due 11/1/07 (b)................ 11/8/96-11/1/99 5,717,810 5,530,583 5,374,741 0.2
Warrants............................... 11/8/96 691 223,440 221,120 0.0(a)
Isle of Capri Casinos, Inc.
Bank debt, Tranche A
8.6619%, due 4/23/04................... 4/23/99-5/12/99 9,045,238 8,982,497 9,045,238 0.2
Metawave Communications Corp.
Preferred Stock, Series D (c).......... 5/14/99 259,831 606 1,442,062 0.0(a)
Multicare Companies, Inc. (The)
Bank debt, Term Loan B
9.7052%, due 9/30/04................... 12/20/99 1,546,613 1,142,517 1,129,028 0.0(a)
Bank debt, Term Loan C
10.35%, due 6/1/05..................... 12/20/99 514,219 375,053 375,380 0.0(a)
Orius Corp.
Bridge Loan
13.00%, due 12/15/00................... 12/30/99 18,340,000 17,883,006 18,340,000 0.5
Paperboard Industries
International, Inc.
Preferred Stock
5.00%, Class A......................... 5/5/98 219,308 3,643,057 3,485,005 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
</TABLE>
34
<PAGE> 179
Notes to Financial Statements (continued)
RESTRICTED SECURITIES (CONTINUED):
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 12/31/99 of
Security Acquisition Shares Cost Value Net Assets
- ----------------------------------------- ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Quest Diagnostics, Inc.
Bank debt, Term Loan B
9.3655%, due 8/16/06................... 8/16/99 $ 9,916,279 $ 9,916,279 $ 9,922,477 0.3%
Bank debt, Term Loan C
9.7809%, due 8/16/07................... 8/16/99 9,153,488 9,153,488 9,159,209 0.2
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04..................... 3/20/97 8,546,680 8,546,680 8,443,436 0.2
Stone Container Corp.
Bank debt, Term Loan E
9.5313%, due 10/1/03................... 7/16/97 3,893,794 3,840,178 3,897,578 0.1
Tapco International Corp.
Bank debt, Term Loan B
8.76%, due 6/23/07..................... 7/30/99 1,995,000 1,995,000 1,992,506 0.1
Bank debt, Term Loan C
9.01%, due 6/23/08..................... 7/30/99 4,987,500 4,987,500 4,981,266 0.1
Titan Tire Corp.
7.00%, due 2/11/00..................... 6/24/97 6,542,838 6,529,935 6,510,124 0.2
Transtexas Gas Corp.
Bank debt
13.00%, due 12/31/01................... 9/21/99 5,666,667 5,666,667 5,666,667 0.2
Unilab Corp.
Bank debt, Term Loan B
10.00%, due 11/23/06................... 11/23/99 11,167,013 11,167,013 11,097,219 0.4
United Artists Theatre Co.
Bank debt, Term Loan B
10.3067%, due 4/21/06.................. 10/18/99-12/20/99 12,097,451 9,365,570 8,921,870 0.2
Bank debt, Term Loan C
10.3693%, due 4/21/07.................. 10/18/99-12/20/99 15,680,037 12,140,310 11,564,027 0.3
------------ ------------ ---
$344,292,451 $342,748,500 9.2%
============ ============ ===
</TABLE>
- ---------------
(a) Less than one tenth of a percent.
(b) PIK ("Payment In Kind")--Interest payment is made with additional shares.
(c) Illiquid security.
FF--French Franc
L--Pound Sterling
COMMITMENTS AND CONTINGENCIES. As of December 31, 1999, the Fund had unfunded
loan commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
Unfunded
Borrower Commitment
-------- -----------
<S> <C>
Isle of Capri Casinos, Inc. ................................ $12,142,857
</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
35
<PAGE> 180
MainStay High Yield Corporate Bond Fund
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.
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
for financial reporting purposes but not for Federal tax purposes are reported
as dividends in excess of net investment income. A permanent book/tax difference
of $20,122 is an increase to additional paid-in capital. In addition, decreases
of $11,002,925, $7,533,988 and $3,489,059 have been made to accumulated
distribution in excess of net investment income, accumulated undistributed net
realized gain on investments and accumulated undistributed net realized gain on
foreign currency, respectively. These book/tax differences are due to the tax
treatment of step bond gains and foreign currency gains.
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.
36
<PAGE> 181
Notes to Financial Statements (continued)
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.
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 year. 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 year. 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 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. Net currency gains or losses from valuing such foreign currency
denominated assets and liabilities other than investments at year end exchange
rates are reflected in unrealized foreign exchange gains or losses.
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.
37
<PAGE> 182
MainStay High Yield Corporate Bond Fund
NOTE 3--FEES AND RELATED PARTY POLICIES:
MANAGER AND SUBADVISOR. MainStay Management LLC (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 LLC
(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 $500 million. For the year ended December 31, 1999 the Manager earned
$22,309,768 and waived $1,609,147 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, 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 $196,428 for the year ended
December 31, 1999. The Fund was also advised
38
<PAGE> 183
Notes to Financial Statements (continued)
that the Distributor retained contingent deferred sales charges for redemption
of Class A, Class B and Class C shares of $3,956, $5,180,406 and $35,789,
respectively, for the year ended December 31, 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 year ended December 31, 1999
amounted to $4,592,905.
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 $102,193 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$398,497 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
For Federal income tax purposes, capital loss carryforwards of $11,538,824 were
utilized to the extent provided by regulations to offset realized gains of the
Fund, during the year ended December 31, 1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of U.S. Government
securities, other than short-term securities, were $65,943 and $116,411,
respectively. Purchases and sales of securities, other than U.S. Government
securities and short-term securities, were $2,696,915 and $2,663,677,
respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
39
<PAGE> 184
MainStay High Yield Corporate Bond Fund
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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............................ 35,865 74,195 9,209 24,201 96,382 1,316
Shares issued in reinvestment of
dividends and distributions.......... 3,528 31,228 327 2,470 26,712 22
------- -------- ------ ------- ------- -----
39,393 105,423 9,536 26,671 123,094 1,338
Shares redeemed........................ (26,457) (99,743) (1,791) (19,049) (98,329) (7)
------- -------- ------ ------- ------- -----
Net increase........................... 12,936 5,680 7,745 7,622 24,765 1,331
======= ======== ====== ======= ======= =====
</TABLE>
- -------
* First offered on September 1, 1998.
40
<PAGE> 185
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay High Yield Corporate Bond
Fund (one of the portfolios constituting The MainStay Funds, hereafter referred
to as the "Fund") at December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
41
<PAGE> 186
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
42
<PAGE> 187
Officers & Trustees*
<TABLE>
<S> <C> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee [THE MAINSTAY FUNDS LOGO]
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and Trustee MAINSTAY HIGH YIELD
MARK GORDON Trustee CORPORATE BOND FUND
EDWARD J. HOGAN Trustee
HARRY G. HOHN Trustee
NANCY MAGINNES KISSINGER Trustee
TERRY L. LIERMAN Trustee ANNUAL REPORT
JOHN B. MCGUCKIAN Trustee
DONALD E. NICKELSON Trustee DECEMBER 31, 1999
DONALD K. ROSS Trustee
RICHARD S. TRUTANIC Trustee [MAINSTAY INVESTMENTS LOGO]
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN09-02/00
<PAGE> 188
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
Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 13
Financial Statements 15
Notes to Financial Statements 20
Report of Independent Accountants 28
The MainStay Funds 29
</TABLE>
<PAGE> 189
This page intentionally left blank
2
<PAGE> 190
PRESIDENT'S LETTER
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 191
$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 -12.35%, 5 Years 6.13%, Since Inception 5.81%
[Class A Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
YEAR MAINSTAY INTERNATIONAL DOLLAR WORLD GOVERNMENT BOND
END BOND FUND INDEX*
- ------- ------------------- -----------------------------
<S> <C> <C>
9/13/94 $ 9,550 $ 10,000
12/94 9,569 10,256
12/95 11,356 12,261
12/96 12,935 12,761
12/97 13,171 12,218
12/98 14,700 14,392
12/99 13,492 13,661
</TABLE>
CLASS B SHARES SEC Returns: 1 Year -13.49%, 5 Years 6.06%, Since Inception 5.89%
[Class B Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
YEAR MAINSTAY INTERNATIONAL DOLLAR WORLD GOVERNMENT BOND
END BOND FUND INDEX*
- ------- ------------------- -----------------------------
<S> <C> <C>
9/13/94 $ 10,000.00 $ 10,000.00
12/94 10,020.00 10,256.00
12/95 11,819.00 12,261.00
12/96 13,371.00 12,761.00
12/97 13,525.00 12,218.00
12/98 14,985.00 14,392.00
12/99 13,509.00 13,661.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year -9.85%, 5 Years 6.37%, Since Inception 6.03%
[Class C Shares Bar Graph]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
YEAR MAINSTAY INTERNATIONAL DOLLAR WORLD GOVERNMENT BOND
END BOND FUND INDEX*
- ------- ------------------- -----------------------------
<S> <C> <C>
9/13/94 $ 10,000.00 $ 10,000.00
12/94 10,020.00 10,256.00
12/95 11,819.00 12,261.00
12/96 13,371.00 12,761.00
12/97 13,525.00 12,218.00
12/98 14,985.00 14,392.00
12/99 13,645.00 13,661.00
</TABLE>
4
<PAGE> 192
- -------
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 figures for the two classes vary after this
date based on differences in their loads and expense structures. The Class
B graph assumes an initial investment of $10,000 made on 9/13/94.
Performance reflects a 1% 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 figures 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> 193
- -------
(1) Euroland refers to the countries participating in European Monetary Union, a
system that allows several European nations to operate with a common
currency.
(2) See footnote and table on page 11 for more information on Lipper Inc.
(3) See footnote on page 5 for more information on the Salomon Smith Barney
Non-U.S. Dollar World Government Bond Index.
(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. A portfolio's duration is
considered neutral when it reflects the duration of its benchmark.
MANAGEMENT DISCUSSION AND ANALYSIS
Several factors impacted the market for international bonds in 1999. The rapid
recovery of many emerging-market economies that had experienced crises in 1998
reduced the concerns of many investors over a global economic collapse. Indeed,
we believe the monetary easing that followed the 1998 Russian financial crisis
helped stimulate global growth, pushing commodity prices higher and raising
inflation concerns. Many central banks responded by raising interest rates in
the second half of 1999, which had a negative impact on international bond
prices.
The introduction of the euro in January 1999 came with much pomp--but little
circumstance--as interest in the new currency quickly faded, taking a toll on
U.S. investors with holdings in the currency itself and in Euroland bonds.(1) On
the other side of the globe, Japan's economy recovered sharply in 1999, after a
fiscal-stimulus package was implemented that improved performance for both stock
and bond investors. Following a massive sell-off early in the year, Japanese
bonds staged a remarkable comeback, to make Japan the world's best-performing
bond market for 1999 in both U.S.-dollar and local-currency terms. As Japan's
economy improved, the yen strengthened against the dollar.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay International Bond Fund
returned -8.22% for Class A shares and -8.94% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -4.60% return
of the average Lipper(2) international income fund and the -5.07% return of the
Salomon Smith Barney Non-U.S. Dollar World Government Bond Index.(3) Much of the
Fund's underperformance resulted from long euro and short yen currency
positions, which detracted from performance as the euro faded and the yen
strengthened relative to the U.S. dollar during the year. The Fund was also
underweighted in Japanese bonds, which detracted from performance as Japan
outpaced other international bond markets.
We pursued a neutral duration strategy(4) for the Fund's overall portfolio, but
durations varied among different sectors of the Fund. Generally, the Fund
maintained a long-duration strategy in the European bloc, stayed neutral in the
yen bloc, and held shorter-duration bonds in the dollar bloc, especially after
the Federal Reserve tightened policy in the third quarter of 1999. Although our
duration strategy for the Fund had an overall positive impact on Fund
performance, it met with greater success in the first half of 1999.
6
<PAGE> 194
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[CLASS A BAR GRAPH]
<TABLE>
<CAPTION>
YEAR TOTAL
END RETURN
- ------------ --------
<S> <C>
12/94 0.20%
12/95 18.68
12/96 13.90
12/97 1.83
12/98 11.61
12/99 -8.22
</TABLE>
CLASS B AND CLASS C SHARES
[CLASS B AND CLASS C SHARES BAR GRAPH]
<TABLE>
<CAPTION>
YEAR TOTAL
END RETURN
- ------------ --------
<S> <C>
12/94 0.20%
12/95 17.96
12/96 13.13
12/97 1.15
12/98 10.79
12/99 -8.94
</TABLE>
JAPANESE MARKET ADVANCES
After assiduously avoiding Japanese bonds for the past several years, we began
to invest the Fund in them early in 1999, when a massive sell-off provided a
comfortable entry point into the market. From a zero weighting at the beginning
of the year, we used any weakness in the market as an opportunity to bring the
Fund's weighting closer to neutral. By year-end, the Fund's Japanese exposure
was two-thirds of the benchmark weighting, an increase in
7
<PAGE> 195
excess of twenty percent. Even so, being underweighted in the best-performing
bond market of 1999 had a negative impact on the Fund's performance.
The Fund remained underweighted in the Japanese yen throughout the year. During
the first half of 1999, this had a positive impact as the U.S. dollar gained
versus the yen. From July through December, however, the Fund's hedged position
had a negative impact on performance, as the yen continued to strengthen versus
the dollar. We believe that Japan's fiscal stimulus package, which has helped
strengthen the yen through the end of 1999, may have the opposite effect going
forward as market liquidity increases. As a result, we have continued to hedge a
portion of the Fund's yen exposure.
EUROPEAN STRATEGIES
In Europe, the Fund focused on markets that we believed would need to ease
monetary policy. During the first quarter of the year, the Fund benefited from
positions in Norwegian bonds, which were quite strong. The Fund was overweighted
in U.K. bonds, which tended to lag the market, despite easing by the Bank of
England during the first half of 1999. Early in October, however, we established
a tactical position in five-year U.K. bonds following their underperformance,
then took profits as they led the market in the second half of that month.
In Euroland, the Fund had its highest weightings in German, Italian, and Spanish
bonds, but during the first half of 1999, performance suffered when the Fund
underweighted portions of the yield curve that tended to outperform. Remaining
overweighted in the euro hurt the Fund's performance as the currency, with brief
exceptions, continued to decline relative to the U.S. dollar throughout the
year.
DOLLAR-BLOC STRATEGIES
Despite strong third-quarter results in Australia, the Fund's dollar-block
investments, including Australian and Canadian bonds, had negative returns for
1999, largely as a result of the global trend toward raising interest rates late
in the year.
In October, we believed that weakness in the Canadian dollar had been excessive,
and took a long position in the currency, seeking to benefit from its potential
for recovery. Although the position was relatively small, it benefited the Fund
as the Canadian dollar strengthened versus the U.S. dollar through the end of
the year.
8
<PAGE> 196
Past performance is no guarantee of future results.
LOOKING AHEAD
We continue to anticipate a recovery in the euro. As the economies of the euro
bloc continue to expand, we believe capital flows should return to the market.
With an already large current-account surplus, we believe the euro should rally
against the U.S. dollar and the Japanese yen.
We expect that many leading nations will have a bias toward raising interest
rates in the first half of 2000. If inflation remains in check and it becomes
evident that economies are not overheating, we expect a modest rally in
government bonds to commence in the third quarter. United States consumer and
government spending will be key influences in the global bond picture, and we
will keep a sharp eye on domestic developments. As the November elections
approach, we expect government spending to increase and rhetoric about tax cuts
to possibly have a negative impact on U.S. bond markets.
Whatever the economy or the markets may bring, the Fund will continue 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.
Joseph Portera
Maureen McFarland
Portfolio Managers
MacKay Shields LLC
9
<PAGE> 197
FOREIGN-CURRENCY FORWARD TRANSACTIONS AND NONTAXABLE DISTRIBUTION
As far as possible, the MainStay International Bond Fund seeks to maintain a
fixed dividend, with changes made only on an infrequent basis. It also seeks
to protect its investments from adverse changes in foreign currencies by
entering into foreign-currency forward transactions, which may produce gains
or losses for the Fund. During the year ended December 31, 1999, a net loss
on these transactions caused most of the dividends paid throughout the year
to be reclassified as a return of capital. The return of capital to
shareholders had no material impact on the Fund's performance or net asset
value. Since the Fund's portfolio managers did not engage in additional
trading to accommodate dividend payments, the Fund's portfolio turnover rate
and transaction costs were not affected.
<TABLE>
<CAPTION>
SHARE CLASS RETURN OF CAPITAL AMOUNT PERCENT OF TOTAL INCOME DIVIDENDS PAID IN 1999
-------------- ------------------------- ----------------------------------------------
<S> <C> <C>
Class A shares $0.5127 per share 92.89%
Class B shares $0.4503 per share 92.89%
Class C shares $0.4503 per share 92.89%
</TABLE>
Whenever a Fund returns capital to you, the cost basis of your Fund holdings
is reduced by the amount of the nontaxable distribution. Accurate cost-basis
accounting is important in determining any capital gains or losses when
shares are eventually sold. You should consult with your tax advisor for
additional information on determining the cost basis of your mutual fund
shares. This material is provided for informational purposes only.
Shareholders should refer to their 1999 Form 1099-DIV for the total amount
of their distributions that are taxable and nontaxable.
10
<PAGE> 198
RETURNS AND LIPPER RANKINGS as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -8.22% 7.11% 6.73%
Class B -8.94% 6.37% 6.03%
Class C -8.94% 6.37% 6.03%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -12.35% 6.13% 5.81%
Class B -13.49% 6.06% 5.89%
Class C -9.85% 6.37% 6.03%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 44 out of 10 out of 10 out of
57 funds 30 funds 30 funds
Class B 46 out of 14 out of 10 out of
57 funds 30 funds 25 funds
Class C 46 out of n/a 48 out of
57 funds 52 funds
Average Lipper
international
income fund -4.60% 6.47% 5.96%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.07 $0.5520 $0.0930
Class B $9.08 $0.4842 $0.0930
Class C $9.08 $0.4842 $0.0930
</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. 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. 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 (9/13/94) up to 12/31/94. Performance
figures for the two classes vary after this date based on differences in their
loads 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
11
<PAGE> 199
historical performance of the Class B shares for periods from inception
(9/13/94) up to 8/31/98. Performance figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
12
<PAGE> 200
MAINSTAY INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM BONDS (98.6%)+
CORPORATE BONDS (13.9%)
GERMANY (7.2%)
Bayerische VBK New York
4.50%, due 6/24/02........... E 272,000 $ 272,480
Deutsche Pfandbriefbank
Series 436
5.75%, due 3/4/09............ 1,056,000 1,064,776
Kredit Fuer Wiederaufbau
5.00%, due 1/4/09............ 591,000 568,542
-----------
1,905,798
-----------
JAPAN (6.7%) (C)
Inter-American Development
Bank
1.90%, due 7/8/09............ Y 80,000,000 799,159
International Bank
Reconstruction & Development
4.75%, due 12/20/04.......... 82,500,000 957,066
-----------
1,756,225
-----------
Total Corporate Bonds
(Cost $3,709,334)............ 3,662,023
-----------
GOVERNMENTS & FEDERAL AGENCIES (84.7%)
AUSTRALIA (2.0%)
Australian Government
Series 302
9.75%, due 3/15/02........... A$ 413,000 289,369
Federal National Mortgage
Association
Series EMTN
6.375%, due 8/15/07.......... 370,000 229,197
-----------
518,566
-----------
AUSTRIA (3.0%)
Republic of Austria
Series 98 2
4.30%, due 7/15/03........... E 794,000 785,954
-----------
BELGIUM (4.3%)
Kingdom of Belgium
Series 10
8.75%, due 6/25/02........... 1,038,000 1,142,351
-----------
CANADA (5.0%)
Canadian Government
Series WH31
6.00%, due 6/1/08............ C$ 913,000 623,114
Series VR22
7.50%, due 3/1/01............ 806,000 567,848
Series VW17
8.00%, due 6/1/27............ 161,000 136,397
-----------
1,327,359
-----------
DENMARK (1.2%)
Kingdom of Denmark
7.00%, due 12/15/04.......... DK 2,188,000 316,040
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
FINLAND (3.1%)
Finnish Government
Series RG
10.00%, due 9/15/01.......... E 738,000 $ 808,123
-----------
FRANCE (4.2%)
France Obligations
Assimilables du Tresor
4.00%, due 4/25/09........... 707,000 631,446
5.50%, due 4/25/29........... 500,000 468,266
-----------
1,099,712
-----------
GERMANY (16.3%)
Bundesobligation
Series 127
4.50%, due 5/19/03........... 1,824,000 1,821,057
Republic of Deutschland
Series 98
5.25%, due 1/4/08............ 356,000 355,211
5.625%, due 1/4/28........... 751,000 717,041
Series 96
6.00%, due 1/5/06............ 1,345,000 1,413,342
-----------
4,306,651
-----------
ITALY (7.3%)
Buoni Poliennali del Tesoro
5.00%, due 5/1/08............ 516,000 500,633
6.50%, due 11/1/27........... 237,999 249,186
8.25%, due 7/1/01............ 739,000 780,402
8.50%, due 1/1/04............ 357,000 393,641
-----------
1,923,862
-----------
JAPAN (22.7%) (C)
Japanese Government
Series 206
1.50%, due 9/22/08........... Y 45,200,000 439,029
Series 43
2.90%, due 9/20/19........... 36,200,000 384,822
Series 182
3.00%, due 9/20/05........... 150,100,000 1,604,326
Series 174
4.60%, due 9/20/04........... 99,500,000 1,136,091
Series 145
5.50%, due 3/20/02........... 220,900,000 2,402,911
-----------
5,967,179
-----------
NETHERLANDS (3.2%)
Netherlands Government
3.75%, due 7/15/09........... E 960,000 841,050
-----------
SPAIN (4.9%)
Bonos Y Obligacion del Estado
4.50%, due 7/30/04........... 821,000 807,413
5.15%, due 7/30/09........... 499,000 486,621
-----------
1,294,034
-----------
SWEDEN (1.0%)
Swedish Government
Series 1040
6.50%, due 5/5/08............ SK 2,100,000 258,106
-----------
- -------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 201
MAINSTAY INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
UNITED KINGDOM (6.5%)
Federal National Mortgage
Association
Series EMTN
6.875%, due 6/7/02........... L 590,000 $ 951,288
United Kingdom Treasury Bonds
8.00%, due 12/7/15........... 351,000 752,676
-----------
1,703,964
-----------
Total Governments & Federal
Agencies
(Cost $23,959,837)........... 22,292,951
-----------
Total Long-Term Bonds
(Cost $27,669,171)........... 25,954,974
-----------
<CAPTION>
NOTIONAL
AMOUNT
-------------
<S> <C> <C>
PURCHASED OPTIONS (0.3%)
UNITED STATES (0.3%)
Australian Dollar Call/U.S.
Dollar Put
Strike price A$0.645
Expire 5/17/00 (a)........... 1,850,000 55,796
U.S. Dollar Call/Euro Put
Strike price E0.990
Expire 1/27/00 (a)........... 1,925,000 13,900
U.S. Dollar Call/Japanese Yen
Put
Strike price Y110
Expire 2/9/00 (a)............ 1,405,000 1,367
-----------
Total Purchased Options
(Cost $76,174)............... 71,063
-----------
Total Investments
(Cost $27,745,345) (d)....... 98.9% 26,026,037(e)
Cash and Other Assets,
Less Liabilities............. 1.1 302,819
----- -----------
Net Assets.................... 100.0% $26,328,856
===== ===========
<CAPTION>
NOTIONAL
AMOUNT VALUE
-------------------------------
<S> <C> <C>
WRITTEN CALL OPTIONS (-0.0%) (B)
UNITED STATES (-0.0%) (B)
Australian Dollar Call/U.S.
Dollar Put
Strike Price A$0.675
Expire 5/17/00 (a)........... (1,850,000) $ (19,212)
U.S. Dollar Call/Australian
Dollar Put
Strike Price A$0.610
Expire 5/17/00 (a)........... (1,850,000) (6,681)
-----------
Total Written Call Options
(Premium $26,973)............ $ (25,893)
===========
</TABLE>
- -------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) At December 31, 1999, substantially all of the Funds' net assets consist of
securities of issuers which are denominated in foreign currencies. Changes
in currency exchange rates will affect the value of and investment income
from such securities
As of December 31, 1999, the Fund invested approximately 29.4% of its net
assets in issuers in Japan. The issuers' abilities to meet their
obligations may be affected by economic or political developments in the
specific region or country.
Substantially all of the Fund's net assets consist of securities which are
subject to greater price volatility, limited capitalization and liquidity,
and higher rates of inflation than securities of companies based in the
United States. In addition, certain securities may be subject to
substantial governmental involvement in the economy and social, economic
and political uncertainty.
(d) The cost for Federal income tax purposes is $27,860,318.
(e) At December 31, 1999 net unrealized depreciation for securities was
$1,834,281, 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 $350,078, and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $2,184,359.
(f) The following abbreviations are used in the above portfolio:
A$ --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.
14
<PAGE> 202
STATEMENT OF ASSETS AND LIABILITIES as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$27,745,345).............................................. $26,026,037
Cash denominated in foreign currencies (identified cost
$18,999).................................................. 19,035
Receivables:
Interest.................................................. 638,139
Fund shares sold.......................................... 23,099
Unrealized appreciation on foreign currency forward
contracts................................................. 90,247
-----------
Total assets........................................ 26,796,557
-----------
LIABILITIES:
Written call options, at value (premium received $26,973)... 25,893
Payables:
Custodian................................................. 127,296
Fund shares redeemed...................................... 91,744
NYLIFE Distributors....................................... 14,816
MainStay Management....................................... 10,154
Transfer agent............................................ 9,748
Trustees.................................................. 214
Accrued expenses............................................ 52,065
Unrealized depreciation on foreign currency forward
contracts................................................. 135,771
-----------
Total liabilities................................... 467,701
-----------
Net assets.................................................. $26,328,856
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 13,582
Class B................................................... 15,362
Class C................................................... 52
Additional paid-in capital.................................. 28,684,868
Accumulated distribution in excess of net investment
income.................................................... (42,122)
Accumulated net realized loss on investments................ (558,585)
Net unrealized depreciation on investments and written call
options................................................... (1,718,228)
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (66,073)
-----------
Net assets.................................................. $26,328,856
===========
CLASS A
Net assets applicable to outstanding shares................. $12,325,752
===========
Shares of beneficial interest outstanding................... 1,358,225
===========
Net asset value per share outstanding....................... $ 9.07
Maximum sales charge (4.50% of offering price).............. 0.43
-----------
Maximum offering price per share outstanding................ $ 9.50
===========
CLASS B
Net assets applicable to outstanding shares................. $13,955,481
===========
Shares of beneficial interest outstanding................... 1,536,162
===========
Net asset value and offering price per share outstanding.... $ 9.08
===========
CLASS C
Net assets applicable to outstanding shares................. $ 47,623
===========
Shares of beneficial interest outstanding................... 5,241
===========
Net asset value and offering price per share outstanding.... $ 9.08
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 203
STATEMENT OF OPERATIONS for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest (a).............................................. $ 1,620,840
-----------
Expenses:
Management................................................ 209,562
Distribution--Class B..................................... 122,118
Distribution--Class C..................................... 340
Transfer agent............................................ 116,570
Service--Class A.......................................... 34,024
Service--Class B.......................................... 40,706
Service--Class C.......................................... 113
Professional.............................................. 41,850
Registration.............................................. 34,857
Custodian................................................. 33,579
Shareholder communication................................. 22,755
Recordkeeping............................................. 13,312
Amortization of organization expense...................... 6,966
Trustees.................................................. 816
Miscellaneous............................................. 17,317
-----------
Total expenses before waiver............................ 694,885
Fees waived by Manager...................................... (89,812)
-----------
Net expenses............................................ 605,073
-----------
Net investment income....................................... 1,015,767
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... (546,917)
Option transactions....................................... 5,688
Foreign currency transactions............................. (873,654)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (1,414,883)
-----------
Net change in unrealized appreciation on:
Security transactions..................................... (2,238,307)
Written call option transactions.......................... 1,080
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... (159,792)
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (2,397,019)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (3,811,902)
-----------
Net decrease in net assets resulting from operations........ $(2,796,135)
===========
</TABLE>
- -------
<TABLE>
<C> <S>
Interest recorded net of foreign withholding taxes of
(a) $1,235.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 204
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,015,767 $ 1,588,170
Net realized gain (loss) on investments and foreign
currency transactions................................... (1,414,883) 520,792
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (2,397,019) 1,403,814
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (2,796,135) 3,512,776
----------- -----------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Class A................................................. (54,546) (804,108)
Class B................................................. (57,078) (926,482)
Class C................................................. (163) (5)
From net realized gain on investments:
Class A................................................. -- (129,031)
Class B................................................. -- (156,223)
Class C................................................. -- (3)
In excess of net realized gain on investments:
Class A................................................. (126,027) --
Class B................................................. (142,146) --
Class C................................................. (480) --
Return of capital
Class A................................................. (712,492) --
Class B................................................. (745,579) --
Class C................................................. (2,130) --
----------- -----------
Total dividends and distributions to shareholders..... (1,840,641) (2,015,852)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 1,907,757 3,679,261
Class B................................................. 2,438,569 3,454,744
Class C................................................. 128,002 300
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 385,784 362,472
Class B................................................. 815,129 919,787
Class C................................................. 1,984 6
----------- -----------
5,677,225 8,416,570
Cost of shares redeemed:
Class A................................................. (3,405,421) (1,411,366)
Class B................................................. (5,571,177) (7,295,962)
Class C................................................. (74,513) --
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (3,373,886) (290,758)
----------- -----------
Net increase (decrease) in net assets................. (8,010,662) 1,206,166
NET ASSETS:
Beginning of year........................................... 34,339,518 33,133,352
----------- -----------
End of year................................................. $26,328,856 $34,339,518
=========== ===========
Accumulated distribution in excess of net investment income
at end of year............................................ $ (42,122) $ (78,132)
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 205
FINANCIAL HIGHLIGHTS selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
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.................................... 0.36 0.54 0.80 0.72 1.15
Net realized and unrealized gain (loss) on investments... (0.89) 0.58 (0.94) 0.27 0.59
Net realized and unrealized gain (loss) on foreign
currency transactions.................................. (0.33) 0.02 0.33 0.41 0.07
------- ------- ------- ------- -------
Total from investment operations......................... (0.86) 1.14 0.19 1.40 1.81
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income and net realized gain on
foreign currency transactions........................ (0.04) (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........................ (0.09) -- -- -- (0.39)
Return of capital...................................... (0.51) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions........................ (0.64) (0.67) (1.04) (0.88) (1.28)
------- ------- ------- ------- -------
Net asset value at end of period......................... $ 9.07 $ 10.57 $ 10.10 $ 10.95 $ 10.43
======= ======= ======= ======= =======
Total investment return (a).............................. (8.22%) 11.61% 1.83% 13.90% 18.68%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................ 3.80% 5.17% 5.35% 5.4% 5.6%
Net expenses......................................... 1.61% 1.59% 1.56% 1.5% 1.5%
Expenses (before waiver)............................. 1.91% 1.89% 1.86% 1.8% 1.8%
Portfolio turnover rate.................................. 281% 287% 179% 59% 103%
Net assets at end of period (in 000's)................... $12,326 $15,542 $12,263 $11,965 $11,494
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) 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.
18
<PAGE> 206
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------- ------------------------------
September 1*
Year ended December 31, Year ended through
----------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
------- ------- ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 9.90 $10.59 $10.13
------- ------- ------- ------- ------- ------ ------
0.29 0.46 0.74 0.64 1.06 0.29 0.16
(0.90) 0.58 (0.96) 0.27 0.61 (0.90) 0.53
(0.33) 0.02 0.34 0.42 0.07 (0.33) 0.02
------- ------- ------- ------- ------- ------ ------
(0.94) 1.06 0.12 1.33 1.74 (0.94) 0.71
------- ------- ------- ------- ------- ------ ------
(0.03) (0.50) (0.70) (0.65) (0.56) (0.03) (0.16)
-- (0.09) (0.28) (0.15) (0.28) -- (0.09)
(0.09) -- -- -- (0.35) (0.09) --
(0.45) -- -- -- -- (0.45) --
------- ------- ------- ------- ------- ------ ------
(0.57) (0.59) (0.98) (0.80) (1.19) (0.57) (0.25)
------- ------- ------- ------- ------- ------ ------
$ 9.08 $ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 9.08 $10.59
======= ======= ======= ======= ======= ====== ======
(8.94%) 10.79% 1.15% 13.13% 17.96% (8.94%) 7.05%
3.05% 4.42% 4.69% 4.8% 4.9% 3.05% 4.42%+
2.36% 2.34% 2.22% 2.1% 2.2% 2.36% 2.34%+
2.66% 2.64% 2.52% 2.4% 2.5% 2.66% 2.64%+
281% 287% 179% 59% 103% 281% 287%
$13,955 $18,797 $20,870 $19,020 $13,212 $ 48 $ --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 207
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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
20
<PAGE> 208
NOTES TO FINANCIAL STATEMENTS
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.
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 Fund's subadvisor, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Fund's 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 Fund's 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
Fund's 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
21
<PAGE> 209
MAINSTAY INTERNATIONAL BOND FUND
(depreciation) on forward contracts reflects the Fund's exposure at year end to
credit loss in the event of a counterparty's failure to perform its obligations.
Foreign currency forward contracts open at December 31, 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
2/18/00.......................................... A$ 459,000 $ 295,871 $ (4,712)
Danish Krone vs. Euro, expiring 2/23/00............ DK 1,030,300 E 138,375 (18)
Euro vs. Danish Krone, expiring 2/23/00............ E 138,445 DK 1,030,300 (53)
Euro vs Pound Sterling, expiring 2/7/00............ E 1,133,043 L 729,000 36,006
Euro vs. U.S. Dollar, expiring 2/7/00.............. E 510,000 $ 515,228 2,510
Japanese Yen vs. U.S. Dollar, expiring 3/1/00...... Y 35,400,000 $ 352,519 3,193
Japanese Yen vs. U.S. Dollar, expiring 3/1/00...... Y 70,365,000 $ 688,503 (5,858)
New Zealand Dollar vs. U.S. Dollar, expiring
2/18/00.......................................... ND 1,351,000 $ 703,087 (2,064)
Pound Sterling vs. Euro, expiring 2/7/00........... L 300,000 E 458,540 (22,591)
Pound Sterling vs. U.S. Dollar, expiring 2/7/00.... L 941,000 $ 1,526,396 9,584
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
-------------- -------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
- --------------------------------
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00.......................................... C$ 990,141 $ 671,100 12,086
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00.......................................... C$ 589,500 $ 402,561 4,187
Euro vs. U.S. Dollar, expiring 2/7/00.............. E 1,360,776 $ 1,420,149 (52,122)
Euro vs. U.S. Dollar, expiring 2/7/00.............. E 1,685,000 $ 1,742,331 (48,353)
Japanese Yen vs. U.S. Dollar, expiring 3/1/00...... Y 33,953,640 $ 332,000 3,054
New Zealand Dollar vs. U.S. Dollar, expiring
2/18/00.......................................... ND 1,351,000 $ 685,524 19,627
---------
Net unrealized depreciation on foreign currency
forward contracts................................ $ (45,524)
=========
</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.
22
<PAGE> 210
NOTES TO FINANCIAL STATEMENTS (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.
Written option activity for the year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT PREMIUM
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1998.................... -- --
Options--written............................................ (5,185,000) $(30,983)
Options--expired............................................ 1,485,000 4,010
---------- --------
Options outstanding at December 31, 1999.................... (3,700,000) $(26,973)
========== ========
</TABLE>
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $54,000 and were 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for
Federal tax purposes are reported as dividends in excess of net investment
income or distributions in excess of
23
<PAGE> 211
MAINSTAY INTERNATIONAL BOND FUND
net realized capital gains. A permanent book/tax difference of $5,684 is an
increase to accumulated net realized loss on investments. In addition, decreases
of $592,231, $873,654 and $1,460,201 have been made to accumulated distributions
in excess of net investment income, accumulated net realized loss on foreign
currency transactions and additional paid-in-capital, respectively. These
book/tax differences are due to a return of capital distribution and the tax
treatment of short-term capital gains and foreign currency losses.
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 year. 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
24
<PAGE> 212
NOTES TO FINANCIAL STATEMENTS (continued)
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 year end exchange
rates are reflected in unrealized foreign exchange gains or losses.
Foreign currency held at December 31, 1999:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ----------------------------------- ------- -------
<S> <C> <C> <C> <C>
Euro E (9,887) $(9,934) $(9,911)
Japanese Yen Y 2,634,661 25,731 25,740
New Zealand Dollar ND 6,147 3,202 3,206
------- -------
$18,999 $19,035
======= =======
</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 LLC (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 LLC
(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 year ended December 31, 1999, the
Manager earned $209,562 and waived $89,812 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, Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has
25
<PAGE> 213
MAINSTAY INTERNATIONAL BOND FUND
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 $1,708 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $26,524 and $1,392, respectively, for the year ended December 31, 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 year ended December 31, 1999
amounted to $116,570.
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 December 31, 1999, the Distributor beneficially held shares of
Class A of the Fund with a net asset value of $7,123,164 which represents 57.8%
of the Class A net assets at year 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 $833 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$13,312 for the year ended December 31, 1999.
26
<PAGE> 214
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $402,968 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 2007. 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 $128,272 of qualifying
realized capital gains and foreign exchange gains that arose during the year
after October 31, 1999 as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of U.S. Government
securities were $1,820 and $2,849, respectively. Purchases and sales of
securities other than U.S. Government securities and short-term securities, were
$76,134 and $76,304, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 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.................................. 200 248 13 359 333 --
Shares issued in reinvestment of dividends
and distributions.......................... 41 85 -- 35 89 --
---- ---- -- ---- ---- ----
241 333 13 394 422 --
Shares redeemed.............................. (354) (572) (8) (137) (709) --
---- ---- -- ---- ---- ----
Net increase (decrease)...................... (113) (239) 5 257 (287) --(a)
==== ==== == ==== ==== ====
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
(a) Less than one thousand shares.
</TABLE>
27
<PAGE> 215
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay International Bond Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
28
<PAGE> 216
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 217
This page intentionally left blank
<PAGE> 218
OFFICERS & TRUSTEES*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN10-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
International Bond Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 219
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
Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 17
Notes to Financial Statements 22
Report of Independent Accountants 30
The MainStay Funds 31
</TABLE>
<PAGE> 220
This page intentionally left blank
2
<PAGE> 221
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.(*)
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
(*) Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 222
$10,000 Invested in the MainStay
International Equity Fund versus
Morgan Stanley Capital International
EAFE Index
CLASS A SHARES SEC Returns: 1 Year 20.53%, 5 Years 11.83%, Since Inception
10.63%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL MAINSTAY INTERNATIONAL EQUITY
INTERNATIONAL EAFE INDEX(*) FUND - CLASS A SHARES
------------------------- -----------------------------
<S> <C> <C>
9/13/94 10000 9450
12/94 9586 9233
12/95 10661 9718
12/96 11306 10669
12/97 11507 11151
12/98 13808 13400
12/99 17532 17090
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 21.60%, 5 Years 12.01%,
Since Inception 10.91%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL MAINSTAY INTERNATIONAL EQUITY
INTERNATIONAL EAFE(*) FUND - CLASS B SHARES
---------------------- -----------------------------
<S> <C> <C>
9/13/94 10000 10000
12/94 9586 9770
12/95 10661 10187
12/96 11306 11109
12/97 11507 11529
12/98 13808 13759
12/99 17532 17244
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 25.60%, 5 Years 12.26%,
Since Inception 11.03%
<TABLE>
<CAPTION>
MORGAN STANLEY CAPITAL MAINSTAY INTERNATIONAL EQUITY
INTERNATIONAL EAFE(*) FUND - CLASS C SHARES
---------------------- -----------------------------
<S> <C> <C>
9/13/94 10000 10000
12/94 9586 9770
12/95 10661 10187
12/96 11306 11109
12/97 11507 11529
12/98 13808 13759
12/99 17532 17418
</TABLE>
4
<PAGE> 223
- -------
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 figures for
the two classes vary after this date based on differences in their loads and
expense structures. The Class B graph assumes an initial investment of
$10,000 made on 9/13/94. Performance reflects a 1% 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 figures 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, Australasia, 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> 224
Management Discussion and Analysis
The stock markets began 1999 on a positive note, as a bailout package for
Brazil, led by the International Monetary Fund, eased the concerns of many
investors about continuing volatility in some markets. Early in the year,
enthusiasm over the January introduction of the euro began to fade and European
stocks declined, while a strengthening economy in Japan caused stocks there to
rise. European stocks recovered throughout the remainder of the year, and by
year-end all major European markets posted positive returns in local-currency
terms. Finland (+195.9%) was by far the leader, followed by Sweden (+89.4%),
France (+51.4%), and Germany (+40.6%), all in local-currency terms. For U.S.
investors, performance was generally lower, with several countries providing
negative returns in U.S.-dollar terms, including Belgium (-14.26%), Ireland
(-12.63%), Austria (-9.11%), Portugal (-8.88%), Switzerland (-7.02%), and Italy
(-0.26%).
Asian equities continued to advance throughout 1999, as central bank action,
fiscal stimulus packages, tax cuts, and increasing merger and acquisition
activity drew investor attention to the region. Leading Asian markets included
Singapore (+101.33%), Hong Kong (+60.06%), and Japan (+46.57%), all in local-
currency terms. Currency differences had less of a negative impact on Asian
securities, and with the strengthening of the Japanese yen, Japan was a strong
Asian market in U.S.-dollar terms (+61.53%).
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay International Equity Fund
returned 27.54% for Class A shares and 26.60% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the 40.81% return
of the average Lipper(1) international fund for the same period. Much of the
Fund's underperformance can be attributed to being underweighted in Japan early
in the year, overweighted in Europe, and having sizeable investments in a few
underperforming countries.
During 1999, Class A shares outperformed and Class B and Class C shares
underperformed the 26.96% return of the Morgan Stanley Capital International
EAFE Index.(2)
PACIFIC-RIM INVESTMENTS
Perhaps the most significant move we made for the Fund during 1999 was to
dramatically increase its weighting in Japanese stocks. Since the economic
recovery in Japan was still in its early stages, we focused first on "new Japan"
stocks with telecom and technology names and other companies with a worldwide
franchise such as Sony and Toyota. Later in the year, we added more stocks of
companies with a Japanese-market orientation that were poised to
- -------
(1) See footnote and table on page 11 for more information on Lipper Inc.
(2) See footnote on page 5 for more information on the EAFE Index.
6
<PAGE> 225
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR END TOTAL RETURN %
- ------------- --------------
<S> <C>
12/94 -2.3
12/95 5.25
12/96 9.78
12/97 4.52
12/98 20.17
12/99 27.54
</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 11 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
YEAR END TOTAL RETURN %
- ------------- --------------
<S> <C>
12/94 -2.3
12/95 4.27
12/96 9.05
12/97 3.78
12/98 19.34
12/99 26.60
</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 11 for more information on performance.
benefit from restructuring efforts. Among the Fund's strongest-performing
Japanese stocks were NTT Mobile Communications, Sony Corporation, and NTT Data.
The Fund's positions in the stocks of Japanese banks and nonlife insurers lagged
the market.
Sony was typical of the kind of restructuring that is benefiting Japanese
stocks. The company is a household name in electronic equipment, televisions,
electronic components, semiconductors, computers, and telecommunications
equipment. In 1999, the company advanced 268% in local-currency terms after
announcing a new business policy to create value, adopting a new holding-
7
<PAGE> 226
company structure, and introducing an impressive line-up of consumer products
for the year 2000.
With Japan signaling a recovery, other Asian markets also staged a rapid
comeback, improving their earnings growth and gross domestic product. While the
Fund's investments in Hong Kong and Singapore contributed positively to overall
performance, being underweighted in these markets negatively impacted the Fund,
given their outstanding returns in U.S.-dollar terms.
In Australia, the Fund was neutrally weighted, but focused on natural resources
and telecom companies. BHP Ltd. and WMC Ltd. were two of the Fund's
natural-resource investments that benefited from rising commodity prices in an
expanding global economy. Telstra and Cable & Wireless Optus are the first and
second largest telecommunications companies in Australia, respectively, and both
contributed positively to the Fund's performance.
EUROPEAN HIGHLIGHTS
In Europe, we had established Fund positions in Finland and Sweden late in 1998.
During 1999, these were among the best performing European markets. Finnish
cellular company Nokia Oyj returned 245.24% in local-currency terms, and was the
Fund's largest holding for much of the year. We had purchased Ericsson, a
Swedish cellular company for the Fund late in 1998. Although the stock had a
positive impact on Fund performance, we sold it in the first quarter of 1999
when new product delays and management changes began to undermine investor
confidence in the company.
The French and German stock markets were the Fund's leading Euroland markets in
both local-currency and U.S.-dollar terms. Both markets benefited from
improvements in earnings and expanding gross domestic product as well as
corporate restructurings, mergers, and acquisitions, as companies adapt to a
European business environment with fewer barriers.
Epcos AG, an electronic-component and integrated-circuit producer for the
telecom, auto, and consumer-electronics industries is the product of a ten-year
joint venture between Siemen's of Germany and Matsushita in Japan. The company
issued shares in October 1999, and by year-end had returned 122.39% in
German-currency terms.
German pharmaceutical manufacturer Schering AG gained 12.28% for the year in
local-currency terms, outperforming the health & personal care sector of the
MSCI EAFE Index by a substantial margin. The company is a leader in fertility
control and is benefiting from a share repurchase program. Another
pharmaceutical name, Roche Holdings, advanced 10.46% in local-currency terms,
also outperforming its EAFE Index sector. The Swiss company increased sales by
12% in 1999, which was better than the market anticipated.
8
<PAGE> 227
Other strong European performers included Irish cement company CRH PLC, which
rose 45.29% in local terms on increased infrastructure spending by governments
throughout Europe. The company continues to make acquisitions to enhance its
growth. Telefonica S.A. is a Spanish telecommunications company serving the
Iberian peninsula, Latin America, and the United States. The company's stock
rose 104.11% in local terms during the year, contributing positively to the
Fund's performance.
A stock that underperformed expectations was German automotive giant
DaimlerChrysler AG. Despite the manufacturer's worldwide reach and a generally
strong automotive market, the company continued to suffer from margin pressures
due to incentive plans that offered discounts and deals to the customer, and the
stock returned -8.33% in local terms for the year.
LOOKING AHEAD
We continue to view Japan's expansion as an important development and will seek
to capitalize on companies that are well positioned in growing market sectors.
We also favor companies with global market reach, as they may be able to
withstand any setbacks the Japanese market may encounter on its new expansion
path.
In Europe, we continue to prefer selected peripheral markets, including Finland,
Ireland, Spain, and Portugal, with a concentration on technology and telecom
companies, which we believe have yet to reach their full potential.
No matter what the global economy or individual markets may bring, 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. Current income is a secondary objective.
Joseph Portera
Maureen McFarland
Portfolio Managers
MacKay Shields LLC
Past performance is no guarantee of future results.
9
<PAGE> 228
USE OF FOREIGN TAXES TO REDUCE TAXABLE INCOME TO SHAREHOLDERS
Certain income earned by the MainStay International Equity Fund is withheld
as income taxes by the countries in which it is earned. In previous years,
the Fund has paid income dividends and has passed these foreign tax payments
on to shareholders in the form of a foreign tax credit, deductible for
income-tax purposes. It will not provide a foreign tax credit to
shareholders as in previous years. Instead, the foreign taxes paid by the
Fund (approximately $0.029 per share) were used to reduce the short-term
capital gain distribution paid to shareholders on December 21, 1999. This
use of the foreign taxes paid by the Fund reduced the amount of shareholder
distributions taxable at the higher rates that apply to ordinary income.
Using foreign taxes paid in this way had no material impact on the Fund's
performance or net asset value. Since the Fund's portfolio managers did not
engage in additional trading to accommodate dividend payments, the Fund's
portfolio turnover rate and transaction costs were not affected.
10
<PAGE> 229
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS(*)
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 27.54% 13.11% 11.82%
Class B 26.60% 12.26% 11.03%
Class C 26.60% 12.26% 11.03%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 20.53% 11.83% 10.63%
Class B 21.60% 12.01% 10.91%
Class C 25.60% 12.26% 11.03%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 455 out of 169 out of 169 out of
619 funds 233 funds 233 funds
Class B 482 out of 182 out of 148 out of
619 funds 233 funds 206 funds
Class C 482 out of n/a 414 out of
619 funds 574 funds
Average Lipper
international
fund 40.81% 15.05% 12.88%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $15.23 $0.0331 $0.2894
Class B $14.95 $0.0331 $0.2894
Class C $14.95 $0.0331 $0.2894
</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 figures for the two classes after this date vary based on
differences in their loads 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 figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
11
<PAGE> 230
MainStay International Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (99.7%)(+)
AUSTRALIA (2.3%)
Australia & New Zealand Banking
Group, Ltd. (banking)......... 69,033 $ 500,586
Broken Hill Proprietary Co.,
Ltd (energy sources).......... 47,058 615,925
Cable & Wireless Optus, Ltd.
(telecommunications) (a)...... 178,683 595,174
Telstra Corp., Ltd.
(telecommunications).......... 92,908 503,415
Telstra Corp., Ltd.
(telecommunications) (c)...... 37,285 131,024
WMC, Ltd.
(metals-nonferrous)........... 112,855 620,358
------------
2,966,482
------------
BELGIUM (1.6%)
Delhaize-Le Lion, S.A.
(merchandising)............... 3,440 257,929
Electrabel, S.A.
(utilities-electrical &
gas).......................... 1,780 579,886
Fortis AG (insurance).......... 22,320 801,418
Solvay, S.A. Class A
(chemicals)................... 4,770 392,077
------------
2,031,310
------------
FINLAND (5.0%)
Comptel Oyj
(telecommunications) (a)...... 710 49,705
Merita PLC (banking)........... 51,490 301,938
Nokia Oyj Class A (electrical &
electronics).................. 28,444 5,132,187
Outokumpu Oyj
(metals-nonferrous)........... 33,440 470,958
UPM-Kymmene Oyj (forest
products & paper)............. 14,220 570,163
------------
6,524,951
------------
FRANCE (8.3%)
Air Liquide, S.A.
(chemicals)................... 2,202 366,849
AXA, S.A. (insurance).......... 4,408 611,529
Carrefour, S.A.
(merchandising)............... 6,390 1,172,812
Elf Aquitaine, S.A. (energy
sources)...................... 8 1,227
France Telecom, S.A.
(telecommunications).......... 10,070 1,325,359
Groupe Danone, S.A. (food &
household products)........... 2,093 490,935
Lafarge, S.A. (building
materials & components)....... 2,770 320,979
L'Oreal, S.A. (health &
personal care)................ 1,527 1,219,170
Pernod-Ricard, S.A. (beverages
& tobacco).................... 3,500 199,276
Pinault-Printemps-Redoute, S.A.
(merchandising)............... 1,560 409,699
PSA Peugeot Citroen
(automobiles)................. 3,103 701,092
Schneider, S.A. (electrical &
electronics).................. 3,977 310,750
Societe Generale, S.A. Class A
(banking)..................... 1,420 328,806
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
FRANCE (CONTINUED)
Suez Lyonnaise des Eaux, S.A.
(business & public
services)..................... 2,890 $ 460,901
Suez Lyonnaise des Eaux, S.A.
Strip (business & public
services) (f)................. 2,890 29
Thomson CSF, S.A. (aerospace &
military technology).......... 7,061 232,085
Total Fina, S.A. Class B
(energy sources).............. 11,115 1,476,266
Total Fina, S.A. Strip (energy
sources) (f).................. 3,780 38
Vivendi, S.A. (business &
public services).............. 12,435 1,117,469
------------
10,745,271
------------
GERMANY (9.2%)
Allianz AG Registered
(insurance)................... 2,450 819,033
Bayer AG (chemicals)........... 21,550 1,015,277
DaimlerChrysler AG
(automobiles)................. 12,972 1,003,838
Deutsche Bank AG (banking)..... 7,400 621,977
Deutsche Telekom AG
(telecommunications).......... 27,840 1,973,004
Dresdner Bank AG (banking)..... 11,700 633,314
Epcos AG (electronic components
& instruments) (a)............ 11,650 870,005
Karstadt AG (merchandising).... 9,500 379,006
Mannesmann AG
(telecommunications).......... 2,282 547,849
Metro AG (merchandising)....... 6,850 366,666
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance)................... 940 237,259
RWE AG (utilities-electrical &
gas).......................... 11,655 454,466
SAP AG (business & public
services)..................... 1,520 745,061
Schering AG (health & personal
care)......................... 11,740 1,412,175
Veba AG (utilities-electrical &
gas).......................... 9,900 478,820
Viag AG (utilities-electrical &
gas).......................... 19,500 355,750
------------
11,913,500
------------
GREECE (0.5%)
Hellenic Telecommunications
Organization S.A.
(telecommunications).......... 55,100 657,756
------------
HONG KONG (0.5%)
Cheung Kong (Holdings) Ltd.
(real estate)................. 58,000 736,797
------------
IRELAND (3.7%)
Allied Irish Banks PLC
(banking)..................... 58,323 661,798
CRH PLC (building materials &
components)................... 79,352 1,702,202
Eircom PLC
(telecommunications).......... 118,780 515,550
Elan Corp. PLC (health &
personal care) (a)............ 19,933 570,401
Irish Life & Permanent PLC
(insurance)................... 21,175 199,522
</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.
12
<PAGE> 231
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
IRELAND (CONTINUED)
Kerry Group PLC Class A (food &
household products)........... 28,369 $ 338,400
Smurfit (Jefferson) Group PLC
(forest products & paper)..... 243,674 732,774
------------
4,720,647
------------
ITALY (3.1%)
Assicurazioni Generali S.p.A.
(insurance)................... 16,515 542,990
Banca Commerciale Italiana
S.p.A. (banking).............. 55,600 300,959
ENI S.p.A. (energy sources).... 157,970 864,583
Riunione Adriatica di Sicurta
S.p.A. (insurance)............ 5,325 53,164
Telecom Italia S.p.A.
(telecommunications).......... 39,720 557,412
Telecom Italia Mobile S.p.A.
(telecommunications).......... 111,800 1,242,833
Unicredito Italiano S.p.A.
(banking)..................... 81,000 396,227
------------
3,958,168
------------
JAPAN (30.5%) (d)
Ajinomoto Co., Inc. (food &
household products) (b)....... 48,000 499,442
Bandai Co., Ltd. (recreation &
other consumer goods)......... 14,000 444,535
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (b)................. 63,000 876,486
Bridgestone Corp. (industrial
components) (b)............... 10,000 219,825
CSK Corp. (business & public
services)..................... 4,400 713,601
DDI Corp.
(telecommunications).......... 42 574,476
Fuji Bank (banking)............ 49,000 475,379
Fujitsu, Ltd. (data processing
& reproduction)............... 44,000 2,003,241
Hitachi, Ltd. (electrical &
electronics) (b).............. 48,000 769,094
Honda Motor Co., Ltd.
(automobiles) (b)............. 19,000 705,394
Industrial Bank of Japan, Ltd.
(The) (banking) (b)........... 93,000 894,981
Ito-Yokado Co., Ltd.
(merchandising)............... 8,000 867,576
Japan Airlines Co., Ltd.
(transportation-airlines)..... 154,000 455,888
Matsushita Electric Industrial
Co., Ltd. (appliances &
household durables) (b)....... 15,000 414,737
Mitsubishi Electric Corp.
(electrical & electronics)
(b)........................... 100,000 644,820
Mitsubishi Estate Co., Ltd.
(real estate) (b)............. 5,000 48,703
Mitsubishi Heavy Industries,
Ltd. (machinery & engineering)
(b)........................... 65,000 216,552
Mitsui Fudosan Co., Ltd. (real
estate)....................... 23,000 155,499
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
JAPAN (CONTINUED)
NEC Corp. (electrical &
electronics).................. 54,000 $ 1,284,657
Nikko Securities Co., Ltd.
(financial services).......... 68,000 859,016
Nintendo Co., Ltd. (recreation
& other consumer goods)....... 3,000 497,684
Nippon Express Co., Ltd.
(transportation-road &
rail)......................... 9,000 49,680
Nippon Mitsubishi Oil Corp.
(energy sources).............. 12,000 52,758
Nippon Steel Corp.
(metals-steel)................ 107,000 249,848
Nippon Telegraph & Telephone
Corp. (telecommunications).... 212 3,624,670
NKK Corp. (metals-steel) (a)... 814,000 548,742
NTT Data Corp. (business &
public services).............. 125 2,869,938
NTT Mobile Communications
Network, Inc.
(telecommunications).......... 65 2,495,747
OKI Electric Industries Co.
Ltd. (electrical &
electronics) (a).............. 87,000 511,694
Olympus Optical Co., Ltd.
(electronic components &
instruments).................. 21,000 296,471
Rohm Co., Ltd. (electronic
components & instruments)..... 4,000 1,641,360
Sharp Corp. (appliances &
household durables)........... 14,000 357,680
Sony Corp. (appliances &
household durables)........... 13,300 3,937,212
Sumitomo Bank, Ltd.
(banking)..................... 40,000 546,729
Sumitomo Electric Industries
(industrial components)....... 20,000 230,767
Sumitomo Forestry Co., Ltd.
(building materials &
components)................... 36,000 277,859
Sumitomo Marine & Fire
Insurance Co., Ltd.
(insurance)................... 151,000 929,420
Takeda Chemical Industries,
Ltd. (health & personal
care)......................... 14,000 690,739
TDK Corp. (electronic
components & instruments)..... 3,000 413,564
Tokio Marine & Fire Insurance
Co., Ltd. (insurance)......... 89,000 1,039,088
Tokyo Electric Power Co., Inc.
(utilities-electrical &
gas).......................... 8,000 214,158
Tokyo Seimitsu Co., Ltd.
(electronic components &
instruments).................. 7,000 1,128,435
Toshiba Corp. (electrical &
electronics).................. 82,000 624,889
Tostem Corp. (building
materials & components)....... 13,000 233,063
Toyota Motor Corp.
(automobiles)................. 41,000 1,982,822
Trans Cosmos Inc. (business &
public services).............. 700 298,180
Yamanouchi Pharmaceutical Co.,
Ltd. (health & personal
care)......................... 17,000 592,941
------------
39,460,040
------------
NETHERLANDS (3.8%)
ABN AMRO Holding N.V.
(banking)..................... 25,000 621,486
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 232
MainStay International Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NETHERLANDS (CONTINUED)
Akzo Nobel N.V. (chemicals).... 7,200 $ 359,419
Heineken N.V. (beverages &
tobacco)...................... 7,100 344,606
ING Groep N.V. (financial
services)..................... 13,707 823,566
Koninklijke KPN N.V.
(telecommunications).......... 6,965 676,526
Koninklijke (Royal) Philips
Electronics N.V. (appliance &
household durables)........... 5,475 740,896
Royal Dutch Petroleum Co.
(energy sources).............. 16,738 1,020,948
TNT Post Group N.V. (business &
public services).............. 6,665 190,074
Wolters Kluwer CVA N.V.
(broadcasting & publishing)... 4,812 162,071
------------
4,939,592
------------
NEW ZEALAND (0.2%)
Contact Energy Ltd.
(utilities-electrical &
gas).......................... 127,856 223,367
------------
PORTUGAL (2.3%)
Banco Comercial Portugues, S.A.
Registered (banking).......... 124,430 687,252
Banco Espirito Santo, S.A.
(banking)..................... 28,452 795,713
Electricidade de Portugal, S.A.
(utilities-electrical &
gas).......................... 16,800 291,842
Portugal Telecom, S.A.
Registered
(telecommunications).......... 41,500 453,018
Sonae SGPS, SA (forest products
& paper)...................... 14,063 738,667
------------
2,966,492
------------
SPAIN (3.5%)
Acerinox, S.A.
(metals-steel)................ 8,450 335,422
Banco Bilbao Vizcaya, S.A.
Registered (banking).......... 39,870 565,113
Banco Santander Central
Hispano, S.A. (banking)....... 67,912 765,160
Endesa, S.A.
(utilities-electrical & gas).. 20,480 404,628
Gas Natural SDG, S.A.
(utilities- electrical &
gas).......................... 8,790 201,509
Iberdrola, S.A.
(utilities-electrical &
gas).......................... 23,390 322,618
Repsol, S.A. (energy
sources)...................... 21,180 488,732
Telefonica, S.A.
(telecommunications) (a)...... 55,050 1,368,511
Terra Networks, S.A. (business
& public services) (a)........ 2,300 125,925
------------
4,577,618
------------
SWEDEN (1.9%)
AstraZeneca AB Series A (health
& personal care).............. 16,295 686,668
ForeningsSparbanken AB
(banking)..................... 14,250 208,504
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
SWEDEN (CONTINUED)
Hennes & Mauritz AB Series B
(merchandising)............... 8,400 $ 280,230
Icon Medialab International AB
(business & public services)
(a)........................... 20,680 716,526
Skandia Forsakrings AB
(insurance)................... 10,600 318,881
Svenska Handelsbanken Series A
(banking)..................... 16,500 206,661
------------
2,417,470
------------
SWITZERLAND (5.1%)
Credit Suisse Group Registered
(banking)..................... 4,500 889,767
Nestle S.A. Registered (food &
household products)........... 665 1,211,849
Novartis AG Registered (health
& personal care).............. 514 750,754
PubliGroupe S.A. (broadcasting
& publishing)................. 381 374,883
Roche Holdings AG Genusscheine
(health & personal care)...... 100 1,180,734
Schweizerische
Rueckversicherungs
Gesellschaft Registered
(insurance)................... 320 653,914
UBS AG Registered (banking).... 3,615 971,107
Zurich Allied AG Registered
(insurance)................... 1,000 567,252
------------
6,600,260
------------
UNITED KINGDOM (17.7%)
Abbey National PLC (banking)... 25,080 400,174
Allied Zurich PLC
(insurance)................... 16,206 190,540
Barclays PLC (banking)......... 24,527 704,431
Bass PLC (leisure & tourism)... 72,671 902,443
BG Group PLC (utilities
electrical & gas)............. 84,471 544,570
Boots Co. PLC
(merchandising)............... 27,343 265,295
BP Amoco PLC (energy
sources)...................... 153,974 1,544,802
British Aerospace PLC
(aerospace & military
technology)................... 32,367 213,881
British Airways PLC
(transportation-airlines).... 66,702 434,316
British American Tobacco PLC
(beverages & tobacco)......... 16,206 91,875
British Telecommunications PLC
(telecommunications).......... 98,700 2,406,812
Cable & Wireless PLC
(telecommunications).......... 80,967 1,368,893
Carlton Communications PLC
(broadcasting & publishing)... 172,429 1,675,767
CGU PLC (insurance)............ 32,766 526,772
Diageo PLC (beverages &
tobacco)...................... 51,978 417,191
Ebookers.com PLC (business &
public services) (a).......... 2,300 39,819
EMI Group PLC (recreation &
other consumer goods)......... 81,100 794,060
Granada Group PLC (leisure &
tourism)...................... 27,120 274,277
Great Universal Stores PLC
(The) (merchandising)......... 33,110 193,176
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 233
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
Imperial Chemical Industries
PLC (chemicals)............... 67,680 $ 715,022
Jazztel PLC
(telecommunications) (a)...... 3,448 224,551
Kingfisher PLC
(merchandising)............... 30,154 333,878
Lloyds TSB Group PLC
(banking)..................... 73,116 912,682
Marconi PLC
(telecommunications).......... 75,486 1,332,800
Marks & Spencer PLC
(merchandising)............... 50,396 239,407
National Power PLC
(utilities-electrical &
gas).......................... 30,620 176,921
National Westminster Bank PLC
(banking)..................... 20,936 448,777
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The)
(transportation-shipping)..... 8,611 143,364
Prudential Corp. PLC
(insurance)................... 34,700 682,300
Reed International PLC
(broadcasting & publishing)... 32,360 241,738
Rio Tinto PLC Registered
(metals-nonferrous).......... 26,460 637,554
Royal Bank of Scotland Group
PLC (banking)................. 33,660 595,666
Sainsbury (J.) PLC
(merchandising)............... 34,475 194,055
Scottish Power PLC
(utilities-electrical &
gas).......................... 23,010 173,930
SmithKline Beecham PLC (health
& personal care).............. 95,610 1,217,353
Unilever PLC (food & household
products)..................... 64,732 475,219
Vodafone Group PLC
(telecommunications).......... 232,853 1,151,205
------------
22,885,516
------------
UNITED STATES (0.5%)
Global Telesystems Group, Inc.
(telecommunications) (a)...... 20,700 716,737
------------
Total Common Stocks
(Cost $89,307,454)............ 129,041,974
------------
<CAPTION>
NOTIONAL
AMOUNT
----------
<S> <C> <C>
PURCHASED OPTIONS (0.2%)
AUSTRALIA (0.2%)
Australian Dollar Call/U.S.
Dollar Put
Strike Price $0.645
Expire 5/17/00 (a)............ 8,000,000 241,280
------------
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
UNITED STATES (0.0%) (e)
U.S. Dollar Call/Euro Put
Strike price E0.99
Expire 1/27/00 (a)(i)......... 8,380,000 $ 60,511
U.S. Dollar Call/Japanese Yen
Put
Strike price Y110
Expire 2/9/00 (a)(i).......... 5,495,000 5,348
------------
65,859
------------
Total Purchased Options
(Cost $320,110)............... 307,139
------------
Total Investments
(Cost $89,627,564) (g)........ 99.9% 129,349,113(h)
Cash and Other Assets,
Less Liabilities.............. 0.1 99,481
---------- ------------
Net Assets..................... 100.0% $129,448,594
========== ============
WRITTEN CALL OPTIONS (-0.1%)
AUSTRALIA (-0.1%)
Australian Dollar Call/U.S.
Dollar Put
Strike Price $0.675
Expire 5/17/00 (a)............ (8,000,000) $ (83,081)
------------
UNITED STATES (-0.0%) (e)
U.S. Dollar Call/Australian
Dollar Put
Strike price A$0.61
Expire 5/17/00 (a)(i)......... (8,000,000) (28,890)
------------
Total Written Call Options
(Premium $116,640)............ $ (111,971)
============
</TABLE>
- -------
(a) Non-income producing security.
(b) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(c) Installment receipt is a transaction with a set contract price which is
paid in installments over a period of time. Each installment receipt
entitles the holder to purchase 1 share of the Company's common stock at
A$3.05 on November 2, 2000.
(d) At December 31, 1999, substantially all of the Fund's net assets consist of
securities of issuers which are denominated in foreign currencies. Changes
in currency exchange rates will affect the value of and investment income
from such securities.
As of December 31, 1999, the Fund invested approximately 30.5% of its net
assets in issuers in Japan. The issuers' abilities to meet their obligations
may be affected by economic or political developments in the specific region
or country.
Substantially all of the Fund's net assets consist of securities which are
subject to greater price volatility, limited capitalization and liquidity,
and higher rates
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 234
MainStay International Equity Fund
of inflation than securities of companies based in the United States. In
addition, certain securities may be subject to substantial governmental
involvement in the economy and social, economic and political uncertainty.
(e) Less than one tenth of a percent.
(f) Strip securities represent a secondary class of shares traded in the
foreign market.
(g) The cost for Federal income tax purposes is $90,364,242.
(h) At December 31, 1999 net unrealized appreciation for securities was
$38,984,871, based on cost for Federal income tax This consisted of
aggregate gross unrealized appreciation for all investments on which there
was an excess of market value over cost of $42,417,580 and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $3,432,709.
(i) The following abbreviations are used in the above portfolio:
A$ -- Australian Dollars
E -- Euro
Y -- Japanese Yen
The table below sets forth the diversification of International Equity Fund
investments, excluding currency options, by industry.
<TABLE>
<CAPTION>
VALUE PERCENT(+)
-----------------------
<S> <C> <C>
INDUSTRY DIVERSIFICATION
Aerospace & Military
Technology..................... $ 445,966 0.3%
Appliances & Household
Durables....................... 5,450,524 4.2
Automobiles..................... 4,393,145 3.4
Banking......................... 15,311,674 11.8
Beverages & Tobacco............. 1,052,948 0.8
Broadcasting & Publishing....... 2,454,459 1.9
Building Materials &
Components..................... 2,534,103 2.0
Business & Public Services...... 7,277,521 5.6
Chemicals....................... 2,848,644 2.2
Data Processing &
Reproduction................... 2,003,241 1.6
Electrical & Electronics........ 9,278,092 7.2
Electronic Components &
Instruments.................... 4,349,834 3.4
Energy Sources.................. 6,065,278 4.7
Financial Services.............. 1,682,584 1.3
Food & Household Products....... 3,015,845 2.3
Forest Products & Paper......... 941,000 0.7
Health & Personal Care.......... 8,320,936 6.4
Industrial Components........... 450,592 0.4
Insurance....................... 8,173,083 6.3
Leisure & Tourism............... 1,176,720 0.9
Machinery & Engineering......... 216,552 0.2
Merchandising................... 5,698,396 4.4
Metals-Nonferrous............... 1,728,870 1.3
Metals-Steel.................... 1,302,936 1.0
Real Estate..................... 1,736,279 1.4
Recreation & Other Consumer
Goods.......................... 1,134,012 0.9
Telecommunications.............. 24,493,027 18.9
Transportation-Airlines......... 890,204 0.7
Transportation-Road & Rail...... 49,680 0.0(*)
Transportation-Shipping......... 143,364 0.1
Utilities-Electrical & Gas...... 4,422,465 3.4
------------ -----
129,041,974 99.7
Cash and Other Assets,
Less Liabilities............... 406,620 0.3
------------ -----
Net Assets...................... $129,448,594 100.0%
============ =====
</TABLE>
- -------
(+) Percentages indicated are based on Fund net assets.
(*) 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.
16
<PAGE> 235
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$89,627,564).............................................. $129,349,113
Cash denominated in foreign currencies (identified cost
$436,147)................................................. 433,390
Cash........................................................ 867,422
Receivables:
Dividends and interest.................................... 313,469
Fund shares sold.......................................... 197,545
Investment securities sold................................ 19,312
Unrealized appreciation on foreign currency forward
contracts................................................. 274,477
------------
Total assets.............................................. 131,454,728
------------
LIABILITIES:
Written call options, at value (premiums received
$116,640)................................................. 111,971
Payables:
Investment securities purchased........................... 1,007,569
MainStay Management....................................... 107,849
Fund shares redeemed...................................... 98,913
NYLIFE Distributors....................................... 83,614
Transfer agent............................................ 35,380
Custodian................................................. 31,091
Trustees.................................................. 890
Accrued expenses............................................ 66,440
Unrealized depreciation on foreign currency forward
contracts................................................. 462,417
------------
Total liabilities......................................... 2,006,134
------------
Net assets.................................................. $129,448,594
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 22,588
Class B................................................... 63,333
Class C................................................... 229
Additional paid-in capital.................................. 88,556,757
Accumulated distribution in excess of net investment
income.................................................... (1,129,659)
Accumulated net realized gain on investments................ 2,426,679
Net unrealized appreciation on investments and written call
options................................................... 39,726,218
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (217,551)
------------
Net assets.................................................. $129,448,594
============
CLASS A
Net assets applicable to outstanding shares................. $ 34,407,099
============
Shares of beneficial interest outstanding................... 2,258,751
============
Net asset value per share outstanding....................... $ 15.23
Maximum sales charge (5.50% of offering price).............. 0.89
------------
Maximum offering price per share outstanding................ $ 16.12
============
CLASS B
Net assets applicable to outstanding shares................. $ 94,698,459
============
Shares of beneficial interest outstanding................... 6,333,271
============
Net asset value and offering price per share outstanding.... $ 14.95
============
CLASS C
Net assets applicable to outstanding shares................. $ 343,036
============
Shares of beneficial interest outstanding................... 22,942
============
Net asset value and offering price per share outstanding.... $ 14.95
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 236
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 1,809,350
Interest.................................................. 93,958
-----------
Total income............................................ 1,903,308
-----------
Expenses:
Management................................................ 1,057,597
Distribution--Class B..................................... 593,664
Distribution--Class C..................................... 2,561
Transfer agent............................................ 423,467
Service--Class A.......................................... 65,658
Service--Class B.......................................... 197,888
Service--Class C.......................................... 854
Custodian................................................. 100,254
Professional.............................................. 45,930
Shareholder communication................................. 41,330
Registration.............................................. 40,588
Recordkeeping............................................. 37,185
Amortization of organization expense...................... 5,592
Trustees.................................................. 3,005
Miscellaneous............................................. 35,358
-----------
Total expenses.......................................... 2,650,931
-----------
Net investment loss......................................... (747,623)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 8,660,125
Option transactions....................................... 26,036
Foreign currency transactions............................. (1,131,395)
-----------
Net realized gain on investments and foreign currency
transactions.............................................. 7,554,766
-----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... 21,114,974
Written call options transactions......................... 4,669
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 778
-----------
Net unrealized gain on investments and foreign currency
transactions.............................................. 21,120,421
-----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 28,675,187
-----------
Net increase in net assets resulting from operations........ $27,927,564
===========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $248,293.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 237
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (747,623) $ (451,140)
Net realized gain on investments and foreign currency
transactions............................................ 7,554,766 1,872,328
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... 21,120,421 14,317,433
----------- ------------
Net increase in net assets resulting from operations...... 27,927,564 15,738,621
----------- ------------
Dividends and distributions to shareholders:
From net realized gain on investments and foreign currency
transactions:
Class A................................................. (626,133) (372,585)
Class B................................................. (1,793,049) (713,493)
Class C................................................. (6,487) (101)
In excess of net investment income:
Class A................................................. (71,083) --
Class B................................................. (205,278) --
Class C................................................. (742) --
----------- ------------
Total dividends and distributions to shareholders..... (2,702,772) (1,086,179)
----------- ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 75,589,357 42,133,228
Class B................................................. 24,360,411 26,219,637
Class C................................................. 14,937,027 9,724
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 636,292 238,909
Class B................................................. 1,933,262 674,371
Class C................................................. 6,714 58
----------- ------------
117,463,063 69,275,927
Cost of shares redeemed:
Class A................................................. (72,954,978) (39,188,478)
Class B................................................. (25,128,000) (25,790,198)
Class C................................................. (14,798,611) --
----------- ------------
Increase in net assets derived from capital share
transactions......................................... 4,581,474 4,297,251
----------- ------------
Net increase in net assets............................ 29,806,266 18,949,693
NET ASSETS:
Beginning of year........................................... 99,642,328 80,692,635
----------- ------------
End of year................................................. $129,448,594 $ 99,642,328
=========== ============
Accumulated distribution in excess of net investment income
at end of year............................................ $(1,129,659) $ (755,640)
=========== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 238
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
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)............................ (0.07) 0.01 0.80 0.29 0.27
Net realized and unrealized gain (loss) on
investments........................................... 3.54 2.13 0.03 0.07 0.10
Net realized and unrealized gain (loss) on foreign
currency transactions................................. (0.13) (0.06) (0.36) 0.62 0.14
------- ------- ------- ------- -------
Total from investment operations........................ 3.34 2.08 0.47 0.98 0.51
------- ------- ------- ------- -------
Less dividends and distributions:
From net realized gain on investments and foreign
currency transactions............................... (0.29) (0.20) (0.62) (0.52) (0.15)
In excess of net investment income.................... (0.03) -- -- -- --
In excess of net realized gain on investments......... -- -- -- (0.03) (0.08)
------- ------- ------- ------- -------
Total dividends and distributions....................... (0.32) (0.20) (0.62) (0.55) (0.23)
------- ------- ------- ------- -------
Net asset value at end of period........................ $ 15.23 $ 12.21 $ 10.33 $ 10.48 $ 10.05
======= ======= ======= ======= =======
Total investment return (a)............................. 27.54% 20.17% 4.52% 9.78% 5.25%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)........................ (0.14%) 0.08% 0.19% (0.1%) (0.2%)
Expenses............................................ 1.94% 2.01% 2.01% 2.0% 2.2%
Portfolio turnover rate................................. 38% 54% 43% 19% 25%
Net assets at end of period (in 000's).................. $34,407 $24,115 $17,452 $17,475 $12,856
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 239
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------- -------------------------------
September 1*
Year ended December 31, Year ended through
----------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
------- ------- ------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12.08 $ 10.22 $ 10.38 $ 9.97 $ 9.77 $12.08 $10.60
------- ------- ------- ------- ------- ------ ------
(0.09) (0.08) 0.72 0.24 0.26 (0.09) (0.09)
3.41 2.10 0.03 0.07 0.07 3.41 1.72
(0.13) (0.05) (0.37) 0.59 0.09 (0.13) (0.04)
------- ------- ------- ------- ------- ------ ------
3.19 1.97 0.38 0.90 0.42 3.19 1.59
------- ------- ------- ------- ------- ------ ------
(0.29) (0.11) (0.54) (0.46) (0.15) (0.29) (0.11)
(0.03) -- -- -- -- (0.03) --
-- -- -- (0.03) (0.07) -- --
------- ------- ------- ------- ------- ------ ------
(0.32) (0.11) (0.54) (0.49) (0.22) (0.32) (0.11)
------- ------- ------- ------- ------- ------ ------
$ 14.95 $ 12.08 $ 10.22 $ 10.38 $ 9.97 $14.95 $12.08
======= ======= ======= ======= ======= ====== ======
26.60% 19.34% 3.78% 9.05% 4.27% 26.60% 15.07%
(0.89%) (0.67%) (0.49%) (0.8%) (1.0%) (0.89%) (0.67%)+
2.69% 2.76% 2.69% 2.7% 3.0% 2.69% 2.76% +
38% 54% 43% 19% 25% 38% 54%
$94,698 $75,516 $63,241 $52,709 $25,341 $ 343 $ 11
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 240
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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
22
<PAGE> 241
Notes to Financial Statements
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 Fund's subadvisor, if these
prices are deemed to be representative of market values at the regular close of
business of the Exchange and (e) by appraising options and futures contracts at
the last sale price on the market where such options or futures are principally
traded. 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
Fund's 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 year-end to credit loss in the event of a counterparty's failure to
perform its obligations.
23
<PAGE> 242
MainStay International Equity Fund
Foreign currency forward contracts open at December 31, 1999:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
--------------- ------------ --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
Euro vs. Swedish Krona, expiring 2/29/00.......... E 1,202,326 SK10,340,000 $ 4,764
Japanese Yen vs. U.S. Dollar, expiring 3/1/00..... Y 1,596,800,000 $ 15,901,215 144,019
Pound Sterling vs. U.S. Dollar, expiring 2/7/00... L 1,558,000 $ 2,527,232 15,868
Pound Sterling vs. U.S. Dollar, expiring 2/7/00... L 306,000 $ 491,314 (1,932)
Swedish Krona vs. Euro, expiring 2/29/00.......... SK 3,110,000 E 362,894 (158)
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
--------------- ------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00......................................... C$ 4,564,740 $ 3,093,900 55,717
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00......................................... C$ 4,406,000 $ 3,008,792 31,296
Euro vs. U.S. Dollar, expiring 2/7/00............. E 6,122,500 $ 6,394,193 (239,071)
Euro vs. U.S. Dollar, expiring 2/7/00............. E 6,417,530 $ 6,672,980 (221,256)
Japanese Yen vs. U.S. Dollar, expiring 3/1/00..... Y 253,629,600 $ 2,480,000 22,813
----------
Net unrealized depreciation on foreign currency
forward contracts............................... $ (187,940)
==========
</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, the 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, the 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
24
<PAGE> 243
Notes to Financial Statements (continued)
market for an option. The maximum exposure to loss for any purchased option is
limited to the premium initially paid for the option.
Written option activity for the year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Notional
Amount Premium
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1998.................... -- --
Options-written............................................. (21,330,000) $(131,031)
Options-expired............................................. 5,330,000 14,391
----------- ---------
Options outstanding at December 31, 1999.................... (16,000,000) $(116,640)
=========== =========
</TABLE>
ORGANIZATION COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $49,000 and were 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends which exceed net investment income for financial
reporting purposes but not for Federal tax purposes are reported as dividends in
excess of net investment income. Permanent book/tax differences of $650,707,
$1,782,102 and $1,131,395 are decreases to accumulated distribution in excess of
net investment income, accumulated net realized gain on investments and
accumulated undistributed net realized loss on foreign currency transactions,
respectively. These book/tax differences are due to tax treatment of foreign
currency losses and certain foreign investments.
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.
25
<PAGE> 244
MainStay International Equity Fund
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 TRANSACTIONS. 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 year. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices of securities 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 year end exchange rates are reflected
in unrealized foreign exchange gains or losses.
Foreign currency held at December 31, 1999:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ---------------------------------- -------- --------
<S> <C> <C> <C> <C>
Euro E 353,702 $357,262 $354,522
Japanese Yen Y 3,341,240 32,632 32,644
New Zealand Dollar N$ 14,064 7,245 7,334
Pound Sterling L 24,139 39,008 38,890
-------- --------
$436,147 $433,390
======== ========
</TABLE>
26
<PAGE> 245
Notes to Financial Statements (continued)
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, LLC (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 LLC
(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 year ended December 31, 1999, the Manager
earned $1,057,597.
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, 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 $9,225 for the year ended
December 31, 1999. The Fund was also advised
27
<PAGE> 246
MainStay International Equity Fund
that the Distributor retained contingent deferred sales charges on redemptions
of Class A, Class B and Class C shares of $3,637, $103,219 and $31,
respectively, for the year ended December 31, 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 year ended December 31, 1999
amounted to $423,467.
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 December 31, 1999, the Distributor beneficially held shares of
Class A of the Fund with a net asset value of $9,712,576, which represents 28.2%
of the Class A net assets at year 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 $2,710 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$37,185 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
For Federal income tax purposes, capital loss carryforwards of $795,870 were
utilized to the extent provided by regulations to offset realized gains of the
Fund during the year ended December 31, 1999. The Fund intends to elect to treat
for Federal income tax purposes approximately $793,449 of qualifying foreign
exchange gains that arose during the year after October 31, 1999 as if they
arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $43,348 and $38,924, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. Such commitment fees are allocated amongst the funds
based upon net assets and other
28
<PAGE> 247
Notes to Financial Statements (continued)
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 during the
year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 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.................................. 5,742 1,922 1,153 3,750 2,295 1
Shares issued in reinvestment of dividends
and distributions.......................... 44 137 -- 20 57 --
------ ------ ------ ------ ------ --
5,786 2,059 1,153 3,770 2,352 1
Shares redeemed.............................. (5,502) (1,977) (1,131) (3,484) (2,286) --
------ ------ ------ ------ ------ --
Net increase................................. 284 82 22 286 66 1
====== ====== ====== ====== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
</TABLE>
29
<PAGE> 248
Report of Independent Accountants
To the Board of Trustees and
Shareholders of The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay International Equity Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
30
<PAGE> 249
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 250
[THE MAINSTAY FUNDS LOGO]
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN11-02/00
[RECYCLED PAPER LOGO]
[MAINSTAY FUNDS LOGO]
MainStay
International Equity Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 251
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
Portfolio Management Discussion and Analysis 4
Yields and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 11
Notes to Financial Statements 16
Report of Independent Accountants 20
The MainStay Funds 21
</TABLE>
<PAGE> 252
This page intentionally left blank
2
<PAGE> 253
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 254
- -------
(1) These acronyms stand for: Government National Mortgage Association, Federal
Home Loan Mortgage Corporation, and Federal National Mortgage Association,
respectively. A STRIP refers to a bond separated into its two components:
periodic interest payments and principal repayment, which are sold
separately. A variation know by the acronym STRIPS (Separate Trading of
Registered Interest and Principal Securities) is a prestripped zero-coupon
bond that is a direct obligation of the U.S. Treasury.
(2) See footnote and table on page 7 for more information on Lipper Inc.
Portfolio Management Discussion and Analysis
Three major factors impacted the money markets over the twelve months ended
December 31, 1999--strong domestic economic growth, Federal Reserve actions, and
liquidity concerns surrounding Y2K. These factors combined to push yields on
short-term money-market securities significantly higher.
Rapid U.S. economic growth, benign inflation, low unemployment, and a
spectacular run-up in the U.S. equity market resulted in strong consumer
spending in 1999. Concerned about the pace of economic growth and the
possibility of inflation, the Federal Reserve raised the targeted federal funds
rate three times in 1999--on June 30, August 24, and November 16--by 0.25% each
time. The year ended with the targeted federal funds rate at 5.50% and the
discount rate at 5.00%.
Many money-market investors and issuers alike believed liquidity would be scarce
as the end of the year approached and concern over Y2K heightened. Both
corporate and asset-backed issuers flooded the market with paper early on,
hoping to secure their year-end financing. The resulting supply of debt
securities caused both interest rates and credit spreads to increase
substantially during the summer. In September and October, yields on short-term
securities maturing after January 1, 2000, implied forward rates of about 7.5%
for the period from the middle of December to the middle of January and about
6.5% from December to February.
To help calm investor concerns and ensure liquidity in the financial markets
leading up to the end of the year, the Federal Reserve announced in October that
it would provide the market with several temporary liquidity programs. One such
program was a repurchase-agreement facility with expanded collateral guidelines
to include pass-through mortgage securities of GNMA, FHLMC, FNMA, and STRIP
securities(1) of the U.S. Treasury, and "stripped" securities of other
government agencies. The Federal Reserve also established a temporary standby
financing facility. As with most other secular Y2K fears, the money markets'
liquidity concerns turned out to be for naught.
STRONG RELATIVE PERFORMANCE
For the seven-day period ended December 31, 1999, the MainStay Money Market Fund
provided an effective yield of 5.38% and a current yield of 5.24% for Class A,
Class B, and Class C shares. For the twelve months ended December 31, 1999, the
Fund returned 4.65% for Class A, Class B, and Class C shares, exceeding the
4.49% return of the average Lipper(2) money market fund over the same period,
placing it in the top 41% of its Lipper peer group.
4
<PAGE> 255
STRATEGIC MATURITY AND SECTOR POSITIONING
During the first half of the year, we lengthened the maturity of the portfolio
relative to the average money-market fund when we felt that short-term interest
rates had already priced in more than a 0.25% increase in the federal funds rate
even before the Fed made its first official tightening move at the end of June.
This maturity-extending strategy proved effective for Fund performance as the
portfolio benefited from the higher rates during this time. Also, when interest
rates declined after the June 30, 1999, Federal Reserve rate hike, the Fund had
a comparatively smaller percentage of its assets to reinvest at the lower rates.
Early in the fourth quarter, we positioned the portfolio to be able to provide
sufficient liquidity during the months of December and January. To do so, we
used master-note agreements and purchased agency securities for use as
collateral in reverse-repurchase agreements. We also arranged to have a certain
percentage of the securities in the portfolio maturing daily during the months
just preceding and following the new year. In October 1999, we also began to
invest in securities maturing after January 1, 2000. The yields on these
securities further benefited Fund performance. As of December 31, 1999, the
Fund's average maturity stood at 58 days.
HIGH CREDIT QUALITY
The Fund's investments throughout the year centered on floating-rate notes, bank
certificates of deposit (CDs), commercial paper, and asset-backed commercial
paper. The Fund primarily invested in securities of finance, insurance,
brokerage, and industrial companies, banks, and bank holding companies. We
continued to invest the Fund only in first-tier securities, or generally those
money-market instruments in the highest rating category. The Fund was not
invested 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). The Fund's concentration on the
highest-quality securities helped manage portfolio risk.
LOOKING FORWARD
As the Federal Reserve's 1999 interest-rate increases filter through the
economy, we believe they may help contain inflationary pressures and slow
economic growth in the first half of 2000. Although the consumer remains
confident, higher borrowing costs and fewer opportunities to increase disposable
income will likely temper spending patterns. For example, current 30-year
mortgage rates offer far less incentive to refinance than those available at the
beginning of 1999. We believe business spending, however, may be on the rise
5
<PAGE> 256
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.
Past performance is no guarantee of future results.
early in the year 2000, as cash set aside for potential Y2K compliance issues
may be redirected to capital spending.
Recent comments by Federal Reserve officials continue to indicate that they view
the tight labor market as an imminent inflationary risk. The Fed does not
believe that the "new economy" repeals the old rules of supply and demand, which
means we may see further moves to raise rates during the first part of the new
year.
The degree of tightening and the timing of the Federal Reserve's next moves will
be key to U.S. money-market performance. For the near term, we will likely
manage the Fund with a shorter maturity than in 1999 to be well positioned for
any potential rate increases. We also intend to remain focused on quality, as
the Fund 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 LLC
6
<PAGE> 257
Yields and Lipper Rankings as of 12/31/99
FUND SEC YIELDS*
<TABLE>
<CAPTION>
7-DAY EFFECTIVE YIELD 7-DAY CURRENT YIELD
<S> <C> <C>
Class A 5.38% 5.24%
Class B 5.38% 5.24%
Class C 5.38% 5.24%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 136 out of 98 out of n/a 98 out of
337 funds 218 funds 218 funds
Class B 136 out of 98 out of 52 out of 42 out of
337 funds 218 funds 130 funds 92 funds
Class C 136 out of n/a n/a 128 out of
337 funds 317 funds
Average Lipper
money market
fund 4.49% 4.95% 4.80% 5.40%
</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 5.08%. The current yield is based on the
7-day period ending 12/31/99. 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
7
<PAGE> 258
MainStay Money Market Fund
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (99.7%)+
ASSET-BACKED SECURITY (0.7%)
New Holland Equipment
Receivables Trust
Series 1999-A Class A1
6.15%, due 11/15/00
(a)(c)..................... $4,782,765 $ 4,782,765
------------
CERTIFICATES OF DEPOSIT
(14.3%)
ABN Amro Bank N.V. Chicago
5.50%, due 6/5/00 (c)...... 5,000,000 4,998,975
Bayerische Hypo Vereinsbank
New York
6.38%, due 5/15/00
(b)(c)..................... 6,000,000 5,997,915
Bayerische Landsbank New
York 5.12%, due 3/21/00
(c)........................ 5,000,000 4,997,685
Commerzbank AG New York
5.01%, due 1/10/00 (c)..... 5,000,000 4,999,988
5.09%, due 2/16/00 (c)..... 5,000,000 4,999,787
6.39%, due 4/10/00
(b)(c)................... 5,000,000 4,999,456
Deutsche Bank New York
5.02%, due 1/11/00 (c)..... 5,000,000 5,000,047
5.06%, due 2/8/00 (c)...... 5,000,000 4,999,824
5.25%, due 5/18/00 (c)..... 5,000,000 4,996,597
Dresdner Bank New York
5.56%, due 1/7/00 (c)...... 6,000,000 5,999,281
Lloyds Bank PLC New York
5.65%, due 7/17/00 (c)..... 6,000,000 5,998,753
Nationsbank North America
4.99%, due 1/11/00 (c)..... 5,000,000 4,999,987
Rabobank Nederland N.V.
New York
5.60%, due 6/14/00 (c)..... 5,000,000 4,998,916
Societe Generale New York
5.29%, due 3/3/00 (c)...... 5,000,000 4,999,428
6.41%, due 3/3/00 (b)(c)... 5,000,000 4,999,582
Svenska Handelsbanken New
York
5.23%, due 3/1/00 (c)...... 5,000,000 4,999,526
UBS AG Stamford Connecticut
5.29%, due 3/1/00 (c)...... 5,000,000 4,999,717
5.34%, due 5/30/00 (c)..... 5,000,000 4,999,013
------------
92,984,477
------------
COMMERCIAL PAPER (67.4%)
Abbey National North America
5.90%, due 1/5/00.......... 6,000,000 5,996,067
Alliance & Liecester PLC
6.03%, due 2/4/00 (a)...... 6,000,000 5,965,830
Allianz of America Finance
Corp.
5.89%, due 4/6/00 (a)...... 6,000,000 5,905,760
American Express Credit
Corp.
5.50%, due 2/18/00......... 6,900,000 6,849,400
6.42%, due 1/4/00.......... 6,000,000 5,996,790
-------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
American General Finance
Corp.
5.50%, due 2/9/00.......... $6,000,000 $ 5,964,250
5.97%, due 2/10/00......... 6,000,000 5,960,200
6.13%, due 9/15/00 (c)..... 6,200,000 6,192,234
Associates Corp. of North
America
4.00%, due 1/3/00.......... 5,700,000 5,698,733
5.90%, due 4/3/00.......... 6,000,000 5,908,550
Associates First Capital
Corp.
6.50%, due 2/1/00.......... 6,000,000 5,966,417
Atlantis One Funding Corp.
5.97%, due 2/7/00.......... 6,000,000 5,963,185
6.06%, due 1/25/00......... 6,000,000 5,975,760
AT&T Corp.
6.14%, due 7/13/00
(a)(b)(c)................ 6,000,000 5,998,728
6.16%, due 8/7/00
(a)(b)(c)................ 6,000,000 5,999,695
Bayerische Landesbank New
York
6.22%, due 1/5/00.......... 6,000,000 5,995,853
BellSouth Telecommunications
Inc.
5.80%, due 2/3/00.......... 4,000,000 3,978,733
5.80%, due 2/10/00......... 6,000,000 5,961,333
British Telecommunications
PLC
5.70%, due 2/28/00......... 6,000,000 5,944,900
5.80%, due 1/28/00......... 6,000,000 5,973,900
5.95%, due 1/20/00......... 6,000,000 5,981,158
Caisse Centrale Desjardins
Du Quebec
6.02%, due 1/19/00......... 6,000,000 5,981,940
6.22%, due 2/29/00......... 3,650,000 3,612,792
Chevron USA Inc.
5.55%, due 3/8/00.......... 7,100,000 7,026,663
6.05%, due 2/11/00......... 6,000,000 5,958,658
Edison International
6.25%, due 2/11/00 (a)..... 6,000,000 5,957,292
Ford Motor Credit Co.
5.58%, due 2/17/00......... 6,000,000 5,956,290
6.38%, due 4/3/00 (c)...... 6,000,000 5,998,386
6.39%, due 1/4/00.......... 6,000,000 5,996,805
Franklin Resources Inc.
6.04%, due 3/6/00 (a)...... 5,000,000 4,945,517
6.08%, due 3/17/00 (a)..... 3,950,000 3,899,300
General Electric Capital
Corp.
5.93%, due 2/22/00......... 5,000,000 4,957,172
5.97%, due 1/26/00......... 6,000,000 5,975,125
6.00%, due 2/17/00......... 6,000,000 5,953,000
Goldman Sachs Group L.P.
(The)
5.92%, due 2/29/00......... 6,000,000 5,941,787
5.98%, due 2/22/00......... 6,000,000 5,948,173
6.00%, due 4/7/00.......... 6,000,000 5,903,000
6.04%, due 5/19/00......... 6,000,000 5,860,073
IBM Credit Corp.
5.69%, due 3/20/00......... 6,000,000 5,925,082
Internationale Nederlanden
(U.S.) Funding Corp.
5.77%, due 2/4/00.......... 5,915,000 5,882,767
5.88%, due 3/24/00......... 6,000,000 5,918,660
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 259
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
KFW International Finance
Inc.
5.82%, due 4/3/00.......... $6,000,000 $ 5,909,790
5.91%, due 2/3/00.......... 6,000,000 5,967,495
5.97%, due 3/24/00......... 3,475,000 3,427,170
Merrill Lynch & Co. Inc.
5.85%, due 1/31/00......... 6,000,000 5,970,750
5.86%, due 2/2/00.......... 6,000,000 5,968,747
Morgan (J.P.) & Co. Inc.
5.87%, due 4/14/00......... 6,000,000 5,898,253
Morgan Stanley Dean Witter
& Co.
4.55%, due 6/7/00 (b)(c)... 12,000,000 12,000,000
5.43%, due 1/31/00......... 6,000,000 5,972,850
National Rural Utilities
Cooperative Finance Corp.
5.78%, due 2/14/00......... 6,000,000 5,957,613
6.02%, due 3/23/00......... 6,000,000 5,917,727
Nationwide Building Society
5.90%, due 2/7/00.......... 6,000,000 5,963,617
6.08%, due 1/6/00.......... 6,000,000 5,994,933
Petrobras International
Finance Co.
6.07%, due 3/15/00......... 6,000,000 5,925,137
Prudential Funding Corp.
5.90%, due 1/27/00......... 6,000,000 5,974,433
6.00%, due 1/24/00......... 6,000,000 5,977,000
6.04%, due 1/20/00......... 6,000,000 5,980,873
Quebec (Province of)
5.80%, due 5/26/00......... 6,000,000 5,858,867
Rabobank Nederland N.V.
5.83%, due 6/8/00.......... 6,000,000 5,845,505
Receivables Capital Corp.
6.00%, due 1/25/00......... 6,000,000 5,976,000
Riverwoods Funding Corp.
6.03%, due 1/26/00......... 6,000,000 5,974,875
6.06%, due 2/8/00.......... 5,000,000 4,968,017
6.08%, due 1/13/00......... 6,000,000 5,987,840
Salomon Smith Barney
Holdings Inc.
5.98%, due 1/19/00......... 6,000,000 5,982,060
6.00%, due 1/21/00......... 6,000,000 5,980,000
San Paolo U.S. Financial Co.
5.85%, due 2/7/00.......... 7,296,000 7,252,133
5.88%, due 5/22/00......... 6,000,000 5,860,840
Santander Finance (DE) Inc.
6.03%, due 1/28/00......... 6,000,000 5,972,888
Transportadora De Gas Del
Sur S.A. (TGS)
6.20%, due 3/27/00......... 6,000,000 5,911,133
Unifunding Inc.
5.92%, due 2/4/00.......... 6,000,000 5,966,453
Wells Fargo & Co.
5.92%, due 2/1/00.......... 6,000,000 5,969,413
6.00%, due 2/9/00.......... 6,000,000 5,961,000
6.00%, due 3/17/00......... 6,000,000 5,924,000
Xerox Corp.
5.85%, due 2/14/00......... 6,000,000 5,957,100
------------
437,930,470
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
--------------------------------
<S> <C> <C>
CORPORATE BOND (0.8%)
Associates Corp. of North
America
5.25%, due 3/30/00 (c)..... $5,000,000 $ 4,989,542
------------
FEDERAL AGENCIES (5.6%)
Federal Home Loan Banks
(Discount Note)
5.56%, due 2/23/00......... 6,000,000 5,950,887
Federal National Home
Mortgage Association
(Discount Note)
5.58%, due 1/21/00......... 6,500,000 6,479,850
5.59%, due 1/18/00......... 6,000,000 5,984,162
Freddie Mac (Discount Note)
5.54%, due
2/15/00 - 2/24/00........ 12,000,000 11,908,590
5.56%, due 1/10/00......... 6,000,000 5,991,660
------------
36,315,149
------------
MEDIUM-TERM NOTES (6.8%)
IBM Credit Corp.
5.90%, due 8/7/00 (c)...... 6,000,000 5,998,890
Morgan (J.P.) & Co. Inc.
6.43%, due 7/6/00 (b)(c)... 6,000,000 5,997,414
Morgan Stanley Dean Witter &
Co.
6.18%, due 3/10/00
(b)(c)................... 6,000,000 6,000,047
National Rural Utilities
Cooperative Finance Corp.
Series C
6.14%, due 6/26/00
(b)(c)................... 5,000,000 5,000,000
Prudential Funding Corp.,
Series B
5.16%, due 5/30/00
(a)(b)(c)................ 5,000,000 5,002,177
Salomon Smith Barney
Holdings Inc.
6.63%, due 11/30/00 (c).... 4,842,000 4,852,997
Wells Fargo Co., Series J
6.01%, due 3/10/00
(b)(c)................... 6,000,000 5,997,537
Xerox Corp., Series F
5.64%, due 7/14/00 (c)..... 5,000,000 4,998,834
------------
43,847,896
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
INVESTMENT COMPANY (4.1%)
Merrill Lynch Premier
Institutional Fund......... 26,905,026 26,905,026
------------
Total Short-Term Investments
(Amortized Cost
$647,755,325) (d).......... 99.7% 647,755,325
Cash and Other Assets,
Less Liabilities........... 0.3 2,125,714
----- ------------
Net Assets.................. 100.0% $649,881,039
===== ============
</TABLE>
- -------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1999.
(c) Interest bearing security.
(d) 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.
9
<PAGE> 260
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............... $17,951,481 2.8%
Banks #.................... 204,894,957 31.5
Brokerage.................. 79,684,938 12.4
Computer & Office
Equipment................. 16,922,806 2.6
Conglomerates.............. 16,885,297 2.6
Consumer Financial
Services.................. 12,846,190 2.0
Diversified Financial
Services.................. 12,000,000 1.8
Domestic Oils.............. 12,985,321 2.0
Equipment Loans............ 4,782,765 0.7
Federal Agencies........... 36,315,149 5.6
Finance.................... 119,201,861 18.4
Foreign Government......... 5,858,867 0.9
Insurance.................. 11,924,450 1.8
Investment Company......... 26,905,026 4.1
Oil Services............... 5,925,137 0.9
Telecommunication
Services.................. 39,838,448 6.1
Utilities.................. 16,875,340 2.6
Utilities - Electric....... 5,957,292 0.9
------------ -----
647,755,325 99.7
Cash and Other Assets,
Less Liabilities.......... 2,125,714 0.3
------------ -----
Net Assets................. $649,881,039 100.0%
============ =====
</TABLE>
- -------
+ Percentages indicated are based on Fund 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.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 261
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (amortized cost
$647,755,325)............................................. $647,755,325
Cash........................................................ 226,628
Receivables:
Interest.................................................. 4,355,425
Fund shares sold.......................................... 4,114,274
------------
Total assets........................................ 656,451,652
------------
LIABILITIES:
Payables:
Fund shares redeemed...................................... 5,824,674
MainStay Management....................................... 174,570
Transfer agent............................................ 143,376
Custodian................................................. 46,121
Trustees.................................................. 4,995
Accrued expenses............................................ 100,628
Dividend payable............................................ 276,249
------------
Total liabilities................................... 6,570,613
------------
Net assets.................................................. $649,881,039
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 1,893,356
Class B................................................... 4,584,001
Class C................................................... 21,540
Additional paid-in capital.................................. 643,390,723
Accumulated net realized loss on investments................ (8,581)
------------
Net assets.................................................. $649,881,039
============
CLASS A
Net assets applicable to outstanding shares................. $189,335,567
============
Shares of beneficial interest outstanding................... 189,335,562
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS B
Net assets applicable to outstanding shares................. $458,391,458
============
Shares of beneficial interest outstanding................... 458,400,046
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS C
Net assets applicable to outstanding shares................. $ 2,154,014
============
Shares of beneficial interest outstanding................... 2,154,014
============
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.
11
<PAGE> 262
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $31,621,069
-----------
Expenses:
Management................................................ 2,854,593
Transfer agent............................................ 1,656,600
Shareholder communication................................. 175,966
Registration.............................................. 112,555
Custodian................................................. 108,237
Recordkeeping............................................. 86,768
Professional.............................................. 54,553
Trustees.................................................. 17,923
Miscellaneous............................................. 18,295
-----------
Total expenses before reimbursement..................... 5,085,490
Expense reimbursement from Manager.......................... (878,339)
-----------
Net expenses............................................ 4,207,151
-----------
Net investment income....................................... 27,413,918
-----------
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 332
-----------
Net increase in net assets resulting from operations........ $27,414,250
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 263
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 27,413,918 $ 23,388,591
Net realized gain on investments.......................... 332 6,969
-------------- --------------
Net increase in net assets resulting from operations...... 27,414,250 23,395,560
-------------- --------------
Dividends to shareholders:
From net investment income:
Class A................................................. (6,865,359) (5,052,302)
Class B................................................. (20,443,075) (18,336,171)
Class C................................................. (105,484) (118)
-------------- --------------
Total dividends to shareholders....................... (27,413,918) (23,388,591)
-------------- --------------
Capital share transactions:
Net proceeds from sales of shares:
Class A................................................. 1,460,864,924 892,119,103
Class B................................................. 695,572,243 663,115,998
Class C................................................. 14,076,657 18,352
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 6,404,081 4,475,675
Class B................................................. 20,720,097 17,087,587
Class C................................................. 64,831 --
-------------- --------------
2,197,702,833 1,576,816,715
Cost of shares redeemed:
Class A................................................. (1,427,683,763) (827,769,898)
Class B................................................. (682,075,401) (592,657,906)
Class C................................................. (12,005,827) --
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 75,937,842 156,388,911
-------------- --------------
Net increase in net assets............................ 75,938,174 156,395,880
NET ASSETS:
Beginning of year........................................... 573,942,865 417,546,985
-------------- --------------
End of year................................................. $ 649,881,039 $ 573,942,865
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 264
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------
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.................................. 0.05 0.05 0.05 0.05 0.05
-------- -------- ------- ------- -------
Less dividends from net investment income.............. (0.05) (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)............................ 4.65% 5.01% 5.08% 4.91% 5.51%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.............................. 4.56% 4.90% 4.97% 4.8% 5.4%
Net expenses....................................... 0.70% 0.70% 0.70% 0.7% 0.7%
Expenses (before reimbursement).................... 0.85% 0.93% 0.95% 1.0% 0.9%
Net assets at end of period (in 000's)................. $189,336 $149,751 $80,925 $53,890 $34,880
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ 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.
14
<PAGE> 265
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- ------------------------------
September 1*
Year ended December 31, Year ended through
---------------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- ------ ------
0.05 0.05 0.05 0.05 0.05 0.05 0.02
-------- -------- -------- -------- -------- ------ ------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.02)
-------- -------- -------- -------- -------- ------ ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ====== ======
4.65% 5.01% 5.08% 4.91% 5.51% 4.65% 1.60%
4.56% 4.90% 4.97% 4.8% 5.4% 4.56% 4.90%+
0.70% 0.70% 0.70% 0.7% 0.7% 0.70% 0.70%+
0.85% 0.93% 0.95% 1.0% 0.9% 0.85% 0.93%+
$458,391 $424,174 $336,622 $317,483 $279,843 $2,154 $ 18
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 266
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, "floating-rate notes" 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.
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.
16
<PAGE> 267
Notes to Financial Statements
DIVIDENDS 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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year ended
December 31, 1999, the Manager earned $2,854,593 and reimbursed the Fund
$878,339.
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
17
<PAGE> 268
MainStay Money Market Fund
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.
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 year ended December 31, 1999, in the
amount of $1,395,811.
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 year ended December 31, 1999
amounted to $1,656,600.
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 $15,775 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$86,768 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $8,581 were available, as shown in the table below, 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.
<TABLE>
<CAPTION>
CAPITAL LOSS
AVAILABLE THROUGH AMOUNT
----------------- ------
<S> <C>
2002................................................... $2,344
2003................................................... 4,151
2004................................................... 1,118
2006................................................... 968
------
$8,581
======
</TABLE>
The Fund utilized $332 of capital loss carryforwards during the current year.
18
<PAGE> 269
Notes to Financial Statements (continued)
NOTE 5--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 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..................... 1,460,865 695,572 14,077 892,119 663,116 18
Shares issued in reinvestment of
dividends and distributions... 6,404 20,720 65 4,476 17,088 --
---------- -------- ------- -------- -------- -------
1,467,269 716,292 14,142 896,595 680,204 18
Shares redeemed................. (1,427,684) (682,075) (12,006) (827,770) (592,658) --
---------- -------- ------- -------- -------- -------
Net increase.................... 39,585 34,217 2,136 68,825 87,546 18
========== ======== ======= ======== ======== =======
</TABLE>
- -------
<TABLE>
<S> <C>
* First offered on September 1, 1998.
</TABLE>
19
<PAGE> 270
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Money Market Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
20
<PAGE> 271
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 272
This page intentionally left blank
<PAGE> 273
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENT LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN12-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
Money Market Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 274
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 6
Year-by-Year Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 20
Report of Independent Accountants 26
The MainStay Funds 27
</TABLE>
<PAGE> 275
This page intentionally left blank
2
<PAGE> 276
PRESIDENT'S LETTER
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 277
$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 -9.48%, 5 Years 4.32%, Since Inception 4.77%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY NEW YORK TAX LEHMAN BROTHERS
FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
--------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 9550 10000 10000
12/91 9749 10335 10051
12/92 10628 11247 10349
12/93 11916 12628 10632
12/94 11353 11975 10908
12/95 13167 14066 11192
12/96 13569 14689 11563
12/97 14708 16038 11758
12/98 15499 17077 11947
12/99 14690 16513 12267
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year -10.23%, 5 Years 4.67%, Since Inception 5.18%
Class C SEC Returns: 1 Year -6.45%, 5 Years 5.01%, Since Inception 5.18%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY NEW YORK TAX LEHMAN BROTHERS
FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
--------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 10000 10000 10000
12/91 10208 10335 10051
12/92 11128 11247 10349
12/93 12477 12628 10632
12/94 11888 11975 10908
12/95 13751 14066 11192
12/96 14145 14689 11563
12/97 15297 16038 11758
12/98 16062 17077 11947
12/99 15177 16513 12267
</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 figures for the two classes vary after this
date based on differences in their loads 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
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.
4
<PAGE> 278
* 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.
5
<PAGE> 279
- -------
(1) See footnote and table on page 10 for more information on Lipper Inc.
(2) See footnote on page 5 for more information on the Lehman Brothers Municipal
Bond Index.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Events of the preceding two years, especially the currency crises in Asia,
Russia, and Latin America and the resulting stresses on global financial
markets, set the stage for robust U.S. economic growth in 1999. Real gross
domestic product (GDP) expanded at about 4% for the year, while a combination of
low interest rates, a strong dollar, low commodity prices, and a rising stock
market allowed consumers to continue spending at a strong pace. Meanwhile,
inflation remained subdued, despite a tight labor market and rising oil prices.
This raises the important question: Why is inflation so modest when demand is
strong? We believe several explanations can be offered, including a lack of
pricing power, capacity utilization that is below inflationary levels,
price-conscious consumers, and modest growth in base wages, despite high
employment levels. At the same time, productivity gains resulting from the
technological revolution have continued to help keep inflation in check.
Even with all of that, the Federal Reserve Board argued that the pace of the
economy could not be indefinitely supported by labor-force growth and
productivity gains. Concerned about the potential for inflation, the Federal
Reserve raised the targeted federal funds rate by 0.25% three times in 1999--
on June 30, August 24, and November 16--to close the year with a targeted rate
of 5.50%.
The Federal Reserve's influence was clearly felt by the bond market during 1999.
While the municipal markets were impacted to a less dramatic degree than taxable
bonds, including U.S. Treasuries, yields on municipal securities nevertheless
rose by over 1.00% during the twelve months ended December 31, 1999.
The New York State economy continued to benefit from a strong stock market and
the general economic growth of the nation. Upstate industries, however, tended
to lag the vitality of New York City's booming real estate market and advancing
technology and service-oriented sectors. Tourism remained strong throughout the
year, despite media concerns over the possibility of disruptions at New York
City's Times Square millennial celebration. Although the state has a current
budget surplus, projected deficits in future years continued to cast shadows
over the economic outlook, as rising interest rates continued to move bond
prices lower throughout the course of the year.
FUND PERFORMANCE
For the year ended December 31, 1999, the MainStay New York Tax Free Fund
returned -5.22% for Class A shares and -5.51% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -4.89% return
of the average Lipper(1) New York municipal debt fund and the -2.06% return of
the Lehman Brothers Municipal Bond Index(2) during the annual period.
6
<PAGE> 280
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
<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
12/99 -5.22
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 10
for more information on performance.
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS B AND CLASS C SHARES
--------------------------
<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
12/99 -5.51
</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 the 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 10 for more information on
performance.
STRATEGIC MANAGEMENT DECISIONS
The Fund's strategy during the first three quarters of the year focused on the
relative value of long-term municipal bonds versus U.S. Treasuries. At the close
of 1998, municipals were providing almost the same yields as comparable Treasury
securities. When adjusted for taxes, municipals at that time actually provided
substantially higher yields than Treasuries. Our goal was to take advantage of
the attractiveness of long-term municipals by extending into
7
<PAGE> 281
- -------
(3) 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 pre-refunding, 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. When prerefundings occur, they
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 twenty years.
longer maturities. We believed these securities would be the greatest
beneficiaries if the market returned to a more traditional relationship between
Treasuries and municipals. As interest rates rose, however, the price of long-
term municipals declined, which had a negative impact on Fund performance.
Personnel and investment-strategy changes were implemented in the fall of 1999
to help enhance the total-return profile of the Fund. The investment focus
shifted to reducing the portfolio's duration and to applying tactical
yield-curve strategies--all while maintaining the high credit quality of the
bonds in the Fund's portfolio. The positive results of these changes began to
become evident in the improved Fund performance for the fourth quarter of 1999.
During the fourth quarter, all share classes closely tracked the average Lipper
New York municipal debt fund, and in December, all share classes outperformed
the average Fund in this Lipper universe.
PORTFOLIO CHARACTERISTICS
In a generally declining market, the Fund was overweighted in New York City
General Obligation bonds, all of which have been prerefunded,(3) with a positive
impact on the quality of the portfolio. During the year, we sought relative
value for the Fund in selected hospital issues. These securities had suffered
over Medicare-payment concerns that now appear to be easing. The Fund also
overweighted transportation bonds, with significant positions at year-end in
Triborough Bridge & Tunnel bonds, Port Authority of New York & New Jersey bonds,
and a New York State Thruway issue.
With interest rates rising, we chose to underweight the Fund in housing issues
to pursue relative value elsewhere in the New York municipal market. As the pace
of environmental regulation had eased, the Fund also underweighted industrial
pollution bonds. Education bonds were also underweighted in the portfolio at
year-end. The Fund continues to seek broad diversification by issuer, county,
municipal sector, coupon, and maturity to help manage risk in a geographically
restricted portfolio.
LOOKING AHEAD
As the Federal Reserve's 1999 interest-rate increases filter through the
economy, we believe they may help keep inflationary pressures under control and
slow economic growth in the first half of 2000. Although consumers remain
confident, we believe higher borrowing costs and modest wage growth will likely
temper individuals' spending patterns. Current 30-year mortgage rates, for
example, offer far less incentive to refinance than those available at the
beginning of 1999. Business spending, however, may be on the rise in 2000, as
8
<PAGE> 282
cash budgeted for potential Y2K compliance issues may be redirected to capital
spending.
Recent comments by Federal Reserve officials indicate that they view the tight
labor market as an imminent inflationary risk. They believe that the old rules
of supply and demand will continue to influence the market. Thus, we expect the
Federal Reserve to raise rates in the first several months of 2000. We believe
the result will likely be a slightly flatter yield curve in the municipal bond
market. We also expect demand for municipals to increase, as investors begin to
lock in attractive long-term rates with substantial equity-market gains garnered
over the last five years. As of year-end 1999, an investor in the highest tax
bracket could invest in a 30-year callable municipal bond at a yield exceeding
6%. That is equivalent to a 10% yield on a taxable investment.
We currently intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the difference in yield between securities rated
AAA and those rated BBB(4) is enough to justify taking on the added credit risk.
We also intend to continue seeking yield advantages and diversification by
county, municipal sector, coupon, and maturity as opportunities arise. Whatever
the markets may bring, the Fund will continue to 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. We believe our recent strategy
changes will better enable us to meet this objective.
Edward Munshower
Portfolio Manager
MacKay Shields LLC
TARGETED DIVIDEND POLICY
As far as possible, the MainStay New York Tax Free Fund seeks to maintain a
fixed dividend, with changes made only on an infrequent basis. In the first
eight months of 1999, however, the Fund distributed more income to
shareholders than it had received. As a result, the Fund adjusted its
dividend downward effective August 31, 1999. No taxable distributions from
net investment income were made to shareholders during the year. Decreasing
the dividend had a stabilizing impact on the Fund's net asset value. Since
the Fund's portfolio managers did not engage in additional trading to
accommodate dividend payments, the Fund's portfolio turnover rate and
transaction costs were not affected.
(4) 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. Debt rated
BBB exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
When applied to Fund holdings, 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.
9
<PAGE> 283
RETURNS AND LIPPER RANKINGS AS OF 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -5.22% 5.29% 5.35%
Class B -5.51% 5.01% 5.18%
Class C -5.51% 5.01% 5.18%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A -9.48% 4.32% 4.77%
Class B -10.23% 4.67% 5.18%
Class C -6.45% 5.01% 5.18%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS THROUGH 12/31/99
<S> <C> <C> <C>
Class A 68 out of 56 out of 31 out of
99 funds 75 funds 40 funds
Class B 78 out of 64 out of 64 out of
99 funds 75 funds 75 funds
Class C 78 out of n/a 80 out of
99 funds 99 funds
Average Lipper
NY municipal
debt fund -4.89% 5.68% 5.54%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.11 $0.4498 $0.0090
Class B $9.04 $0.4243 $0.0090
Class C $9.04 $0.4243 $0.0090
</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. 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. 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, 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 figures for the two
classes vary after this date based on differences in their loads 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
10
<PAGE> 284
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 figures for the two classes vary after
this date based on differences in their loads 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 12/31/99. 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 12/31/99. Lipper rankings and returns are unaudited.
11
<PAGE> 285
MAINSTAY NEW YORK TAX FREE FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.3%)+
NEW YORK (92.4%)
Nassau County New York
Tobacco Settlement Corp.
Series A
6.60%, due 7/15/39 (b)......... $2,200,000 $ 2,127,246
New York City General Obligation
Series D
6.00%, due 2/15/25............. 25,000 26,385
Series D
7.625%, due 2/1/13 (d)......... 1,000,000 1,073,400
Series F
8.20%, due 11/15/04 (d)........ 20,000 21,590
New York City Industrial
Development
Agency Civic Facility Revenue
Lighthouse International
Project
4.50%, due 7/1/33.............. 1,390,000 1,037,204
New York City Municipal Water
Finance Authority, Water and
Sewer
Systems Revenue, Series A
5.50%, due 6/15/32............. 1,000,000 907,780
New York State Dormitory
Authority Revenue
Mental Health
Services Facilities Improvement
Series F
4.50%, due 8/15/28............. 600,000 455,322
New York University
Series A
5.75%, due 7/1/27.............. 500,000 487,405
Park Ridge Housing Income
Project
7.85%, due 2/1/29 (b).......... 800,000 817,880
Rockefeller University
4.75%, due 7/1/37.............. 900,000 720,306
New York State Energy Research &
Development Authority
Electric Co. Facilities Revenue
7.50%, due 1/1/26 (a).......... 500,000 506,140
New York State Environmental
Facilities Corp.
Pollution Control Revenue
Series B
7.50%, due 3/15/11............. 600,000 613,482
New York State Local Government
Assistance Corp.
Series C
(zero coupon), due 4/1/14...... 1,500,000 664,125
New York State Medical Care
Facilities
Finance Agency Revenue
7.35%, due 2/15/29............. 610,000 623,542
7.375%, due 8/15/19............ 395,000 403,761
7.50%, due 2/15/21 (d)......... 315,000 329,811
7.875%, due 8/15/20............ 55,000 57,143
8.875%, due 8/15/07............ 455,000 456,611
- --------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
NEW YORK (CONTINUED)
New York State Thruway Authority
Service Contract Revenue
Local Highway and Bridge
5.75%, due 4/1/16.............. $ 900,000 $ 870,867
New York State Urban Development
Corporate Revenue
Service Contracts, Series C
5.75%, due 1/1/16 (b).......... 1,000,000 990,210
Niagara Falls New York Bridge
Commission Toll Revenue
Series B
5.25%, due 10/1/15............. 715,000 686,443
Niagara New York
Frontier Transportation
Authority
Airport Revenue, Series B
5.50%, due 4/1/16.............. 1,000,000 957,950
Port Authority of New York &
New Jersey Consolidated Bonds
Series 109
5.375%, due 7/15/27............ 1,000,000 906,550
Tobacco Settlement Asset
Securitization Corp.
Series 1
6.375%, due 7/15/39............ 2,000,000 1,935,620
Triborough Bridge & Tunnel
Authority
of New York, General Purpose
Revenue, Series Y
6.125%, due 1/1/21............. 750,000 772,455
-----------
18,449,228
-----------
PUERTO RICO (4.9%)
Puerto Rico Municipal Finance
Agency
Series A
5.50%, due 8/1/17.............. 1,000,000 977,380
-----------
Total Long-Term Municipal Bonds
(Cost $20,557,695)............. 19,426,608
-----------
SHORT-TERM MUNICIPAL BOND (1.0%)
New York City General Obligation
Series B5
4.75%, due 8/15/09 (c)........ 200,000 200,000
-----------
Total Short-Term Municipal Bond
(Cost $200,000)................ 200,000
-----------
Total Investments
(Cost $20,757,695) (e)......... 98.3% 19,626,608(f)
Cash and Other Assets,
Less Liabilities............... 1.7 344,088
----- -----------
Net Assets...................... 100.0% $19,970,696
===== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 286
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT APPRECIATION (g)
- ------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%) (h)
Municipal Bond
March 2000 (30
Year).............. (12) $11,844
-------
Total Futures
Contracts
(Settlement Value
$1,121,469)......... $11,844
=======
</TABLE>
- -------
(a) Interest on this security is subject to alternative minimum tax.
(b) Segregated or partially 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 December 31, 1999, net unrealized depreciation was $1,131,087, 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 $30,585 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,161,672.
(g) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1999.
(h) 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.
13
<PAGE> 287
STATEMENT OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$20,757,695).............................................. $19,626,608
Cash........................................................ 57,605
Receivables:
Interest.................................................. 358,962
Fund shares sold.......................................... 927
Variation margin on futures contracts..................... 375
-----------
Total assets............................................ 20,044,477
-----------
LIABILITIES:
Payables:
Shareholder communication................................. 26,580
MainStay Management....................................... 15,045
NYLIFE Distributors....................................... 5,781
Transfer agent............................................ 4,529
Custodian................................................. 3,223
Fund shares redeemed...................................... 3,000
Trustees.................................................. 161
Accrued expenses............................................ 15,462
-----------
Total liabilities....................................... 73,781
-----------
Net assets.................................................. $19,970,696
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,224
Class B................................................... 7,717
Class C................................................... 42
Additional paid-in capital.................................. 21,774,312
Accumulated net realized loss on investments................ (706,356)
Net unrealized depreciation on investments and futures
contracts................................................. (1,119,243)
-----------
Net assets.................................................. $19,970,696
===========
CLASS A
Net assets applicable to outstanding shares................. $12,952,305
===========
Shares of beneficial interest outstanding................... 1,422,427
===========
Net asset value per share outstanding....................... $ 9.11
Maximum sales charge (4.50% of offering price).............. 0.42
-----------
Maximum offering price per share outstanding................ $ 9.53
===========
CLASS B
Net assets applicable to outstanding shares................. $ 6,980,198
===========
Shares of beneficial interest outstanding................... 771,740
===========
Net asset value and offering price per share outstanding.... $ 9.04
===========
CLASS C
Net assets applicable to outstanding shares................. $ 38,193
===========
Shares of beneficial interest outstanding................... 4,225
===========
Net asset value and offering price per share outstanding.... $ 9.04
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 288
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 1,313,006
-----------
Expenses:
Management................................................ 111,930
Service--Class A.......................................... 35,982
Service--Class B.......................................... 19,959
Service--Class C.......................................... 24
Transfer agent............................................ 49,453
Shareholder communication................................. 30,564
Professional.............................................. 28,344
Distribution--Class B..................................... 19,959
Distribution--Class C..................................... 24
Custodian................................................. 12,540
Recordkeeping............................................. 12,000
Registration.............................................. 9,735
Trustees.................................................. 623
Miscellaneous............................................. 17,462
-----------
Total expenses before reimbursement..................... 348,599
Expense reimbursement from Manager.......................... (51,029)
-----------
Net expenses............................................ 297,570
-----------
Net investment income....................................... 1,015,436
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Security transactions..................................... (703,653)
Futures transactions...................................... (2,703)
-----------
Net realized loss on investments............................ (706,356)
-----------
Net change in unrealized appreciation on investments:
Security transactions..................................... (1,520,818)
Futures transactions...................................... 11,844
-----------
Net unrealized loss on investment........................... (1,508,974)
-----------
Net realized and unrealized loss on investments............. (2,215,330)
-----------
Net decrease in net assets resulting from operations........ $(1,199,894)
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 289
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,015,436 $ 922,511
Net realized gain (loss) on investments................... (706,356) 250,744
Net change in unrealized appreciation on investments...... (1,508,974) (86,245)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. (1,199,894) 1,087,010
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (665,626) (649,522)
Class B................................................. (351,328) (272,985)
Class C................................................. (483) (4)
From net realized gain on investments:
Class A................................................. (12,761) (141,453)
Class B................................................. (6,961) (71,954)
Class C................................................. (37) (2)
----------- -----------
Total dividends and distributions to shareholders..... (1,037,196) (1,135,920)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 513,102 3,306,693
Class B................................................. 1,697,158 3,642,989
Class C................................................. 38,507 250
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 336,060 377,476
Class B................................................. 210,506 208,607
Class C................................................. 516 4
----------- -----------
2,795,849 7,536,019
Cost of shares redeemed:
Class A................................................. (1,917,421) (2,017,731)
Class B................................................. (2,336,657) (1,201,673)
Class C................................................. (6) --
----------- -----------
Increase (decrease) in net assets derived from capital
share transactions................................... (1,458,235) 4,316,615
----------- -----------
Net increase (decrease) in net assets................. (3,695,325) 4,267,705
NET ASSETS:
Beginning of year........................................... 23,666,021 19,398,316
----------- -----------
End of year................................................. $19,970,696 $23,666,021
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 290
This page intentionally left blank
17
<PAGE> 291
FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.08 $ 10.09 $ 9.91 $ 10.12 $ 9.20
------- ------- ------- ------- -------
Net investment income..................................... 0.45 0.45 0.49 0.50 0.52
Net realized and unrealized gain (loss) on investments.... (0.96) 0.08 0.32 (0.21) 0.91
------- ------- ------- ------- -------
Total from investment operations.......................... (0.51) 0.53 0.81 0.29 1.43
------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income.............................. (0.45) (0.46) (0.49) (0.50) (0.51)
From net realized gain on investments................... (0.01) (0.08) (0.14) -- --
------- ------- ------- ------- -------
Total dividends and distributions......................... (0.46) (0.54) (0.63) (0.50) (0.51)
------- ------- ------- ------- -------
Net asset value at end of period.......................... $ 9.11 $ 10.08 $ 10.09 $ 9.91 $ 10.12
======= ======= ======= ======= =======
Total investment return (a)............................... (5.22%) 5.38% 8.39% 3.06% 15.97%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................. 4.63% 4.43% 4.88% 5.0% 5.4%
Net expenses.......................................... 1.24% 1.24% 1.24% 1.24% 1.24%
Expenses (before reimbursement)....................... 1.47% 1.57% 1.41% 1.4% 1.4%
Portfolio turnover rate................................... 77% 157% 212% 114% 114%
Net assets at end of period (in 000's).................... $12,952 $15,499 $13,814 $15,572 $18,248
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) 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.
18
<PAGE> 292
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------ --------------------------------
September 1*
Year ended December 31, Year ended through
------------------------------------------------------ December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
------ ------ ------ ------ ------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.01 $10.03 $ 9.84 $10.02 $ 9.20 $10.01 $10.11
------ ------ ------ ------ ------ ------ ------
0.42 0.43 0.45 0.45 0.59 0.42 0.13
(0.96) 0.06 0.33 (0.18) 0.82 (0.96) (0.01)
------ ------ ------ ------ ------ ------ ------
(0.54) 0.49 0.78 0.27 1.41 (0.54) 0.12
------ ------ ------ ------ ------ ------ ------
(0.42) (0.43) (0.45) (0.45) (0.59) (0.42) (0.14)
(0.01) (0.08) (0.14) -- -- (0.01) (0.08)
------ ------ ------ ------ ------ ------ ------
(0.43) (0.51) (0.59) (0.45) (0.59) (0.43) (0.22)
------ ------ ------ ------ ------ ------ ------
$ 9.04 $10.01 $10.03 $ 9.84 $10.02 $ 9.04 $10.01
====== ====== ====== ====== ====== ====== ======
(5.51%) 5.00% 8.14% 2.86% 15.67% (5.51%) 1.18%
4.38% 4.18% 4.63% 4.7% 5.1% 4.38% 4.18%+
1.49% 1.49% 1.49% 1.49% 1.49% 1.49% 1.49%+
1.72% 1.82% 1.66% 1.6% 1.6% 1.72% 1.82%+
77% 157% 212% 114% 114% 77% 157%
$6,980 $8,217 $5,585 $4,100 $1,588 $ 38 --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 293
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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's investment objective is to 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 preservation of capital.
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.
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 Fund's subadvisor, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Fund's subadvisor to be representative of market values at the
regular close of business
20
<PAGE> 294
NOTES TO FINANCIAL STATEMENTS
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 Fund's 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 Fund's 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 and non taxable income to the shareholders of the
Fund within the allowable time limits. Therefore, no Federal income tax
provision is required.
21
<PAGE> 295
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. A permanent book/tax difference of $2,001 is an increase to
undistributed net investment income. In addition, decreases of $2,026 and $25
have been made to additional paid-in capital and accumulated net realized loss
on investments, respectively. These book-tax differences are due to a
recharacterization of distributions.
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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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
22
<PAGE> 296
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 year ended December 31, 1999, the Manager earned $111,930
and reimbursed the Fund $51,029.
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, 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 0.25% 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 $1,392 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $25,347
for the year ended December 31, 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 year ended December 31, 1999
amounted to $49,453.
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.
23
<PAGE> 297
MAINSTAY NEW YORK TAX FREE FUND
CAPITAL. At December 31, 1999, the Distributor beneficially held shares of
Class A of the Fund with a net asset value of $4,550,348, which represents 35.1%
of the Class A net assets at year 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 $612 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$12,000 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $284,828 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 2007. 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. In addition, the Fund intends
to elect to treat for Federal income tax purposes approximately $409,684 of
qualifying realized capital losses that arose during the year after October 31,
1999 as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $17,173 and $19,183, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
24
<PAGE> 298
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 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........................ 53 176 4 327 362 --
Shares issued in reinvestment of
dividends and distributions...... 35 22 --(a) 37 21 --
---- ---- -- ---- ---- --
88 198 4 364 383 --
Shares redeemed.................... (199) (247) --(a) (199) (119) --
---- ---- -- ---- ---- --
Net increase (decrease)............ (111) (49) 4 165 264 --(a)
==== ==== == ==== ==== ==
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
25
<PAGE> 299
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay New York Tax Free Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
26
<PAGE> 300
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 301
OFFICERS & TRUSTEES*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN13-02/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay
New York Tax Free Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 302
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$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 3
Portfolio Management Discussion and Analysis 4
Year-by-Year Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 15
Notes to Financial Statements 20
Report of Independent Accountants 25
The MainStay Funds 26
</TABLE>
<PAGE> 303
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2
<PAGE> 304
$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 -10.94%, 5 Years 3.97%, 10 Years 4.72%
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS
FUND MUNICIPAL BOND INDEX* INFLATION (CPI)(+)
---------------------- --------------------- ------------------
<S> <C> <C> <C>
12/89 9550 10000 10000
12/90 9997 10729 10625
12/91 11085 12032 10942
12/92 12018 13093 11265
12/93 13268 14700 11574
12/94 12469 13940 11875
12/95 14339 16374 12184
12/96 14860 17100 12587
12/97 16200 18671 12801
12/98 17007 19881 13007
12/99 15860 19472 13356
</TABLE>
CLASS B AND CLASS C SHARES Class B SEC Returns: 1 Year -11.61%, 5 Years 4.39%,
10 Years 5.10%
Class C SEC Returns: 1 Year -7.89%, 5 Years 4.72%,
10 Years 5.10%
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS
FUND MUNICIPAL BOND INDEX* INFLATION (CPI)(+)
---------------------- --------------------- ------------------
<S> <C> <C> <C>
12/89 10000 10000 10000
12/90 10468 10729 10625
12/91 11608 12032 10942
12/92 12585 13093 11265
12/93 13893 14700 11574
12/94 13056 13940 11875
12/95 14997 16374 12184
12/96 15497 17100 12587
12/97 16860 18671 12801
12/98 17673 19881 13007
12/99 16443 19472 13356
</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 12/31/89
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 12/31/89 through
12/31/94. Performance figures for the two classes vary after this date
based on differences in their loads and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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.
3
<PAGE> 305
Portfolio Management Discussion and Analysis
Events of the preceding two years, especially the currency crises in Asia,
Russia, and Latin America and the resulting stresses on global financial
markets, set the stage for robust U.S. economic growth in 1999. Real gross
domestic product (GDP) expanded at about 4% for the year, while a combination of
low interest rates, a strong dollar, low commodity prices, and a rising stock
market allowed consumers to continue spending at a strong pace. Meanwhile,
inflation remained subdued, despite a tight labor market and rising oil prices.
This raises the important question: Why is inflation so modest when demand is
strong? We think several explanations can be offered, including a lack of
pricing power, capacity utilization that is below inflationary levels,
price-conscious consumers, and modest growth in base wages, despite high
employment levels. At the same time, productivity gains resulting from the
technological revolution have continued to help keep inflation in check.
Even with all of that, the Federal Reserve Board argued that the pace of the
economy could not be indefinitely supported by labor-force growth and
productivity gains. Concerned about the potential for inflation, the Federal
Reserve raised the targeted federal funds rate by 0.25% three times in 1999--on
June 30, August 24, and November 16--to close the year with a targeted rate of
5.50%.
The Federal Reserve's influence was clearly felt by the bond market during 1999.
While the municipal markets were impacted to a less dramatic degree than taxable
bonds, including U.S. Treasuries, yields on municipal securities nevertheless
rose by over 1.00% during the twelve months ended December 31, 1999.
FUND PERFORMANCE
For the year ended December 31, 1999, the MainStay Tax Free Bond Fund returned
- -6.75% for Class A shares and -6.96% for Class B and Class C shares, excluding
all sales charges. All share classes underperformed the -4.63% return of the
average Lipper(1) general municipal debt fund and the -2.06% return of the
Lehman Brothers Municipal Bond Index(2) during the annual period.
STRATEGIC MANAGEMENT DECISIONS
The Fund's strategy during the first three quarters of the year focused on the
relative value of long-term municipal bonds versus U.S. Treasuries. At the close
of 1998, municipals were providing almost the same yields as comparable Treasury
securities. When adjusted for taxes, municipals at that time actually provided
substantially higher yields than Treasuries. Our goal for the Fund was to take
advantage of the attractiveness of long-term municipals by extending into longer
maturities. We believed these securities would be the greatest beneficiaries if
the market returned to a more traditional relationship between
- -------
(1) See footnote and table on page 8 for more information on Lipper Inc.
(2) See footnote on page 3 for more information on the Lehman Brothers Municipal
Bond Index.
4
<PAGE> 306
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
<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
12/99 -6.75
</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
[BAR GRAPH]
<TABLE>
<CAPTION>
CLASS A SHARES
--------------
<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
12/99 -6.96
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for the periods 12/86
through 8/98. See footnote * on page 8 for more information on performance.
Treasuries and municipals. As interest rates rose, however, the price of long-
term municipals declined, which had a negative impact on Fund performance.
Personnel and investment-strategy changes were implemented in the fall of 1999
to help enhance the total-return profile of the Fund. The investment focus
shifted to reducing the portfolio's duration and to applying tactical
yield-curve strategies--all while maintaining the high credit quality of the
bonds in the Fund's portfolio. The positive results of these changes began to
become evident in the improved Fund performance for the fourth quarter of 1999.
During the fourth quarter, all share classes closely tracked the average Lipper
general
5
<PAGE> 307
municipal debt fund, and in December, all share classes outperformed the average
Fund in this Lipper universe.
PORTFOLIO CHARACTERISTICS
In a generally declining market, we sought relative value for the Fund in
transportation bonds, including toll roads, bridges, tunnels, and port authority
bonds. With a growing economy, we believed travel and tourism would remain
strong, providing a solid revenue stream to support these issues. The Fund also
overweighted education bonds, diversifying its holdings across the nation, from
New York and Alabama to Texas and California. In light of continuing
deregulation and strong demand, the Fund also overweighted utility bonds, with
most of the Fund's utility holdings in the highest rating category. Significant
positions at year-end included Kansas Gas & Electric bonds and Los Angeles
County Water & Power bonds.
With interest rates rising, we chose to underweight the Fund in housing issues
to pursue relative value elsewhere in the municipal market. As the pace of
environmental regulation had eased, we also underweighted the Fund in industrial
pollution bonds.
LOOKING AHEAD
As the Federal Reserve's 1999 interest-rate increases filter through the
economy, we believe they may help keep inflationary pressures under control and
slow economic growth in the first half of 2000. Although consumers remain
confident, we believe higher borrowing costs and modest wage growth will likely
temper individuals' spending patterns. Current 30-year mortgage rates, for
example, offer far less incentive to refinance than those available at the
beginning of 1999. Business spending, however, may be on the rise in 2000, as
cash budgeted for potential Y2K compliance issues may be redirected to capital
spending.
Recent comments by Federal Reserve officials indicate that they view the tight
labor market as an imminent inflationary risk. They believe that the old rules
of supply and demand will continue to influence the market. Thus, we expect the
Federal Reserve to raise rates in the first several months of 2000. We believe
the result will likely be a slightly flatter yield curve in the municipal bond
market. We also expect demand for municipals to increase, as investors begin to
lock in attractive long-term rates with substantial equity-market gains garnered
over the last five years. As of year-end 1999, an investor in the highest tax
bracket could invest in a 30-year callable municipal bond at a yield exceeding
6%. That is equivalent to a 10% yield on a taxable investment.
6
<PAGE> 308
We currently intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the difference in yield between securities rated
AAA and those rated BBB(3) is enough to justify taking on the added credit risk.
We also intend to continue seeking yield advantages and diversification by
state, municipal sector, coupon, and maturity as opportunities arise. Whatever
the markets may bring, the Fund will continue to seek to provide a high level of
current income exempt from regular federal income tax, consistent with the
preservation of capital. We believe our recent strategy changes will better
enable us to meet this objective.
Edward Munshower
Portfolio Manager
MacKay Shields LLC
TARGETED DIVIDEND POLICY
As far as possible, the MainStay Tax Free Bond Fund seeks to maintain a
fixed dividend, with changes made only on an infrequent basis. In the first
eight months of 1999, however, the Fund distributed more income to
shareholders than it had received. As a result, the Fund adjusted its
dividend downward effective August 31, 1999. No taxable distributions were
made to shareholders during the year. Decreasing the dividend had a
stabilizing impact on the Fund's net asset value. Since the Fund's portfolio
managers did not engage in additional trading to accommodate dividend
payments, the Fund's portfolio turnover rate and transaction costs were not
affected.
Past performance is no guarantee of future results.
- -------
(3) 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. Debt rated
BBB exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
When applied to Fund holdings, 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.
7
<PAGE> 309
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A -6.75% 4.93% 5.20% 5.45%
Class B -6.96% 4.72% 5.10% 5.38%
Class C -6.96% 4.72% 5.10% 5.38%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A -10.94% 3.97% 4.72% 5.10%
Class B -11.61% 4.39% 5.10% 5.38%
Class C -7.89% 4.72% 5.10% 5.38%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 244 out of 152 out of n/a 152 out of
265 funds 174 funds 174 funds
Class B 246 out of 160 out of 79 out of 55 out of
265 funds 174 funds 79 funds 55 funds
Class C 246 out of n/a n/a 237 out of
265 funds 260 funds
Average Lipper
general municipal
debt fund -4.63% 5.76% 6.18% 6.77%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.08 $0.4506 $0.0000
Class B $9.09 $0.4269 $0.0000
Class C $9.09 $0.4269 $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 figures for the two classes after this date vary based on
differences in their loads 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 .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
8
<PAGE> 310
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 figures
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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
9
<PAGE> 311
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (98.4%)+
ALABAMA (3.1%)
Alabama State Public School &
College Authority Capital,
Series C
5.75%, due 7/1/17............. $ 2,000,000 $ 1,985,840
Birmingham Alabama Airport
Authority Revenue, Series A
7.375%, due 7/1/10 (a)(c)..... 3,600,000 3,672,000
University of
Alabama-Birmingham
University Revenues
6.00%, due 10/1/16-10/1/17.... 5,995,000 6,077,916
------------
11,735,756
------------
CALIFORNIA (15.8%)
California Educational
Facilities
Authority Revenue
Pooled College & University
Projects, Series A
5.625%, due 7/1/23............ 900,000 800,361
Stanford University
Series N
5.20%, due 12/1/27 (b)........ 21,920,000 19,417,174
California Housing Finance
Agency Single Family Mortgage
Series D2
(zero coupon), due 2/1/29
(a)........................... 2,000,000 317,440
California Statewide Community
Catholic Healthcare West
6.50%, due 7/1/20............. 2,000,000 1,930,740
Escondido California Union High
School District (zero coupon),
due 11/1/16-11/1/20........... 21,115,000 6,894,819
Foothill-Eastern Transportation
Corridor Agency, Toll Road
Revenue, Series A (zero
coupon), due 1/1/26-11/1/30... 30,810,000 5,727,312
Los Angeles California
Department of Water &
Power, Electric Plant Revenue
6.375%, due 2/1/20............ 7,000,000 7,236,180
San Francisco California City &
County Airports Commission
International Airport Revenue
Second Series, Issue 6
6.50%, due 5/1/18 (a)......... 3,240,000 3,401,903
6.60%, due 5/1/20 (a)......... 500,000 527,590
San Joaquin Hills California
Transportation Corridor Agency
Senior Lien Toll Road Revenue
(zero coupon), due
1/1/16-1/1/28................. 48,615,000 12,691,947
------------
58,945,466
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
COLORADO (3.4%)
Denver Colorado City &
County Special Facilities
Airport Revenue
United Airlines Project
Series A
6.875%, due 10/1/32 (a)....... $ 2,440,000 $ 2,394,494
8.50%, due 11/15/23 (a)....... 10,000,000 10,458,400
------------
12,852,894
------------
FLORIDA (0.5%)
Gulf Breeze Florida Revenue
Capital Funding, Series B
4.50%, due 10/1/27............ 2,500,000 1,936,150
------------
GEORGIA (1.9%)
Cherokee County Georgia Water &
Sewer Authority Revenue
5.20%, due 8/1/25............. 5,320,000 4,814,919
Georgia Municipal Electric
Authority Power Revenue,
Series Y
6.50%, due 1/1/17............. 2,000,000 2,151,180
------------
6,966,099
------------
HAWAII (2.9%)
Hawaii State Airports System
Revenue, Second Series
7.50%, due 7/1/20 (a)......... 10,395,000 10,742,609
------------
ILLINOIS (5.6%)
Chicago Illinois Gas Supply
Revenue People Gas, Light &
Coke Co.
Series A
8.10%, due 5/1/20 (a)......... 2,000,000 2,061,900
Chicago Illinois Water Revenue
6.50%, due 11/1/15............ 3,005,000 3,241,794
Illinois Health Facilities
Authority Revenue
6.25%, due 11/15/29........... 4,000,000 3,741,680
Glenoaks Hospital
Series E
9.50%, due 11/15/19........... 765,000 815,505
Hinsdale Hospital
Series B
9.00%, due 11/15/15........... 1,735,000 1,842,188
Series C
9.50%, due 11/15/19........... 4,960,000 5,287,459
Illinois Regional
Transportation Authority
Series C
7.10%, due 6/1/25 (c)......... 1,500,000 1,659,780
Kankakee Illinois Sewer Revenue
7.00%, due 5/1/16 (c)......... 2,000,000 2,172,020
------------
20,822,326
------------
</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.
10
<PAGE> 312
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
INDIANA (1.8%)
Indiana Bond Bank
Common School Fund
Series A
5.00%, due 2/1/14............. $ 500,000 $ 466,625
Indianapolis Indiana Local
Public Improvement Bond Bank
Series D
6.75%, due 2/1/20............. 6,000,000 6,204,600
------------
6,671,225
------------
KANSAS (2.3%)
Burlington Pollution Control
Revenue Kansas Gas & Electric
Co. Project
7.00%, due 6/1/31............. 8,300,000 8,689,602
------------
LOUISIANA (4.4%)
Lake Charles Louisiana Harbor &
Terminal District Port
Facilities Revenue, Truckline
Long Co.
7.75%, due 8/15/22............ 13,000,000 14,025,700
Louisiana State Offshore
Terminal Authority, Deepwater
Port Revenue
Series E
7.60%, due 9/1/10............. 2,135,000 2,215,490
------------
16,241,190
------------
MASSACHUSETTS (1.3%)
New England Education Loan
Marketing Corp., Student Loan
Series A
5.70%, due 7/1/05 (a)......... 4,800,000 4,915,824
------------
MICHIGAN (0.4%)
Michigan State Hospital Finance
Authority Revenue Mercy Mount
Clemens
Series A
5.75%, due 5/15/29............ 1,500,000 1,408,155
------------
MINNESOTA (2.5%)
Rochester Minnesota Health Care
Facilities, Mayo Foundation
Series A
5.50%, due 11/15/27 (b)....... 10,000,000 9,238,800
------------
MONTANA (0.6%)
Forsyth Montana Pollution
Control Revenue, Puget Sound
Power & Light
6.80%, due 3/1/22............. 2,200,000 2,304,170
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
NEBRASKA (0.5%)
Nebraska Investment Finance
Authority, Single Family
Housing Revenue
Series C
6.30%, due 9/1/28 (a)......... $ 1,990,000 $ 2,000,925
------------
NEVADA (2.4%)
Clark County Nevada Pollution
Control Revenue, Nevada Power
Co. Project
Series B
6.60%, due 6/1/19............. 1,925,000 2,005,215
Nevada State Colorado River
Community Power Delivery
Series A
5.625%, due 9/15/29........... 7,345,000 6,844,511
------------
8,849,726
------------
NEW HAMPSHIRE (4.0%)
New Hampshire Higher
Educational & Health
Facilities Authority Dartmouth
College
5.125%, due 6/1/28 (b)........ 10,750,000 9,200,280
5.70%, due 6/1/27............. 5,900,000 5,598,510
------------
14,798,790
------------
NEW JERSEY (3.1%)
Cape May County New Jersey
Industrial Pollution Control
Finance Authority, Atlantic
City Electric Co. Project A
7.20%, due 11/1/29 (a)........ 3,000,000 3,263,070
New Jersey Economic Development
Authority Revenue
Transportation Project
Series A
5.875%, due 5/1/14............ 8,000,000 8,166,240
------------
11,429,310
------------
NEW YORK (24.1%)
Metropolitan Transportation
Authority New York Commuter
Facilities Revenue, Series A
5.625%, due 7/1/27............ 9,500,000 8,895,990
5.75%, due 7/1/21............. 1,000,000 967,100
Metropolitan Transportation New
York Tax Free, Series A
4.50%, due 4/1/18............. 5,000,000 4,071,400
Nassau County New York Tobacco
Settlement Corp., Series A
6.60%, due 7/15/39............ 6,300,000 6,091,659
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 313
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City General
Obligation
Series E
5.875%, due 8/1/13............ $15,000,000 $ 15,150,000
Series D
6.00%, due 2/15/25 (c)........ 95,000 100,264
Series B
7.00%, due 6/1/15............. 90,000 94,322
Series A
7.75%, due 8/15/07-8/15/16
(c)......................... 165,000 175,394
Series D
8.00%, due 8/1/04 (c)......... 55,000 58,535
Series F
8.20%, due 11/15/04 (c)....... 105,000 113,348
New York City Industrial
Development Agency Civic
Facility Revenue Lighthouse
International Project
4.50%, due 7/1/33............. 3,750,000 2,798,213
New York City Metropolitan
Transportation Authority
Control
Series 7
(zero coupon), due 7/1/14..... 3,930,000 1,681,843
New York City Transitional
Finance Authority Revenue,
Future Tax
Series A
6.00%, due 8/15/15............ 1,000,000 1,022,180
New York State Dormitory
Authority Revenue
Cornell University
Series A
7.375%, due 7/1/30............ 2,880,000 2,977,574
New York University
Series A
5.75%, due 7/1/27............. 2,500,000 2,437,025
6.00%, due 7/1/18-7/1/19...... 7,000,000 7,146,156
Park Ridge Housing Income
Project 7.85%, due 2/1/29..... 1,400,000 1,431,290
Rockefeller University 4.75%,
due 7/1/37.................... 850,000 680,289
Series C
7.375%, due 5/15/10........... 6,000,000 6,765,720
Series B
7.50%, due 5/15/11............ 4,250,000 4,838,625
New York State Environmental
Facilities Corp. Pollution
Control Revenue, State Water
Series A
7.25%, due 6/15/10............ 400,000 422,036
7.50%, due 6/15/12............ 3,050,000 3,152,663
Series B
7.50%, due 3/15/11............ 700,000 715,729
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
NEW YORK (CONTINUED)
New York State Local Government
Assistance Corp.
Series C
(zero coupon), due 4/1/14..... $ 1,130,000 $ 500,307
New York State Medical Care
Facilities Finance Agency
Revenue
7.375%, due 8/15/19........... 1,595,000 1,630,377
7.875%, due 8/15/20........... 450,000 467,532
New York State Thruway
Authority Service Contract
Revenue Local Highway & Bridge
5.75%, due 4/1/16............. 100,000 96,763
New York State Urban
Development
Corporate Revenue Service
Contract, Series C
5.75%, due 1/1/16............. 1,500,000 1,485,315
New York Urban Development
Corp. 5.375%, due 7/1/22...... 4,640,000 4,202,309
Niagara Falls New York Bridge
Commission Toll Revenue
Series B
5.25%, due 10/1/15............ 500,000 480,030
Niagara New York Frontier
Transportation Authority
Airport Revenue, Buffalo
Niagara
Series B
5.50%, due 4/1/19............. 1,000,000 936,230
Tobacco Settlement Asset
Securitization Corp.
Series 1, Plan Principal 2019
6.25%, due 7/15/27............ 250,000 241,253
6.375%, due 7/15/39........... 7,250,000 7,016,623
Triborough Bridge & Tunnel
Authority of New York General
Purpose Revenue
Series Y
6.125%, due 1/1/21............ 750,000 772,455
------------
89,616,549
------------
NORTH CAROLINA (2.4%)
North Carolina East Municipal
Power Agency, Power System
Revenue
Series D
6.75%, due 1/1/26............. 2,000,000 1,983,060
North Carolina Municipal Power
Agency, Catawba Electric
Revenue
Series B
6.50%, due 1/1/20............. 7,000,000 6,846,980
------------
8,830,040
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 314
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (CONTINUED)
OHIO (0.6%)
Ohio State Air Quality
Development Authority Revenue,
Pollution Control, Cleveland
Co. Project
8.00%, due 12/1/13............ $ 2,000,000 $ 2,185,280
------------
PENNSYLVANIA (2.2%)
Allegheny County Port Authority
Special Revenue Transportation
6.25%, due 3/1/16............. 3,750,000 3,885,150
6.375%, due 3/1/15............ 3,120,000 3,275,594
Berks County Pennsylvania
Municipal Authority Hospital
Revenue Reading Hospital &
Medical Center Project
6.00%, due 11/1/29............ 1,250,000 1,216,900
------------
8,377,644
------------
PUERTO RICO (0.2%)
Puerto Rico Electric Power
Authority Revenue
Series U
6.00%, due 7/1/14............. 745,000 757,889
------------
SOUTH CAROLINA (0.7%)
Charleston County South
Carolina Public Improvement
6.125%, due 9/1/11............ 2,425,000 2,585,196
------------
TEXAS (6.0%)
Dallas Fort Worth Texas
International Airport
Facilities Improvement
Revenue, American Airlines
Inc.
7.50%, due 11/1/25 (a)........ 7,700,000 7,934,080
Frisco Texas Independent School
District Capital Appreciation
(zero coupon), due 8/15/27.... 3,000,000 522,840
Houston Texas Water & Sewer
Systems Revenue Participation
Series C
6.375%, due 12/1/17 (c)....... 1,225,000 1,251,215
Matagorda County Navigation
District 1, Pollution Control
Revenue
Central Power & Light Co.
Project
5.95%, due 5/1/30 (a)......... 4,000,000 3,591,120
Pflugerville Texas General
Obligation
4.75%, due 8/1/24............. 5,625,000 4,556,981
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
TEXAS (CONTINUED)
South Texas Community College
District
5.75%, due 8/15/15............ $ 1,500,000 $ 1,501,110
Spring Texas Independent School
District, Series A
4.50%, due 8/15/21-8/15/22.... 3,600,000 2,828,984
------------
22,186,330
------------
VIRGINIA (0.7%)
Richmond Metropolitan Authority
Expressway Revenue
5.25%, due 7/15/22............ 2,900,000 2,621,455
------------
WASHINGTON (2.3%)
Clark County Washington Sewer
Revenue
5.70%, due 12/1/16............ 2,000,000 1,960,580
Seattle Washington Municipal
Light & Power Revenue
6.00%, due 10/1/15............ 6,500,000 6,594,445
------------
8,555,025
------------
WISCONSIN (2.5%)
Wisconsin State Health &
Educational Facility Revenue,
Kenosha Hospital Medical
Center
5.625%, due 5/15/29........... 2,590,000 2,180,676
Wisconsin State, Series C
5.75%, due 5/1/11............. 2,395,000 2,467,209
6.00%, due 5/1/12............. 4,590,000 4,792,604
------------
9,440,489
------------
WEST VIRGINIA (0.2%)
Kanawha Mercer Nicholas County
West Virginia Single Family
Mortgage Revenue
(zero coupon), due 2/1/15
(c)........................... 2,230,000 863,099
------------
Total Long-Term Municipal Bonds
(Cost $388,344,797)........... 366,568,013
------------
Total Investments
(Cost $388,344,797) (d)....... 98.4% 366,568,013(e)
Cash and Other Assets Less
Liabilities................... 1.6 6,014,641
----- ------------
Net Assets..................... 100.0% $372,582,654
===== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 315
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT APPRECIATION (f)
---------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)(g)
Municipal Bond March
2000 (30 Year)...... (186) $ 341,156
------------
Total Futures
Contracts
(Settlement Value
$17,540,344)........ $ 341,156
============
</TABLE>
- -------
(a) Interest on these securities is subject to alternative minimum tax.
(b) Segregated or partially segregated as collateral for futures contracts.
(c) 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.
(d) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(e) At December 31, 1999, net unrealized depreciation was $21,776,784 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 $1,459,708 and aggregate gross unrealized depreciation
for all investments on which there was an excess of cost over market value
of $23,236,492.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1999.
(g) 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.
14
<PAGE> 316
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$388,344,797)............................................. $366,568,013
Cash........................................................ 998,440
Receivables:
Interest.................................................. 5,813,904
Fund shares sold.......................................... 63,914
Variation margin on futures contracts..................... 5,812
------------
Total assets........................................ 373,450,083
------------
LIABILITIES:
Payables:
Fund shares redeemed...................................... 395,809
MainStay Management....................................... 200,020
NYLIFE Distributors....................................... 158,773
Transfer agent............................................ 32,008
Custodian................................................. 3,942
Trustees.................................................. 3,106
Accrued expenses............................................ 73,771
------------
Total liabilities................................... 867,429
------------
Net assets.................................................. $372,582,654
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 15,062
Class B................................................... 394,397
Class C................................................... 539
Additional paid-in capital.................................. 415,681,412
Accumulated undistributed net investment income............. 1,114
Accumulated net realized loss on investments................ (22,074,242)
Net unrealized depreciation on investments and futures
contracts................................................. (21,435,628)
------------
Net assets.................................................. $372,582,654
============
CLASS A
Net assets applicable to outstanding shares................. $ 13,676,168
============
Shares of beneficial interest outstanding................... 1,506,183
============
Net asset value per share outstanding....................... $ 9.08
Maximum sales charge (4.50% of offering price).............. 0.43
------------
Maximum offering price per share outstanding................ $ 9.51
============
CLASS B
Net assets applicable to outstanding shares................. $358,416,828
============
Shares of beneficial interest outstanding................... 39,439,693
============
Net asset value and offering price per share outstanding.... $ 9.09
============
CLASS C
Net assets applicable to outstanding shares................. $ 489,658
============
Shares of beneficial interest outstanding................... 53,871
============
Net asset value and offering price per share outstanding.... $ 9.09
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 317
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 25,005,006
------------
Expenses:
Management................................................ 2,660,755
Distribution--Class B..................................... 1,059,551
Distribution--Class C..................................... 392
Service--Class A.......................................... 48,705
Service--Class B.......................................... 1,059,551
Service--Class C.......................................... 392
Transfer agent............................................ 398,869
Shareholder communication................................. 84,582
Recordkeeping............................................. 71,012
Professional.............................................. 58,779
Registration.............................................. 50,457
Custodian................................................. 44,402
Trustees.................................................. 12,506
Miscellaneous............................................. 35,371
------------
Total expenses.......................................... 5,585,324
------------
Net investment income....................................... 19,419,682
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from:
Security transactions..................................... (18,296,873)
Futures transactions...................................... (30,536)
------------
Net realized loss on investments............................ (18,327,409)
------------
Net change in unrealized appreciation on investments:
Security transactions..................................... (33,009,486)
Futures transactions...................................... 341,156
------------
Net unrealized loss on investments.......................... (32,668,330)
------------
Net realized and unrealized loss on investments............. (50,995,739)
------------
Net decrease in net assets resulting from operations........ $(31,576,057)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 318
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 19,419,682 $ 21,189,965
Net realized gain (loss) on investments................... (18,327,409) 5,906,298
Net change in unrealized appreciation on investments...... (32,668,330) (4,593,758)
------------- ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (31,576,057) 22,502,505
------------- ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (892,182) (708,345)
Class B................................................. (18,519,426) (20,489,979)
Class C................................................. (6,960) (41)
In excess of net investment income:
Class A................................................. -- (23,223)
Class B................................................. -- (671,754)
Class C................................................. -- (1)
------------- ------------
Total dividends and distributions to shareholders..... (19,418,568) (21,893,343)
------------- ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 10,385,583 7,734,640
Class B................................................. 24,705,772 38,082,025
Class C................................................. 558,295 5,300
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 629,466 595,727
Class B................................................. 11,863,292 13,369,997
Class C................................................. 6,955 41
------------- ------------
48,149,363 59,787,730
Cost of shares redeemed:
Class A................................................. (12,858,688) (3,521,161)
Class B................................................. (90,948,427) (72,709,355)
Class C................................................. (57,995) (2)
------------- ------------
Decrease in net assets derived from capital share
transactions......................................... (55,715,747) (16,442,788)
------------- ------------
Net decrease in net assets............................ (106,710,372) (15,833,626)
NET ASSETS:
Beginning of year........................................... 479,293,026 495,126,652
------------- ------------
End of year................................................. $372,582,654 $479,293,026
============= ============
Accumulated undistributed net investment income at end of
year...................................................... $ 1,114 $ --
============= ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 319
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
Year ended December 31,
----------------------------------------------------------
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..................................... 0.45 0.47 0.51 0.54 0.52
Net realized and unrealized gain (loss) on investments.... (1.12) 0.03 0.35 (0.19) 0.83
------- ------- ------- ------- ------
Total from investment operations.......................... (0.67) 0.50 0.86 0.35 1.35
------- ------- ------- ------- ------
Less dividends and distributions:
From net investment income.............................. (0.45) (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......................... (0.45) (0.49) (0.51) (0.53) (0.53)
------- ------- ------- ------- ------
Net asset value at end of period.......................... $ 9.08 $ 10.20 $ 10.19 $ 9.84 $10.02
======= ======= ======= ======= ======
Total investment return (a)............................... (6.75%) 4.98% 9.02% 3.63% 15.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................. 4.62% 4.61% 5.14% 5.4% 5.5%
Expenses.............................................. 1.02% 1.02% 1.01% 1.0% 1.0%
Portfolio turnover rate................................... 101% 116% 119% 95% 110%
Net assets at end of period (in 000's).................... $13,676 $17,868 $13,017 $16,486 $9,752
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) 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> 320
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- -------------------------------
September 1*
Year ended December 31, Year ended through
---------------------------------------------------------------- December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.20 $ 10.21 $ 10.25
-------- -------- -------- -------- -------- -------- --------
0.43 0.45 0.49 0.51 0.51 0.43 0.15
(1.12) 0.03 0.35 (0.19) 0.83 (1.12) (0.04)
-------- -------- -------- -------- -------- -------- --------
(0.69) 0.48 0.84 0.32 1.34 (0.69) 0.11
-------- -------- -------- -------- -------- -------- --------
(0.43) (0.45) (0.49) (0.51) (0.51) (0.43) (0.15)
-- (0.01) -- -- -- -- (0.00)(b)
-- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
(0.43) (0.46) (0.49) (0.51) (0.51) (0.43) (0.15)
-------- -------- -------- -------- -------- -------- --------
$ 9.09 $ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.09 $ 10.21
======== ======== ======== ======== ======== ======== ========
(6.96%) 4.83% 8.80% 3.33% 14.86% (6.96%) 1.09%
4.37% 4.36% 4.93% 5.2% 5.2% 4.37% 4.36%+
1.27% 1.27% 1.22% 1.2% 1.2% 1.27% 1.27%+
101% 116% 119% 95% 110% 101% 116%
$358,417 $461,420 $482,209 $496,231 $543,314 $ 490 $ 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> 321
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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 Fund's subadvisor, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Fund's 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
20
<PAGE> 322
Notes to Financial Statements
other assets, including debt securities for which prices are supplied by a
pricing agent but are not deemed by the Fund's 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 Fund's 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 and nontaxable income to the shareholders of the
Fund within the allowable time limits. Therefore, no Federal income tax
provision is required.
21
<PAGE> 323
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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year ended December 31, 1999, the Manager
earned $2,660,755.
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 0.30% of the average daily net assets of the Fund.
22
<PAGE> 324
Notes to Financial Statements (continued)
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 0.25% 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 $6,604 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $916, $314,438 and $529, respectively, for the year ended December 31,
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 year ended December 31,
1999, amounted to $398,869.
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 $12,206 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$71,012 for the year ended December 31, 1999.
23
<PAGE> 325
MainStay Tax Free Bond Fund
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, for Federal income tax purposes, capital loss
carryforwards of $15,757,006, were available as shown in the table below, to the
extent provided by the regulations to offset future realized gains through 2007.
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.
<TABLE>
<CAPTION>
CAPITAL LOSS AMOUNT
AVAILABLE THROUGH (000,S)
----------------- -------
<S> <C>
2004................................................... $ 3,721
2007................................................... 12,036
-------
$15,757
=======
</TABLE>
In addition, the Fund intends to elect, to the extent provided by the
regulations, to treat $5,976,080 of qualifying capital losses that arose during
the year as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $440,673 and $502,672, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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....................... 1,058 2,492 59 761 3,730 1
Shares issued in reinvestment of
dividends....................... 65 1,224 --(a) 59 1,312 --
------ ------ -- ---- ------ --
1,123 3,716 59 820 5,042 1
Shares redeemed................... (1,369) (9,486) (6) (346) (7,135) --
------ ------ -- ---- ------ --
Net increase (decrease)........... (246) (5,770) 53 474 (2,093) 1
====== ====== == ==== ====== ==
</TABLE>
- -------
* First offered on September 1, 1998.
(a) Less than one thousand.
24
<PAGE> 326
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Tax Free Bond Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
25
<PAGE> 327
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 328
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN14-02/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay
Tax Free Bond Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 329
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Total Return
Fund versus the S&P 500 Index and Inflation--
Class A, Class B, and Class C Shares 4
Portfolio Management Discussion and Analysis 5
Year-by-Year Performance 6
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 17
Notes to Financial Statements 22
Report of Independent Accountants 31
The MainStay Funds 32
</TABLE>
<PAGE> 330
This page intentionally left blank
2
<PAGE> 331
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 332
$10,000 Invested in the MainStay
Total Return Fund versus the S&P 500
Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 10.05%, 5 Years 19.20%, 10 Years 14.48%
[Class A Line Graph]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN
CLASS A SHARES S&P 500 INDEX* INFLATION(+)
--------------------- -------------- ----------
<S> <C> <C> <C>
12/89 $ 9450.00 $10000.00 $10000.00
12/90 9928.00 9690.00 10625.00
12/91 13585.00 12636.00 10942.00
12/92 14077.00 13597.00 11265.00
12/93 15555.00 14963.00 11574.00
12/94 15180.00 15160.00 11875.00
12/95 19531.00 20851.00 12184.00
12/96 22114.00 25634.00 12587.00
12/97 26147.00 34186.00 12801.00
12/98 33189.00 43956.00 13007.00
12/99 38651.00 53205.00 13356.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year 10.60%, 5 Years 19.64%, 10 Years 14.78%
Class C SEC Returns: 1 Year 14.60%, 5 Years 19.83%, 10 Years 14.78%
[Class B & C Line Graph]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN
CLASS B SHARES S&P 500 INDEX* INFLATION(+)
--------------------- -------------- ----------
<S> <C> <C> <C>
12/89 $10000.00 $10000.00 $10000.00
12/90 10506.00 9690.00 10625.00
12/91 14376.00 12636.00 10942.00
12/92 14896.00 13597.00 11265.00
12/93 16460.00 14963.00 11574.00
12/94 16064.00 15160.00 11875.00
12/95 20555.00 20851.00 12184.00
12/96 23173.00 25634.00 12587.00
12/97 27262.00 34186.00 12801.00
12/98 34338.00 43956.00 13007.00
12/99 39695.00 53205.00 13356.00
</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
12/31/89 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 12/31/89
through 12/31/94. Performance figures for the two classes vary after this
date based on differences in their loads and expense structures. The Class
B graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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> 333
- -------
(1) See page 4 for more information on the S&P 500(R) Index.
(2) See footnote and table on page 9 for more information on Lipper Inc.
(3) Returns reflect performance for the one-year period ended 12/31/99.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
The U.S. economy showed considerable strength in 1999, with gross domestic
product continuing to expand and inflation remaining modest. With consumer
spending on the rise and a tight labor market, many investors paid close
attention to inflation indicators throughout the year--including oil prices,
wages, commodity values, producer prices, and the cost of consumer goods and
services.
Throughout most of 1999, the stock market continued to soar, with the S&P 500
Composite Stock Price Index(1) providing its fifth straight year of returns over
20%. Technology and Internet stocks led the way, with telecommunications, cable,
and media companies also providing strong results. Despite an early rotation
into value stocks, the market primarily focused on growth equities--and despite
three 25-basis-point tightening moves by the Federal Reserve in June, August,
and November, stocks ended the year on a rapidly rising trend.
Unfortunately, Federal Reserve activity had a generally negative impact on
domestic bond markets. Over time, however, higher interest rates may have
positive effects, by slowing economic growth, holding inflation in check, and
helping control consumer spending.
Corporate bonds suffered in 1999 as rising interest rates made it more expensive
for companies to raise the capital they needed to meet earnings projections.
With mortgage rates ending 1999 generally about 100 basis points higher than at
the beginning of the year, refinancing incentives have declined. As we move into
the year 2000, however, business spending could increase as companies redirect
capital from Y2K computer reprogramming to other productive uses.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Total Return Fund returned
16.46% for Class A shares and 15.60% for Class B and Class C shares, excluding
all sales charges. All share classes substantially outperformed the 8.73% return
of the average Lipper(2) balanced fund, to rank within the top 15% of all peer
funds. All share classes underperformed the 21.04% return of the S&P 500 Index.
EQUITY STRATEGIES AND RESULTS
In the equity portion of the Fund's portfolio, technology stocks led the
market's advance throughout most of 1999. Sun Microsystems (+262%)(3) was the
Fund's best-performing stock in 1999, as well as its largest holding. Other
strong technology stocks included Oracle (+290%), EMC (+160%), and Cisco Systems
(+138%). All of these stocks were among the Fund's largest holdings and had a
major positive impact on performance.
During the third quarter, we began purchasing Corning for the Fund. Corning is a
largely misunderstood company whose value lies in its fast-growing fiber-optic
cable and photonics businesses. It is also a major supplier to telecom and
related equipment companies and is a major beneficiary of the drive to increase
5
<PAGE> 334
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
YEAR 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
12/99 16.46
</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 9 for more information on performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
YEAR 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
12/99 15.60
</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 9 for more information on performance.
bandwidth through optical technology. Since its initial purchase, the stock's
price has almost doubled.
Key technology purchases in 1999 included shares of Motorola, Texas Instruments,
and Nextel, all of which contributed positively to the Fund's performance.
The equity portion of the Fund also benefited from exposure to radio, cable, and
media companies that enjoyed increasing revenue and income growth from higher
advertising spending and advanced technology. We purchased shares of Omnicom for
the Fund. The company is one of the world's largest advertising agencies, which
stands to benefit in 2000 from advertising spending for the
6
<PAGE> 335
Olympics and the presidential election. In the utility sector, we purchased AES
Corp., for the Fund. The company is one of the world's largest independent power
generators, benefiting from energy deregulation and contracts to provide energy
at competitive prices.
The price of shares of Genentech, a large biotechnology company, has doubled
since our initial purchase for the Fund. The company delivered two promising
cancer drugs to market and moved several products closer to FDA approval. We
also purchased shares of Amgen, one of the world's largest biotech companies,
for the Fund, as new products due in 2000 moved the company into an accelerating
growth phase. While biotech companies soared, traditional drug stocks showed
poor performance throughout the year. Wholesale drug distributor Cardinal Health
and pharmaceutical companies Eli Lilly, Pfizer, and Schering-Plough, were among
the Fund's worst performers. We sold the Fund's Eli Lilly holdings during the
third quarter and the stock continued to decline after the sale. In December, we
sold the Fund's Pfizer holdings and trimmed all of the Fund's health care
holdings. We believe that debates on health care issues will make these stocks
more controversial in an election year.
Retailers had varied results, with Home Depot gaining 69% for the year, while
Nordstrom failed to realize the earnings promise of a proposed restructuring. We
sold the Fund's position in Nordstrom. Consumer staples had a negative impact on
the Fund's performance, with Kroger and Safeway declining significantly before a
negative earnings announcement at Kroger prompted us to sell the Fund's holdings
in both supermarket stocks.
While some financial stocks such as Citigroup and AIG performed well in 1999, we
saw rising interest rates as a reason to sell the Fund's holdings in Fannie Mae,
Southtrust, and Conseco early in the year. We also sold Freddie Mac in the third
quarter and Associates First Capital in the fourth. Although some of these sales
were at a loss for the year, the proceeds were used to purchase more productive
assets, so we believe they were beneficial for the Fund.
BOND STRATEGIES AND RESULTS
Federal Reserve action had a major influence on the income portion of the Fund's
portfolio. With 30-year Treasury yields rising less than 2-year Treasuries, the
yield curve flattened, allowing the Fund to greatly benefit from a defensive
duration position and concentration in the longer end of the yield curve.
With a continuing budget surplus allowing the government to pay down Treasury
debt, 30-year Treasuries became increasingly scarce--and hence, increasingly
valuable--relative to 5-year and 10-year Treasuries. The Fund's 30-year Treasury
position was further enhanced later in the year by increasing demand among
investors we believe were seeking a measure of Y2K protection and liquidity.
SECTOR-BY-SECTOR RESULTS
During the first quarter of 1999, mortgage-backed securities, collateralized
mortgage obligations, and asset-backed securities all performed well as yield
7
<PAGE> 336
- -------
(4) 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. When applied
to Fund holdings, 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.
spreads relative to Treasuries tightened. As interest rates rose during the
second quarter, however, mortgage-backed securities tended to extend maturities,
creating unfavorable risk profiles. To help manage this concern and help reduce
credit risk, the Fund favored AAA-rated(4) securities backed by commercial
mortgages as well as U.S. Treasury securities, both of which provided attractive
relative returns in the second quarter of 1999. The decision to underweight
agency mortgage-backed securities detracted from the Fund's relative performance
in the second half of the year, however, as a change in Federal Reserve
repurchase guidelines caused spreads to tighten dramatically. Overall, the Fund
reduced its commitment to mortgage-backed securities over the course of the
year.
Early in 1999, spreads tightened substantially among higher-quality corporate
credits, liquid newer issues, and bonds in less economically sensitive sectors.
The Fund's overweighted position in corporate bonds during this period proved
beneficial for performance. In late spring, we anticipated that spreads would
widen and reduced the Fund's corporate-bond exposure. As Federal Reserve
tightening and many investors' Y2K fears of oversupply enveloped the market,
spreads widened in the fall, benefiting the portfolio. The Fund is currently
positioned with a neutral corporate-bond position relative to the overall bond
market.
LOOKING AHEAD
We continue to have a positive outlook for stocks in 2000, with technology,
media, and telecommunications continuing to show favorable fundamentals, even at
high valuations. We have shifted our health care focus more towards
biotechnology companies with strong product lines. We continue to underweight
financials as we anticipate more rate hikes by the Federal Reserve in early
2000.
If the Federal Reserve acts as we anticipate, it may result in a slightly
flatter yield curve. As 2000 unfolds, we believe commercial mortgage-backed
securities and asset-backed securities will outperform agency mortgage-backed
issues, and we have positioned the Fund accordingly.
Whatever the economy or 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 LLC
8
<PAGE> 337
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 16.46% 20.55% 15.13% 14.50%
Class B 15.60% 19.83% 14.78% 14.22%
Class C 15.60% 19.83% 14.78% 14.22%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 10.05% 19.20% 14.48% 13.96%
Class B 10.60% 19.64% 14.78% 14.22%
Class C 14.60% 19.83% 14.78% 14.22%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 46 out of 23 out of n/a 23 out of
448 funds 223 funds 223 funds
Class B 56 out of 30 out of 2 out of 6 out of
448 funds 223 funds 61 funds 48 funds
Class C 56 out of n/a n/a 37 out of
448 funds 421 funds
Average Lipper
balanced fund 8.73% 16.24% 11.82% 12.43%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $27.23 $0.3442 $1.4170
Class B $27.23 $0.1512 $1.4170
Class C $27.23 $0.1512 $1.4170
</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. 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. 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 (12/29/87) up to 12/31/94.
Performance figures for the two classes after this date vary based on
differences in their loads 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 figures 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 12/31/99. Class A shares were first offered to the public on
1/3/95, Class B shares on 12/29/87, and Class C shares on 9/1/98. Life of
Fund return for the average Lipper peer fund is for the period from
12/29/87 through 12/31/99. Lipper returns and rankings are unaudited.
9
<PAGE> 338
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (30.5%)+
ASSET-BACKED SECURITIES (3.9%)
AIRLINES (0.3%)
America West Airlines, Inc.
Series C
6.86%, due 1/2/06........... $ 3,248,178 $ 3,187,372
Northwest Airlines Inc.
9.485%, due 10/1/16......... 1,970,000 1,951,521
--------------
5,138,893
--------------
AIRPLANE LEASES (1.2%)
AerCo Ltd.
Series 1A Class A1
6.6525%, due 7/15/23 (d).... 3,520,000 3,515,846
Aircraft Finance Trust
Series 1999-1 Class C
8.00%, due 5/15/24 (c)...... 3,930,000 3,502,337
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
7.85%, due 6/15/06 (d)...... 5,008,244 4,908,079
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19.......... 8,024,517 7,191,091
Morgan Stanley Aircraft
Finance
Series 1 Class A1
6.6725%, due 3/15/23 (d).... 4,540,000 4,538,638
--------------
23,655,991
--------------
AUTO LEASES (0.6%)
Premier Auto Trust
Series 1998-4 Class A3
5.69%, due 6/8/02........... 6,190,000 6,141,223
Series 1999-1 Class A3
5.69%, due 11/8/02.......... 4,860,000 4,797,257
--------------
10,938,480
--------------
ELECTRIC UTILITIES (0.2%)
Boston Edison Corp.
Series 1999-1 Class A2
6.45%, due 9/15/05.......... 4,520,000 4,454,686
--------------
EQUIPMENT LOANS (0.6%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05.......... 4,705,000 4,564,179
- ---------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
EQUIPMENT LOANS (CONTINUED)
IKON Receivables, LLC
Series 1999-1 Class A3
5.99%, due 5/15/05.......... $ 6,035,000 $ 5,956,907
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02 (d)..... 1,840,000 1,817,055
--------------
12,338,141
--------------
FINANCE (0.3%)
Green Tree Financial Corp.
Series 1999-3 Class A1
4.948%, due 6/1/00.......... 767,741 767,127
Series 1999-4 Class A4
6.64%, due 5/1/31........... 4,500,000 4,435,740
--------------
5,202,867
--------------
HOME EQUITY LOAN (0.2%)
Conseco Finance Trust
Series 1999-F Class A2
6.72%, due 10/15/14 (d)..... 3,000,000 2,975,760
--------------
LEISURE TIME (0.2%)
Harley Davidson Eaglemark
Motorcycle Trust
Series 1999-1 Class A2
5.52%, due 2/15/05.......... 3,600,000 3,503,844
--------------
TRANSPORTATION (0.3%)
Atlas Air, Inc.
Series 1999-1C
8.77%, due 1/2/11........... 5,865,000 5,616,969
--------------
Total Asset-Backed Securities
(Cost $76,430,554).......... 73,825,631
--------------
CORPORATE BONDS (6.0%)
AEROSPACE/DEFENSE (0.1%)
Newport News Shipbuilding,
Inc.
8.625%, due 12/1/06......... 1,455,000 1,436,813
--------------
AIRLINES (0.2%)
Delta Airlines, Inc.
8.30%, due 12/15/29 (c)..... 4,050,000 3,926,880
--------------
AUTOMOBILES (0.2%)
DaimlerChrysler North America
Holding Corp.
7.20%, due 9/1/09........... 4,060,000 3,989,884
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 339
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
AUTO PARTS & EQUIPMENT (0.1%)
Delphi Automotive Systems
Corp.
7.125%, due 5/1/29.......... $ 2,585,000 $ 2,287,337
--------------
BANKS--MONEY CENTER (0.1%)
Bank of America Corp.
6.625%, due 6/15/04......... 2,640,000 2,581,999
--------------
BEVERAGES--ALCOHOLIC (0.0%) (b)
Canandaigua Brands, Inc.
8.625%, due 8/1/06.......... 695,000 692,394
--------------
BROADCAST/MEDIA (0.5%)
Liberty Media Corp.
8.50%, due 7/15/29 (c)...... 3,160,000 3,210,497
Turner Broadcasting Systems
Inc.
8.375%, due 7/1/13.......... 5,614,000 5,822,336
--------------
9,032,833
--------------
BUILDING MATERIALS (0.1%)
Vulcan Materials Co.
6.00%, due 4/1/09........... 3,095,000 2,784,912
--------------
CHEMICALS--DIVERSIFIED (0.1%)
Georgia Gulf Corp.
10.375%, due 11/1/07 (c).... 505,000 527,094
Lyondell Chemical Co.
Series B
9.875%, due 5/1/07.......... 560,000 571,200
--------------
1,098,294
--------------
COMPUTER SYSTEMS (0.1%)
Unisys Corp.
11.75%, due 10/15/04........ 760,000 830,300
--------------
CONSUMER FINANCE (0.4%)
Fremont General Corp.
Series B
7.70%, due 3/17/04.......... 4,775,000 4,132,619
Household Finance Corp.
6.50%, due 11/15/08......... 2,500,000 2,312,275
--------------
6,444,894
--------------
ELECTRIC POWER COMPANIES (0.1%)
AES Eastern Energy Corp.
9.00%, due 7/2/17 (c)....... 855,000 805,325
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES (0.0%) (b)
ESI Tractebel Acquisition
Corp.
7.99%, due 12/30/11......... $ 800,000 $ 720,000
--------------
ENERGY (0.1%)
Caithness Coso Funding Corp.
Series B
9.05%, due 12/15/09......... 700,000 696,500
CMS Energy Corp.
10.875%, due 12/15/04 (c)... 700,000 700,000
--------------
1,396,500
--------------
ENTERTAINMENT (0.0%) (b)
CSC Holdings, Inc.
7.625%, due 7/15/18......... 530,000 492,900
--------------
FINANCE--AUTO LOANS (0.3%)
Ford Motor Credit Corp.
7.375%, due 10/28/09........ 5,470,000 5,406,603
--------------
FINANCIAL--MISCELLANEOUS (0.5%)
Morgan Stanley Dean Witter &
Co
7.125%, due 1/15/03......... 6,675,000 6,670,127
--------------
FINANCIAL SERVICES (0.2%)
Sears Roebuck Acceptance
Corp.
Medium-Term Note
Series IV
6.36%, due 12/4/01.......... 3,500,000 3,435,075
--------------
FOOD (0.0%) (B)
Smithfield Foods Inc.
7.625%, due 2/15/08......... 305,000 274,500
--------------
FOOD, BEVERAGE & TOBACCO (0.0%) (b)
Standard Commercial
Tobacco Corp.
8.875%, due 8/1/05.......... 525,000 410,813
--------------
HEALTHCARE--HOSPITAL MANAGEMENT (0.1%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95......... 935,000 684,991
Tenet Health Care Corp.
8.00%, due 1/15/05.......... 295,000 282,463
--------------
967,454
--------------
HOMEBUILDING (0.0%) (b)
Standard Pacific Corp.
8.50%, due 4/1/09........... 425,000 401,625
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 340
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOTEL (0.1%)
Felcor Suites L.P.
7.625%, due 10/1/07......... $ 600,000 $ 521,387
Mandalay Resort Group
7.625%, due 7/15/13......... 500,000 435,000
Starwood Hotels & Resorts
Worldwide, Inc.
7.375%, due 11/15/15........ 495,000 378,546
--------------
1,334,933
--------------
INSURANCE--LIFE (0.3%)
Conseco, Inc.
6.40%, due 6/15/01.......... 6,465,000 6,322,059
--------------
INSURANCE--MULTI-LINE (0.0%) (b)
Willis Corroon Group PLC.
9.00%, due 2/1/09........... 590,000 491,175
--------------
INVESTMENT BANK/BROKERAGE (0.5%)
Donaldson, Lufkin & Jenrette
Inc.
6.50%, due 6/1/08........... 4,110,000 3,779,433
Goldman Sachs Group Inc.
Series A
6.6038%, due 1/8/01
(c)(d)...................... 2,800,000 2,810,640
Labranche & Co. Inc.
9.50%, due 8/15/04 (c)...... 555,000 538,350
Lehman Brothers Holding Inc.
6.625%, due 2/5/06.......... 1,370,000 1,296,102
--------------
8,424,525
--------------
METALS--MINING (0.0%) (b)
Great Central Mines, Ltd.
8.875%, due 4/1/08.......... 910,000 839,475
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.0%) (b)
Western Gas Resources, Inc.
10.00%, due 6/15/09......... 565,000 579,125
--------------
OIL & GAS--EQUIPMENT SERVICES (0.1%)
R & B Falcon Corp.
Series B
6.95%, due 4/15/08.......... 1,025,000 887,906
RBF Finance Co.
11.375%, due 3/15/09........ 150,000 160,500
--------------
1,048,406
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
OIL & GAS--EXPLORATION & PRODUCTION (0.1%)
Vastar Resources Inc.
6.50%, due 4/1/09........... $ 2,965,000 $ 2,756,027
--------------
OIL--INTEGRATED DOMESTIC (0.4%)
Amerada Hess Corp.
7.875%, due 10/1/29......... 8,075,000 7,885,318
--------------
PAPER & FOREST PRODUCTS (0.2%)
Georgia-Pacific Corp.
7.75%, due 11/15/29......... 3,195,000 3,051,097
Pope & Talbot Inc.
8.375%, due 6/1/13.......... 1,300,000 1,143,921
--------------
4,195,018
--------------
REAL ESTATE (0.0%) (b)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07 (d)...... 850,000 702,938
--------------
REAL ESTATE INVESTMENT/MANAGEMENT (0.0%) (b)
CB Richard Ellis Service,
Inc.
8.875%, due 6/1/06.......... 395,000 351,550
--------------
REAL ESTATE INVESTMENT TRUST (0.0%) (b)
Hospitality Properties Trust
7.00%, due 3/1/08........... 600,000 513,607
--------------
RESIDENTIAL MORTGAGE LOAN (0.3%)
Abbey National PLC
7.95%, due 10/26/29......... 5,935,000 5,925,148
--------------
RETAIL STORES--GENERAL MERCHANDISE (0.2%)
Kmart Corp.
8.375%, due
12/1/04-7/1/22.............. 935,000 877,996
Wal-Mart Stores, Inc.
6.625%, due 8/10/09......... 2,150,000 2,094,444
--------------
2,972,440
--------------
SPECIALIZED SERVICES (0.1%)
WPP Finance USA Corp.
6.625%, due 7/15/05......... 2,690,000 2,506,273
--------------
STEEL (0.0%) (b)
LTV Corp.
11.75%, due 11/15/09 (c).... 510,000 530,400
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 341
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION LONG DISTANCE (0.3%)
Sprint Capital Corp.
6.875%, due 11/15/28........ $ 6,150,000 $ 5,481,188
--------------
TELECOMMUNICATION SERVICES (0.1%)
Orange PLC
8.00%, due 8/1/08........... 420,000 423,675
Price Communications Wireless
Inc.
Series B
9.125%, due 12/15/06........ 1,355,000 1,371,938
Williams Communications Group
Inc.
10.875%, due 10/1/09........ 420,000 438,900
--------------
2,234,513
--------------
UTILITIES (0.1%)
PSEG Energy Holdings, Inc.
10.00%, due 10/1/09 (c)..... 580,000 594,502
Tenaska Georgia Partners L.P.
9.50%, due 2/1/30 (c)....... 2,005,000 2,015,105
--------------
2,609,607
--------------
Total Corporate Bonds
(Cost $117,171,866)......... 113,791,187
--------------
MORTGAGE-BACKED SECURITIES (2.6%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (2.6%)
Asset Securitization Corp.
Series1997-MD7 Class A1B
7.41%, due 1/13/30.......... 3,776,000 3,658,982
Commercial Mortgage Asset
Trust
Series 1999-C2 Class A2
7.546%, due 11/17/32........ 3,065,000 3,037,630
CS First Boston Mortgage
Securities Corp.
Series 1999-C1 Class A2
7.29%, due 9/15/41.......... 4,455,000 4,377,038
GMAC Commercial Mortgage
Securities Inc.
Series 1998-C2 Class A2
6.42%, due 5/15/35.......... 4,360,000 4,066,441
Series 1996-C1 Class A2A
6.79%, due 10/15/28......... 2,453,959 2,434,057
GS Mortgage Securities
Corp. II
Series 1997-GL Class A2B
6.86%, due 7/13/30.......... 2,820,000 2,780,153
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS)(CONTINUED)
Lehman Large Loan
Series 1997-LLI Class A1
6.79%, due 6/12/04.......... $ 2,961,347 $ 2,931,822
Merrill Lynch Mortgage
Investors, Inc.
Series 1998-C2 Class A1
6.22%, due 2/15/30.......... 2,413,880 2,332,895
Series 1995-C2 Class A1
7.0793%, due 6/15/21 (d).... 3,457,990 3,442,844
Series 1999-C1 Class A2
7.56%, due 11/15/31......... 3,070,000 3,060,053
Nationslink Funding Corp.
Series 1999-2 Class A2C
7.229%, due 6/20/31......... 3,090,000 3,027,984
PNC Mortgage Acceptance Corp.
Series 1999-CM1 Class A1B
7.33%, due 12/10/32......... 5,140,000 5,062,180
Salomon Brothers Mortgage
Securities VII
Series 1997-TZH Class A1
7.15%, due 3/25/25.......... 4,143,909 4,104,666
SASCO Floating Rate
Commercial
Mortgage Trust
Series 1999-C3A Class A
6.8613%, due 10/21/13
(c)(d)...................... 4,979,109 4,979,109
--------------
Total Mortgage-Backed
Securities (Cost
$50,132,301)................ 49,295,854
--------------
U.S. GOVERNMENT & FEDERAL AGENCIES (17.7%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.1%)
5.125%, due 2/13/04 (e)..... 22,420,000 21,069,643
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (5.2%)
6.50%, due 5/1/13-11/1/28... 61,825,365 58,573,858
7.00%, due 12/1/12.......... 11,435,171 11,310,070
7.50%, due 10/1/29.......... 28,299,771 27,990,171
--------------
97,874,099
--------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (1.8%)
7.00%, due 9/15/28 (e)...... 22,342,991 21,581,989
7.50%, due
12/15/23-11/15/28......... 12,591,645 12,460,909
--------------
34,042,898
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 342
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
UNITED STATES TREASURY BONDS (2.8%)
6.125%, due 8/15/29 (e)..... $ 50,480,000 $ 48,121,574
8.75%, due 8/15/20.......... 4,245,000 5,143,072
--------------
53,264,646
--------------
UNITED STATES TREASURY NOTES (6.8%)
5.625%, due 11/30/00........ 10,000,000 9,957,800
5.875%, due
11/30/01-11/15/04 (e)..... 87,185,000 86,431,444
6.00%, due 8/15/09 (e)...... 10,040,000 9,726,250
6.25%, due 2/28/02 (e)...... 16,900,000 16,894,761
7.00%, due 7/15/06.......... 5,245,000 5,370,880
--------------
128,381,135
--------------
Total U.S. Government &
Federal Agencies
(Cost $344,325,144)......... 334,632,421
--------------
YANKEE BONDS (0.3%)
BANKS (0.1%)
Barclays Bank PLC
7.40%, due 12/15/09......... 2,360,000 2,320,564
--------------
BROADCAST/MEDIA (0.1%)
Rogers Communications, Inc.
8.875%, due 7/15/07......... 545,000 545,000
--------------
CABLE TV (0.0%) (b)
Rogers Cablesystem, Ltd.
10.125%, due 9/1/12......... 240,000 253,200
--------------
METALS--MINING (0.0%) (b)
Glencore Nickel Property Ltd.
9.00%, due 12/1/14.......... 505,000 434,300
--------------
OIL & GAS (0.0%) (b)
Husky Oil, Ltd.
8.90%, due 8/15/28 (d)...... 85,000 79,900
--------------
TRANSPORTATION (0.1%)
Sea Containers Ltd.
10.75%, due 10/15/06........ 560,000 560,000
Stena AB
10.50%, due 12/15/05........ 700,000 637,000
--------------
1,197,000
--------------
Total Yankee Bonds
(Cost $4,985,572)........... 4,829,964
--------------
Total Long-Term Bonds
(Cost $593,045,437)......... 576,375,057
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (67.9%)
BANKS--MAJOR REGIONAL (1.3%)
Firstar Corp. ............... 410,900 $ 8,680,262
Wells Fargo Co. ............. 395,900 16,009,206
--------------
24,689,468
--------------
BIOTECHNOLOGY (1.0%)
Genentech, Inc. (a).......... 130,000 17,485,000
--------------
BROADCAST/MEDIA (5.1%)
AMFM Inc. (a)................ 252,000 19,719,000
CBS Corp. (a)................ 218,600 13,976,738
Clear Channel Communications,
Inc. (a)(e)................. 263,700 23,535,225
Comcast Corp................. 358,400 18,121,600
USA Networks, Inc. (a)....... 192,600 10,641,150
Univision Communications Inc.
Class A (a)................. 100,000 10,218,750
--------------
96,212,463
--------------
COMMUNICATIONS--EQUIPMENT
MANUFACTURERS (5.3%)
Cisco Systems, Inc. (a)...... 435,650 46,669,006
JDS Uniphase Corp. (a)....... 78,000 12,582,375
Lucent Technologies Inc...... 541,200 40,488,525
--------------
99,739,906
--------------
COMPUTER SOFTWARE & SERVICE (7.3%)
America Online Inc. (a)...... 221,200 16,686,775
Compuware Corp. (a).......... 763,600 28,444,100
Microsoft Corp. (a).......... 395,800 46,209,650
Oracle Corp. (a)(e).......... 423,025 47,405,239
--------------
138,745,764
--------------
COMPUTER SYSTEMS (5.0%)
EMC Corp. (a)................ 453,800 49,577,650
Sun Microsystems, Inc. (a)... 596,300 46,175,981
--------------
95,753,631
--------------
ELECTRICAL EQUIPMENT (1.6%)
General Electric Co.......... 203,400 31,476,150
--------------
ELECTRONICS--SEMICONDUCTORS (4.6%)
Intel Corp. ................. 335,000 27,574,688
Motorola, Inc. .............. 183,600 27,035,100
Texas Instruments Inc........ 328,600 31,833,125
--------------
86,442,913
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 343
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT (1.4%)
Time Warner Inc. ............ 355,000 $ 25,715,313
--------------
FINANCIAL--MISCELLANEOUS (1.7%)
Citigroup Inc. .............. 593,095 32,953,841
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.4%)
Cardinal Health, Inc. ....... 145,700 6,975,387
--------------
HEALTH CARE--DIVERSIFIED (0.7%)
Johnson & Johnson............ 138,588 12,906,007
--------------
HEALTH CARE--DRUGS (1.3%)
Merck & Co., Inc. ........... 181,500 12,171,844
Schering-Plough Corp. ....... 315,300 13,301,719
--------------
25,473,563
--------------
HEALTH CARE--MEDICAL PRODUCTS (2.1%)
Guidant Corp. ............... 428,500 20,139,500
Medtronic, Inc. ............. 525,400 19,144,263
--------------
39,283,763
--------------
HEALTH CARE--MISCELLANEOUS (1.1%)
Amgen Inc. (a)............... 331,000 19,880,688
--------------
HOTEL/MOTEL (1.0%)
Carnival Corp. .............. 374,100 17,886,656
--------------
HOUSEHOLD PRODUCTS (1.6%)
Colgate-Palmolive Co. ....... 476,800 30,992,000
--------------
INSURANCE--MULTI-LINE (1.9%)
American International Group,
Inc. ....................... 323,820 35,013,037
--------------
LEISURE TIME (1.6%)
Harley-Davidson, Inc. ....... 464,600 29,763,438
--------------
MANUFACTURING--DIVERSIFIED (2.8%)
Honeywell International
Inc. ....................... 355,562 20,511,483
Tyco International Ltd. ..... 814,349 31,657,820
--------------
52,169,303
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS (3.0%)
AES Corp. (a)................ 326,800 $ 24,428,300
Corning Inc. (e)............. 252,300 32,530,931
--------------
56,959,231
--------------
PERSONAL LOANS (1.0%)
Providian Financial Corp. ... 217,850 19,837,966
--------------
RETAIL STORES--DEPARTMENT (1.7%)
Kohl's Corp. (a)............. 442,100 31,914,094
--------------
RETAIL STORES--SPECIALTY (6.7%)
Bed Bath & Beyond, Inc.
(a)(e)...................... 396,000 13,761,000
Circuit City Stores-Circuit
City Group.................. 539,200 24,297,700
CVS Corp. ................... 252,700 10,092,206
Dollar General Corp. ........ 512,182 11,652,141
Home Depot, Inc. (The)....... 688,350 47,194,997
Staples, Inc. (a)............ 939,000 19,484,250
--------------
126,482,294
--------------
SPECIALIZED SERVICES (2.5%)
Cendant Corp. (a)............ 360,386 9,572,753
IMS Health Inc. ............. 567,900 15,439,780
Omnicom Group, Inc. ......... 216,400 21,640,000
--------------
46,652,533
--------------
TELECOMMUNICATION LONG DISTANCE (2.5%)
Global Crossing Ltd. (a)..... 241,400 12,070,000
MCI WorldCom, Inc. (a)....... 667,092 35,397,569
--------------
47,467,569
--------------
TELECOMMUNICATIONS SERVICES (0.4%)
Nextel Communications, Inc.
Class A (a)................. 72,000 7,425,000
--------------
TELEPHONE (1.3%)
Alltel Corp. ............... 301,100 24,897,206
--------------
Total Common Stocks
(Cost $647,520,795)......... 1,281,194,184
--------------
PREFERRED STOCKS (0.0%) (b)
PAPER & FOREST PRODUCTS (0.0%) (b)
Paperboard Industries
International, Inc.
5.00%, Class A (c)(f)(g).... 40,000 635,637
--------------
Total Preferred Stocks
(Cost $665,691)............. 635,637
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 344
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.0%)
COMMERCIAL PAPER (0.8%)
Ford Motor Credit Corp.
5.68%, due 1/12/00.......... $ 14,540,000 $ 14,514,753
--------------
<CAPTION>
SHARES
------------
<S> <C> <C>
INVESTMENT COMPANY (1.2%)
Merrill Lynch Premier
Institutional Fund.......... 22,470,468 22,470,468
--------------
Total Short-Term Investments
(Cost $36,985,221).......... 36,985,221
--------------
Total Investments
(Cost $1,278,217,144) (h)... 100.4% 1,895,190,099(i)
Liabilities in Excess of
Cash and Other Assets....... (0.4) (6,991,171)
--------- -----------
Net Assets................... 100.0% $1,888,198,928
========= =============
</TABLE>
- -------
(a) Non-income producing securities.
(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 December 31, 1999.
(e) Represent securities out on loan or a portion which is out on loan.
(f) Restricted Security.
(g) Canadian Security.
(h) The cost for Federal income tax purposes is $1,279,922,546.
(i) At December 31, 1999 net unrealized appreciation was $615,267,553, 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 $642,624,560 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $27,357,007.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 345
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,278,217,144)........................................... $1,895,190,099
Collateral held for securities loaned, at value (Note 2).... 202,088,153
Cash........................................................ 191,051
Receivables:
Investment securities sold................................ 22,925,742
Dividends and interest.................................... 7,442,169
Fund shares sold.......................................... 908,471
--------------
Total assets.......................................... 2,128,745,685
--------------
LIABILITIES:
Securities lending collateral (Note 2)...................... 202,088,153
Payables:
Investment securities purchased........................... 29,973,255
Fund shares redeemed...................................... 5,549,491
NYLIFE Distributors....................................... 1,436,620
MainStay Management....................................... 971,310
Transfer agent............................................ 310,681
Custodian................................................. 15,393
Trustees.................................................. 13,857
Accrued expenses............................................ 187,997
--------------
Total liabilities..................................... 240,546,757
--------------
Net assets.................................................. $1,888,198,928
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 74,890
Class B................................................... 616,375
Class C................................................... 2,048
Additional paid-in capital.................................. 1,156,906,699
Accumulated undistributed net investment income............. 156,718
Accumulated undistributed net realized gain on
investments............................................... 113,469,243
Net unrealized appreciation on investments.................. 616,972,955
--------------
Net assets.................................................. $1,888,198,928
==============
CLASS A
Net assets applicable to outstanding shares................. $ 203,924,184
==============
Shares of beneficial interest outstanding................... 7,489,010
==============
Net asset value per share outstanding....................... $ 27.23
Maximum sales charge (5.50% of offering price).............. 1.58
--------------
Maximum offering price per share outstanding................ $ 28.81
==============
CLASS B
Net assets applicable to outstanding shares................. $1,678,695,854
==============
Shares of beneficial interest outstanding................... 61,637,509
==============
Net asset value and offering price per share outstanding.... $ 27.23
==============
CLASS C
Net assets applicable to outstanding shares................. $ 5,578,890
==============
Shares of beneficial interest outstanding................... 204,843
==============
Net asset value and offering price per share outstanding.... $ 27.23
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 346
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends(a).............................................. $ 4,852,483
Interest.................................................. 37,513,520
------------
Total income............................................ 42,366,003
------------
Expenses:
Distribution--Class B..................................... 11,604,525
Distribution--Class C..................................... 20,332
Management................................................ 11,049,625
Service--Class A.......................................... 441,308
Service--Class B.......................................... 3,868,175
Service--Class C.......................................... 6,778
Transfer agent............................................ 3,651,702
Shareholder communication................................. 289,773
Recordkeeping............................................. 199,319
Custodian................................................. 175,076
Professional.............................................. 117,349
Registration.............................................. 107,950
Trustees.................................................. 50,521
Miscellaneous............................................. 58,357
------------
Total expenses before waiver............................ 31,640,790
Fees waived by Manager...................................... (490,602)
------------
Net expenses............................................ 31,150,188
------------
Net investment income....................................... 11,215,815
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 198,124,218
Net change in unrealized appreciation on investments........ 49,685,919
------------
Net realized and unrealized gain on investments............. 247,810,137
------------
Net increase in net assets resulting from operations........ $259,025,952
============
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $4,146.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 347
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 11,215,815 $ 13,883,951
Net realized gain on investments.......................... 198,124,218 105,931,200
Net change in unrealized appreciation on investments...... 49,685,919 218,222,952
-------------- --------------
Net increase in net assets resulting from operations...... 259,025,952 338,038,103
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (2,404,941) (2,124,948)
Class B................................................. (9,024,586) (11,787,858)
Class C................................................. (19,421) (451)
From net realized gain on investments:
Class A................................................. (9,937,902) (10,013,091)
Class B................................................. (83,382,941) (98,019,575)
Class C................................................. (272,715) (22,717)
-------------- --------------
Total dividends and distributions to shareholders..... (105,042,506) (121,968,640)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 98,922,959 47,181,125
Class B................................................. 213,637,189 192,230,492
Class C................................................. 5,073,946 333,029
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 11,519,078 11,361,962
Class B................................................. 90,140,205 107,387,116
Class C................................................. 282,440 23,067
-------------- --------------
419,575,817 358,516,791
Cost of shares redeemed:
Class A................................................. (75,111,077) (33,765,899)
Class B................................................. (245,152,405) (211,986,554)
Class C................................................. (465,342) --
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 98,846,993 112,764,338
-------------- --------------
Net increase in net assets............................ 252,830,439 328,833,801
NET ASSETS:
Beginning of year........................................... 1,635,368,489 1,306,534,688
-------------- --------------
End of year................................................. $1,888,198,928 $1,635,368,489
============== ==============
Accumulated undistributed net investment income at end of
year...................................................... $ 156,718 $ 33,190
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 348
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------
Year ended December 31,
--------------------------------------------------------------
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............................... 0.34 0.39 0.40 0.37 0.42
Net realized and unrealized gain on investments..... 3.69 5.29 3.19 2.07 3.77
-------- -------- -------- ------- -------
Total from investment operations.................... 4.03 5.68 3.59 2.44 4.19
-------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income........................ (0.34) (0.39) (0.40) (0.37) (0.42)
From net realized gain on investments............. (1.42) (1.77) (1.84) (0.51) --
-------- -------- -------- ------- -------
Total dividends and distributions................... (1.76) (2.16) (2.24) (0.88) (0.42)
-------- -------- -------- ------- -------
Net asset value at end of period.................... $ 27.23 $ 24.96 $ 21.44 $ 20.09 $ 18.53
======== ======== ======== ======= =======
Total investment return (a)......................... 16.46% 26.93% 18.24% 13.22% 28.66%
Ratios (to average net assets)/
Supplemental Data:
Net investment income........................... 1.32% 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............................. 125% 169% 182% 173% 228%
Net assets at end of period (in 000's).............. $203,924 $152,598 $108,329 $68,975 $19,206
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ 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.
20
<PAGE> 349
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------------------------ -------------------------------
September 1*
Year ended December 31, Year ended through
- ------------------------------------------------------------------------ December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
- ---------- ---------- ---------- ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 24.96 $ 21.45 $ 20.10 $ 18.53 $ 14.76 $24.96 $21.70
- ---------- ---------- ---------- ---------- -------- ------ ------
0.15 0.21 0.29 0.27 0.33 0.15 0.11
3.69 5.28 3.19 2.08 3.77 3.69 5.03
- ---------- ---------- ---------- ---------- -------- ------ ------
3.84 5.49 3.48 2.35 4.10 3.84 5.14
- ---------- ---------- ---------- ---------- -------- ------ ------
(0.15) (0.21) (0.29) (0.27) (0.33) (0.15) (0.11)
(1.42) (1.77) (1.84) (0.51) -- (1.42) (1.77)
- ---------- ---------- ---------- ---------- -------- ------ ------
(1.57) (1.98) (2.13) (0.78) (0.33) (1.57) (1.88)
- ---------- ---------- ---------- ---------- -------- ------ ------
$ 27.23 $ 24.96 $ 21.45 $ 20.10 $ 18.53 $27.23 $24.96
========== ========== ========== ========== ======== ====== ======
15.60% 25.96% 17.65% 12.73% 27.96% 15.60% 23.94%
0.57% 0.91% 1.36% 1.4% 2.0% 0.57% 0.91%+
1.88% 1.91% 1.65% 1.6% 1.7% 1.88% 1.91%+
1.91% 1.93% 1.65% 1.6% 1.7% 1.91% 1.93%+
125% 169% 182% 173% 228% 125% 169%
$1,678,696 $1,482,411 $1,198,206 $1,029,878 $860,881 $5,579 $ 359
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 350
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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
22
<PAGE> 351
Notes to Financial Statements
supplied by the pricing agent or brokers selected by the Fund's 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 Fund's subadvisor, whose prices
reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by the Fund's 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 Fund's 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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
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.
Restricted security held at December 31, 1999:
<TABLE>
<CAPTION>
PERCENT
ACQUISITION 12/31/99 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 $635,637 0.0%(a)
======== ======== =======
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
</TABLE>
23
<PAGE> 352
MainStay Total Return Fund
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 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 experience financial
difficulty. 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 December 31, 1999, the Fund had portfolio securities on loan with a market
value of $195,530,650 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 the obligation to
return the cash collateral is recorded as a 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 by the Fund for securities lending transactions amounted to
$466,525, net of broker fees and rebates, for the year ended December 31, 1999,
which is included as interest income on the Statement of Operations.
24
<PAGE> 353
Notes to Financial Statements (continued)
Investments made with cash collateral at December 31, 1999:
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group............................... 1,187,557 $ 1,187,557
------------
PRINCIPAL
AMOUNT
-----------
CORPORATE BOND
Comerica Bank
6.4175%, due 2/14/00...................................... $20,000,000 20,003,200
------------
SHORT-TERM COMMERCIAL PAPER
Crown Point Capital Co.
7.05%, due 1/28/00........................................ 11,000,000 10,942,250
Galaxy Funding Inc.
5.60%, due 1/3/00......................................... 6,290,000 6,288,043
Stellar Funding Group
5.41%, due 1/6/00......................................... 7,900,000 7,894,075
------------
25,124,368
------------
REPURCHASE AGREEMENTS
Bear Stearns & Co., Inc.
4.60%, due 1/3/00
(Collateralized by
$2,563,301 FHLMC Series 2176
6.00%, due 3/15/28 Market Value $2,576,979
$6,801,866 FHLMC Series 1637
21.937%, due 12/15/23 Market Value $6,871,396
$823,537 FNMA Series 1646
5.873%, due 10/15/22 Market Value $827,497
$9,671,181 FNMA Series 1999-60
7.00%, due 6/25/26 Market Value $9,726,780
$258,994 MDC Mortgage Funding Corp.
8.69%, due 1/25/25 Market Value $260,849
$2,746,034 National Archives Facility Trust
8.50%, due 9/1/19 Market Value $2,746,034
$939,053 Residential Accredit Loans Inc.
2.0187%, due 3/25/28 Market Value $948,108)............. 20,573,028 20,573,028
Deutsche Bank Securities Corp.
4.60%, due 1/3/00
(Collateralized by
$30,676,501 Chase Commercial Mortgage Securities Corp.
7.20%, due 11/15/09 Market Value $30,676,501)........... 30,075,000 30,075,000
</TABLE>
25
<PAGE> 354
MainStay Total Return Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
<->REPURCHASE AGREEMENTS (Continued)
Donaldson Lufkin & Jenrette Securities Corp.
4.57%, due 1/3/00
(Collateralized by
$3,698,954 ABN Amro Mortgage Corp.
8.00%, due 3/27/29 Market Value $3,701,486
$3,736,852 Bear Stearns Mortgage Securities Inc.
8.125%, due 9/25/27 Market Value $3,761,835
$1,147,840 Citicorp Mortgage Securities Inc.
6.50%, due 3/25/29 Market Value $1,154,878
$2,814,221 Chase Mortgage Finance Corp.
6.50%, due 3/25/29-5/25/29 Market Value $2,831,501
$30,476 DLJ Mortgage Acceptance Corp.
0.19%, due 4/18/18 Market Value $30,476
$7,123,438 FHA Ashley
7.50%, due 9/1/39 Market Value $7,123,438
$6,500,001 First Dominion Funding III
8.5975%, due 12/22/14 Market Value $6,500,003
$1,251,050 First Nationwide Trust
7.00%, due 1/19/30 Market Value $1,259,613
$274,550 First USA Credit Card Master Trust
6.68%, due 5/18/08 Market Value $274,550
$562,476 Headlands Mortgage Securities Inc.
7.75%, due 7/25/27 Market Value $566,020
$678,861 Homeside Mortgage Securities Inc.
6.71%, due 6/25/28 Market Value $884,276
$2,521,100 Norwest Asset Securities Corp.
7.00%, due 2/25/28 Market Value $2,536,167
$1,397,642 PNC Mortgage Securities Corp.
7.00%, due 9/25/29 Market Value $1,407,364
$6,297,032 PNC Mortgage Securities Corp.
7.98%, due 1/25/30 Market Value $6,359,627
$3,592,935 Residential Accredit Loans Inc.
6.50%, due 5/25/29 Market Value $3,614,936
$1,335,027 Structured Asset Mortgage Investments Inc.
6.75%, due 5/25/29 Market Value $1,342,155
$62 Walnut Creek Associates L.P.
6.75%, due 6/1/39 Market Value $67)..................... $42,125,000 $ 42,125,000
</TABLE>
26
<PAGE> 355
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (Continued)
Morgan (J.P.) Securities Inc.
4.45%, due 1/3/00
(Collateralized by
$17,142,826 Alltell Corp.
6.50%, due 11/1/13 Market Value $17,346,397
$2,948,289 First Chicago NBD Corp.
6.14%, due 9/5/00 Market Value $2,959,482
$4,426,550 US Airways, Inc.
6.85%, due 1/30/18 Market Value $4,426,550
$15,167,572 Wal-Mart Stores Inc.
6.875%, due 8/10/09 Market Value $15,167,572)........... $38,000,000 $ 38,000,000
Prudential Securities Inc.
4.38%, due 1/3/00
(Collateralized by
$1,136,674 Amresco Residential Securities Inc.
7.63%, due 6/25/28 Market Value $1,136,674
$2,395,100 CIBC Capital Funding L.P.
6.40%, due 12/17/04 Market Value $2,401,200
$10,974,246 FHLMC Series 1918
6.46%, due 12/15/26 Market Value $11,039,730
$2,002,500 Heller Financial Inc.
6.55%, due 10/22/01 Market Value $2,002,500
$3,408,456 Laidlaw Inc.
6.70%, due 5/1/08 Market Value $3,452,632
$3,720,000 Republic of Chile
6.875%, due 4/28/09 Market Value $3,768,087
$2,070,861 New York Telephone Co.
6.625%, due 11/1/03 Market Value $2,091,028)............ 25,000,000 25,000,000
------------
155,773,028
------------
Total investments made with cash collateral................. $202,088,153
============
Non-cash collateral received and held by the Fund at December 31, 1999:
United States Treasury Bonds
6.25%, due 8/15/23........................................ 220,000 $ 212,575
8.125%, due 8/15/19....................................... 85,000 99,423
------------
Total non-cash collateral................................... $ 311,998
============
Total collateral............................................ $202,400,151
============
</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
27
<PAGE> 356
MainStay Total Return Fund
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book/tax difference of $356,661 is an increase to
accumulated undistributed net investment income and a decrease to accumulated
undistributed net realized gain on investments. This book/tax difference is due
to tax treatment of gains (losses) on paydowns.
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.
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 LLC (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.
28
<PAGE> 357
Notes to Financial Statements (continued)
The Manager has delegated its portfolio management responsibilities to MacKay
Shields LLC (the "Subadvisor"), a registered investment advisor 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 year ended December 31, 1999 the Manager earned
$11,049,625 and waived $490,602 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 at an annual
rate 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, 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 $74,927 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $5,485, $1,092,347 and $1,082, respectively, for the year ended
December 31, 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
29
<PAGE> 358
MainStay Total Return Fund
responsible. Transfer agent expense accrued for the year ended December 31, 1999
amounted to $3,651,702.
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 $45,111 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$199,319 for the year ended December 31, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of U.S. Government
securities, other than short-term securities, were $1,222,204 and $1,129,819,
respectively. Purchases and sales of securities, other than U.S. Government
securities and short-term securities, were $875,722 and $940,907, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to the Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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.............................. 3,840 8,324 198 2,028 8,196 13
Shares issued in reinvestment of
dividends and distributions............ 438 3,418 11 470 4,431 1
------ ------ --- ------ ------ --
4,278 11,742 209 2,498 12,627 14
Shares redeemed.......................... (2,902) (9,492) (18) (1,437) (9,102) --
------ ------ --- ------ ------ --
Net increase............................. 1,376 2,250 191 1,061 3,525 14
====== ====== === ====== ====== ==
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
</TABLE>
30
<PAGE> 359
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Total Return Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
31
<PAGE> 360
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
32
<PAGE> 361
This page intentionally left blank
<PAGE> 362
This page intentionally left blank
<PAGE> 363
OFFICERS & TRUSTEES*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN15-02/00
[RECYCLED PAPER LOGO]
[MAINSTAY FUNDS LOGO]
MAINSTAY
TOTAL RETURN FUND
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY.LOGO]
<PAGE> 364
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Value Fund
versus the S&P 500 Index, the Russell 1000
Value Index, and Inflation--Class A, Class B,
and Class C Shares 4
Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 12
Portfolio of Investments 14
Financial Statements 16
Notes to Financial Statements 22
Report of Independent Accountants 28
The MainStay Funds 29
</TABLE>
<PAGE> 365
This page intentionally left blank
2
<PAGE> 366
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment
Company Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 367
$10,000 Invested in the MainStay Value Fund versus the S&P 500 Index, the
Russell 1000 Value Index, and Inflation
CLASS A SHARES SEC Returns: 1 Year 2.37%, 5 Years 12.63%, 10 Years 12.53%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY VALUE RUSSELL 1000 VALUE
PERIOD END FUND S&P 500 INDEX* INFLATION (CPI)++ INDEX+
- -------------- -------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
12/89 9450.00 10000.00 10000.00 10000.00
12/90 8879.00 9690.00 10625.00 9191.00
12/91 12541.00 12636.00 10942.00 11452.00
12/92 14990.00 13597.00 11265.00 13033.00
12/93 17020.00 14963.00 11574.00 15396.00
12/94 16983.00 15160.00 11875.00 15089.00
12/95 21864.00 20851.00 12184.00 20877.00
12/96 26639.00 25634.00 12587.00 25395.00
12/97 32468.00 34186.00 12801.00 34330.00
12/98 30063.00 43956.00 13007.00 39698.00
12/99 32566.00 53205.00 13356.00 42611.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B SEC Returns: 1 Year 2.51%, 5 Years 12.94%, 10 Years 12.81%
Class C SEC Returns: 1 Year 6.51%, 5 Years 13.19%, 10 Years 12.81%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY VALUE RUSSELL 1000 VALUE
PERIOD END FUND S&P 500 INDEX* INFLATION (CPI)++ INDEX+
- -------------- -------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
12/89 10000.00 10000.00 10000.00 10000.00
12/90 9395.00 9690.00 10625.00 9191.00
12/91 13271.00 12636.00 10942.00 11452.00
12/92 15862.00 13597.00 11265.00 13033.00
12/93 18011.00 14963.00 11574.00 15396.00
12/94 17972.00 15160.00 11875.00 15089.00
12/95 23006.00 20851.00 12184.00 20877.00
12/96 27863.00 25634.00 12587.00 25395.00
12/97 33794.00 34186.00 12801.00 34330.00
12/98 31059.00 43956.00 13007.00 39698.00
12/99 33390.00 53205.00 13356.00 42611.00
</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 12/31/89
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 12/31/89 through
12/31/94. Performance figures for the two classes vary after this date
based on differences in their loads and expense structures. The Class B
graph assumes an initial investment of $10,000 made on 12/31/89.
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 12/31/89 and includes the
historical performance of the Class B shares for periods from 12/31/89
through 8/31/98. 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. Results assume the reinvestment of
all income and capital gain distributions. An investment cannot be made
directly into an index.
4
<PAGE> 368
(+) The MainStay Value Fund, going forward, will measure its performance
against the Russell 1000(R) Value Index. This index reflects the holdings
of the Fund better than the S&P 500, against which the Fund is currently
measured, and the subadvisor believes that the Russell 1000 Value Index is,
therefore, a better performance benchmark. The Russell 1000 Value Index is
an unmanaged index that measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values. The Russell 1000 is an unmanaged index that measures the
performance of the 1,000 largest companies in the Russell 3000(R) Index,
which, in turn, is an unmanaged index that includes the 3,000 largest U.S.
companies based on total market capitalization. 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> 369
Management Discussion and Analysis
In 1999, the equity markets posted results of historic proportions. The S&P 500
Composite Stock Price Index(1) recorded its fifth straight year of 20% or better
returns, and the NASDAQ Composite Index(2) recorded a gain of 85.59%--the
largest single-year gain for any U.S. stock index on record. Technology issues
led these market advances, with Internet stocks and initial public offerings
(IPOs) capturing a great deal of investor and media attention.
As in previous years, much of the market's performance resulted from a narrow
group of stocks. The top-ten performing stocks in the S&P 500 Index accounted
for about 65% of the total return of the Index for the year--and eight of those
ten companies were technology related. Throughout most of the year, the market's
focus was clearly not on traditional value sectors, with value stocks
underperforming growth issues at all capitalization levels. Financial and health
care companies, which were market leaders in 1998, underperformed the market in
1999. While value stocks provided respectable returns in historical perspective,
they could not keep pace with the torrid advances in major technology-dominated
indices.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Value Fund returned 8.33% for
Class A shares and 7.51% for Class B and Class C shares, excluding all sales
charges. Class A shares outperformed and Class B and Class C shares
underperformed the 7.78% return of the average Lipper(3) multi-cap value fund.
All share classes outperformed the 7.35% return of the Russell 1000(R) Value
Index.(4)
BASIC MATERIALS, CAPITAL GOODS, AND TECHNOLOGY
During 1999, the Fund's best-performing sectors were basic materials, capital
goods, technology and energy--all of which the Fund overweighted versus the
Russell 1000 Value Index. Among basic materials stocks, Georgia-Pacific
(+75%),(5) a pulp, paper, and building supplies producer, benefited from a good
pricing environment and a strong housing market. Smurfit-Stone Container (+55%)
benefited from pricing improvements as global economies strengthened. Reynolds
Metals (+49%), a major aluminum producer, not only benefited from better
industry fundamentals, but agreed to be acquired by Alcoa, one of the world's
largest aluminum producers. On the negative side, IMC Global (-22%) suffered as
oversupply in the fertilizer market hurt pricing.
In capital goods, Browning-Ferris, a waste management company, was purchased in
August by Allied Waste, providing a 58% return for the period the stock was held
in the Fund's portfolio. American Standard (+27%), which
- -------
(1) See footnote on page 4 for information on the S&P 500(R) Index.
(2) The NASDAQ Composite Index is an unmanaged, market-value weighted index that
measures all NASDAQ domestic and non-U.S. based common stocks listed on the
NASDAQ Stock Market and includes over 5,000 companies. Each company's
security affects the Index in proportion to its market value. The market
value, the last sale price multiplied by total shares outstanding, is
calculated throughout the trading day, and is related to the total value of
the Index. An investment cannot be made directly into an index.
(3) See footnote and table on page 12 for more information on Lipper Inc.
(4) See footnote on page 5 for more information on the Russell 1000(R) Value
Index.
(5) Returns reflect performance for the one-year period ended 12/31/99.
6
<PAGE> 370
YEAR-BY-YEAR PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
Year 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
12/99 8.33
</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 12 for more information on performance.
CLASS B AND CLASS C SHARES
[BAR CHART]
<TABLE>
<CAPTION>
Year 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
12/99 7.51
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for the periods 12/86
through 8/98. See footnote * on page 12 for more information on performance.
manufactures air-conditioning systems and plumbing fixtures, also boosted
capital goods sector returns. In technology, Adaptec (+184%) continued to
strengthen its market position, and Seagate Technology (+59%), a stock we
purchased for the Fund from June through August 1999, benefited from solid
demand for disc drives. Another technology-related stock that performed well for
the portfolio was Nippon Telephone and Telegraph (+131%), a Japanese-based
telecom company. During the year, we also added Bell Atlantic to the Fund's
portfolio. We believe the company is well positioned to take advantage of global
expansion in the telecommunications market.
7
<PAGE> 371
ENERGY AND UTILITIES
With rising oil prices and improving fundamentals, energy stocks contributed
positively to the Fund's performance, with Kerr-McGee advancing 69%, Union
Pacific Resources up 43%, and Unocal gaining 18% for the year. During 1999, the
Fund took profits in Kerr-McGee, Apache Corp., Ocean Energy, and Santa Fe
Snyder, as these stocks reached our price targets, and we used the proceeds to
bolster the Fund's position in El Paso Energy (natural gas pipelines) and
establish positions in Burlington Resources (oil and gas exploration and
production) and Sunoco (refining) at what we believed to be attractive prices.
Illinova Corporation is a Midwestern utility that agreed to merge with Dynegy
Corp. in a synergistic transaction that combined strengths in energy marketing
with strong asset generation. The merger contributed to the stock's 46% return.
HEALTH CARE
United Healthcare (an HMO), gained a solid 23%. Overall, however, health care
was a challenging sector in 1999. We sold the Fund's position in Cigna (an HMO)
in September, when it was up roughly 10% for the year and used the proceeds to
purchase Becton Dickinson (medical supplies), Health Management Associates
(rural hospitals), and Mylan Labs (branded and generic drugs) at what we
believed were depressed levels. Given the uncertainties facing hospitals and
HMOs, we believe the repositioning was beneficial for the Fund.
CONSUMER SECTORS
Consumer staples and consumer cyclicals were weaker sectors for the Fund in
1999. Despite strong consumer spending throughout the year, the market perceived
the spending cycle as likely to wind down after record performance. Philip
Morris (-55%) was the Fund's worst-performing stock, suffering from continuing
concerns over tobacco litigation. Despite what we viewed as compelling
valuations, we sold the Fund's entire position at a loss when we saw that
ongoing litigation questions were unlikely to be resolved in the foreseeable
future. Service Corp. International, a leading funeral service company, also had
a negative impact on performance. We purchased the stock for the Fund in April
after a substantial price decline. Despite cost-cutting initiatives, however,
the stock continued to trend downward, and we sold the Fund's entire position in
October to cut losses. We also sold the Fund's position in Kmart at a loss for
the year when an expected turnaround in operations failed to materialize.
We also sold the Fund's position in Federal-Mogul, an automotive parts supplier,
in December, when integration problems from a recent acquisition overshadowed a
good automotive production environment. The stock's sale negatively impacted the
Fund's performance.
8
<PAGE> 372
On a more positive note, we sold the Fund's position in Liz Claiborne (apparel)
for a 20% year-to-date gain when the stock reached our price target. We also
sold its position in Jones Apparel in March for a slight gain, after the company
made a potentially dilutive acquisition. Early in the year, we sold the Fund's
position in Venator, which was down roughly 20% for the year, when we realized
that the company was unlikely to turn around quickly. New consumer-products
stock purchases in 1999 included Hasbro (toys), Newell Rubbermaid (housewares),
Office Depot (office supplies), and two food manufacturers, Heinz and ConAgra,
none of which have had a substantial impact on the Fund as of year-end.
FINANCIAL SECTOR
The Fund's financial-sector stocks kept pace with the Fund's value benchmark in
1999, with Citigroup (diversified financial services) up 70% for the year, and
MGIC Investment (mortgage insurance) gaining 51%. The Fund took some profits in
these names and in Sallie Mae (college loans), as the stocks reached our price
targets. The proceeds were used to initiate positions in American General
(insurance), Chase Manhattan (global banking), and FleetBoston Financial
(regional banking). We also added to the Fund's position in AXA Financial
(diversified financial services) at what we believed was an attractive price.
Early in the year, we sold the Fund's positions in Chubb (insurance), Bank One
and Bank of America (banking), and Countrywide Credit (mortgages), when we
anticipated that earnings would falter. The sales had a positive impact on the
Fund since each of the stocks continued to decline through the remainder of the
year. As interest rates rose, we continued to seek ways to reduce the Fund's
exposure to financial stocks. Among the Fund's weakest financial holdings were
Conseco (insurance and lending) down 41%, Allstate (insurance) down 38%, and
Washington Mutual (savings and loans) down 32%. All three of these stocks
declined as operating results lagged expectations. Finally, Transamerica
provided strong performance for the Fund, gaining 29% from the beginning of the
year through July, when its acquisition by Aegon NV, a large Dutch insurer, was
completed.
SEEKING VALUE IN OTHER SECTORS
During the year, we also purchased Air Products and Chemicals (industrial gas),
Ingersoll-Rand (industrial equipment), and Fluor Corp. (engineering and
construction) for the Fund. We believe that these stocks were attractively
priced at the time of purchase and that the companies are well positioned in
today's expanding global economy.
9
<PAGE> 373
LOOKING AHEAD
We remain confident and committed to the Fund's value approach to investing. As
market enthusiasm for technology and emerging-growth companies reaches
speculative levels, we believe undervalued stocks with catalysts for positive
change may provide attractive long-term return potential with lower volatility.
A global economic recovery--with strengthening economies in Asia, Latin America,
Europe, and the U.S.--may have a positive impact on revenues and earnings for
many of the Fund's largest holdings. We believe double-digit earning gains are
possible for selected capital-goods, basic-materials, and energy stocks in 2000,
and currently intend to remain overweighted in these sectors. Given the
potential for continuing rate hikes in the first half of 2000, we are currently
underweighting consumer-related and financial companies.
No matter what the economy or the markets may bring, the Fund will continue to
seek to realize maximum long-term total return from a combination of capital
growth and income.
Richard A. Rosen
Portfolio Manager
MacKay Shields LLC
Past performance is no guarantee of future results.
10
<PAGE> 374
NONTAXABLE DISTRIBUTION
During the first half of 1999, the MainStay Value Fund paid income dividends
to shareholders based on net income available at that time. As the year
progressed, however, the Fund experienced decreasing dividend and interest
income and incurred losses on some foreign currency hedging transactions.
Together, these factors eliminated almost all of the income earned by the
Fund for the year. As a result, almost all of the income dividends paid in
1999 have been reclassified as a return of capital as shown in the table
below. Long-term capital gain distributions made by the Fund in December
1999 were not affected. The return of capital to shareholders had no
material impact on the Fund's performance or net asset value. Since the
Fund's portfolio managers did not engage in additional trading to
accommodate dividend payments, the Fund's portfolio turnover rate and
transaction costs were not affected.
<TABLE>
<CAPTION>
SHARE CLASS RETURN OF CAPITAL AMOUNT PERCENT OF TOTAL INCOME DIVIDENDS PAID IN 1999
-------------- ------------------------ -----------------------------------------------
<S> <C> <C>
Class A
shares $0.0695 per share 96.13%
Class B
shares $0.0105 per share 96.13%
Class C
shares $0.0105 per share 96.13%
</TABLE>
Whenever a Fund returns capital to you, the cost basis of your Fund holdings
is reduced by the amount of the nontaxable distribution. Accurate cost-basis
accounting is important in determining any capital gains or losses when
shares are eventually sold. You should consult with your tax advisor for
additional information on determining the cost basis of your mutual fund
shares. This material is provided for informational purposes only.
Shareholders should refer to their 1999 Form 1099-DIV for the total amount
of their distributions that are taxable and nontaxable.
11
<PAGE> 375
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 8.33% 13.91% 13.17% 11.22%
Class B 7.51% 13.19% 12.81% 10.96%
Class C 7.51% 13.19% 12.81% 10.96%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 2.37% 12.63% 12.53% 10.76%
Class B 2.51% 12.94% 12.81% 10.96%
Class C 6.51% 13.19% 12.81% 10.96%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A 208 out of 190 out of n/a 190 out of
490 funds 204 funds 204 funds
Class B 226 out of 192 out of 60 out of 50 out of
490 funds 204 funds 89 funds 60 funds
Class C 226 out of n/a n/a 362 out of
490 funds 463 funds
Average Lipper
multi-cap value
fund(++) 7.78% 18.48% 13.26% 12.45%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $18.18 $0.0723 $0.3210
Class B $18.09 $0.0109 $0.3210
Class C $18.09 $0.0109 $0.3210
</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 figures for the two classes after this date vary based on
differences in their loads 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
12
<PAGE> 376
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
figures 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 listed are not class specific. Life of Fund
rankings reflect the performance of each share class from its initial
offering date through 12/31/99. 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 12/31/99. Lipper returns and rankings are
unaudited.
(++) Lipper's new fund classification structure, effective September 1999,
is reflected in this material.
13
<PAGE> 377
MainStay Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C> <C>
COMMON STOCKS (98.1%)+
ALUMINUM (2.0%)
Reynolds Metals Co. .......... 299,500 $ 22,949,187
--------------
BANKS (5.3%)
Chase Manhattan Corp. (The)... 243,100 18,885,831
Fleet Boston Financial
Corp. ....................... 633,710 22,061,030
Washington Mutual, Inc. ...... 722,800 18,792,800
--------------
59,739,661
--------------
CHEMICALS (2.8%)
Air Products and Chemicals,
Inc. ........................ 459,400 15,418,612
IMC Global Inc. .............. 959,020 15,703,953
--------------
31,122,565
--------------
COMPUTER SYSTEMS (2.8%)
Seagate Technology, Inc.
(a).......................... 680,700 31,695,094
--------------
CONTAINERS (5.3%)
Owens-Illinois, Inc. (a)...... 717,310 17,977,582
Smurfit-Stone Container Corp.
(a).......................... 1,154,500 28,285,250
Temple-Inland Inc. ........... 211,900 13,972,156
--------------
60,234,988
--------------
ELECTRIC POWER COMPANIES
(8.4%)
DTE Energy Co. ............... 432,700 13,575,962
Energy East Corp. ............ 566,200 11,784,037
Illinova Corp. ............... 773,700 26,886,075
Niagara Mohawk Holdings Inc.
(a).......................... 1,247,400 17,385,638
Texas Utilities Co. .......... 713,500 25,373,844
--------------
95,005,556
--------------
ELECTRONICS--SEMICONDUCTORS (1.0%)
Adaptec, Inc. (a)............. 216,900 10,817,887
--------------
ENGINEERING & CONSTRUCTION
(2.1%)
Fluor Corp. .................. 521,600 23,928,400
--------------
FINANCE (7.7%)
American General Corp. ....... 417,000 31,639,875
AXA Financial, Inc. .......... 896,200 30,358,775
Citigroup Inc. ............... 312,950 17,388,284
SLM Holding Corp. ............ 183,100 7,735,975
--------------
87,122,909
--------------
FOOD (3.1%)
ConAgra, Inc. ................ 722,700 16,305,919
Heinz (H.J.) Co. ............. 483,700 19,257,306
--------------
35,563,225
--------------
HEALTH CARE--DRUGS (0.6%)
Mylan Laboratories Inc. ...... 267,700 6,742,694
--------------
</TABLE>
- ------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C> <C>
HEALTH CARE--MEDICAL PRODUCTS (1.6%)
Becton, Dickinson & Co. ...... 658,800 $ 17,622,900
--------------
HEALTH CARE--MISCELLANEOUS (3.2%)
Health Management Associates,
Inc. Class A (a)............. 964,200 12,896,175
Manor Care, Inc. (a).......... 340,500 5,448,000
United HealthCare Corp. ...... 335,300 17,812,812
--------------
36,156,987
--------------
HEAVY DUTY TRUCKS & PARTS
(1.1%)
Dana Corp. ................... 410,910 12,301,618
--------------
HOTEL/MOTEL (1.6%)
Harrah's Entertainment, Inc.
(a).......................... 679,400 17,961,637
--------------
HOUSEWARES (0.7%)
Newell Rubbermaid Inc. ....... 267,000 7,743,000
--------------
INSURANCE (4.4%)
Allstate Corp. (The).......... 924,180 22,180,320
Conseco, Inc. ................ 577,100 10,315,663
MGIC Investment Corp. ........ 293,100 17,640,956
--------------
50,136,939
--------------
MACHINERY (4.8%)
American Standard Cos. Inc.
(a).......................... 744,000 34,131,000
Ingersoll-Rand Co. ........... 359,500 19,794,969
--------------
53,925,969
--------------
MANUFACTURING--DIVERSIFIED
(1.8%)
Honeywell International
Inc. ........................ 356,200 20,548,288
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (3.5%)
Coastal Corp. (The)........... 610,900 21,648,769
El Paso Energy Corp. ......... 459,200 17,822,700
--------------
39,471,469
--------------
OIL & GAS SERVICES (9.4%)
Burlington Resources Inc. .... 433,900 14,345,819
Noble Affiliates, Inc. ....... 1,059,200 22,706,600
Union Pacific Resources Group
Inc. ........................ 2,251,000 28,700,250
Unocal Corp. ................. 700,850 23,522,278
Valero Energy Corp. .......... 859,000 17,072,625
--------------
106,347,572
--------------
OIL--INTEGRATED DOMESTIC
(4.4%)
Kerr-McGee Corp. ............. 236,860 14,685,320
Sunoco, Inc. ................. 363,800 8,549,300
Tosco Corp. .................. 959,300 26,080,969
--------------
49,315,589
--------------
OIL--INTEGRATED INTERNATIONAL (1.3%)
Texaco Inc. .................. 276,300 15,006,544
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 378
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER & FOREST PRODUCTS (2.7%)
Georgia-Pacific Corp. ........ 610,000 $ 30,957,500
--------------
RETAIL (4.7%)
Federated Department Stores,
Inc. (a)..................... 488,170 24,683,096
Office Depot, Inc. (a)........ 1,849,900 20,233,281
Payless ShoeSource, Inc.
(a).......................... 171,000 8,037,000
--------------
52,953,377
--------------
STEEL (1.9%)
USX-U.S. Steel Group.......... 669,000 22,077,000
--------------
TELECOMMUNICATIONS--LONG DISTANCE (3.0%)
AT&T Corp. ................... 662,350 33,614,262
--------------
TELEPHONE (3.9%)
Bell Atlantic Corp. .......... 435,700 26,822,781
Nippon Telegraph & Telephone
Corp. ADR (b)(c)............. 196,500 16,923,563
--------------
43,746,344
--------------
TEXTILES--HOME FURNISHINGS
(1.3%)
Shaw Industries, Inc. ........ 954,100 14,728,919
--------------
TOYS (1.7%)
Hasbro, Inc. ................. 1,023,100 19,502,844
--------------
Total Common Stocks
(Cost $1,045,164,710)........ 1,109,040,924
--------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.1%)
COMMERCIAL PAPER (2.0%)
American Express Credit Corp.
6.45% due 01/05/00........... $ 8,960,000 8,953,566
Associates Corp.
4.00% due 01/03/00........... 3,160,000 3,159,298
Goldman Sachs Group Inc.
6.46% due 01/31/00........... 10,220,000 10,164,863
--------------
Total Commercial Paper
(Cost $22,277,727)........... 22,277,727
--------------
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
INVESTMENT COMPANY (1.1%)
Merrill Lynch Premier
Institutional Fund........... 12,745,282 $ 12,745,282
--------------
Total Investment Company
(Cost $12,745,282)........... 12,745,282
--------------
Total Short-Term Investments
(Cost $35,023,009)........... 35,023,009
--------------
Total Investments
(Cost $1,080,187,719) (d).... 101.2% 1,144,063,933(e)
Liabilities in Excess of Cash,
and Other Assets............. (1.2) (13,629,881)
---- -----------
Net Assets.................... 100.0% $1,130,434,052
=========== ==============
</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 $1,084,697,139.
(e) At December 31, 1999, net unrealized appreciation was $59,366,794, 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 $151,834,569 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $92,467,775.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 379
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,080,187,719)........................................... $1,144,063,933
Cash........................................................ 481
Receivables:
Investment securities sold................................ 2,933,314
Dividends................................................. 2,283,669
Fund shares sold.......................................... 549,106
--------------
Total assets........................................ 1,149,830,503
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 15,787,321
Fund shares redeemed...................................... 1,573,083
NYLIFE Distributors....................................... 883,570
MainStay Management....................................... 562,017
Transfer agent............................................ 248,321
Custodian................................................. 11,597
Trustees.................................................. 9,029
Accrued expenses............................................ 161,211
Unrealized depreciation on foreign currency forward
contract.................................................. 160,302
--------------
Total liabilities................................... 19,396,451
--------------
Net assets.................................................. $1,130,434,052
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 64,382
Class B................................................... 559,906
Class C................................................... 349
Additional paid-in capital.................................. 1,074,365,377
Accumulated undistributed net investment income............. 381
Accumulated distributions in excess of net realized gains on
investments............................................... (8,272,255)
Net unrealized appreciation on investments.................. 63,876,214
Net unrealized depreciation on foreign currency forward
contract.................................................. (160,302)
--------------
Net assets.................................................. $1,130,434,052
==============
CLASS A
Net assets applicable to outstanding shares................. $ 117,036,131
==============
Shares of beneficial interest outstanding................... 6,438,150
==============
Net asset value per share outstanding....................... $ 18.18
Maximum sales charge (5.50% of offering price).............. 1.06
--------------
Maximum offering price per share outstanding................ $ 19.24
==============
CLASS B
Net assets applicable to outstanding shares................. $1,012,766,740
==============
Shares of beneficial interest outstanding................... 55,990,644
==============
Net asset value and offering price per share outstanding.... $ 18.09
==============
CLASS C
Net assets applicable to outstanding shares................. $ 631,181
==============
Shares of beneficial interest outstanding................... 34,894
==============
Net asset value and offering price per share outstanding.... $ 18.09
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 380
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $21,449,312
Interest.................................................. 1,150,006
-----------
Total income............................................ 22,599,318
-----------
Expenses:
Distribution--Class B..................................... 8,418,791
Distribution--Class C..................................... 3,004
Management................................................ 7,075,261
Transfer agent............................................ 3,047,382
Service--Class A.......................................... 285,365
Service--Class B.......................................... 2,806,264
Service--Class C.......................................... 1,002
Shareholder communication................................. 228,635
Recordkeeping............................................. 150,373
Custodian................................................. 117,483
Professional.............................................. 91,909
Registration.............................................. 69,071
Trustees.................................................. 34,083
Miscellaneous............................................. 44,234
-----------
Total expenses.......................................... 22,372,857
-----------
Net investment income....................................... 226,461
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY FORWARD CONTRACT TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 5,565,145
Foreign currency forward contract transactions............ (953,238)
-----------
Net realized gain on investments and foreign currency
forward contract transactions............................. 4,611,907
-----------
Net change in unrealized appreciation/depreciation on
investments:
Security transactions..................................... 83,527,918
Foreign currency forward contracts........................ 162,168
-----------
Net unrealized gain on investments and foreign currency
forward contracts......................................... 83,690,086
-----------
Net realized and unrealized gain on investments and foreign
currency forward contracts................................ 88,301,993
-----------
Net increase in net assets resulting from operations........ $88,528,454
===========
</TABLE>
(a) Dividends recorded net of foreign withholding taxes of $29,433.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 381
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 226,461 $ 5,231,671
Net realized gain on investments and foreign currency
forward contracts....................................... 4,611,907 145,578,486
Net change in unrealized appreciation/depreciation on
investments and foreign currency forward contracts...... 83,690,086 (275,822,955)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations.............................................. 88,528,454 (125,012,798)
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (17,096) (1,398,114)
Class B................................................. (26,773) (4,044,247)
Class C................................................. (2) (99)
From net realized gain on investments:
Class A................................................. (1,060,369) (15,558,746)
Class B................................................. (10,508,898) (159,288,098)
Class C................................................. (6,553) (10,773)
In excess of net realized gain on investments:
Class A................................................. (757,755) --
Class B................................................. (7,509,817) --
Class C................................................. (4,683) --
Return of capital:
Class A................................................. (424,649) --
Class B................................................. (665,047) --
Class C................................................. (62) --
-------------- --------------
Total dividends and distributions to shareholders..... (20,981,704) (180,300,077)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 115,026,854 53,394,132
Class B................................................. 123,084,616 224,286,153
Class C................................................. 815,133 78,500
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 2,173,729 16,141,993
Class B................................................. 18,287,568 159,214,986
Class C................................................. 10,103 10,864
-------------- --------------
259,398,003 453,126,628
Cost of shares redeemed:
Class A................................................. (122,384,486) (51,885,082)
Class B................................................. (363,451,080) (329,969,309)
Class C................................................. (234,302) (2)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (226,671,865) 71,272,235
-------------- --------------
Net decrease in net assets............................ (159,125,115) (234,040,640)
NET ASSETS:
Beginning of year........................................... 1,289,559,167 1,523,599,807
-------------- --------------
End of year................................................. $1,130,434,052 $1,289,559,167
============== ==============
Accumulated undistributed net investment income at end of
year...................................................... $ 381 $ 35,686
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 382
This page intentionally left blank
19
<PAGE> 383
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------
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 (loss)........................ 0.12 0.23 0.27 0.30 0.29
Net realized and unrealized gain (loss) on
investments....................................... 1.29 (1.92) 4.10 3.66 3.91
-------- -------- -------- ------- -------
Total from investment operations.................... 1.41 (1.69) 4.37 3.96 4.20
-------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income........................ (0.00)(b) (0.23) (0.27) (0.30) (0.29)
From net realized gain on investments............. (0.19) (2.68) (2.68) (1.57) (0.32)
In excess of net realized gain on investments..... (0.13) -- -- -- --
Return of capital................................. (0.07) -- -- -- --
-------- -------- -------- ------- -------
Total dividends and distributions................... (0.39) (2.91) (2.95) (1.87) (0.61)
-------- -------- -------- ------- -------
Net asset value at end of period.................... $ 18.18 $ 17.16 $ 21.76 $ 20.34 $ 18.25
======== ======== ======== ======= =======
Total investment return (a)......................... 8.33% (7.41%) 21.88% 21.84% 28.74%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss).................... 0.70% 1.03% 1.22% 1.6% 1.5%
Expenses........................................ 1.13% 1.09% 1.11% 1.1% 1.2%
Portfolio turnover rate............................. 61% 83% 61% 47% 48%
Net assets at end of period (in 000's).............. $117,036 $114,925 $124,011 $73,259 $25,258
</TABLE>
- -------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ 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.
20
<PAGE> 384
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------ --------------------------------
September 1,*
Year ended December 31, Year ended through
------------------------------------------------------------------------ December 31, December 31,
1999 1998 1997 1996 1995 1999 1998
---------- ---------- ---------- ---------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 17.15 $ 21.74 $ 20.32 $ 18.25 $ 14.66 $17.15 $18.16
---------- ---------- ---------- ---------- -------- ------ ------
(0.01) 0.06 0.15 0.20 0.19 (0.01) 0.03
1.28 (1.91) 4.10 3.64 3.91 1.28 1.67
---------- ---------- ---------- ---------- -------- ------ ------
1.27 (1.85) 4.25 3.84 4.10 1.27 1.70
---------- ---------- ---------- ---------- -------- ------ ------
(0.00)(b) (0.06) (0.15) (0.20) (0.19) (0.00)(b) (0.03)
(0.19) (2.68) (2.68) (1.57) (0.32) (0.19) (2.68)
(0.13) -- -- -- -- (0.13) --
(0.01) -- -- -- -- (0.01) --
---------- ---------- ---------- ---------- -------- ------ ------
(0.33) (2.74) (2.83) (1.77) (0.51) (0.33) (2.71)
---------- ---------- ---------- ---------- -------- ------ ------
$ 18.09 $ 17.15 $ 21.74 $ 20.32 $ 18.25 $18.09 $17.15
========== ========== ========== ========== ======== ====== ======
7.51% (8.09%) 21.29% 21.11% 28.01% 7.51% 9.88%
(0.05)% 0.28% 0.70% 1.1% 0.9% (0.05)% 0.28%+
1.88% 1.84% 1.63% 1.6% 1.8% 1.88% 1.84%+
61% 83% 61% 47% 48% 61% 83%
$1,012,767 $1,174,554 $1,399,589 $1,019,307 $708,840 $ 631 $ 80
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 385
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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.
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
22
<PAGE> 386
Notes to Financial Statements
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 Fund's 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
Fund's 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 year end to credit loss in the event of a counterparty's failure to
perform its obligations.
Foreign currency forward contract open at December 31, 1999:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT UNREALIZED
SOLD PURCHASED DEPRECIATION
-------------- ----------- ------------
<S> <C> <C> <C>
Foreign Currency Sale Contract
Japanese Yen vs. U.S. Dollar, expiring 3/16/00...... Y1,649,000,000 $16,150,833 ($160,302)
</TABLE>
23
<PAGE> 387
MainStay Value 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
quarterly. Income dividends and capital gain distributions are determined in
accordance with Federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $871,863, $953,238 and
$1,814,333 are decreases to accumulated net investment loss, accumulated net
realized loss on foreign currency forward contracts and additional paid-in
capital, respectively. In addition, accumulated distributions in excess of net
realized gain on investments has been increased by $10,768. These book-tax
differences are due primarily to a return of capital distribution and the tax
treatment of foreign currency losses.
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 LLC (the "Manager"), an indirect
wholly owned subsidiary of New York Life Insurance Company ("New York Life"),
serves as the Fund's manager
24
<PAGE> 388
Notes to Financial Statements (continued)
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 LLC (the "Subadvisor"),
a registered investment advisor 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
year ended December 31, 1999 the Manager earned $7,075,261.
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% of the Fund's average daily net 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, 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 $36,686 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $4,246, $1,574,675 and $585, respectively, for the year ended December
31, 1999.
25
<PAGE> 389
MainStay Value Fund
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 year ended December 31, 1999
amounted to $3,047,382.
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 $33,214 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$150,373 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
The Fund intends to elect, to the extent provided by the regulations, to treat
$3,922,756 of qualifying capital losses and foreign exchange losses that arose
during the year as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $736,248 and $988,173, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
26
<PAGE> 390
Notes to Financial Statements (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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............................... 6,437 6,641 43 2,517 10,295 4
Shares issued in reinvestment of dividends
and distributions....................... 124 1,058 -- 959 9,561 1
------ ------- ------ ------ ------- --
6,561 7,699 43 3,476 19,856 5
Shares redeemed........................... (6,821) (20,185) (13) (2,478) (15,747) --
------ ------- ------ ------ ------- --
Net increase (decrease)................... (260) (12,486) 30 998 4,109 5
====== ======= ====== ====== ======= ==
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on September 1, 1998.
</TABLE>
27
<PAGE> 391
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Value Fund (one of the
portfolios constituting The MainStay Funds, hereafter referred to as the "Fund")
at December 31, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
28
<PAGE> 392
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 393
This page intentionally left blank
<PAGE> 394
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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 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)2000. All rights reserved. MSAN16-02/00
[RECYCLED PAPER LOGO]
[MAINSTAY FUNDS LOGO]
MAINSTAY
VALUE FUND
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 395
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, a Three-Index Composite, and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 22
Notes to Financial Statements 28
Report of Independent Accountants 38
The MainStay Funds 39
</TABLE>
<PAGE> 396
This page intentionally left blank
2
<PAGE> 397
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 398
$10,000 Invested in the MainStay Strategic
Income Fund versus Lehman Brothers
Aggregate Bond Index, a Three-Index
Composite, and Inflation
CLASS A SHARES SEC Returns: 1 Year -2.30%, Since Inception 3.27%
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MAINSTAY STRATEGIC AGGREGATE BOND THREE-INDEX
INCOME FUND INDEX* INFLATION (CPI)++ COMPOSITE+
------------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C>
2/28/97 9550 10000 10000 10000
3/97 9445 9889 10006 9904
6/97 9834 10253 10031 10262
9/97 10181 10594 10093 10544
12/97 10183 10907 10131 10656
3/98 10467 11075 10137 10832
6/98 10650 11334 10199 11022
9/98 10485 11813 10237 11304
12/98 10709 11854 10294 11619
3/99 10814 11794 10331 11476
6/99 10773 11691 10406 11315
9/99 10859 11770 10482 11511
12/99 10955 11756 10558 11525
</TABLE>
CLASS B SHARES Class B SEC Returns: 1 Year -3.46%, Since Inception 3.19%
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
AGGREGATE BOND THREE-INDEX
INCOME FUND INDEX* COMPOSITE+ INFLATION (CPI)++
----------- --------------- ----------- -----------------
<S> <C> <C> <C> <C>
2/28/97 10000 10000 10000 10000
3/97 9890 9889 9904 10006
6/97 10268 10253 10262 10031
9/97 10612 10594 10544 10093
12/97 10602 10907 10656 10131
3/98 10877 11075 10832 10137
6/98 11037 11334 11022 10199
9/98 10856 11813 11304 10237
12/98 11062 11854 11619 10294
3/99 11161 11794 11476 10331
6/99 11086 11691 11315 10406
9/99 11164 11770 11511 10482
12/99 10933 11756 11525 10558
</TABLE>
CLASS C SHARES Class C SEC Returns: 1 Year 0.54%, Since Inception 4.18%
[LINE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MAINSTAY STRATEGIC AGGREGATE BOND THREE-INDEX
INCOME FUND INDEX* INFLATION (CPI)++ COMPOSITE+
------------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C>
2/28/97 10000 10000 10000 10000
3/97 9890 9889 10006 9904
6/97 10268 10253 10031 10262
9/97 10612 10594 10093 10544
12/97 10602 10907 10131 10656
3/98 10877 11075 10137 10832
6/98 11037 11334 10199 11022
9/98 10856 11813 10237 11304
12/98 11062 11854 10294 11619
3/99 11161 11794 10331 11476
6/99 11086 11691 10406 11315
9/99 11164 11770 10482 11511
12/99 11233 11756 10558 11525
</TABLE>
4
<PAGE> 399
- -------
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 through 2/98 reflect certain fee waivers and/or
expense limitations, without which total returns may have been lower. 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 figures 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.
(+) The MainStay Strategic Income Fund, going forward, will measure its
performance against a Three-Index Composite. This Composite reflects the
holdings of the Fund better than the Lehman Brothers Aggregate Bond Index,
against which the Fund is currently measured, and the subadvisor believes
that the Composite is, therefore, a better performance benchmark. The U.S.
government and domestic investment-grade sector is represented by the
Lehman Brothers Aggregate Bond Index. The U.S. high-yield sector is
represented by the First Boston High Yield Index. The international bond
sector is represented by the Salomon Smith Barney Non-U.S. Dollar World
Government Bond Index (unhedged). All indices are unmanaged. The
Three-Index Composite assumes equal investments in all three indices, with
all dividends and capital gains reinvested. An investment cannot be made
directly into an index or a composite of indices.
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.
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.
(++) 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> 400
- -------
(1) According to Standard & Poor's, debt currently rated BBB exhibits adequate
protection parameters. Debt currently rated BB is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions, which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation. Debt rated B is more vulnerable
to nonpayment than obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligations.
Ratings may be modified with a plus or minus sign to show relative standing
within the major rating categories. When applied to Fund investments, 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.
(2) See footnote and table on page 11 for more information on Lipper Inc.
(3) See page 5 for additional information regarding the indices listed.
Portfolio Management Discussion and Analysis
With the Federal Reserve raising the targeted federal funds rate by 25 basis
points in June, August, and November, domestic bonds rated BBB(1) and higher had
a difficult year in 1999, providing negative total returns. International bonds
also faced challenges, as the euro, which was introduced in January of 1999,
declined versus the U.S. dollar after it Japan was the best-performing
international bond market, led by an economic recovery and a fiscal stimulus
package that caused the bond market to perform well as the yen improved relative
to the U.S. dollar through much of the year.
The high-yield bond market was volatile throughout most of 1999 but provided
positive returns, despite rising default rates and credit difficulties among
several well-established companies.
FUND PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Strategic Income Fund
returned 2.30% for Class A shares and 1.54% for Class B and Class C shares,
excluding all sales charges. Although all share classes underperformed the 2.57%
return of the average Lipper(2) multisector income fund for 1999, all share
classes outperformed the -0.82% return of the Lehman Brother's Aggregate Bond
Index,(3) for the year.
Asset allocation decisions may have accounted for some of the Fund's
underperformance. In an effort to maintain broad diversification by asset class,
high-yield bonds, the best-performing market sector, never represented more than
43.44% of the Fund's total assets in 1999, while other funds may have had higher
allocations to high-yield securities.
During the year, the individual sectors of the Fund all outperformed their
respective benchmarks. The international bond portion of the Fund's portfolio
returned -3.3%, but outperformed the Salomon Smith Barney Non-U.S. Dollar World
Government Bond Index(3) by 1.8%. The high-grade securities portion of the
Fund's portfolio also outperformed the Lehman Brother's Aggregate Bond Index,
which returned -0.82%. The high-yield securities portion of the Fund outpaced
the 3.28% return of the First Boston High Yield Index(3) by a substantial
margin. Despite strong performance in the high-yield portion of the Fund, our
decision to underweight this sector and overweight international bonds early in
the year detracted from performance. Our decision to maintain substantial
weightings in domestic high-grade securities--at a time when rising interest
rates negatively impacted returns--may also help explain the Fund's overall
performance in 1999.
Below-average liquidity contributed to high-yield market volatility as interest
rates escalated throughout the year and default rates rose to 5.5% for 1999. In
6
<PAGE> 401
YEAR-BY-YEAR PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
YEAR END TOTAL RETURN %
- ------------------------------------------------------------ -------------------------------------------
<S> <C>
12/97 6.62 Class A
12/98 5.17 Class A
12/99 2.30 Class A
12/97 6.02 Class B and Class C
12/98 4.35 Class B and Class C
12/99 1.54 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 12/97
through 8/98. See footnote * on page 11 for more information on performance.
this environment, many managers shunned single-B issuers in favor of higher-
quality BB securities,(1) while other managers were unable to dodge the abundant
credit difficulties that plagued the market. We had conviction in the Fund's
investment process and used market uncertainty to add to our favorite names at
discounted prices. The Fund was rewarded when several of its telecom, cable, and
media names went public or were acquired by stronger credits. In addition, the
Fund's focus on strong asset coverage and free cash flow helped minimize the
effect of poor performers within the high-yield portion of the Fund.
STRONG AND WEAK PERFORMERS
UIH Australia zero-coupon bonds had the greatest positive impact on performance
during 1999. The Fund owned the bonds of this pay-television service and
programming company in 1998 and increased its position during the second half of
1999, believing the company's asset value was improving and competition was
waning. Our view was confirmed when the company's parent went public in July
1999. We continue to have a large position in these securities because we feel
that the company will refinance the bonds when the issue begins to pay a cash
coupon.
In the international portion of the Fund, emerging-market dollar bonds provided
the highest returns. After the Russian crisis in August 1998 and the Brazilian
real devaluation in January 1999, these assets became extremely cheap and the
Fund maintained a 10% weighting in emerging-market debt for most of 1999.
In Europe, the introduction of the euro was not well received. Although we
hedged part of the Fund's European currency exposure back into U.S. and
7
<PAGE> 402
Canadian dollars, overall our European bond exposure detracted from the Fund's
performance.
SIGNIFICANT PURCHASES AND SALES
During 1999, we found more value in existing high-yield positions than we did in
new names. One such position was United Pan-Europe Communications (UPC), owned
by United International Holdings (UIH) and UIH's most valuable asset. We traded
the Fund's UIH position during the year for the UPC credit, which we believed
provided a more attractive risk/reward profile.
Our decision to buy Japanese government bonds for the Fund was significant as
these bonds outperformed other international markets in 1999. In emerging
markets, we increased exposure to Brazil, Turkey, and Venezuela throughout the
year, which contributed positively to the Fund's performance. In international
corporate bonds, we bought Kimberly Clark de Mexico for the Fund in midyear.
Although the bonds were not cheap on a spread basis to Mexican sovereign debt,
the company's credit profile and part ownership by U.S. Kimberly Clark made it
attractive and we believed its yield could move closer to that of U.S.
Treasuries. At year-end we sold the bonds for an annualized total return of 22%.
The Fund also added to an existing position in ICG Communications, making it one
of the Fund's larger telecommunications holdings. Although the company's
traditional business is struggling, ICG has moved into dial-up Internet access,
with customers including Microsoft Network and Qwest Communications. With
continued demand for the company's Internet offering and over 80% of forecast
additions already in backlog, we believe ICG's securities are likely to
outperform the market in 2000.
We increased the Fund's position in Millicom International Cellular, a cellular
network owner/operator in Europe, Asia, Latin America, and Africa. We were
impressed with the company's rapidly growing subscriber base and
telecommunication assets in Europe, which are more than sufficient to cover the
Fund's bond investment. In light of global wireless consolidation, we believe
these bonds will outperform in 2000 and will be retired when they begin to pay a
cash coupon.
The domestic high-grade portion of the portfolio purchased and still owns
Tenaska Georgia Partners, a project financing for a gas-fired power plant in
Georgia. This position contributed positively to the Fund's performance.
The Fund's position in Marcus Cable, an owner and operator of cable systems, was
purchased in a tender by the company following its acquisition by Vulcan
Ventures, the investment arm of Paul Allen. We also sold the Fund's position in
Tokai Bank when it reached our price target. We also sold the Fund's holdings in
American Telecasting following the company's acquisition by Sprint.
8
<PAGE> 403
MARKET CHALLENGES AND ASSET ALLOCATIONS
Entering 1999, we believed that the high-yield market was oversold due to weak
technicals brought on by Russia's default and difficulties at a major hedge
fund. In hindsight, wide spreads on high-yield securities were a signal that
default rates would rise dramatically during the year. While this was not
surprising, the magnitude was much greater than we anticipated, with defaults
nearly tripling to 5.5% in 1999, according to Moody's statistics.
Credit difficulties were not limited to weak single-B credits or securities
rated CCC.(4) Several issuers rated BB- or higher also faced debt-service
problems, with several well-established companies among the market's worst
performers, including Fruit of the Loom, Harnischfeger, Pillowtex, Rite Aid, and
Fremont General. During the year, the Fund owned a small position in
Harnischfeger.
The behavior of the euro was disappointing, as it tumbled nearly 15% versus the
dollar despite Europe's large current-account surplus and strengthening economy.
We expect this trend to reverse in 2000.
The MainStay Strategic Income Fund seeks to add value by diversifying across
three major bond sectors--domestic high-grade, high-yield, and international
bonds. In 1999, we slowly increased the high-yield portion of the Fund by adding
to existing domestic positions and internationally by adding emerging-market
sovereign dollar debt to the portfolio. At year-end 1999, the Fund held 43.44%
of its total assets in high-yield securities, 27.25% in international bonds, and
29.31% in domestic high-grade securities.
LOOKING AHEAD
We are cautiously optimistic about the income markets in 2000. Central banks
with the exception of Japan have embarked on monetary tightening, but we believe
that at year-end, at least 100 basis points of tightening was already built into
the major bond markets. The Fund remains overweighted in high-yield bonds and
may increase its high-yield exposure to 50% of the Fund sometime in the first
quarter.
With high-yield spreads offering nearly an 80% premium to Treasuries, we believe
the market is undervalued and that spreads will tighten. Although we expect
default rates to remain above their historical average, we believe they may
decline during the year with positive implications for the high-yield market.
As always, the corporate earnings environment and the health of the economy will
play a significant role in the returns available to income investors. Barring
another jump in major commodities such as oil, we anticipate inflationary
expectations to recede, allowing bonds to rally midyear. Whatever the global
economy and markets may bring, the Fund will continue to seek to provide
- -------
(4) According to Standard & Poor's, debt rated CCC is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet
its financial commitment on the obligation. When applied to Fund
investments, 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.
9
<PAGE> 404
- -------
* Dividends are declared only to four decimal places, which--with rounding--is
not sufficient to reflect any differences among share classes.
Past performance is no guarantee of future results.
current income and competitive overall return by investing primarily in domestic
and foreign debt securities.
Edward Munshower
Joseph Portera
Steven Tananbaum
Portfolio Managers
MacKay Shields LLC
NONTAXABLE DISTRIBUTION
The MainStay Strategic Income Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. During the year ended December 31,
1999, dividends paid by the Fund slightly exceeded the net income earned. As
a result, a small portion of the dividends paid in 1999 have been
reclassified as a return of capital as shown in the table below. The return
of capital to shareholders had no material impact on the Fund's performance
or net asset value. Since the Fund's portfolio managers did not engage in
additional trading to accommodate dividend payments, the Fund's portfolio
turnover rate and transaction costs were not affected.
<TABLE>
<CAPTION>
PERCENT OF TOTAL INCOME
SHARE CLASS RETURN OF CAPITAL AMOUNT* DIVIDENDS PAID IN 1999
-------------- ------------------------- -----------------------
<S> <C> <C>
Class A shares $0.0036 per share 0.52%
Class B shares $0.0036 per share 0.52%
Class C shares $0.0036 per share 0.52%
</TABLE>
Whenever a Fund returns capital to you, the cost basis of your Fund holdings
is reduced by the amount of the nontaxable distribution. Accurate cost-basis
accounting is important in determining any capital gains or losses when
shares are eventually sold. You should consult with your tax advisor for
additional information on determining the cost basis of your mutual fund
shares. This material is provided for informational purposes only.
Shareholders should refer to their 1999 Form 1099-DIV for the total amount
of their distributions that are taxable and nontaxable.
10
<PAGE> 405
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 2.30% 4.96%
Class B 1.54% 4.18%
Class C 1.54% 4.18%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A -2.30% 3.27%
Class B -3.46% 3.19%
Class C 0.54% 4.18%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 57 out of 111 funds 20 out of 77 funds
Class B 69 out of 111 funds 37 out of 77 funds
Class C 69 out of 111 funds 65 out of 106 funds
Average Lipper
multisector
income fund 2.57% 3.90%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.20 $0.6968 $0.0295
Class B $9.19 $0.6261 $0.0295
Class C $9.19 $0.6261 $0.0295
</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. Performance figures through
2/98 reflect certain fee waivers and/or expense limitations, without which
total returns may have been lower. 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
figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
11
<PAGE> 406
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (91.5%)+
ASSET-BACKED SECURITIES (4.2%)
AIRLINES (0.3%)
America West Airlines, Inc.
Pass-Through Certificates
Series C
6.86%, due 1/2/06.............. $ 187,835 $ 184,319
Northwest Airlines Corp.
Pass-Through Certificates
Series 1999-3 Class B
9.485%, due 4/1/15............. 70,000 69,343
-----------
253,662
-----------
AIRPLANE LEASES (1.2%)
AerCo Ltd.
Series 1X Class A1
6.6525%, due 7/15/23 (d)....... 150,000 149,823
Aircraft Finance Trust
Series 1999-1A Class C
8.00%, due 5/15/24 (c)......... 180,000 160,412
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
7.85%, due 6/15/06 (d)......... 279,431 273,842
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19 (e)......... 408,590 366,154
-----------
950,231
-----------
AUTO LEASES (0.3%)
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02............. 255,000 251,708
-----------
ELECTRIC POWER COMPANIES (0.8%)
AES Eastern Energy, L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17 (c).......... 470,000 442,693
Boston Edison Co.
Series 1999-1 Class A2
6.45%, due 9/15/05............. 230,000 226,677
-----------
669,370
-----------
ENTERTAINMENT (0.1%)
United Artists Theatre Co.
Pass-Through Certificates
Series 95-A
9.30%, due 7/1/15.............. 107,371 76,867
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
EQUIPMENT LOANS (0.5%)
IKON Receivables L.L.C.
Series 1999-1 Class A3
5.99%, due 5/15/05............. $ 295,000 $ 291,183
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02............ 100,000 98,753
-----------
389,936
-----------
FINANCE (0.3%)
Green Tree Financial Corp.
Series 1999-4 Class A4
6.64%, due 5/1/31.............. 220,000 216,858
-----------
LEISURE TIME (0.2%)
Harley-Davidson Eaglemark
Motorcycle Trust
Series 1999-1 Class A2
5.52%, due 2/15/05............. 160,000 155,726
-----------
RESIDENTIAL MORTGAGE LOANS
(0.2%)
Conseco Finance Corp.
Series 1999-F Class A2
6.72%, due 10/15/14............ 150,000 148,788
-----------
TRANSPORTATION (0.3%)
Atlas Air, Inc.
Pass-Through Certificates
Series 1999-1 Class C
8.77%, due 7/2/12.............. 275,000 263,370
-----------
Total Asset-Backed Securities
(Cost $3,516,527).............. 3,376,516
-----------
CONVERTIBLE BONDS (1.2%)
CONGLOMERATES (0.1%)
Loxley Public Co. Ltd.
3.50%, due 4/20/05 (e)(f)...... 245,000 76,638
-----------
HEALTH CARE--DRUGS (0.1%)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02............. 100,000 81,000
-----------
MINING (0.5%)
Agnico-Eagle Mines Ltd.
3.50%, due 1/27/04 (g)......... 350,000 237,562
Battle Mountain Gold Co.
6.00%, due 1/4/05 (e).......... 285,000 183,825
-----------
421,387
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 407
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
TECHNOLOGY (0.5%)
Cirrus Logic, Inc.
6.00%, due 12/15/03............ $ 480,000 $ 403,800
-----------
Total Convertible Bonds
(Cost $1,117,061).............. 982,825
-----------
CORPORATE BONDS (31.9%)
AIRLINES (0.2%)
Delta Airlines, Inc.
8.30%, due 12/15/29 (c)........ 180,000 174,528
-----------
AUTO PARTS & EQUIPMENT (0.4%)
Delphi Automotive Systems Corp.
7.125%, due 5/1/29............. 150,000 132,727
Gentek, Inc.
11.00%, due 8/1/09 (c)......... 165,000 171,600
-----------
304,327
-----------
AUTOMOBILES (0.2%)
DaimlerChrysler North America
Holding Corp.
7.20%, due 9/1/09.............. 90,000 88,446
Ford Motor Co.
7.45%, due 7/16/31............. 55,000 53,044
-----------
141,490
-----------
BANKS (0.8%)
B.F. Saul Real Estate Investment
Trust
Series B
9.75%, due 4/1/08.............. 255,000 233,006
Local Financial Corp.
11.00%, due 9/8/04............. 410,000 426,400
-----------
659,406
-----------
BANKS--MONEY CENTER (0.2%)
Bank of America Corp.
6.625%, due 6/15/04............ 130,000 127,144
-----------
BROADCAST/MEDIA (1.6%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02...... 250,000 141,250
14.50%, due 5/15/09............ 630,000 570,937
Comcast Corp.
9.50%, due 1/15/08............. 230,000 236,900
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
BROADCAST/MEDIA (CONTINUED)
Liberty Media Group
8.50%, due 7/15/29 (c)......... $ 160,000 $ 162,557
Young America Corp.
Series B
11.625%, due 2/15/06........... 260,000 200,200
-----------
1,311,844
-----------
BUILDING MATERIALS (0.3%)
Vulcan Materials Co.
6.00%, due 4/1/09.............. 250,000 224,952
-----------
BUILDINGS--MAINTENANCE & SERVICES (1.1%)
Building One Services Corp.
10.50%, due 5/1/09............. 900,000 864,000
-----------
CABLE TV (2.2%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03...... 245,000 154,350
Charter Communications Holdings
L.L.C.
8.625%, due 4/1/09............. 560,000 517,300
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01...... 1,230,000 1,063,950
-----------
1,735,600
-----------
CASINOS (0.9%)
Penn National Gaming, Inc.
10.625%, due 12/15/04.......... 625,000 643,750
President Casinos, Inc.
12.00%, due 9/15/01 (c)(h)..... 47,000 47,000
13.00%, due 9/15/01............ 94,000 75,200
-----------
765,950
-----------
CELLULAR TELEPHONES (0.6%)
International Wireless
Communications
Holdings, Inc.
(zero coupon), due 8/15/01
(h)(i)......................... 475,000 47,500
Nuevo Grupo Iusacell S.A.
14.25%, due 12/1/06 (c)........ 350,000 362,250
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03....... 195,000 78,000
-----------
487,750
-----------
CHEMICALS (0.4%)
Agriculture Minerals &
Chemicals, Inc.
10.75%, due 9/30/03............ 175,000 122,500
Borden Chemicals & Plastics L.P.
9.50%, due 5/1/05.............. 90,000 83,700
Lyondell Chemical Co.
10.875%, due 5/1/09............ 110,000 113,300
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 408
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CHEMICALS (CONTINUED)
Terra Industries, Inc.
Series B
10.50%, due 6/15/05............ $ 50,000 $ 35,000
-----------
354,500
-----------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (0.2%)
EV International, Inc.
Series A
11.00%, due 3/15/07............ 280,000 176,400
-----------
COMPUTERS & OFFICE EQUIPMENT (0.3%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05............. 230,000 242,075
-----------
CONSUMER FINANCE (0.3%)
Fremont General Corp.
Series B
7.70%, due 3/17/04............. 160,000 138,475
Household Finance Corp.
6.50%, due 11/15/08............ 75,000 69,368
-----------
207,843
-----------
COSMETICS/PERSONAL CARE (0.3%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08............. 260,000 250,900
-----------
ELECTRIC POWER COMPANIES (0.6%)
CMS Energy Corp. &
Atlantic Methanol Capital Co.
Series A-1
10.875%, due 12/15/04 (c)...... 500,000 500,000
-----------
ENGINEERING & CONSTRUCTION (0.4%)
Cathay International Ltd.
13.50%, due 4/15/08 (c)........ 420,000 211,050
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(f)...... 205,000 97,375
-----------
308,425
-----------
ENTERTAINMENT (1.2%)
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (f)(i)..... 160,000 1,600
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04........... 245,000 226,625
Joseph E. Seagram & Sons, Inc.
5.79%, due 4/15/01............. 125,000 122,810
Marvel Enterprises, Inc.
12.00%, due 6/15/09............ 380,000 349,600
Turner Broadcasting System, Inc.
8.375%, due 7/1/13............. 242,000 250,981
-----------
951,616
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
FINANCE (0.7%)
ASAT Finance L.L.C.
12.50%, due 11/1/06 (c)(j)..... $ 175 $ 188,125
ContiFinancial Corp.
7.50%, due 3/15/02............. 55,000 6,188
Ford Motor Credit Co.
7.375%, due 10/28/09........... 250,000 247,103
Ocwen Asset Investment Corp.
11.50%, due 7/1/05............. 195,000 163,800
-----------
605,216
-----------
FINANCIAL--MISCELLANEOUS (0.4%)
Morgan Stanley Dean Witter & Co.
7.125%, due 1/15/03............ 300,000 299,781
-----------
FOOD, BEVERAGES & TOBACCO (0.2%)
Standard Commercial Corp.
8.875%, due 8/1/05............. 225,000 176,062
-----------
HEALTH CARE (2.9%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02............. 205,000 201,156
Alaris Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03...... 255,000 104,869
Biovail Corporation
International
10.875%, due 11/15/05.......... 150,000 157,687
Genesis Health Ventures, Inc.
9.75%, due 6/15/05............. 95,000 38,950
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03....... 310,000 91,450
Medaphis Corp.
Series B
9.50%, due 2/15/05............. 545,000 430,550
MedPartners, Inc.
6.875%, due 9/1/00............. 85,000 81,600
7.375%, due 10/1/06............ 160,000 132,800
MultiCare Companies, Inc. (The)
9.00%, due 8/1/07.............. 280,000 56,000
Quest Diagnostics, Inc.
10.75%, due 12/15/06........... 355,000 372,750
Team Health, Inc.
12.00%, due 3/15/09 (c)........ 370,000 364,450
Unilab Corp.
12.75%, due 10/1/09 (c)........ 320,000 331,200
-----------
2,363,462
-----------
HEALTH CARE--HOSPITAL MANAGEMENT (0.2%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95............ 225,000 164,837
-----------
HEALTH CARE--MEDICAL PRODUCTS (0.2%)
DJ Orthopedics L.L.C.
12.625%, due 6/15/09........... 160,000 156,800
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 409
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOMEBUILDING (0.3%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (k)........ $ 236,103 $ 234,922
-----------
HOTEL/MOTEL (0.7%)
FelCor Suites, L.P.
7.625%, due 10/1/07............ 225,000 195,520
Florida Panthers Holdings, Inc.
9.875%, due 4/15/09............ 360,000 349,200
-----------
544,720
-----------
INDUSTRIAL (1.0%)
Cellco Finance N.V.
12.75%, due 8/1/05 (c)......... 500,000 518,125
Morris Materials Handling, Inc.
9.50%, due 4/1/08.............. 260,000 80,600
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03....... 500,000 228,750
-----------
827,475
-----------
INSURANCE--LIFE (0.2%)
Conseco, Inc.
6.40%, due 6/15/11............. 210,000 205,357
-----------
INVESTMENT BANK/BROKERAGE (0.9%)
Donaldson, Lufkin & Jenrette,
Inc.
6.50%, due 6/1/08.............. 175,000 160,925
Goldman Sachs Group, Inc.
Series MTNA
6.6038%, due 1/8/01 (c)(d)..... 125,000 125,475
LaBranche & Co., Inc.
9.50%, due 8/15/04 (c)......... 360,000 349,200
Lehman Brothers Holdings, Inc.
6.625%, due 2/5/06............. 70,000 66,224
-----------
701,824
-----------
LEISURE TIME (0.2%)
Bally Total Fitness Holding
Corp.
Series D
9.875%, due 10/15/07........... 165,000 160,050
-----------
MACHINERY--DIVERSIFIED (0.2%)
Generac Portable Products L.L.C.
11.25%, due 7/1/06............. 170,000 173,400
-----------
MANUFACTURING--MISCELLANEOUS (0.4%)
Desa International, Inc.
9.875%, due 12/15/07........... 495,000 361,350
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
MINING (0.2%)
Great Central Mines Ltd.
8.875%, due 4/1/08............. $ 145,000 $ 133,762
-----------
OIL & GAS--DOMESTIC (0.4%)
Queens Sand Resources, Inc.
12.50%, due 7/1/08............. 590,000 312,700
-----------
OIL & GAS--EQUIPMENT & SERVICES (0.2%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (f)(i)...... 335,000 155,775
-----------
OIL & GAS--EXPLORATION & PRODUCTION (0.9%)
Contour Energy Co.
14.00%, due 4/15/03............ 423,000 414,540
Petro Stopping Centers Holdings
L.P.
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04
(c)(l)......................... 335 167,500
Vastar Resources, Inc.
6.50%, due 4/1/09.............. 135,000 125,485
-----------
707,525
-----------
OIL--INTEGRATED DOMESTIC (0.5%)
Amerada Hess Corp.
7.875%, due 10/1/29............ 410,000 400,369
-----------
PAPER & FOREST PRODUCTS (0.2%)
Georgia-Pacific Corp.
7.75%, due 11/15/29............ 145,000 138,469
-----------
PUBLISHING (0.1%)
General Media, Inc.
10.625%, due 12/31/00.......... 65,000 55,250
-----------
REAL ESTATE (1.4%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06............. 200,000 178,000
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07............. 630,000 521,001
Hospitality Properties Trust
7.00%, due 3/1/08.............. 225,000 192,603
LNR Property Corp.
Series B
9.375%, due 3/15/08............ 230,000 216,200
-----------
1,107,804
-----------
RESTAURANTS (1.0%)
Advantica Restaurant Group, Inc.
11.25%, due 1/15/08............ 640,000 473,600
FRI-MRD Corp.
15.00%, due 1/24/02 (c)(h)..... 320,000 318,400
-----------
792,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 410
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
RETAIL (0.7%)
G&G Retail, Inc.
11.00%, due 5/15/06............ $ 350,000 $ 297,938
United Auto Group, Inc.
Series B
11.00%, due 7/15/07............ 260,000 244,400
-----------
542,338
-----------
RETAIL STORES--GENERAL MERCHANDISE (0.1%)
Wal-Mart Stores, Inc.
6.875%, due 8/10/09............ 110,000 107,158
-----------
SPECIALIZED SERVICES (0.4%)
Weight Watchers International,
Inc.
13.00%, due 10/1/09 (c)........ 235,000 237,644
WPP Finance (USA) Corp.
6.625%, due 7/15/05............ 135,000 125,780
-----------
363,424
-----------
STEEL, ALUMINUM & OTHER METALS (0.1%)
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05............ 90,000 94,050
-----------
TECHNOLOGY (0.1%)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00....... 235,000 51,700
-----------
TELECOMMUNICATION SERVICES (3.9%)
Arch Communications, Inc.
13.75%, due 4/15/08............ 180,000 146,025
Global TeleSystems Group, Inc.
11.00%, due 12/1/09 (c)........ E 325,000 328,222
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05............ $ 525,000 236,250
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03....... 230,000 119,025
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03...... 540,000 291,600
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (f)(i)(m)... 100 47,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATION SERVICES (CONTINUED)
NTL, Inc.
Series A
(zero coupon), due 4/15/05
12.75%, beginning 4/15/00...... $ 660,000 $ 663,300
9.875%, due 11/15/09 (c)....... E 245,000 246,815
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02...... $ 580,000 281,300
PageMart Nationwide, Inc.
(zero coupon), due 2/1/05
15.00%, beginning 2/1/00....... 180,000 162,000
RCN Corp.
(zero coupon), due 10/15/07
11.125%, beginning 10/15/02.... 470,000 330,175
10.125%, due 1/15/10........... 90,000 89,550
T/SF Communications Corp.
Series B
10.375%, due 11/1/07........... 180,000 172,800
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01..... 310,000 31,000
-----------
3,145,062
-----------
TELECOMMUNICATIONS--LONG DISTANCE (0.7%)
Price Communications Wireless,
Inc.
Series B
9.125%, due 12/15/06........... 305,000 308,813
Sprint Capital Corp.
6.875%, due 11/15/28........... 265,000 236,181
-----------
544,994
-----------
TRANSPORTATION (0.1%)
Equimar Shipholdings Ltd.
9.875%, due 7/1/07............. 95,000 59,850
-----------
UTILITIES (0.1%)
Tenaska Georgia Partners L.P.
9.50%, due 2/1/30 (c).......... 100,000 100,504
-----------
UTILITY--GAS (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)........ 130,000 59,800
-----------
Total Corporate Bonds
(Cost $27,340,139)............. 25,636,540
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 411
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS (26.8%)
AUSTRALIA (0.5%)
Australian Government
Series 302
9.75%, due 3/15/02............. A$ 350,000 $ 245,228
Federal National Mortgage
Association Series EMTN
6.375%, due 8/15/07............ 300,000 185,835
-----------
431,063
-----------
CANADA (1.5%)
Canadian Government
Series WH31
6.00%, due 6/1/08.............. C$ 719,000 490,711
Series VR22
7.50%, due 3/1/01.............. 778,000 548,122
Series VW17
8.00%, due 6/1/27.............. 176,000 149,105
-----------
1,187,938
-----------
DENMARK (0.3%)
Kingdom of Denmark
7.00%, due 12/15/04............ DK 1,592,000 229,953
-----------
FINLAND (0.8%)
Finnish Government
Series RG
10.00%, due 9/15/01............ E 614,000 672,341
-----------
FRANCE (1.2%)
France Obligations Assimilables
du Tresor
4.00%, due 4/25/09............. 1,118,000 998,525
-----------
GERMANY (6.3%)
Bundes Republic Deutschland
Series 98
5.25%, due 1/4/08.............. 566,000 564,746
5.625%, due 1/4/28............. 507,000 484,075
Series 96
6.00%, due 1/5/06.............. 1,129,000 1,186,366
Bundesobligation
Series 123
4.50%, due 5/17/02 (n)......... 1,076,275 1,081,766
Series 127
4.50%, due 5/19/03............. 1,721,000 1,718,223
-----------
5,035,176
-----------
ITALY (2.4%)
Buoni Poliennali del Tesoro
5.00%, due 5/1/08.............. 470,000 456,003
6.50%, due 11/1/27............. 424,000 443,929
8.25%, due 7/1/01.............. 658,000 694,864
8.50%, due 1/1/04.............. 332,000 366,075
-----------
1,960,871
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
JAPAN (6.5%)
Japanese Government
Series 206
1.50%, due 9/22/08............. Y 50,800,000 $ 493,422
Series 210
1.90%, due 3/20/09............. 29,700,000 297,661
Series 43
2.90%, due 9/20/19............. 33,000,000 350,805
Series 182
3.00%, due 9/20/05............. 39,200,000 418,985
Series 174
4.60%, due 9/20/04............. 150,000,000 1,712,701
Series 145
5.50%, due 3/20/02............. 181,100,000 1,969,973
-----------
5,243,547
-----------
NETHERLANDS (1.0%)
Netherlands Government
3.75%, due 7/15/09............. E 917,000 803,378
-----------
SPAIN (1.4%)
Bonos Y Obligacion del Estado
4.50%, due 7/30/04............. 705,000 693,333
5.15%, due 7/30/09............. 428,000 417,383
-----------
1,110,716
-----------
SWEDEN (0.3%)
Swedish Government
Series 1040
6.50%, due 5/5/08.............. SK 1,800,000 221,234
-----------
UNITED KINGDOM (2.2%)
Federal National Mortgage
Association
Series EMTN
6.875%, due 6/7/02............. L 465,000 749,744
Regional Independent Media Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03...... 330,000 359,858
United Kingdom Treasury Bond
8.00%, due 12/7/15............. 310,000 664,757
-----------
1,774,359
-----------
UNITED STATES (2.4%)
Conproca S.A.
12.00%, due 6/16/10 (c)........ $ 163,000 163,815
Innova S de R.L.
12.875%, due 4/1/07 (g)........ 130,000 116,350
Republic of Argentina
Series FRB
6.8125%, due 3/31/05 (d)....... 176,000 160,160
Republic of Brazil
10.125%, due 5/15/27........... 275,000 236,500
11.625%, due 4/15/04........... 615,000 614,078
Republic of Turkey
12.375%, due 6/15/09........... 250,000 268,125
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 412
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 $ 194,845
Telefonos de Mexico S.A.
4.25%, due 6/15/04 (g)(o)...... 100,000 130,375
-----------
1,884,248
-----------
Total Foreign Bonds
(Cost $22,907,801)............. 21,553,349
-----------
LOAN ASSIGNMENTS & PARTICIPATIONS (1.1%)
ENTERTAINMENT (0.2%)
United Artists Theatre Co.
Bank debt, Term Loan B
10.3093%, due 4/21/06
(d)(h)(p)...................... 73,651 54,318
Bank debt, Term Loan C
10.3702%, due 4/21/07
(d)(h)(p)...................... 109,962 81,097
-----------
135,415
-----------
TELECOMMUNICATION SERVICES (0.9%)
Orius Corp.
Bridge Loan
13.00%, due 12/15/00 (d)(h).... 720,000 720,000
-----------
Total Loan Assignments &
Participations
(Cost $858,349)................ 855,415
-----------
MORTGAGE-BACKED SECURITIES (3.4%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (3.4%)
Asset Securitization Corp.
Series 1997-MD7 Class A1B
7.41%, due 1/13/30............. 195,000 188,957
Commercial Mortgage Asset Trust
Series 1999-C2 Class A2
7.546%, due 11/17/32........... 155,000 153,616
CS First Boston Mortgage
Securities Corp.
Series 1999-C1 Class A2
7.29%, due 9/15/41............. 205,000 201,413
GMAC Commercial
Mortgage Securities, Inc.
Series 1996-C1 Class A2A
6.79%, due 10/15/28............ 122,143 121,152
Series 1998-C2 Class A2
6.42%, due 5/15/35............. 155,000 144,564
GS Mortgage Securities Corp. II
Series 1997-GL Class A2B
6.86%, due 7/13/30............. 135,000 133,092
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE OBLIGATIONS) (CONTINUED)
Lehman Large Loan
Series 1997-LLI Class A1
6.79%, due 6/12/04............. $ 151,864 $ 150,350
Merrill Lynch Mortgage
Investors, Inc.
Series 1998-C2 Class A1
6.22%, due 2/15/30............. 121,781 117,696
Series 1995-C2 Class A1
7.0793%, due 6/15/21 (d)....... 554,237 551,810
Series 1999-C1 Class A2
7.56%, due 11/15/31............ 140,000 139,546
Nationslink Funding Corp.
Series 1999-2 Class A2C
7.229%, due 6/20/31............ 140,000 137,190
PNC Mortgage Acceptance Corp.
Series 1999-CM1 Class A1B
7.33%, due 12/10/32............ 230,000 226,518
Salomon Brothers
Mortgage Securities VII
Series 1997-TZH Class A1
7.15%, due 3/25/25............. 210,079 208,089
SASCO Floating Rate Commercial
Mortgage Trust
Series 1999-C3 Class A
6.8613%, due 10/21/13 (c)(d)... 224,060 224,060
-----------
2,698,053
-----------
Total Mortgage-Backed Securities
(Cost $2,746,170).............. 2,698,053
-----------
U.S. GOVERNMENT & FEDERAL AGENCIES (16.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.8%)
5.125%, due 2/13/04............ 1,565,000 1,470,740
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (5.5%)
6.50%, due 5/1/13-4/1/29....... 2,594,304 2,458,435
7.00%, due 12/1/12............. 627,985 621,115
7.50%, due 10/1/29............. 1,364,925 1,349,992
-----------
4,429,542
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE PASS-
THROUGH SECURITIES) (2.0%)
7.00%, due 9/15/28............. 935,211 903,358
7.50%, due 12/15/23-11/25/28... 738,612 731,012
-----------
1,634,370
-----------
UNITED STATES TREASURY BONDS (2.5%)
6.125%, due 8/15/29 (n)........ 2,120,000 2,020,954
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 413
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
UNITED STATES TREASURY NOTES (4.7%)
5.875%, due 11/30/01........... $ 3,615,000 $ 3,591,828
5.875%, due 11/15/04........... 20,000 19,609
6.00%, due 8/15/09............. 70,000 67,813
7.00%, due 7/15/06............. 45,000 46,080
-----------
3,725,330
-----------
Total U.S. Government & Federal
Agencies
(Cost $13,680,499)............. 13,280,936
-----------
YANKEE BONDS (6.4%)
BANKS (0.1%)
Barclays Bank, PLC
7.40%, due 12/15/09............ 105,000 103,245
-----------
BROADCAST/MEDIA (0.1%)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04............ 150,000 63,000
-----------
CABLE TV (0.4%)
Rogers Cablesystems Ltd.
10.00%, due 12/1/07............ 305,000 325,206
-----------
CELLULAR TELEPHONES (0.9%)
Millicom International Cellular,
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01....... 895,000 738,375
-----------
CHEMICALS (0.6%)
Octel Developments, PLC
10.00%, due 5/1/06............. 490,000 485,100
-----------
COMPUTERS & OFFICE EQUIPMENT (0.0%) (b)
International Semi-Technology
Microelectronics, Inc.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00
(i)............................ 415,000 4,150
-----------
MINING (0.1%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27............. 115,000 69,000
-----------
RESIDENTIAL MORTGAGE LOANS (0.4%)
Abbey National, PLC
7.95%, due 10/26/29............ 275,000 274,544
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
STEEL, ALUMINUM & OTHER METALS (0.5%)
Ivaco, Inc.
11.50%, due 9/15/05............ $ 390,000 $ 422,175
-----------
TELECOMMUNICATION SERVICES (2.2%)
Call-Net Enterprises, Inc.
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04...... 535,000 263,488
9.375%, due 5/15/09............ 220,000 180,950
United Pan-Europe Communications
N.V.
Series B
10.875%, due 8/1/09............ 1,300,000 1,326,000
-----------
1,770,438
-----------
TRANSPORTATION (1.1%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (f)........ 275,000 79,750
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08 (f)........ 825,000 313,500
Sea Containers Ltd.
10.75%, due 10/15/06........... 270,000 270,000
Stena Line AB
10.50%, due 12/15/05........... 190,000 172,900
-----------
836,150
-----------
Total Yankee Bonds
(Cost $5,339,305).............. 5,091,383
-----------
Total Long-Term Bonds
(Cost $77,505,851)............. 73,475,017
-----------
<CAPTION>
SHARES
----------------
<S> <C> <C>
COMMON STOCKS (0.2%)
FINANCE (0.1%)
AMC Financial, Inc. (a)......... 22,040 98,739
-----------
FOOD, BEVERAGES & TOBACCO (0.1%)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (s).................... 12,550 56,480
-----------
HEALTH CARE (0.0%) (b)
General Healthcare Group Ltd.
(a)(q)......................... 25 1,209
-----------
TRANSPORTATION (0.0%) (b)
Eumenides Ltd. (a).............. 200 2
-----------
Total Common Stock
(Cost $420,866)................ 156,430
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 414
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (1.6%)
FINANCIAL SERVICES (0.5%)
North Atlantic Trading Co.
12.00% (r)..................... 19,773 $ 341,092
-----------
OIL & GAS--EQUIPMENT & SERVICES (0.4%)
R&B Falcon Corp.
13.875% (r).................... 312 328,706
-----------
TECHNOLOGY (0.0%) (b)
Metawave Communications Corp.
Series D (a)(c)(h)(t).......... 3,317 18,409
-----------
TELECOMMUNICATION SERVICES (0.7%)
ICG Holdings, Inc.
14.25% (r)..................... 220 210,937
Nextel Communications, Inc.
>13.00%, Series D (r).......... 323 346,102
-----------
557,039
-----------
Total Preferred Stocks
(Cost $1,215,979).............. 1,245,246
-----------
WARRANTS (0.3%)
BROADCAST/MEDIA (0.2%)
CD Radio, Inc.
expire 5/15/09 (a)(c).......... 1,890 153,562
-----------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)......... 150 2
-----------
HOMEBUILDING (0.0%) (b)
Amatek Industries Pty Ltd.
Common Rights (a).............. 152 84
Preferred Rights (a)........... 36,189 19,904
-----------
19,988
-----------
OIL & GAS--EQUIPMENT & SERVICES (0.1%)
R&B Falcon Corp.
expire 5/1/09 (a)(c)........... 290 81,200
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------
<S> <C> <C>
RETAIL (0.0%) (b)
G&G Retail, Inc.
expire 5/15/06 (a)(c).......... 350 $ 525
-----------
TELECOMMUNICATION SERVICES (0.0%) (b)
Telehub Communications Corp.
expire 7/31/05 (a)(c).......... 310 3
-----------
Total Warrants
(Cost $120,026)................ 255,280
-----------
<CAPTION>
NOTIONAL
AMOUNT
----------------
<S> <C> <C>
PURCHASED OPTION (0.0%) (b)
UNITED STATES (0.0%) (b)
Australian Dollar Call/U.S.
Dollar Put
Strike price A$0.645 expire
5/17/00 (a).................... 1,750,000 52,780
-----------
Total Purchased Option
(Cost $34,615)................. 52,780
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.4%)
COMMERCIAL PAPER (4.0%)
Associates Corp.
4.00%, due 1/3/00.............. $ 775,000 774,828
Ford Motor Credit Co.
5.65%, due 1/10/00............. 1,000,000 998,875
Merrill Lynch & Co., Inc.
6.02% due 1/28/00.............. 1,445,000 1,438,451
-----------
Total Commercial Paper
(Cost $3,212,153).............. 3,212,154
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 415
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------
<S> <C> <C>
SHORT-TERM LOAN ASSIGNMENT (0.4%)
TEXTILES--APPAREL MANUFACTURERS (0.4%)
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00 (d)(h).... $ 355,000 $ 351,450
-----------
Total Loan Assignment
(Cost $349,831)................ 351,450
-----------
Total Short-Term Investments
(Cost $3,561,984).............. 3,563,604
-----------
Total Investments
(Cost $82,859,321) (u)......... 98.0% 78,748,357(v)
Cash and Other Assets,
Less Liabilities............... 2.0 1,586,094
----- -----------
Net Assets...................... 100.0% $80,334,451
===== ===========
<CAPTION>
NOTIONAL
AMOUNT
----------------
<S> <C> <C>
WRITTEN CALL OPTIONS (-0.0%) (b)
UNITED STATES (-0.0%) (b)
Australian Dollar Call/U.S.
Dollar Put
Strike price A$0.675 expire
5/17/00 (a).................... (1,750,000) $ (18,174)
U.S. Dollar Call/Australian
Dollar Put
Strike price A$0.61 expire
5/17/00 (a).................... (1,750,000) (6,320)
-----------
Total Written Call Options
(Proceeds $25,515)............. $ (24,494)
===========
</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 December
31, 1999.
(e) Eurobond--bond denominated in U.S. dollars or other
currencies and sold to investors outside the country whose
currency is used.
(f) Issue in default.
(g) Yankee bond.
(h) Restricted security.
(i) Issuer in bankruptcy.
(j) 175 Units--each unit reflects $1,000 principal amount of
12.50% Senior Notes plus 1 warrant to acquire 2.3944 shares
of common stock of ASAT Holding Corp. at $18.60 per share at
a future date.
(k) CIK ("Cash in Kind")--interest payment is made with cash or
additional securities.
(l) 335 Units--each unit reflects $1,000 principal amount of
(zero coupon), due 8/1/08, 15.00%, beginning 8/1/04 Senior
Discounted Notes plus 1 warrant to acquire 1 share of common
stock at an average price of $156.11 per share at a future
date.
(m) 100 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.
(n) Segregated as collateral for foreign currency forward
contracts.
(o) Convertible bond.
(p) Multiple tranche facilities.
(q) British security.
(r) PIK ("Payment in Kind")--dividend payment is made with
additional securities.
(s) Argentinean security.
(t) Illiquid security.
(u) The cost for Federal income tax purposes is $82,884,530.
(v) At December 31, 1999, net unrealized depreciation was
$4,136,173, 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 $1,191,107 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $5,327,280.
(w) The following abbreviations are used in the above portfolio:
</TABLE>
<TABLE>
<C> <S> <C>
A$ --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.
21
<PAGE> 416
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$82,859,321).............................................. $78,748,357
Cash........................................................ 194,782
Cash denominated in foreign currencies (identified cost
$55,148).................................................. 54,879
Receivables:
Dividends and interest.................................... 1,486,999
Fund shares sold.......................................... 123,314
Investment securities sold................................ 1,209
Unrealized appreciation on foreign currency forward
contracts................................................. 168,269
Unamortized organization expense............................ 90,081
-----------
Total assets........................................ 80,867,890
-----------
LIABILITIES:
Written call options, at value (premiums received
$25,515).................................................. 24,494
Payables:
Investment securities purchased........................... 197,656
Fund shares redeemed...................................... 77,199
NYLIFE Distributors....................................... 56,204
MainStay Management....................................... 43,956
Transfer agent............................................ 13,816
Custodian................................................. 13,089
Trustees.................................................. 648
Accrued expenses............................................ 49,037
Unrealized depreciation on foreign currency forward
contracts................................................. 57,340
-----------
Total liabilities................................... 533,439
-----------
Net assets.................................................. $80,334,451
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 21,656
Class B................................................... 64,915
Class C................................................... 836
Additional paid-in capital.................................. 87,146,079
Accumulated distribution in excess of net investment
income.................................................... (288,086)
Accumulated net realized loss on investments................ (2,600,588)
Net unrealized depreciation on investments and written call
options................................................... (4,109,943)
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 99,582
-----------
Net assets.................................................. $80,334,451
===========
CLASS A
Net assets applicable to outstanding shares................. $19,921,889
===========
Shares of beneficial interest outstanding................... 2,165,620
===========
Net asset value per share outstanding....................... $ 9.20
Maximum sales charge (4.50% of offering price).............. 0.43
-----------
Maximum offering price per share outstanding................ $ 9.63
===========
CLASS B
Net assets applicable to outstanding shares................. $59,644,518
===========
Shares of beneficial interest outstanding................... 6,491,489
===========
Net asset value and offering price per share outstanding.... $ 9.19
===========
CLASS C
Net assets applicable to outstanding shares................. $ 768,044
===========
Shares of beneficial interest outstanding................... 83,593
===========
Net asset value and offering price per share outstanding.... $ 9.19
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 417
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 282,985
Interest.................................................. 6,759,744
-----------
Total income............................................ 7,042,729
-----------
Expenses:
Management................................................ 508,416
Distribution--Class B..................................... 469,918
Distribution--Class C..................................... 5,475
Transfer agent............................................ 162,301
Service--Class A.......................................... 53,376
Service--Class B.......................................... 156,639
Service--Class C.......................................... 1,825
Custodian................................................. 48,118
Amortization of organization expense...................... 41,676
Professional.............................................. 40,909
Shareholder communication................................. 34,611
Recordkeeping............................................. 31,577
Registration.............................................. 27,085
Trustees.................................................. 2,526
Miscellaneous............................................. 28,679
-----------
Total expenses.......................................... 1,613,131
-----------
Net investment income....................................... 5,429,598
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Security transactions..................................... (2,419,086)
Option transactions....................................... (2,035)
Foreign currency transactions............................. (7,135)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (2,428,256)
-----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (1,644,795)
Written call option transactions.......................... 1,021
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 43,604
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (1,600,170)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (4,028,426)
-----------
Net increase in net assets resulting from operations........ $ 1,401,172
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 418
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 5,429,598 $ 4,237,985
Net realized gain (loss) on investments and foreign
currency transactions................................... (2,428,256) 896,469
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (1,600,170) (1,831,934)
------------ ------------
Net increase in net assets resulting from operations...... 1,401,172 3,302,520
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (1,474,306) (1,361,694)
Class B................................................. (3,890,931) (3,579,831)
Class C................................................. (53,613) (213)
From net realized gain on investments:
Class A................................................. (62,986) --
Class B................................................. (190,675) --
Class C................................................. (4,445) --
In excess of net investment income:
Class A................................................. (78,380) (27,470)
Class B................................................. (206,856) (72,218)
Class C................................................. (2,850) (4)
Return of capital:
Class A................................................. (8,263) --
Class B................................................. (21,808) --
Class C................................................. (301) --
------------ ------------
Total dividends and distributions to shareholders..... (5,995,414) (5,041,430)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 7,709,221 8,072,354
Class B................................................. 11,871,088 35,572,822
Class C................................................. 16,212,542 90,944
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 1,238,997 1,057,437
Class B................................................. 3,322,612 2,923,414
Class C................................................. 49,153 216
------------ ------------
40,403,613 47,717,187
Cost of shares redeemed:
Class A................................................. (9,468,036) (6,068,979)
Class B................................................. (18,455,175) (14,736,037)
Class C................................................. (15,519,130) --
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions................................... (3,038,728) 26,912,171
------------ ------------
Net increase (decrease) in net assets................. (7,632,970) 25,173,261
NET ASSETS:
Beginning of year........................................... 87,967,421 62,794,160
------------ ------------
End of year................................................. $80,334,451 $ 87,967,421
============ ============
Accumulated distribution in excess of net investment income
at end of year............................................ $ (288,086) $ (99,692)
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 419
This page intentionally left blank
25
<PAGE> 420
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------
February 28*
Year ended Year ended through
December 31, 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....................................... 0.67 0.60 0.54
Net realized and unrealized gain (loss) on investments...... (0.45) (0.09) 0.07
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. 0.00(b) (0.01) 0.05
------- ------- -------
Total from investment operations............................ 0.22 0.50 0.66
------- ------- -------
Less dividends and distributions:
From net investment income................................ (0.66) (0.69) (0.54)
From net realized gain on investments..................... (0.03) -- (0.21)
In excess of net investment income........................ (0.04) (0.01) --
Return of capital......................................... (0.00)(b) -- --
------- ------- -------
Total dividends and distributions........................... (0.73) (0.70) (0.75)
------- ------- -------
Net asset value at end of period............................ $ 9.20 $ 9.71 $ 9.91
======= ======= =======
Total investment return(a).................................. 2.30% 5.17% 6.62%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 6.97% 6.14% 6.46%+
Net expenses............................................ 1.34% 1.38% 1.15%+
Expenses (before reimbursement)......................... 1.34% 1.42% 1.49%+
Portfolio turnover rate..................................... 244% 325% 323%
Net assets at end of period (in 000's)...................... $19,922 $21,603 $18,922
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ 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> 421
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------ --------------------------------
February 28* September 1**
Year ended Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1999 1998
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 9.70 $ 9.91 $ 10.00 $ 9.70 $ 9.59
------- ------- ------- ------- -------
0.60 0.54 0.48 0.60 0.21
(0.45) (0.11) 0.07 (0.45) 0.10
0.00(b) (0.01) 0.05 0.00(b) 0.01
------- ------- ------- ------- -------
0.15 0.42 0.60 0.15 0.32
------- ------- ------- ------- -------
(0.60) (0.62) (0.48) (0.60) (0.21)
(0.03) -- (0.21) (0.03) --
(0.03) (0.01) -- (0.03) (0.00)(b)
(0.00)(b) -- -- (0.00)(b) --
------- ------- ------- ------- -------
(0.66) (0.63) (0.69) (0.66) (0.21)
------- ------- ------- ------- -------
$ 9.19 $ 9.70 $ 9.91 $ 9.19 $ 9.70
======= ======= ======= ======= =======
1.54% 4.35% 6.02% 1.54% 3.41%
6.22% 5.39% 5.71%+ 6.22% 5.39%+
2.09% 2.13% 1.90%+ 2.09% 2.13%+
2.09% 2.17% 2.24%+ 2.09% 2.13%+
244% 325% 323% 244% 325%
$59,645 $66,273 $43,872 $ 768 $ 91
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
27
<PAGE> 422
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
28
<PAGE> 423
Notes to Financial Statements
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 Fund's 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 Fund's
subadvisor, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by the Fund's
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 Fund's 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
Fund's 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
29
<PAGE> 424
MainStay Strategic Income Fund
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 year end to credit loss in the event of a counterparty's failure to
perform its obligations.
Foreign currency forward contracts open at December 31, 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
2/18/00......................................... A$ 363,000 $ 233,990 $ (3,727)
Danish Krone vs. Euro, expiring 2/23/00........... DK 2,132,000 E 286,340 (37)
Euro vs. Pound Sterling, expiring 2/7/00.......... E 1,150,451 L 740,200 36,559
Euro vs. Danish Krone, expiring 2/23/00........... E 286,420 DK 2,132,000 (44)
Euro vs. U.S. Dollar, expiring 2/7/00............. E 552,500 $ 577,749 22,306
Euro vs. U.S. Dollar, expiring 2/7/00............. E 1,122,500 $ 1,165,526 37,045
Japanese Yen vs. U.S. Dollar, expiring 3/1/00..... Y 302,600,000 $ 3,013,344 27,292
Japanese Yen vs. U.S. Dollar, expiring 3/1/00..... Y 57,780,000 $ 565,362 (4,810)
New Zealand Dollar vs. U.S. Dollar, expiring
2/18/00......................................... NZD 1,211,000 $ 630,229 (1,850)
Pound Sterling vs. Euro, expiring 2/7/00.......... L 292,000 E 446,313 (21,989)
Pound Sterling vs. U.S. Dollar, expiring 2/7/00... L 870,000 $ 1,411,227 8,861
Pound Sterling vs. U.S. Dollar, expiring 3/1/00... L 148,829 $ 245,752 5,864
Pound Sterling vs. U.S. Dollar, expiring 3/1/00... L 52,000 $ 82,754 (1,061)
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
--------------- ------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00......................................... C$ 848,355 $ 575,000 10,355
Canadian Dollar vs. U.S. Dollar, expiring
2/28/00......................................... C$ 337,000 $ 230,132 2,394
Euro vs. U.S. Dollar, expiring 2/7/00............. E 846,000 $ 869,688 (19,180)
Euro vs. U.S. Dollar, expiring 2/7/00............. E 235,000 $ 240,894 (4,642)
New Zealand Dollar vs. U.S. Dollar, expiring
2/18/00......................................... NZD 1,211,000 $ 614,486 17,593
--------
Net unrealized appreciation on foreign
currency forward contracts...................... $110,929
========
</TABLE>
30
<PAGE> 425
Notes to Financial Statements (continued)
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.
Written option activity for the year ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Notional
Amount Premium
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1998.................... -- $ --
Options--written............................................ (3,500,000) (25,515)
---------- --------
Options outstanding at December 31, 1999.................... (3,500,000) $(25,515)
========== ========
</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 (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.
31
<PAGE> 426
MainStay Strategic Income Fund
Restricted securities held at December 31, 1999:
<TABLE>
<CAPTION>
PRINCIPAL
DATE(S) OF AMOUNT/ 12/31/99 PERCENT OF
SECURITY ACQUISITION SHARES COST VALUE NET ASSETS
- ------------------------------------ ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FRI-MRD Corp.
15.00%, due 1/24/02 8/12/97 $320,000 $ 317,594 $ 318,400 0.4%
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01 6/17/98 475,000 123,318 47,500 0.1
Metawave Communications Corp.
Preferred Stock
Series D(c) 5/14/99 3,317 0(b) 18,409 0.0(a)
Orius Corp.
Bridge Loan
13.00%, due 12/15/00 12/30/99 720,000 702,059 720,000 0.9
President Casinos, Inc.
12.00%, due 9/15/01 12/3/98 47,000 47,000 47,000 0.0(a)
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00 12/17/99 355,000 349,832 351,450 0.4
United Artists Theatre Co.
Bank debt
Term Loan B
10.3093%, due 4/21/06 10/18/99 73,651 62,772 54,318 0.1
Bank debt
Term Loan C
10.3702%, due 4/21/07 10/18/99 109,962 93,518 81,097 0.1
---------- ---------- ---
$1,696,093 $1,638,174 2.0%
========== ========== ===
</TABLE>
- -------
(a) Less than one tenth of a percent.
(b) This preferred stock has no cost.
(c) Illiquid security.
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.
32
<PAGE> 427
Notes to Financial Statements (continued)
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.
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for
Federal tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. A permanent
book/tax difference of $54,806 is an increase to accumulated net realized loss
on investments. In addition, decreases of $119,316, $7,135 and $71,645 have been
made to accumulated distribution in excess of net investment income, accumulated
net realized loss on foreign currency and additional paid in capital,
respectively. These book/tax differences are due to certain expenses being
nondeductible for tax purposes, a return of capital distribution and the tax
treatment of step bond gains and foreign currency losses.
33
<PAGE> 428
MainStay Strategic Income 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 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.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the year. 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 year. 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.
Net currency gains or losses from valuing such foreign currency denominated
assets and liabilities other than investments at year end exchange rates are
reflected in unrealized foreign exchange gains or losses.
34
<PAGE> 429
Notes to Financial Statements (continued)
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 December 31, 1999:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- -------------------------------- --------- ---------
<S> <C> <C> <C> <C>
Euro E 54,748 $ 55,148 $ 54,879
======== ========
</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 LLC (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 LLC
(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 year ended December 31, 1999, the Manager
earned $508,416.
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 0.30% 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
35
<PAGE> 430
MainStay Strategic Income Fund
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 $11,748 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class B and Class C shares of
$90,634 and $5,339, respectively, for the year ended December 31, 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 year ended December 31, 1999
amounted to $162,301.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $6,851,619 which represents 34.4% of the Class A net assets at
period end. The Distributor held shares of Class B with a net asset value of
$5,616,854, which represents 9.4% of the Class B net assets at year 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 $2,280 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$31,577 for the year ended December 31, 1999.
36
<PAGE> 431
Notes to Financial Statements (continued)
NOTE--4 FEDERAL INCOME TAX:
At December 31, 1998, for Federal income tax purposes, capital loss
carryforwards of $2,053,482 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 2007. 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 $521,897 of qualifying
realized capital gains that arose during the year as if they arose on January 1,
1999.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of U.S. Government
securities were $62,822 and $66,674, respectively. Purchases and sales of
securities, other than U.S. Government securities and short-term securities,
were $125,986 and $119,919, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to the Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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................................... 805 1,246 1,731 823 3,597 9
Shares issued in reinvestment of dividends and
distributions............................... 131 352 5 108 297 --
---- ------ ------ ---- ------ --
936 1,598 1,736 931 3,894 9
Shares redeemed............................... (994) (1,936) (1,661) (615) (1,492) --
---- ------ ------ ---- ------ --
Net increase (decrease)....................... (58) (338) 75 316 2,402 9
==== ====== ====== ==== ====== ==
</TABLE>
- -------
* First offered on September 1, 1998.
37
<PAGE> 432
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Strategic Income Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
38
<PAGE> 433
39
-
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(1)
Princeton, New Jersey
MARKSTON INTERNATIONAL, LLC
White Plains, New York
- -------
(1) An indirect wholly owned subsidiary of New York Life Insurance Company.
<PAGE> 434
This page intentionally left blank
<PAGE> 435
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN17-02/00
RECYCLE.LOGO
[MAINSTAY FUNDS LOGO]
MainStay
Strategic Income Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY.LOGO]
<PAGE> 436
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Strategic
Value Fund versus the S&P 500 Index, the
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 Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 20
Notes to Financial Statements 26
Report of Independent Accountants 34
The MainStay Funds 35
</TABLE>
<PAGE> 437
This page intentionally left blank
2|
<PAGE> 438
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
|3
<PAGE> 439
$10,000 Invested in the MainStay Strategic Value Fund versus the S&P 500 Index,
the Lipper Flexible Portfolio Fund Average, and Inflation
CLASS A SHARES SEC Returns: 1 Year 7.35%, Since Inception 5.45%
<TABLE>
<CAPTION>
S&P 500 INDEX* LIPPER FLEXIBLE INFLATION (CPI)++
MAINSTAY STRATEGIC -------------- PORTFOLIO FUND -----------------
VALUE FUND AVERAGE+
------------------ ---------------
<S> <C> <C> <C> <C>
10/22/97 9450.00 10000.00 10000.00 10000.00
12/97 9839.00 10243.00 10031.00 10019.00
3/98 10866.00 11672.00 10888.00 10025.00
6/98 10450.00 12057.00 11019.00 10087.00
9/98 8763.00 10857.00 10154.00 10124.00
12/98 9890.00 13170.00 11423.00 10180.00
3/99 10192.00 13827.00 11556.00 10217.00
6/99 11452.00 14803.00 12129.00 10291.00
9/99 10613.00 13878.00 11686.00 10396.00
12/99 11234.00 15943.00 12793.00 10453.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 7.64%, Since Inception 6.11%
<TABLE>
<CAPTION>
S&P 500 INDEX* LIPPER FLEXIBLE INFLATION (CPI)++
MAINSTAY STRATEGIC -------------- PORTFOLIO FUND -----------------
VALUE FUND AVERAGE+
------------------ ---------------
<S> <C> <C> <C> <C>
10/22/97 10000.00 10000.00 10000.00 10000.00
12/97 10404.00 10243.00 10031.00 10019.00
3/98 11455.00 11672.00 10888.00 10025.00
6/98 11008.00 12057.00 11019.00 10087.00
9/98 9210.00 10857.00 10154.00 10124.00
12/98 10376.00 13170.00 11423.00 10180.00
3/99 10673.00 13827.00 11556.00 10217.00
6/99 11613.00 14803.00 12129.00 10291.00
9/99 10740.00 13878.00 11686.00 10396.00
12/99 11388.00 15943.00 12793.00 10453.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 11.64%, Since Inception 7.37%
<TABLE>
<CAPTION>
S&P 500 INDEX* LIPPER FLEXIBLE INFLATION (CPI)++
MAINSTAY STRATEGIC -------------- PORTFOLIO FUND -----------------
VALUE FUND AVERAGE+
------------------ ---------------
<S> <C> <C> <C> <C>
10/22/97 10000.00 10000.00 10000.00 10000.00
12/97 10404.00 10243.00 10031.00 10019.00
3/98 11455.00 11672.00 10888.00 10025.00
6/98 11008.00 12057.00 11019.00 10087.00
9/98 9210.00 10857.00 10154.00 10124.00
12/98 10376.00 13170.00 11423.00 10180.00
3/99 10673.00 13827.00 11556.00 10217.00
6/99 11972.00 14803.00 12129.00 10291.00
9/99 11072.00 13878.00 11686.00 10396.00
12/99 11688.00 15943.00 12793.00 10453.00
</TABLE>
4|
<PAGE> 440
- -------
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 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
10/22/97 and includes the historical performance of the Class B shares for
periods from 10/22/97 through 8/31/98. Performance figures 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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> 441
Portfolio Management Discussion and Analysis
In 1999, the equity markets posted results of historic proportions. The S&P 500
Composite Stock Price Index(1) recorded its fifth straight year of 20% or better
returns, and the NASDAQ Composite Index(2) recorded a gain of 85.59%. Technology
issues led these market advances, with Internet stocks and IPOs (initial public
offerings) capturing a great deal of investor and media attention.
As in previous years, however, much of the market's performance resulted from a
narrow group of stocks. Throughout most of 1999, the market's focus was clearly
not on traditional value sectors, with value stocks underperforming growth
issues at all capitalization levels. Financial and health care companies, which
were market leaders in 1998, underperformed the market in 1999. While value
stocks provided respectable returns in historical perspective, they could not
keep pace with the torrid advances in major technology-dominated indices.
Convertible bonds, which have a high correlation with small- and mid-cap stocks,
benefited from the NASDAQ advances and had an outstanding year. High-yield
securities were volatile and had lower-than-average liquidity through much of
1999, with defaults nearly tripling to 5.5% for the year. Despite higher risks,
however, high-yield bonds provided strong performance in a market when higher
interest rates generally caused high-grade bond prices to decline.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Strategic Value Fund returned
13.59% for Class A shares and 12.64% for Class B and Class C shares, excluding
all sales charges. All share classes outperformed the 12.51% return of the
average Lipper(3) flexible portfolio fund. Strong performance among carefully
selected value equities, convertibles, and high-yield securities helped the Fund
outperform its peers in the Lipper flexible portfolio universe. All share
classes underperformed the 21.04% return of the S&P 500 Index for the year.
VALUE EQUITIES
In the portion of the portfolio devoted to value stocks, the Fund's best-
performing sectors were basic materials, capital goods, technology, and
energy--all of which were overweighted in the Fund. Leading basic materials
holdings included Georgia Pacific (+75%),(4) Smurfit-Stone Container (+55%), and
Reynolds Metals (+49%), all of which benefited from a global economic recovery.
IMC Global (-22%), on the other hand, suffered as oversupply in the fertilizer
market hurt pricing.
- -------
(1) See footnote on page 5 for more information on the S&P 500(R) Index.
(2) The NASDAQ Composite Index is an unmanaged, market-value weighted index that
measures all NASDAQ domestic and non-U.S. based common stocks listed on the
NASDAQ Stock Market and includes over 5,000 companies. Each company's
security affects the Index in proportion to its market value. The market
value, the last sale price multiplied by total shares outstanding, is
calculated throughout the trading day, and is related to the total value of
the Index. An investment cannot be made directly into an index.
(3) See footnote and table on page 11 for more information on Lipper Inc.
(4) Returns reflect performance for the one-year period ended 12/31/99.
6|
<PAGE> 442
YEAR-BY-YEAR PERFORMANCE
<TABLE>
<CAPTION>
- ------------------------------------------------------------ -------------------------------------------
<S> <C>
12/97 4.11
12/98 0.52
12/99 13.59
12/97 4.04
12/98 -0.27
12/99 12.64
</TABLE>
In capital goods, winners included Browning-Ferris (+58%), which was acquired by
Allied Waste, and American Standard (+27%). In technology and communications,
Adaptec (+184%), Seagate Technology (+59%), and Nippon Telephone and
Telegraph (+131%) all contributed positively to performance. We purchased Bell
Atlantic shares for the Fund, which we believe may do well in 2000.
In energy-related issues, rising oil prices and improving fundamentals helped
Kerr-McGee (+69%), Union Pacific Resources (+43%), and Unocal (+18%). During
1999, the Fund took profits in Kerr-McGee, Apache Corp., Ocean Energy, Santa Fe
Snyder, and Oryx Energy, as these stocks reached our price targets, and we used
the proceeds to build on or initiate positions in El Paso Energy, Burlington
Resources, and Sunoco at attractive prices. Illinova Corporation (+46%), a
Midwestern utility, agreed to merge with Dynegy Corp. in a synergistic
transaction that combined marketing power with asset generation capability.
Although health care was generally a challenging sector, United Healthcare
(+23%) was strong. We sold the Fund's holdings in CIGNA and Aetna (HMOs) and
Columbia Healthcare (hospitals), using the proceeds to purchase Becton
Dickinson, Health Management Associates, and Mylan Labs at what we believed were
depressed levels. Given the uncertainties facing hospitals and HMOs, we believe
the repositioning was beneficial for the Fund's portfolio.
Consumer staples and consumer cyclicals were weaker sectors for the Fund in
1999. Philip Morris (-55%) was the Fund's worst-performing stock and was sold at
a loss on concerns over tobacco litigation. We purchased Service Corp.
International, a leading funeral service company, in April after a substantial
price decline, but sold the Fund's position in October when the stock continued
|7
<PAGE> 443
to decline despite cost-cutting initiatives. We also sold Kmart at a loss for
the year, when an expected turnaround failed to materialize.
On a more positive note, we sold the Fund's position in Liz Claiborne (+20%)
when the stock reached our price target. We also sold the Fund's positions in
Jones Apparel and Venator as fundamentals weakened, and purchased Hasbro, Newell
Rubbermaid, Office Depot, Heinz, and ConAgra.
Among financials, winners included Citigroup (+70%) and MGIC Investment (+51%).
The Fund took some profits in these names and in Sallie Mae, as the stocks
reached our price targets. The proceeds were used to initiate positions in
American General, Chase Manhattan, and FleetBoston Financial and add to the
Fund's position in AXA Financial.
Early in the year, we sold the Fund's holdings in Chubb, Bank One, Bank of
America, and Countrywide Credit, correctly anticipating that earnings would
falter. In a rising rate environment, we sought ways to reduce the Fund's
exposure to financial stocks. Weak financial-stock holdings included Conseco
(-41%), Allstate (-38%), and Washington Mutual (-32%), as operating results
lagged expectations. Transamerica (+29%) was a positive performer through July,
when the company was acquired by Aegon NV.
In other sectors, Lucas-Varity gained 38% on an acquisition by TRW, and Harrah's
Entertainment gained 68% on operational improvements.
CONVERTIBLE SECURITIES
The convertible portion of the Fund benefited from an investment in a United
Global Communications convertible bond, as the company's stock rose 633% in
1999. The Fund benefited from our early identification of the stock's potential.
An Amkor Technology convertible was another top performer for the Fund, as the
semiconductor packaging company's stock and bonds recovered strongly after the
Asian financial crisis of 1998.
We purchased US Internetworking for the Fund in December. The company helps
small and midsize companies reduce software rental costs, and the price of its
securities advanced with the Internet rally. Both the stock and bonds doubled in
price by year-end.
Overweighting oil services in April helped the Fund's performance, as Asian
economies recovered and OPEC discipline and rising oil prices helped the sector
provide strong performance through the end of the year.
HIGH-YIELD BONDS
The high-yield portion of the Fund's portfolio benefited by overweighting
single-B securities(5) and using careful credit analysis to help avoid defaults.
Several issues benefited from acquisition activity and public stock offerings.
UIH
- -------
(5) According to Standard & Poor's, debt currently rated B is more vulnerable to
nonpayment than obligations rated BB, but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
When applied to Fund holdings, 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.
8|
<PAGE> 444
Australia zero-coupon bonds had the greatest positive impact, when the company's
parent went public in July 1999. The Fund owned Spanish Broadcasting bonds and
preferred stock when the company went public and offered to purchase both
securities at significant premiums. We purchased American Telecasting for the
Fund, believing that the company's wireless spectrum had untapped value, which
proved true when the company was acquired by Sprint. Tokai Bank bonds benefited
from Japan's fiscal reform and a secondary equity offering, and we sold the
Fund's position when it met our price target. All of these holdings were among
the Fund's top-performing high-yield securities.
Weaker performers included Telehub Communications, which suffered delays in
implementing its software strategy, and IPC Magazines, which failed to meet
sales projections and declined sharply. The Fund continues to hold both names,
as we believe they still have upside potential.
Existing positions were generally more appealing than new names in 1999. United
Pan-European Communications (UPC) is an example. The company is owned by United
International Holdings (UIH) and is UIH's most valuable asset. We traded the
Fund's UIH position during the year for the UPC credit, which we believed would
offer a more attractive risk/reward profile.
During the year, we also added to the Fund's positions in IGC Communications and
Millicom International Cellular, both of which benefited from the communications
boom. We actively purchased a new issue from CD Radio, now called Sirius
Satellite Radio, for the company's market position and strong business model.
Despite the rising default rate and credit problems among several
well-established companies, the Fund managed to navigate the high-yield market
without major incidents. It continues to overweight cable and media, utilities,
REITS, and health care. Although the Fund is underweighted in
telecommunications, which outperformed in 1999, the Fund held several
top-performing names in this sector, including CD Radio, Millicom, and
HighwayMaster. The Fund continues to underweight cyclicals, retailers,
supermarkets, gaming, and energy. As of year-end, the average credit quality of
the high-yield securities in the Fund's investment portfolio was single-B,(5)
which we believe offers the greatest value and potential to funds that can
manage defaults through stringent credit analysis.
At year-end, the Fund had allocated 65.4% of its net assets to value stocks,
15.2% to convertible securities, and 12.3% to high-yield bonds, with the
remainder in cash or cash equivalents.
LOOKING AHEAD
We remain confident and committed to the Fund's value approach to equity
investing. As market enthusiasm for technology and emerging growth companies
reaches speculative levels, we believe undervalued stocks with catalysts for
|9
<PAGE> 445
positive change may provide superior long-term return potential with lower
volatility.
With high-yield spreads offering a nearly 80% premium to Treasuries at year-
end, we believe the market is undervalued and that spreads may tighten. Despite
poor performance in 1999, we believe that the health care, transportation, and
textile sectors appear to be stabilizing. We anticipate further Federal Reserve
tightening moves in 2000, which may increase the cost of capital for U.S.
businesses.
Whatever the economy or the markets may bring, the Fund will continue to seek
maximum long-term total return from a combination of common stocks, convertible
securities and high-yield securities.
Steven Tananbaum
Thomas Wynn
Richard A. Rosen
Portfolio Managers
MacKay Shields LLC
Past performance is
no guarantee of
future results.
10|
<PAGE> 446
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 13.59% 8.21%
Class B 12.64% 7.37%
Class C 12.64% 7.37%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 7.35% 5.45%
Class B 7.64% 6.11%
Class C 11.64% 7.37%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 91 out of 224 funds 128 out of 191 funds
Class B 109 out of 224 funds 137 out of 191 funds
Class C 109 out of 224 funds 142 out of 217 funds
Average Lipper
flexible portfolio fund 12.51% 12.17%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.15 $0.2310 $0.1656
Class B $11.13 $0.1471 $0.1656
Class C $11.13 $0.1471 $0.1656
</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 figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
|11
<PAGE> 447
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITY (0.0%) (b)+
ENTERTAINMENT (0.0%) (b)
United Artists Theatre Co.
Pass-Through Certificates
Series 95-A
9.30%, due 7/1/15............... $ 23,341 $ 16,710
-----------
Total Asset-Backed Security
(Cost $16,042).................. 16,710
-----------
CONVERTIBLE SECURITIES (15.2%)
CONVERTIBLE BONDS (11.9%)
BANKS (0.5%)
European Bank for Reconstruction
&
Development
0.75%, due 7/2/01 (d)........... 250,000 270,625
-----------
BIOMEDICAL (0.6%)
Inhale Therapeutic Systems, Inc.
6.75%, due 10/13/06 (c)......... 250,000 353,125
-----------
BROADCAST/MEDIA (1.9%)
CD Radio, Inc.
8.75%, due 9/29/09.............. 200,000 340,500
Clear Channel Communications,
Inc.
2.625%, due 4/1/03.............. 200,000 296,750
News America Holdings, Inc.
(zero coupon), due 3/11/13
(e)............................. 500,000 394,065
-----------
1,031,315
-----------
COMMUNICATIONS-EQUIPMENT (0.9%)
Comverse Technology, Inc.
4.50%, due 7/1/05............... 150,000 511,687
-----------
COMPUTER SOFTWARE & SERVICES (1.4%)
Citrix Systems, Inc.
(zero coupon), due 3/22/19...... 200,000 177,500
Safeguard Scientifics, Inc.
5.00%, due 6/15/06 (c).......... 125,000 282,969
USInternetworking, Inc.
7.00%, due 11/1/04 (c).......... 100,000 292,750
-----------
753,219
-----------
DRUGS (0.0%) (b)
Dura Pharmaceuticals, Inc.
3.50%, due 7/15/02.............. 25,000 20,250
-----------
- --------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ELECTRONICS-SEMICONDUCTORS (1.6%)
Adaptec, Inc.
4.75%, due 2/1/04............... $ 250,000 $ 271,562
Cypress Semiconductor Corp.
6.00%, due 10/1/02.............. 200,000 288,750
Photronics, Inc.
6.00%, due 6/1/04............... 250,000 291,875
-----------
852,187
-----------
MINING (0.1%)
Battle Mountain Gold Co.
6.00%, due 1/4/05 (d)........... 75,000 48,375
-----------
HEALTH CARE (0.6%)
Roche Holdings, Inc.
Series DTC
(zero coupon), due 4/20/10
(c)(d).......................... 500,000 302,190
-----------
INSURANCE PROPERTY & CASUALTY (0.1%)
Loews Corp.
3.125%, due 9/15/07............. 100,000 81,500
-----------
INTERNET SOFTWARE & SERVICES (0.5%)
CNET, Inc.
5.00%, due 3/1/06............... 150,000 254,813
-----------
INVESTMENT BANK/BROKERAGE (0.8%)
Merrill Lynch & Co., Inc.
0.25%, due 5/10/06.............. 450,000 432,000
-----------
OIL & GAS EXPLORATION & PRODUCTION (0.4%)
Devon Energy Corp.
4.90%, due 8/15/08.............. 250,000 242,187
-----------
SPECIALITY PRINTING (0.3%)
World Color Press, Inc.
6.00%, due 10/1/07.............. 150,000 148,875
-----------
TECHNOLOGY (0.9%)
Cirrus Logic, Inc.
6.00%, due 12/15/03............. 610,000 513,162
-----------
TELECOMMUNICATION SERVICES (0.8%)
Global TeleSystems Group, Inc.
5.75% due 7/1/10 (c)(d)......... 325,000 436,312
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12|
<PAGE> 448
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
TELEPHONE (0.5%)
Bell Atlantic Financial Services,
Inc.
4.25%, due 9/15/05 (c).......... $ 100,000 $ 123,625
5.75%, due 4/1/03............... 150,000 151,875
-----------
275,500
-----------
Total Convertible Bonds
(Cost $5,550,623)............... 6,527,322
-----------
<CAPTION>
SHARES
----------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (3.3%)
AUTO PARTS & EQUIPMENT (0.4%)
Tower Automotive Capital Trust
6.75%........................... 5,000 188,750
-----------
BANKS (0.2%)
National Australia Bank, Inc.
7.875% (f)...................... 4,000 110,500
-----------
CHEMICALS (0.5%)
Hercules Trust II
6.50% (g)....................... 350 278,471
-----------
CONSUMER SERVICES (0.2%)
Carriage Services Capital Trust
7.00%........................... 3,000 87,000
-----------
CONTAINERS-METAL & GLASS (0.1%)
Owens-Illinois, Inc.
4.75%........................... 2,500 78,125
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.6%)
El Paso Energy Capital Trust I
4.75%........................... 6,000 302,250
-----------
PUBLISHING-NEWSPAPERS (0.1%)
Tribune Co.
6.25%........................... 4,000 70,500
-----------
REAL ESTATE (0.6%)
General Growth Properties, Inc.
7.25% (h)(s).................... 15,000 300,000
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
----------
<S> <C> <C>
TELECOMMUNICATIONS-LONG DISTANCE (0.2%)
Global Crossing Ltd.
6.375% (c)...................... 1,000 $ 126,625
-----------
TELECOMMUNICATION SERVICES (0.4%)
Adelphia Communications Corp.
5.50%, Series D................. 1,250 235,469
-----------
Total Convertible Preferred
Stocks
(Cost $2,033,559)............... 1,777,690
-----------
Total Convertible Securities
(Cost $7,584,182)............... 8,305,012
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
CORPORATE BONDS (9.2%)
AEROSPACE/DEFENSE (0.1%)
Newport News Shipbuilding, Inc.
9.25%, due 12/1/06.............. $ 70,000 69,825
-----------
AUTO PARTS & EQUIPMENT (0.1%)
Gentek, Inc.
11.00%, due 8/1/09 (c).......... 35,000 36,400
-----------
BANKS (0.4%)
B.F. Saul Real Estate Investment
Trust
Series B
9.75%, due 4/1/08............... 100,000 91,375
Local Financial Corp.
11.00%, due 9/8/04.............. 120,000 124,800
-----------
216,175
-----------
BROADCAST/MEDIA (0.5%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02....... 150,000 84,750
14.50%, due 5/15/09............. 145,000 131,406
Young America Corp.
Series B
11.625%, due 2/15/06............ 75,000 57,750
-----------
273,906
-----------
BUILDINGS-MAINTENANCE & SERVICES (0.4%)
Building One Services Corp.
10.50%, due 5/1/09.............. 225,000 216,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|13
<PAGE> 449
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CABLE TV (0.6%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03....... $ 55,000 $ 34,650
Charter Communications Holdings
L.L.C.
8.625%, due 4/1/09.............. 115,000 106,231
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01....... 210,000 181,650
-----------
322,531
-----------
CASINOS (0.3%)
Penn National Gaming, Inc.
10.625%, due 12/15/04........... 140,000 144,200
-----------
CELLULAR TELEPHONES (0.1%)
International Wireless
Communications
Holdings, Inc.
(zero coupon), due 8/15/01
(i)(j).......................... 200,000 20,000
Pagemart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03........ 100,000 40,000
-----------
60,000
-----------
CHEMICALS (0.0%) (b)
Borden Chemicals & Plastics L.P.
9.50%, due 5/1/05............... 20,000 18,600
-----------
COMMUNICATIONS EQUIPMENT (0.1%)
EV International, Inc.
Series A
11.00%, due 3/15/07............. 55,000 34,650
-----------
COMPUTERS & OFFICE EQUIPMENT (0.1%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05.............. 50,000 52,625
-----------
COSMETICS/PERSONAL CARE (0.2%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08.............. 100,000 96,500
-----------
ELECTRIC POWER COMPANIES (0.1%)
CMS Energy Corp. & Atlantic
Methanol Capital Co.
Series A-1
10.875%, due 12/15/04 (c)....... 70,000 70,000
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ENGINEERING & CONSTRUCTION (0.1%)
Cathay International Ltd.
13.50%, due 4/15/08 (c)......... $ 95,000 $ 47,737
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(k)....... 80,000 38,000
-----------
85,737
-----------
ENTERTAINMENT (0.2%)
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04............ 55,000 50,875
Marvel Enterprises, Inc.
12.00%, due 6/15/09............. 80,000 73,600
-----------
124,475
-----------
FINANCE (0.1%)
ContiFinancial Corp.
7.50%, due 3/15/02.............. 20,000 2,250
Ocwen Asset Investment Corp.
11.50%, due 7/1/05.............. 60,000 50,400
-----------
52,650
-----------
FOOD, BEVERAGES & TOBACCO (0.1%)
Standard Commercial Corp.
8.875%, due 8/1/05.............. 75,000 58,688
-----------
HEALTH CARE (1.2%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02.............. 55,000 53,969
Biovail Corporation International
10.875%, due 11/15/05........... 35,000 36,794
Genesis Health Ventures, Inc.
9.75%, due 6/15/05.............. 20,000 8,200
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03........ 70,000 20,650
Medaphis Corp.
Series B
9.50%, due 2/15/05.............. 210,000 165,900
MedPartners, Inc.
6.875%, due 9/1/00.............. 20,000 19,200
7.375%, due 10/1/06............. 30,000 24,900
MultiCare Companies, Inc. (The)
9.00%, due 8/1/07............... 70,000 14,000
Quest Diagnostics, Inc.
10.75%, due 12/15/06............ 40,000 42,000
Team Health, Inc.
12.00%, due 3/15/09 (c)......... 110,000 108,350
Tenet Healthcare Corp.
8.00%, due 1/15/05.............. 75,000 71,812
Unilab Corp.
12.75%, due 10/1/09 (p)......... 75,000 77,625
-----------
643,400
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14|
<PAGE> 450
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTH CARE-HOSPITAL MANAGEMENT (0.1%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95............. $ 85,000 $ 62,272
-----------
HEALTH CARE-MEDICAL PRODUCTS (0.1%)
DJ Orthopedics L.L.C.
12.625%, due 6/15/09............ 35,000 34,300
-----------
HOMEBUILDING (0.1%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (l)......... 55,258 54,982
-----------
HOTEL/MOTEL (0.2%)
FelCor Suites, L.P.
7.625%, due 10/1/07............. 60,000 52,139
Florida Panthers Holdings, Inc.
9.875%, due 4/15/09............. 75,000 72,750
-----------
124,889
-----------
INDUSTRIAL (0.3%)
Cellco Finance N.V.
12.75%, due 8/1/05 (c).......... 70,000 72,537
Morris Materials Handling, Inc.
9.50%, due 4/1/08............... 70,000 21,700
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03........ 165,000 75,487
-----------
169,724
-----------
LEISURE TIME (0.1%)
Bally Total Fitness Holding Corp.
Series D
9.875%, due 10/15/07............ 40,000 38,800
-----------
MACHINERY-DIVERSIFIED (0.1%)
Generac Portable Products L.L.C.
11.25%, due 7/1/06.............. 35,000 35,700
-----------
OIL & GAS-DOMESTIC (0.2%)
Queens Sand Resources, Inc.
12.50%, due 7/1/08.............. 175,000 92,750
-----------
OIL & GAS-EQUIPMENT & SERVICES (0.1%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (j)(k)....... 85,000 39,525
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
OIL & GAS-EXPLORATION & PRODUCTION (0.2%)
Contour Energy Co.
14.00%, due 4/15/03............. $ 110,000 $ 107,800
Petro Stopping Centers Holdings
L.P.
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04
(c)(m)........................ 75 37,500
-----------
145,300
-----------
PAPER & FOREST PRODUCTS (0.3%)
Pope & Talbot, Inc.
8.375%, due 6/1/13.............. 80,000 70,395
SD Warren Co.
Series B
12.00%, due 12/15/04............ 100,000 104,250
-----------
174,645
-----------
PUBLISHING (0.0%) (b)
General Media, Inc.
10.625%, due 12/31/00........... 29,000 24,650
-----------
REAL ESTATE (0.7%)
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07.............. 245,000 202,612
Hospitality Properties Trust
7.00%, due 3/1/08............... 80,000 68,481
LNR Property Corp.
Series B
9.375%, due 3/15/08............. 95,000 89,300
-----------
360,393
-----------
RESTAURANTS (0.6%)
Advantica Restaurant Group, Inc.
11.25%, due 1/15/08............. 90,000 66,600
FRI-MRD Corp.
15.00%, due 1/24/02 (i)......... 250,000 252,500
-----------
319,100
-----------
RETAIL (0.3%)
G&G Retail, Inc.
11.00%, due 5/15/06............. 80,000 68,100
United Auto Group, Inc.
Series B
11.00%, due 7/15/07............. 80,000 75,200
-----------
143,300
-----------
STEEL, ALUMINUM & OTHER METALS (0.1%)
UCAR Global Enterprises, Inc.
Series B
12.00%, due 1/15/05............. 35,000 36,575
-----------
TECHNOLOGY (0.0%) (b)
Electronic Retailing Systems
International, Inc.
(zero coupon), due 2/1/04
13.25%, beginning 2/1/00........ 90,000 19,800
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|15
<PAGE> 451
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (1.0%)
Arch Communications, Inc.
13.75%, due 4/15/08............. $ 40,000 $ 32,450
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05............. 150,000 67,500
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03........ 60,000 31,050
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03....... 200,000 108,000
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (j)(k)....... 40,000 18,800
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02....... 140,000 67,900
RCN Corp.
Series B
(zero coupon), due 2/15/08
9.80%, beginning 2/15/03........ 120,000 78,600
(zero coupon), due 10/15/07
11.125%, beginning 10/15/02..... 75,000 52,688
T/SF Communications Corp.
Series B
10.375%, due 11/1/07............ 75,000 72,000
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01...... 80,000 8,000
-----------
536,988
-----------
TRANSPORTATION (0.0%) (b)
Equimar Shipholdings Ltd.
9.875%, due 7/1/07.............. 35,000 22,050
-----------
UTILITY-GAS (0.0%) (b)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)......... 25,000 11,500
-----------
Total Corporate Bonds
(Cost $5,512,310)............... 5,023,605
-----------
FOREIGN BONDS (0.3%)
PUBLISHING (0.1%)
Regional Independent Media Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03....... L 70,000 76,334
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATION SERVICES (0.2%)
Global TeleSystems Group, Inc.
11.00%, due 12/1/09 (c)......... E 70,000 $ 70,694
NTL, Inc.
9.875%, due 11/15/09 (c)........ 50,000 50,370
-----------
121,064
-----------
Total Foreign Bonds
(Cost $196,250)................. 197,398
-----------
LOAN ASSIGNMENTS & PARTICIPATIONS (0.3%)
ENTERTAINMENT (0.0%) (b)
United Artists Theatre Co.
Bank debt, Term Loan B
10.3093%, due 4/21/06
(i)(n)(o)....................... $ 15,925 11,744
Bank debt, Term Loan C
10.3702%, due 4/21/07
(i)(n)(o)....................... 23,776 17,535
-----------
29,279
-----------
TELECOMMUNICATION SERVICES (0.3%)
Orius Corp.
Bridge Loan, Term B
13.00%, due 12/15/00 (i)(o)..... 145,000 145,000
-----------
Total Loan Assignments &
Participations
(Cost $175,179)................. 174,279
-----------
YANKEE BONDS (2.0%)
BROADCAST/MEDIA (0.0%) (b)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04............. 40,000 16,800
-----------
CELLULAR TELEPHONES (0.3%)
Millicom International Cellular,
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01........ 185,000 152,625
-----------
CHEMICALS (0.2%)
Octel Developments, PLC
10.00%, due 5/1/06.............. 100,000 99,000
-----------
COMPUTERS & OFFICE EQUIPMENT (0.0%) (b)
International Semi-Technology
Microelectronics, Inc.
(zero coupon) due 8/15/03
11.50%, beginning 8/15/00 (j)... 150,000 1,500
-----------
MINING (0.1%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27.............. 50,000 30,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16|
<PAGE> 452
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
STEEL, ALUMINUM & OTHER METALS (0.2%)
Ivaco, Inc.
11.50%, due 9/15/05............. $ 120,000 $ 129,900
-----------
TELECOMMUNICATION SERVICES (0.9%)
Call-Net Enterprises, Inc.
(zero coupon), due 5/15/09
10.80% , beginning 5/15/04...... 125,000 61,562
9.375%, due 5/15/09............. 45,000 37,013
NTL, Inc.
(zero coupon), due 11/15/07
11.20%, beginning 11/15/00...... 80,000 76,200
Rogers Communications, Inc.
8.875%, due 7/15/07............. 30,000 30,000
United Pan-Europe Communications
N.V.
Series B
10.875%, due 8/1/09............. 300,000 306,000
-----------
510,775
-----------
TRANSPORTATION (0.3%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (k)......... 95,000 27,550
Pacific & Atlantic (Holdings)
Inc.
11.50%, due 5/30/08 (k)......... 190,000 72,200
Sea Containers Ltd.
10.75%, due 10/15/06............ 35,000 35,000
-----------
134,750
-----------
Total Yankee Bonds
(Cost $1,114,361)............... 1,075,350
-----------
<CAPTION>
SHARES
----------
<S> <C> <C>
COMMON STOCKS (65.4%)
BANKS (2.5%)
Chase Manhattan Corp. (The)...... 8,100 629,269
Fleet Boston Financial Corp. .... 21,478 747,703
-----------
1,376,972
-----------
CHEMICALS (2.2%)
Air Products and Chemicals,
Inc. ........................... 15,500 520,219
IMC Global, Inc. ................ 40,700 666,462
-----------
1,186,681
-----------
COMPUTER SYSTEMS (2.0%)
Seagate Technology, Inc. (a)..... 23,400 1,089,563
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
----------
<S> <C> <C>
CONTAINERS (3.3%)
Smurfit-Stone Container Corp.
(a)............................. 41,300 $ 1,011,850
Temple-Inland, Inc. ............. 12,000 791,250
-----------
1,803,100
-----------
ELECTRIC POWER COMPANIES (4.2%)
Illinova Corp. .................. 30,000 1,042,500
Niagara Mohawk Holdings, Inc.
(a)............................. 56,000 780,500
Texas Utilities Co. ............. 13,500 480,094
-----------
2,303,094
-----------
ELECTRONICS-SEMICONDUCTORS (0.6%)
Adaptec, Inc. (a)................ 7,000 349,125
-----------
ENGINEERING & CONSTRUCTION (1.5%)
Fluor Corp. ..................... 17,200 789,050
-----------
FINANCE (5.4%)
AMC Financial, Inc. (a).......... 6,857 30,719
Amdocs Automatic Common Exchange
Securities...................... 8,000 257,000
American General Corp. .......... 14,200 1,077,425
AXA Financial, Inc. ............. 30,000 1,016,250
Citigroup, Inc. ................. 10,600 588,963
-----------
2,970,357
-----------
FOOD (2.2%)
ConAgra, Inc. ................... 24,100 543,756
H.J. Heinz Co. .................. 16,400 652,925
-----------
1,196,681
-----------
FOOD, BEVERAGES & TOBACCO (0.0%) (b)
Buenos Aires Embotelladora
Sociedad Anonima
Class B (a)(p).................. 4,827 21,723
-----------
HEALTH CARE (3.3%)
Becton, Dickinson & Co. ......... 22,600 604,550
Health Management Associates,
Inc. (a)........................ 32,700 437,363
Manor Care, Inc. (a)............. 11,600 185,600
United HealthCare Corp. ......... 11,200 595,000
-----------
1,822,513
-----------
HEALTH CARE-DRUGS (0.4%)
Mylan Laboratories, Inc. ........ 9,100 229,206
-----------
HEAVY DUTY TRUCKS (0.8%)
Dana Corp. ...................... 13,700 410,144
-----------
HOME DECORATION PRODUCTS (0.5%)
Newell Rubbermaid, Inc. ......... 9,100 263,900
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|17
<PAGE> 453
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOTEL/MOTEL (1.1%)
Harrah's Entertainment, Inc.
(a)............................. 22,500 $ 594,844
-----------
INSURANCE (2.3%)
Allstate Corp. (The)............. 30,700 736,800
MGIC Investment Corp. ........... 8,900 535,669
-----------
1,272,469
-----------
LEISURE TIME (1.7%)
Callaway Golf Co. ............... 52,000 919,750
-----------
MACHINERY (3.3%)
American Standard Cos., Inc.
(a)............................. 24,700 1,133,112
Ingersoll-Rand Co. .............. 12,200 671,763
-----------
1,804,875
-----------
MANUFACTURING-DIVERSIFIED (1.7%)
Honeywell International, Inc. ... 16,312 940,998
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.3%)
Coastal Corp. (The).............. 19,200 680,400
El Paso Energy Corp. ............ 15,100 586,069
-----------
1,266,469
-----------
OIL & GAS SERVICES (7.1%)
Burlington Resources, Inc. ...... 13,700 452,956
Noble Affiliates, Inc. .......... 33,000 707,437
Union Pacific Resources Group,
Inc. ........................... 80,900 1,031,475
Unocal Corp. .................... 17,500 587,344
Valero Energy Corp. ............. 54,700 1,087,162
-----------
3,866,374
-----------
OIL-INTEGRATED DOMESTIC (2.6%)
Kerr-McGee Corp. ................ 6,080 376,960
Sunoco, Inc. .................... 15,000 352,500
Tosco Corp. ..................... 25,400 690,563
-----------
1,420,023
-----------
OIL-INTEGRATED INTERNATIONAL (0.9%)
Texaco, Inc. .................... 9,400 510,536
-----------
PAPER & FOREST PRODUCTS (1.7%)
Georgia-Pacific Group............ 18,700 949,025
-----------
RETAIL (3.3%)
Federated Department Stores, Inc.
(a)............................. 16,500 834,281
Office Depot, Inc. (a)........... 90,000 984,375
-----------
1,818,656
-----------
STEEL (1.8%)
USX-U.S. Steel Group............. 30,000 990,000
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-LONG DISTANCE (2.1%)
AT&T Corp. ...................... 22,300 $ 1,131,725
-----------
TELEPHONE (2.6%)
Bell Atlantic Corp. ............. 13,900 855,719
Nippon Telegraph &
Telephone Corp. ADR (q)......... 6,600 568,425
-----------
1,424,144
-----------
TEXTILES-HOME FURNISHINGS (0.9%)
Shaw Industries, Inc. ........... 31,400 484,738
-----------
TOYS (1.1%)
Hasbro, Inc. .................... 32,700 623,344
-----------
TRANSPORTATION (0.0%) (b)
Eumenides Ltd. (a)............... 75 1
-----------
Total Common Stocks
(Cost $32,877,387).............. 35,830,080
-----------
PREFERRED STOCKS (0.3%)
FINANCIAL SERVICES (0.2%)
North Atlantic Trading Co.
12.00% (r)...................... 4,524 78,041
-----------
TELECOMMUNICATION SERVICES (0.1%)
Nextel Communications
13.00%, Series D (r)............ 64 68,844
-----------
Total Preferred Stocks
(Cost $143,769)................. 146,885
-----------
WARRANTS (0.1%)
BROADCAST/MEDIA (0.1%)
CD Radio, Inc.
expire 5/15/09 (a)(c)........... 435 35,344
-----------
CABLE TV (0.0%) (b)
UIH Australia/Pacific, Inc.
expire 5/15/06 (a).............. 30 750
-----------
HOMEBUILDING (0.0%) (b)
Amatek Industries Pty Ltd.
Common Rights (a)............... 35 19
Preferred Rights (a)............ 9,469 5,208
-----------
5,227
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18|
<PAGE> 454
Portfolio of Investments December 31, 1999 (continued)
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
WARRANTS (CONTINUED)
RETAIL (0.0%) (b)
G&G Retail, Inc.
expire 5/15/06 (a)(c)........... 80 $ 120
-----------
TELECOMMUNICATION SERVICES (0.0%) (b)
Telehub Communications Corp.
expire 7/31/05 (a)(c)........... 80 1
-----------
Total Warrants
(Cost $27,357).................. 41,442
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.7%)
COMMERCIAL PAPER (6.6%)
American Express Credit Corp.
3.25%, due 1/10/00.............. $ 500,000 499,594
Associates Corp.
4.00%, due 1/3/00............... 515,000 514,885
Ford Motor Credit Corp.
5.68%, due 1/12/00 (t).......... 1,000,000 998,264
General Electric Capital Corp.
5.25%, due 1/25/00.............. 500,000 498,249
Prudential Funding Corp.
5.85%, due 1/6/00............... 1,100,000 1,099,106
-----------
Total Commercial Paper
(Cost $3,610,098)............... 3,610,098
-----------
SHORT-TERM LOAN ASSIGNMENT (0.1%)
TEXTILES-APPAREL MANUFACTURERS (0.1%)
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00 (i)(o)..... 75,000 74,250
-----------
Total Short-Term Loan Assignment
(Cost $73,908).................. 74,250
-----------
Total Short-Term Investments
(Cost $3,684,006)............... 3,684,348
-----------
Total Investments
(Cost $51,330,843) (u).......... 99.5% 54,495,109(v)
Cash and Other Assets,
Less Liabilities................ $ 0.5 $ 259,978
---------- -----------
Net Assets....................... 100.0% $54,755,087
========== ===========
</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) 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) Capital Unit -- each unit consists of $25 principal
amount of 7.875% Perpetual Capital Securities and a
purchase contract to make Optional Unit Exchanges.
(g) 350 CRESTS Units -- Convertible Redeemable Equity
Structured Trust Security. Each unit consists of 1
preferred stock and 1 warrant to acquire 23.4192 shares
of common stock at $42.70 at a future date.
(h) PIERS-Preferred Income Equity Redeemable Stock.
(i) Restricted security.
(j) Issuer in bankruptcy.
(k) Issue in default.
(l) CIK ("Cash in Kind") -- interest payment is made with
cash or additional securities.
(m) 75 units -- each unit reflects $1,000 principal amount
of (zero coupon), due 8/1/08, 15.00%, beginning 8/1/04
Senior Discounted Notes plus 1 warrant to acquire 1
share of common stock at an average price of $156.11 per
share at a future date.
(n) Multiple tranche facilities.
(o) Floating rate. Rate shown is the rate in effect at
December 31, 1999.
(p) Argentinean Security.
(q) ADR -- American Depository Receipt.
(r) PIK ("Payment in Kind") -- dividend payment is made with
additional securities.
(s) Depository Shares -- each share represents 0.025 shares
at 7.25%. Preferred Income Equity Redeemable Stock,
Series A.
(t) Segregated as collateral for foreign currency forward
contracts.
(u) The cost for Federal income tax purposes is $51,692,199.
(v) At December 31, 1999, net unrealized appreciation was
$2,802,910, 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 $6,392,085 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $3,589,175.
(L) Security denominated in Pound Sterling.
(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.
|19
<PAGE> 455
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$51,330,843).............................................. $54,495,109
Cash........................................................ 18,005
Receivables:
Dividends and interest.................................... 296,024
Investment securities sold................................ 71,925
Fund shares sold.......................................... 42,099
Unrealized appreciation on foreign currency forward
contracts................................................. 5,228
Unamortized organization expense............................ 103,861
-----------
Total assets........................................ 55,032,251
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 91,123
Fund shares redeemed...................................... 42,253
MainStay Management....................................... 35,753
NYLIFE Distributors....................................... 33,621
Transfer agent............................................ 14,041
Custodian................................................. 8,399
Trustees.................................................. 419
Accrued expenses............................................ 45,283
Unrealized depreciation on foreign currency forward
contracts................................................. 6,272
-----------
Total liabilities................................... 277,164
-----------
Net assets.................................................. $54,755,087
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 16,955
Class B................................................... 32,065
Class C................................................... 138
Additional paid-in capital.................................. 51,932,690
Accumulated distribution in excess of net investment
income.................................................... (31,438)
Accumulated distribution in excess of net realized gain on
investments............................................... (358,526)
Net unrealized appreciation on investments.................. 3,164,266
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (1,063)
-----------
Net assets.................................................. $54,755,087
===========
CLASS A
Net assets applicable to outstanding shares................. $18,898,919
===========
Shares of beneficial interest outstanding................... 1,695,497
===========
Net asset value per share outstanding....................... $ 11.15
Maximum sales charge (5.50% of offering price).............. 0.65
-----------
Maximum offering price per share outstanding................ $ 11.80
===========
CLASS B
Net assets applicable to outstanding shares................. $35,702,464
===========
Shares of beneficial interest outstanding................... 3,206,471
===========
Net asset value and offering price per share outstanding.... $ 11.13
===========
CLASS C
Net assets applicable to outstanding shares................. $ 153,704
===========
Shares of beneficial interest outstanding................... 13,804
===========
Net asset value and offering price per share outstanding.... $ 11.13
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20|
<PAGE> 456
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 838,092
Interest.................................................. 1,213,717
----------
Total income............................................ 2,051,809
----------
Expenses:
Management................................................ 420,671
Distribution--Class B..................................... 281,382
Distribution--Class C..................................... 915
Transfer agent............................................ 165,555
Service--Class A.......................................... 46,124
Service--Class B.......................................... 93,795
Service--Class C.......................................... 305
Custodian................................................. 40,167
Amortization of organization expense...................... 36,799
Professional.............................................. 35,130
Registration.............................................. 32,248
Shareholder communication................................. 26,912
Recordkeeping............................................. 22,029
Trustees.................................................. 1,518
Miscellaneous............................................. 24,776
----------
Total expenses.......................................... 1,228,326
----------
Net investment income....................................... 823,483
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 1,614,413
Foreign currency transactions............................. (32,297)
----------
Net realized gain on investments and foreign currency
transactions.............................................. 1,582,116
----------
Net change in unrealized depreciation on:
Security transactions..................................... 4,176,470
Translation of other assets and liabilities in foreign
currencies and foreign currency forward transactions.... 9,227
----------
Net unrealized gain on investments and foreign currency
transactions.............................................. 4,185,697
----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 5,767,813
----------
Net increase in net assets resulting from operations........ $6,591,296
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $982.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|21
<PAGE> 457
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 823,483 $ 507,272
Net realized gain (loss) on investments and foreign
currency transactions................................... 1,582,116 (1,159,336)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... 4,185,697 (1,478,958)
------------ ------------
Net increase (decrease) in net assets resulting from
operations.............................................. 6,591,296 (2,131,022)
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (367,948) (263,908)
Class B................................................. (472,300) (287,423)
Class C................................................. (1,667) (355)
From net realized gain on investments:
Class A................................................. (150,968) (14,617)
Class B................................................. (288,307) (31,491)
Class C................................................. (1,237) (68)
In excess of net investment income:
Class A................................................. (13,740) --
Class B................................................. (17,636) --
Class C................................................. (62) --
In excess of net realized gain on investments:
Class A................................................. (122,870) --
Class B................................................. (234,649) --
Class C................................................. (1,007) --
------------ ------------
Total dividends and distributions to shareholders..... (1,672,391) (597,862)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 2,556,755 8,115,590
Class B................................................. 6,640,161 38,978,176
Class C................................................. 195,150 95,601
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 640,350 295,580
Class B................................................. 985,005 358,344
Class C................................................. 1,461 301
------------ ------------
11,018,882 47,843,592
Cost of shares redeemed:
Class A................................................. (3,792,632) (3,538,565)
Class B................................................. (13,814,138) (10,948,174)
Class C................................................. (133,506) (16,703)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions................................... (6,721,394) 33,340,150
------------ ------------
Net increase (decrease) in net assets................. (1,802,489) 30,611,266
NET ASSETS:
Beginning of year........................................... 56,557,576 25,946,310
------------ ------------
End of year................................................. $54,755,087 $ 56,557,576
============ ============
Accumulated distribution in excess of net investment income
at end of year............................................ $ (31,438) $ (4,459)
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22|
<PAGE> 458
This page intentionally left blank
|23
<PAGE> 459
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------
October 22*
Year ended Year ended through
December 31, 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....................................... 0.22 0.15 0.03
Net realized and unrealized gain (loss) on investments...... 1.15 (0.10) 0.38
------- ------- -------
Total from investment operations............................ 1.37 0.05 0.41
------- ------- -------
Less dividends and distributions:
From net investment income................................ (0.22) (0.15) (0.03)
From net realized gain on investments..................... (0.09) (0.01) (0.09)
In excess of net investment income........................ (0.01) -- --
In excess of net realized gain on investments............. (0.08) -- --
------- ------- -------
Total dividends and distributions........................... (0.40) (0.16) (0.12)
------- ------- -------
Net asset value at end of period............................ $ 11.15 $ 10.18 $ 10.29
======= ======= =======
Total investment return (a)................................. 13.59% 0.52% 4.11%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 1.97% 1.49% 1.66%+
Expenses................................................ 1.69% 1.79% 2.73%+
Portfolio turnover rate..................................... 122% 203% 29%
Net assets at end of period (in 000's)...................... $18,899 $17,946 $13,622
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ 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.
24|
<PAGE> 460
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------ --------------------------------
October 22* September 1**
Year ended Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1999 1998
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
$ 10.17 $ 10.29 $ 10.00 $10.17 $ 9.15
------- ------- ------- ------ ------
0.14 0.08 0.02 0.14 0.05
1.14 (0.11) 0.38 1.14 1.03
------- ------- ------- ------ ------
1.28 (0.03) 0.40 1.28 1.08
------- ------- ------- ------ ------
(0.14) (0.08) (0.02) (0.14) (0.05)
(0.09) (0.01) (0.09) (0.09) (0.01)
(0.01) -- -- (0.01) --
(0.08) -- -- (0.08) --
------- ------- ------- ------ ------
(0.32) (0.09) (0.11) (0.32) (0.06)
------- ------- ------- ------ ------
$ 11.13 $ 10.17 $ 10.29 $11.13 $10.17
======= ======= ======= ====== ======
12.64% (0.27%) 4.04% 12.64% 11.77%
1.22% 0.74% 0.91%+ 1.22% 0.74%+
2.44% 2.54% 3.48%+ 2.44% 2.54%+
122% 203% 29% 122% 203%
$35,702 $38,528 $12,325 $ 154 $ 84
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|25
<PAGE> 461
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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 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
26|
<PAGE> 462
Notes to Financial Statements
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.
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 Fund's 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 Fund's
subadvisor, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by the Fund's
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 Fund's 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
Fund's 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
|27
<PAGE> 463
MainStay Strategic Value Fund
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 year end to credit loss in the event of a counterparty's failure to
perform its obligations.
Foreign currency forward contracts open at December 31, 1999:
<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
AMOUNT AMOUNT APPRECIATION/
FOREIGN CURRENCY SALE CONTRACTS SOLD PURCHASED (DEPRECIATION)
------------------------------- ----------- --------- --------------
<S> <C> <C> <C>
Euro vs. U.S. Dollar, expiring 2/7/00..................... E 120,000 $123,772 $ 3,132
Japanese Yen vs. U.S. Dollar, expiring 3/16/00............ Y55,000,000 $538,688 (5,347)
Pound Sterling vs. U.S. Dollar, expiring 3/1/00........... L 53,396 $ 88,162 2,096
Pound Sterling vs. U.S. Dollar, expiring 3/1/00........... L 23,000 $ 36,603 (469)
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
FOREIGN CURRENCY BUY CONTRACTS PURCHASED SOLD
------------------------------ ----------- ---------
<S> <C> <C> <C>
Pounds Sterling vs. U.S. Dollar expiring 3/1/00........... L 35,300 $ 57,354 (456)
--------------
Net unrealized depreciation on foreign currency forward
contracts............................................... $(1,044)
=======
</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.
28|
<PAGE> 464
Notes to Financial Statements (continued)
Restricted securities held at December 31, 1999:
<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 12/31/99 OF
SECURITY DATE(S) SHARES COST VALUE NET ASSETS
-------- -------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
FRI-MRD Corp.
15.00%, due 1/24/02................... 8/12/97-4/3/98 $250,000 $ 253,170 $252,500 0.5%
International Wireless
Communications Holdings, Inc.
(zero coupon), due 8/15/01............ 6/17/98 200,000 46,613 20,000 0.0(a)
Orius Corp.
Bridge Loan, Term B
13.00%, due 12/15/00.................. 12/30/99 145,000 141,387 145,000 0.3
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00.................. 12/17/99 75,000 73,908 74,250 0.1
United Artists Theatre Co.
Bank debt, Term Loan B
10.3093%, due 4/21/06................. 10/18/99 15,925 13,572 11,744 0.0(a)
Bank debt, Term Loan C
10.3702%, due 4/21/07................. 10/18/99 23,776 20,220 17,535 0.0(a)
---------- -------- ---
$ 548,870 $521,029 0.9%
========== ======== ===
</TABLE>
-------
(a) Less than one tenth of a percent.
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.
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.
|29
<PAGE> 465
MainStay Strategic 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for
Federal tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. A permanent
book/tax difference of $18,394 is an increase to accumulated net realized loss
on investments. In addition, decreases of $22,891, $32,297 and $36,794 have been
made to accumulated distribution in excess of net investment income, accumulated
net realized loss on foreign currency and additional paid-in capital,
respectively. These book/tax differences are due to certain expenses being
nondeductible for tax purposes, the tax treatment of step bond gains and foreign
currency losses.
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.
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,
30|
<PAGE> 466
Notes to Financial Statements (continued)
(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 year. 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 year. 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 year end exchange rates are reflected
in unrealized foreign exchange gains or losses.
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 LLC (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 LLC
(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 year ended December 31, 1999, the Manager
earned $420,671.
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
|31
<PAGE> 467
MainStay Strategic Value Fund
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 $5,916 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class A, Class B and Class C
shares of $20, $142,252 and $813, respectively, for the year ended December 31,
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 year ended December 31,
1999, amounted to $165,555.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $1,170,898 which represents 6.2% of the Class A net assets at
year 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 $1,489 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$22,029 for the year ended December 31, 1999.
32|
<PAGE> 468
Notes to Financial Statements (continued)
NOTE 4--FEDERAL INCOME TAX:
For Federal income tax purposes, capital loss carryforwards of $470,839 were
utilized to the extent provided by regulations to offset future realized gains
of the Fund during the year ended December 31, 1999. The Fund intends to elect
to treat for Federal income tax purposes approximately $3,287 of qualifying
foreign exchange losses that arose during the year after October 31, 1999 as if
they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $66,064 and $76,180, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 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................................. 229 601 18 756 3,629 10
Shares issued in reinvestment of dividends
and distributions......................... 59 91 -- 29 30 --
---- ------ --- ---- ------ --
288 692 18 785 3,659 10
Shares redeemed............................. (356) (1,274) (12) (345) (1,069) (2)
---- ------ --- ---- ------ --
Net increase (decrease)..................... (68) (582) 6 440 2,590 8
==== ====== === ==== ====== ==
</TABLE>
- -------
* First offered on September 1, 1998.
|33
<PAGE> 469
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Strategic Value Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
34|
<PAGE> 470
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 471
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN18-02/00
RECYCLE.LOGO
[MAINSTAY FUNDS LOGO]
MainStay
Strategic Value Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY.LOGO]
<PAGE> 472
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay Blue Chip
Growth Fund versus the S&P 500 Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
Report of Independent Accountants 21
The MainStay Funds 22
</TABLE>
<PAGE> 473
This page intentionally left blank
2
<PAGE> 474
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 475
$10,000 Invested in the MainStay
Blue Chip Growth Fund versus the
S&P 500 Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 33.96%, Since Inception 32.32%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX(*) INFLATION (CPI)(+)
- ----------- ------------------ -------------- ----------------
<S> <C> <C> <C>
6/1/98 9450 10000 10000
6/98 9809 10406 10006
9/98 8524 9371 10043
12/98 11000 11367 10098
3/99 11794 11934 10135
6/99 12616 12776 10209
9/99 12493 11978 10313
12/99 15593 13760 10368
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 35.78%, Since Inception 34.11%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX* INFLATION (CPI)+
- ----------- ------------------ -------------- ----------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10380 10406 10006
9/98 9010 9371 10043
12/98 11600 11367 10098
3/99 12420 11934 10135
6/99 12730 12776 10209
9/99 12586 11978 10313
12/99 15930 13760 10368
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 39.78%, Since Inception 36.23%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX(*) INFLATION (CPI)(+)
- ----------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10380 10406 10006
9/98 9010 9371 10043
12/98 11600 11367 10098
3/99 12420 11934 10135
6/99 13260 12776 10209
9/99 13110 11978 10313
12/99 16330 13760 10368
</TABLE>
4
<PAGE> 476
- -------
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 figures 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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> 477
Portfolio Management Discussion and Analysis
Several factors combined in 1999 to propel stock prices of large U.S. companies
higher. So high, in fact, that for the first time in its history, the S&P 500
Composite Stock Price Index(1) recorded its fifth consecutive year of returns
over 20%. Among the forces influencing the stock market were:
- - Strong profit growth, primarily in the technology sector
- - Continued low levels of inflation
- - Record merger and acquisition activity, as deals totaling more than $1.75
trillion were announced in the U.S. alone in 1999
- - Willingness of households to increase their individual portfolio allocation to
stocks, and
- - Rapid gravitation to the Internet and other new technologies by both
businesses and individuals.
Within the S&P 500 Index, growth stocks outperformed value equities for most of
the year, led by the technology sector. Other stronger-performing sectors
included capital goods and basic materials. Weaker-performing sectors included
health care, utilities, and transportation.
STRONG FUND PERFORMANCE
For the twelve months ended December 31, 1999, the MainStay Blue Chip Growth
Fund returned 41.75% for Class A shares and 40.78% for Class B and Class C
shares, excluding all sales charges. All share classes outperformed the average
Lipper(2) large-cap growth fund, which returned 38.01% for the same period. All
share classes also outperformed the S&P 500 Index, which returned 21.04% for the
year.
The Fund's outperformance was due primarily to strong sector allocation. Most
significant was our decision to overweight technology and media holdings,
particularly in the second half of the year. We overweighted the Fund in these
sectors based on our view that these stocks would have strong earnings-per-
share growth and the potential for multiple expansion.(3)
EFFECTIVE SECURITY SELECTION
The Fund's best performer was QUALCOMM Inc., a manufacturer of digital wireless
communications products, up more than fourfold since we purchased it for the
Fund in the third quarter. QUALCOMM developed the most popular cellular mobile
telephone technology, and the market focused on the vast potential of this
communications technology throughout 1999. Sun
- -------
(1) See footnote on page 5 for more information on the S&P 500(R) Index.
(2) See footnote and table on page 9 for more information on Lipper Inc.
(3) A company's price/earnings ratio, also known as the multiple, is a measure
of how much investors must pay for earnings potential. The higher the
multiple, the more investors are paying, and hence, the more earnings they
expect.
6
<PAGE> 478
YEAR-BY-YEAR PERFORMANCE
<TABLE>
<CAPTION>
YEAR END TOTAL RETURN %
- -------- --------------
<S> <C>
12/98 16.4
12/99 41.75
12/98 16.00
12/99 40.78
</TABLE>
Microsystems and Nokia were also winners for the Fund, up 262%(4) and 217%,
respectively, for the year. Sun Microsystems, a leading provider of hardware and
software for network-based computing systems, was a major beneficiary of
continued Internet growth. Nokia's strong position in telecommunications
equipment strengthened with the global explosion of wireless telephone usage.
Other strong performers during the year included Tiffany & Co., up 244%, and
Home Depot, up 75%. As each of these stocks appreciated, we took a small
percentage of the profits generated. This proved to be an effective strategy for
the Fund.
The Fund also benefited from several strategic purchases during 1999. In
addition to QUALCOMM, the Fund established positions in CBS, the broadcast
network, which rose 95% for the year, and Amgen, which almost doubled since the
Fund purchased the stock in the spring of 1999. We continued to increase the
Fund's holdings in several technology stocks on the belief that spending in
technology would continue to exceed expectations. EMC rose 157% for the year,
Cisco rose 130%, and Texas Instruments was up 126%.
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. Eli Lilly declined 8%, Monsanto fell 12%,
and Schering-Plough declined 16% from the Fund's purchase prices. The Fund
continues to hold each of these stocks, however, as we believe these pharma-
ceutical companies have solid earnings growth potential and attractive long-
term fundamentals. Monsanto, for example, offers an opportunity for corporate
restructuring by separating its drug and agricultural businesses. The Monsanto
merger with Pharmacia and Upjohn is expected to be completed in the second
quarter of 2000. As of December 31, 1999, the Fund had a 13.5% allocation in
health care stocks.
- -------
(4) Returns reflect performance for the one-year period ended 12/31/99.
7
<PAGE> 479
We sold the Fund's holdings in Sun Trust and Bank of New York, as we anticipate
further tightening of monetary policy by the Federal Reserve in the coming
months, and financial stocks are usually less attractive in a rising interest
rate environment.
LOOKING AHEAD
We intend to continue to position the Fund's portfolio in companies with strong
earnings-per-share growth and the potential for increasing price-to-earnings
ratios. We anticipate maintaining the Fund's overweighted positions in the
technology, media, and health care sectors.
We are cautiously watching the direction of interest rates and the potential for
further tightening moves by the Federal Reserve. In this election year, we are
also monitoring any possible changes in the makeup of Congress. Both of these
macroenvironmental factors could impact the equity market in 2000. 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> 480
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS(*)
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 41.75% 37.12%
Class B 40.78% 36.23%
Class C 40.78% 36.23%
</TABLE>
FUND SEC RETURNS(*)
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 33.96% 32.32%
Class B 35.78% 34.11%
Class C 39.78% 36.23%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 92 out of 103 out of
363 funds 326 funds
Class B 99 out of 117 out of
363 funds 326 funds
Class C 99 out of 109 out of
363 funds 339 funds
Average Lipper
large-cap
growth 38.01% 37.23%
fund(++)
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $16.50 $0.0000 $0.0000
Class B $16.33 $0.0000 $0.0000
Class C $16.33 $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 figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999, is
reflected in this material.
9
<PAGE> 481
MainStay Blue Chip Growth Fund
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
COMMON STOCKS (96.9%)+
BANKS (7.9%)
Mellon Financial Corp.......... 242,600 $ 8,263,562
Northern Trust Corp. .......... 124,600 6,603,800
State Street Corp. ............ 117,500 8,584,844
------------
23,452,206
------------
BROADCAST/MEDIA (8.4%)
CBS Corp. (a).................. 106,800 6,828,525
Clear Channel Communications,
Inc. (a)...................... 81,700 7,291,725
Comcast Corp. Special Class
A............................. 90,000 4,550,625
MediaOne Group, Inc. (a)....... 79,700 6,121,956
------------
24,792,831
------------
CHEMICALS (0.9%)
Monsanto Co. .................. 75,000 2,671,875
------------
COMMUNICATIONS--EQUIPMENT (10.6%)
Cisco Systems, Inc. (a)........ 77,300 8,280,762
General Motors Corp. Class H
(a)........................... 50,000 4,800,000
Lucent Technologies Inc. ...... 84,200 6,299,213
Nokia Corp. ADR (b)............ 30,000 5,700,000
QUALCOMM Inc. (a).............. 36,000 6,340,500
------------
31,420,475
------------
COMPUTER SOFTWARE & SERVICES (2.5%)
Automatic Data Processing,
Inc. ......................... 95,400 5,139,675
Microsoft Corp. (a)............ 20,000 2,335,000
------------
7,474,675
------------
COMPUTER SYSTEMS (11.2%)
Dell Computer Corp. (a)........ 62,200 3,172,200
EMC Corp. (a).................. 82,600 9,024,050
Hewlett-Packard Co............. 35,000 3,987,812
International Business Machines
Corp. ........................ 68,600 7,408,800
Sun Microsystems, Inc. (a)..... 123,000 9,524,813
------------
33,117,675
------------
ELECTRONICS--SEMICONDUCTORS (7.7%)
Intel Corp. ................... 114,000 9,383,625
Motorola, Inc. ................ 25,000 3,681,250
Texas Instruments Inc. ........ 100,000 9,687,500
------------
22,752,375
------------
ENTERTAINMENT (4.5%)
Time Warner Inc. .............. 143,000 10,358,562
Viacom Inc. Class B (a)........ 52,000 3,142,750
------------
13,501,312
------------
- -----------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
HEALTH CARE--DRUGS (4.6%)
Lilly (Eli) & Co............... 46,000 $ 3,059,000
Merck & Co., Inc. ............. 65,600 4,399,300
Pfizer Inc. ................... 108,200 3,509,737
Schering-Plough Corp. ......... 65,000 2,742,188
------------
13,710,225
------------
HEALTH CARE--MEDICAL PRODUCTS (1.5%)
Baxter International Inc. ..... 69,200 4,346,625
------------
HEALTH CARE--MISCELLANEOUS (7.4%)
Amgen Inc. (a)................. 130,000 7,808,125
Bristol-Myers Squibb Co. ...... 64,200 4,120,837
Johnson & Johnson.............. 33,000 3,073,125
Warner-Lambert Co. ............ 86,200 7,063,013
------------
22,065,100
------------
INSURANCE (3.1%)
Marsh & McLennan Cos., Inc. ... 97,000 9,281,688
------------
INVESTMENT BANK/BROKERAGE (1.4%)
Merrill Lynch & Co., Inc. ..... 50,200 4,191,700
------------
MANUFACTURING (3.3%)
Corning Inc. .................. 75,000 9,670,313
------------
PUBLISHING (8.1%)
Dow Jones & Co., Inc. ......... 70,000 4,760,000
Gannett Co., Inc. ............. 58,000 4,730,625
Knight-Ridder, Inc. ........... 55,000 3,272,500
McGraw-Hill Cos., Inc. (The)... 58,400 3,598,900
New York Times Co. (The) Class
A............................. 94,000 4,617,750
Tribune Co. ................... 55,200 3,039,450
------------
24,019,225
------------
RETAIL (6.4%)
Home Depot, Inc. (The)......... 161,250 11,055,703
Lowe's Cos., Inc. ............. 80,000 4,780,000
Tiffany & Co. ................. 36,000 3,213,000
------------
19,048,703
------------
SPECIALIZED SERVICES (3.8%)
Interpublic Group of Cos., Inc.
(The)......................... 148,600 8,572,363
Omnicom Group Inc. ............ 26,000 2,600,000
------------
11,172,363
------------
TELECOMMUNICATIONS--LONG
DISTANCE (3.6%)
MCI WorldCom, Inc. (a)......... 124,500 6,606,281
Vodafone Airtouch PLC ADR
(b)........................... 80,000 3,960,000
------------
10,566,281
------------
Total Common Stocks
(Cost $213,068,933)........... 287,255,647
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 482
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.5%)
REPURCHASE AGREEMENT (2.5%)
State Street Bank and Trust
Company, 3.25%, due 1/3/00,
with a maturity value of
$7,321,983
(Collateralized by $5,720,000
U.S. Treasury Note, 12.75%,
due 11/15/10, market
value--$7,471,750)............ $7,320,000 $ 7,320,000
------------
Total Short-Term Investment
(Cost $7,320,000)............. 7,320,000
------------
Total Investments
(Cost $220,388,933) (c)....... 99.4% 294,575,647(d)
Cash and Other Assets, Less
Liabilities................... 0.6 1,787,785
----- ------------
Net Assets..................... 100.0% $296,363,432
===== ============
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $220,528,751.
(d) At December 31, 1999, net unrealized appreciation was $74,046,896, based on
cost 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 $76,354,837 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,307,941.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 483
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$220,388,933)............................................. $294,575,647
Cash........................................................ 649
Receivables:
Fund shares sold.......................................... 2,276,692
Dividends and interest.................................... 103,985
Unamortized organization expense............................ 46,200
------------
Total assets........................................ 297,003,173
------------
LIABILITIES:
Payables:
MainStay Management....................................... 232,700
NYLIFE Distributors....................................... 189,755
Fund shares redeemed...................................... 64,515
Transfer agent............................................ 61,669
Custodian................................................. 6,810
Trustees.................................................. 1,748
Accrued expenses............................................ 82,544
------------
Total liabilities................................... 639,741
------------
Net assets.................................................. $296,363,432
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 40,198
Class B................................................... 136,533
Class C................................................... 4,369
Additional paid-in capital.................................. 221,272,645
Accumulated net realized gain on investments................ 722,973
Net unrealized appreciation on investments.................. 74,186,714
------------
Net assets.................................................. $296,363,432
============
CLASS A
Net assets applicable to outstanding shares................. $ 66,326,116
============
Shares of beneficial interest outstanding................... 4,019,760
============
Net asset value per share outstanding....................... $ 16.50
Maximum sales charge (5.50% of offering price).............. 0.96
------------
Maximum offering price per share outstanding................ $ 17.46
============
CLASS B
Net assets applicable to outstanding shares................. $222,904,495
============
Shares of beneficial interest outstanding................... 13,653,274
============
Net asset value and offering price per share outstanding.... $ 16.33
============
CLASS C
Net assets applicable to outstanding shares................. $ 7,132,821
============
Shares of beneficial interest outstanding................... 436,874
============
Net asset value and offering price per share outstanding.... $ 16.33
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 484
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 974,643
Interest.................................................. 148,339
-----------
Total income............................................ 1,122,982
-----------
Expenses:
Management................................................ 1,522,623
Distribution--Class B..................................... 858,372
Distribution--Class C..................................... 15,977
Transfer agent............................................ 479,598
Service--Class A.......................................... 89,206
Service--Class B.......................................... 286,124
Service--Class C.......................................... 5,326
Registration.............................................. 68,923
Shareholder communication................................. 53,218
Recordkeeping............................................. 40,659
Professional.............................................. 37,044
Custodian................................................. 28,517
Amortization of organization expense...................... 13,512
Trustees.................................................. 4,739
Miscellaneous............................................. 45,778
-----------
Total expenses.......................................... 3,549,616
-----------
Net investment loss......................................... (2,426,634)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 1,764,358
Net change in unrealized appreciation on investments........ 65,187,327
-----------
Net realized and unrealized gain on investments............. 66,951,685
-----------
Net increase in net assets resulting from operations........ $64,525,051
===========
</TABLE>
- ----------
(a) Dividends recorded net of foreign withholding taxes of $940.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 485
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998*
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (2,426,634) $ (314,446)
Net realized gain (loss) on investments................... 1,764,358 (1,041,385)
Net change in unrealized appreciation on investments...... 65,187,327 8,999,387
------------ -----------
Net increase in net assets resulting from operations...... 64,525,051 7,643,556
------------ -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 37,384,835 17,005,699
Class B................................................. 156,652,762 35,664,242
Class C................................................. 6,104,796 125,295
Cost of shares redeemed:
Class A................................................. (5,530,974) (302,462)
Class B................................................. (20,500,753) (2,156,973)
Class C................................................. (230,860) (20,782)
------------ -----------
Increase in net assets derived from capital share
transactions........................................ 173,879,806 50,315,019
------------ -----------
Net increase in net assets............................ 238,404,857 57,958,575
NET ASSETS:
Beginning of period......................................... 57,958,575 --
------------ -----------
End of period............................................... $296,363,432 $57,958,575
============ ===========
</TABLE>
- -------
* 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> 486
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ----------------------------
June 1* June 1* September 1**
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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).................. (0.13) (0.07) (0.23) (0.10) (0.23) (0.06)
Net realized and
unrealized gain on
investments.......... 4.99 1.71 4.96 1.70 4.96 3.06
------- ------- -------- ------- ------ ------
Total from investment
operations........... 4.86 1.64 4.73 1.60 4.73 3.00
------- ------- -------- ------- ------ ------
Net asset value at end
of period............ $ 16.50 $ 11.64 $ 16.33 $ 11.60 $16.33 $11.60
======= ======= ======== ======= ====== ======
Total investment
return (b)........... 41.75% 16.40% 40.78% 16.00% 40.78% 34.88%
Ratios (to average net
assets)/
Supplemental Data:
Net investment
loss............. (1.02%) (1.66%)+ (1.77%) (2.41%)+ (1.77%) (2.41%)+
Expenses........... 1.76% 2.34%+ 2.51% 3.09%+ 2.51% 3.09%+
Portfolio turnover
rate................. 43% 21% 43% 21% 43% 21%
Net assets at end of
period
(in 000's)........... $66,326 $19,361 $222,904 $38,478 $7,133 $ 120
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ 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> 487
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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
16
<PAGE> 488
Notes to Financial Statements
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 Fund's 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
Fund's 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.
ORGANIZATION 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
17
<PAGE> 489
MainStay Blue Chip Growth Fund
from generally accepted accounting principles. These "book/tax differences" are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal tax basis treatment; temporary
differences do not require reclassification. Permanent book-tax differences of
$2,426,634 are decreases of both accumulated net investment loss and additional
paid-in capital. These book-tax differences are due to net investment loss
incurred by the Fund in 1999.
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 LLC (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 year ended December 31, 1999 the Manager
earned $1,522,623.
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.
18
<PAGE> 490
Notes to Financial Statements (continued)
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 $37,028 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $110,701 and $1,115, respectively, for the year ended December 31, 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 year ended December 31,
1999, amounted to $479,598.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $14,850,000 which represents 22.4% of the Class A net assets at
year 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 $3,087 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$40,659 for the year ended December 31, 1999.
19
<PAGE> 491
MainStay Blue Chip Growth Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $344,621 of capital loss carryforwards during the current
year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were $228,959 and $64,735, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998* THROUGH
DECEMBER 31, 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.................................. 2,768 11,864 444 1,693 3,538 12
Shares redeemed.............................. (411) (1,528) (17) (30) (221) (2)
----- ------ --- ----- ----- --
Net increase................................. 2,357 10,336 427 1,663 3,317 10
===== ====== === ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** First offered on September 1, 1998.
</TABLE>
20
<PAGE> 492
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Blue Chip Growth Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
21
<PAGE> 493
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 494
Officers & Trustees* [THE MAINSTAY FUNDS LOGO]
<TABLE>
<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
RICHARD S. TRUTANIC Trustee MAINSTAY
JOHN A. FLANAGAN Chief Financial Officer EQUITY INDEX FUND
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
DECHERT PRICE & RHOADS
Legal Counsel
(*) As of December 31, 1999.
</TABLE>
<TABLE>
<S> <C>
MainStay ANNUAL REPORT
Blue Chip Growth Fund DECEMBER 31, 1999
</TABLE>
<TABLE>
<S> <C>
NYLIFE DISTRIBUTORS INC. [MAINSTAY INVESTMENTS LOGO]
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
</TABLE>
www.mainstayinv.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)2000. All rights reserved. MSAN19-02/00
[RECYCLED PAPER LOGO]
<PAGE> 495
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, Russell 1000 Value Index, and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
Report of Independent Accountants 21
The MainStay Funds 22
</TABLE>
<PAGE> 496
This page intentionally left blank
2|
<PAGE> 497
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
|3
<PAGE> 498
$10,000 Invested in the MainStay Equity
Income Fund versus Lipper Equity Income
Fund Index, Russell 1000 Value Index,
and Inflation
CLASS A SHARES SEC Returns: 1 Year 18.23%, Since Inception 13.92%
<TABLE>
<CAPTION>
MAINSTAY EQUITY LIPPER EQUITY RUSSELL 1000 VALUE
INCOME FUND INCOME FUND INDEX* INDEX(+) INFLATION (CPI)(++)
--------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
6/1/98 9450.00 10000.00 10000.00 10000.00
6/98 9478.00 10081.00 10128.00 10006.00
9/98 9057.00 9081.00 8955.00 10043.00
12/98 9829.00 10282.00 10442.00 10098.00
3/99 10528.00 10292.00 10591.00 10135.00
6/99 12520.00 11211.00 11786.00 10209.00
9/99 11844.00 10295.00 10631.00 10313.00
12/99 12296.00 10713.00 11208.00 10368.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 19.16%, Since Inception 14.86%
<TABLE>
<CAPTION>
MAINSTAY EQUITY LIPPER EQUITY RUSSELL 1000 VALUE
INCOME FUND INCOME FUND INDEX* INDEX(+) INFLATION (CPI)(++)
--------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00 10000.00
6/98 10030.00 10081.00 10128.00 10006.00
9/98 9558.00 9081.00 8955.00 10043.00
12/98 9838.00 10282.00 10442.00 10098.00
3/99 10522.00 10292.00 10591.00 10135.00
6/99 12621.00 11211.00 11786.00 10209.00
9/99 11910.00 10295.00 10631.00 10313.00
12/99 12457.00 10713.00 11208.00 10368.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 23.16%, Since Inception 17.17%
<TABLE>
<CAPTION>
MAINSTAY EQUITY LIPPER EQUITY RUSSELL 1000 VALUE
INCOME FUND INCOME FUND INDEX(*) INDEX(+) INFLATION (CPI)(++)
--------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00 10000.00
6/98 10030.00 10081.00 10128.00 10006.00
9/98 9558.00 9081.00 8955.00 10043.00
12/98 10356.00 10282.00 10442.00 10098.00
3/99 11076.00 10292.00 10591.00 10135.00
6/99 13146.00 11211.00 11786.00 10209.00
9/99 12406.00 10295.00 10631.00 10313.00
12/99 12857.00 10713.00 11208.00 10368.00
</TABLE>
4|
<PAGE> 499
- -------
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 figures 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 thirty 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.
(+) The Russell 1000(R) Value Index is an unmanaged index that measures the
performance of those Russell 1000 companies with lower price-to-book
ratios and lower forecasted growth values. The Russell 1000 is an
unmanaged index that measures the performance of the 1,000 largest
companies in the Russell 3000(R) Index, which, in turn, is an unmanaged
index that includes the 3,000 largest U.S. companies based on total
market capitalization. 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> 500
Portfolio Management Discussion and Analysis
Value equity investors faced a variety of challenges in 1999. While commodity
and industrial fundamentals strengthened, the market appeared indifferent to
these developments. Strong earnings performance in traditional value sectors
such as basic materials, energy, and utilities was largely overshadowed by the
market's focus on technology stocks and large-cap growth companies.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Equity Income Fund returned
25.11% for Class A shares and 24.16% for Class B and Class C shares, excluding
all sales charges. All share classes outperformed the 7.35% return of the
Russell 1000(R) Value Index(1) for 1999. All share classes strongly outperformed
the 3.34% return of the average Lipper(2) equity income fund, with Class A
shares ranking in the top 1% and Class B and Class C shares ranking in the top
3% of a peer group consisting of 219 equity income funds. The Fund's
outperformance was largely due to careful security selection and identification
of key valuation drivers in energy and other market sectors throughout 1999.
Perhaps the most important decision that influenced the Fund's performance was
made in the late winter months of 1999. Following a precipitous drop in
crude-oil and natural-gas prices, OPEC members set aside differences and agreed
to curtail supply. This event combined with reduced natural-gas drilling
activity in the United States at a time when global monetary easing was helping
to ensure that demand would strengthen. We decided to take advantage of lower
energy-stock prices for the Fund, anticipating a dramatic turnaround. Our strong
commitment to the energy sector proved beneficial, with Kerr-McGee, Columbia
Energy, YPF Sociedad Anonima, Devon Energy, and Union Pacific Resources all
contributing materially to the Fund's strong performance.
Another strong performer was Callaway Golf, a golf equipment manufacturer that
we purchased for the Fund during the summer months as investors questioned the
efficacy of the company's restructuring. Careful due diligence gave us
confidence in the company's financial and operational outlook, and based on the
stock's weighting and total return, the position was the strongest contributor
to the Fund's positive performance in 1999.
Illinova Corporation is a Midwestern utility that agreed to merge with Dynegy
Corp. in a synergistic transaction that combined strengths in energy marketing
with excellent generation of assets. The Fund is receiving shares in the
combined company and the position was the Fund's second-strongest performer in
1999 in light of its strong return and weighting in the portfolio.
Fluor Corporation's main business units in engineering, construction, and coal
production were all poised to benefit from improving fundamentals, even as
- -------
(1) See footnote on page 5 for more information on the Russell 1000(R) Value
Index.
(2) See footnote and table on page 9 for more information on Lipper Inc.
6|
<PAGE> 501
YEAR-BY-YEAR PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B & CLASS C
[BAR GRAPH] ------- -----------------
<S> <C> <C>
12/98 4.01 3.56
12/99 25.11 24.16
</TABLE>
the price declined late in the first quarter and early in the second quarter of
1999. Recognizing the company's restructuring potential, we built a large
position that was among the Fund's strongest-performing holdings when investors
returned to the stock as the year progressed.
Of course, not all of the Fund's positions had positive results. Despite
compelling valuations, Philip Morris continued to suffer from tobacco litigation
concerns and was the Fund's worst-performing stock. The Fund has retained a
small position and will monitor the situation before increasing exposure.
Allstate Corporation faced an earnings shortfall that caused it to underperform
the market, despite the stock's high yield and the company's strong asset value
and active restructuring. We maintain a modest position in the stock, which
detracted from the Fund's performance in 1999. The Fund also held various
electric utilities and real estate investment trusts that underperformed the
market in 1999, as many investors gravitated away from defensive issues and
toward stocks with stronger growth potential.
WEIGHTED FOR THE FUTURE
Anticipating a robust worldwide economic environment in 2000, we continue to
overweight the Fund in energy stocks, with oil and gas producers accounting for
17.6% of the Fund's portfolio as of December 31, 1999. Refining stocks, at 6.8%
of the portfolio at year-end, are also poised to benefit from shifting
supply-and-demand dynamics. Just as OPEC producers cut back production when
profitability suffered, refiners have gradually reduced runs just as demand has
accelerated around the world. As of late December 1999, inventories of refined
products stood at five-year lows--even lower on a days-of-demand basis.
|7
<PAGE> 502
Barring another unseasonably warm winter, margins should improve substantially
over the next several months, pushing the price of refining stocks higher.
We believe that stronger demand may be a key driver for three other groups in
which the Fund is overweighted: chemicals (17%), capital goods (8.5%), and
metals (4.5%). In each case, we have sought companies with a positive
supply/demand outlook. Examples include Air Products and Chemicals, Phelps-
Dodge (copper), and CNH Global NV (farm equipment). By focusing on companies
with low valuations and high dividend yields, we seek to preserve capital if the
expansion we anticipate fails to materialize.
The Fund has also strongly overweighted electric and gas utilities (17.2%) for
their combination of low valuations and competitive dividend yields. The Fund's
real estate investment trust holdings are primarily focused on health care and
may benefit if investors seek more defensive names during the coming year.
High valuations and unfavorable fundamentals led us to underweight the Fund in
consumer staples (3.3%) and health care products (1.4%). As valuations continued
to drop, however, we have added positions in Heinz, Becton Dickinson, and
ConAgra, all of which may benefit from leadership in their respective markets.
We have also underweighted the Fund in financial stocks (2%), which have
suffered in a rising rate environment. This proved beneficial for the Fund's
performance throughout 1999.
LOOKING AHEAD
The Fund currently favors economically sensitive value sectors and out-of-favor
mid-cap stocks. We continue to seek stocks at historically low valuations with
strong dividend yields, focusing on issues that offer attractive total return
potential and may provide a measure of downside protection in today's highly
volatile market environment.
Perhaps the biggest risk to the portfolio would be a rapid decline in domestic
or overseas economies in 2000. While we do not view this as likely, monetary
policy decisions could derail economic growth if interest rates rise too far or
too fast. Given the recent and dramatic rise in NASDAQ stocks, we believe a
material sell-off could negatively impact the broader stock market.
No matter what the economy or the markets may bring, the Fund will continue to
seek to realize maximum long-term total return from a combination of capital
appreciation and income.
Michael C. Sheridan
Richard A. Rosen
Portfolio Managers
MacKay Shields LLC
Past performance is
no guarantee of
future results.
8|
<PAGE> 503
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 25.11% 18.05%
Class B 24.16% 17.17%
Class C 24.16% 17.17%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 18.23% 13.92%
Class B 19.16% 14.86%
Class C 23.16% 17.17%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 2 out of 219 funds 4 out of 211 funds
Class B 5 out of 219 funds 10 out of 211 funds
Class C 5 out of 219 funds 11 out of 216 funds
Average Lipper
equity income fund 3.34% 3.50%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.81 $0.2209 $0.7443
Class B $11.78 $0.1463 $0.7443
Class C $11.78 $0.1463 $0.7443
</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.
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. 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 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
|9
<PAGE> 504
MainStay Equity Income Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.1%)+
CHEMICALS (16.8%)
Air Products and Chemicals,
Inc. ........................... 44,000 $ 1,476,750
Arch Chemicals, Inc. ............ 22,500 471,094
CK Witco Corp. .................. 70,000 936,250
Cytec Industries Inc. (a)........ 43,000 994,375
Eastman Chemical Co. ............ 38,000 1,812,125
Geon Co. (The)................... 12,000 390,000
Olin Corp. ...................... 33,600 665,700
Solutia Inc. .................... 35,400 546,487
-----------
7,292,781
-----------
CONTAINERS (1.0%)
Owens-Illinois, Inc. (a)......... 18,000 451,125
-----------
ELECTRIC POWER COMPANIES (14.5%)
Allegheny Energy, Inc. .......... 14,000 377,125
Cinergy Corp. ................... 27,600 665,850
DTE Energy Co. .................. 14,600 458,075
Energy East Corp. ............... 13,400 278,888
Illinova Corp. .................. 50,000 1,737,500
Niagara Mohawk Holdings, Inc.
(a)............................. 45,000 627,187
PECO Energy Co. ................. 21,000 729,750
SCANA Corp. ..................... 20,000 537,500
ScottishPower PLC ADR (b)........ 15,080 422,240
Texas Utilities Co. ............. 13,400 476,538
-----------
6,310,653
-----------
ENGINEERING & CONSTRUCTION (3.7%)
Fluor Corp. ..................... 35,300 1,619,388
-----------
FINANCE (2.2%)
American General Corp. .......... 7,500 569,062
ASA Ltd. ........................ 20,000 378,750
-----------
947,812
-----------
FOOD (2.2%)
ConAgra, Inc. ................... 25,000 564,062
Heinz (H.J.) Co. ................ 10,000 398,125
-----------
962,187
-----------
HEALTH CARE--MEDICAL PRODUCTS (1.4%)
Becton, Dickinson & Co. ......... 23,000 615,250
-----------
HEAVY DUTY TRUCKS (1.5%)
Dana Corp. ...................... 6,300 188,606
Navistar International Corp.
(a)............................. 10,100 478,488
-----------
667,094
-----------
- --------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
INSURANCE (0.6%)
Allstate Corp. (The)............. 9,800 $ 235,200
-----------
LEISURE TIME (3.2%)
Callaway Golf Co. ............... 78,500 1,388,469
-----------
MACHINERY (3.6%)
AGCO Corp. ...................... 44,000 591,250
Caterpillar Inc. ................ 12,800 602,400
CNH Global N.V................... 28,500 379,406
-----------
1,573,056
-----------
MANUFACTURING (0.7%)
Hillenbrand Industries, Inc. .... 10,000 316,875
-----------
METALS--MINING (2.8%)
Phelps Dodge Corp. .............. 18,200 1,221,675
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (3.6%)
Coastal Corp. (The).............. 13,000 460,688
Columbia Energy Group............ 10,600 670,450
Equitable Resources, Inc. ....... 12,600 420,525
-----------
1,551,663
-----------
OIL & GAS SERVICES (14.0%)
Burlington Resources Inc. ....... 20,000 661,250
Devon Energy Corp. .............. 39,991 1,314,704
Union Pacific Resources Group
Inc. ........................... 172,200 2,195,550
Valero Energy Corp. ............. 95,300 1,894,088
-----------
6,065,592
-----------
OIL--INTEGRATED DOMESTIC (6.5%)
Ashland Inc. .................... 10,000 329,375
Conoco Inc.--Class B............. 23,000 572,125
Kerr-McGee Corp. ................ 10,600 657,200
Sunoco, Inc. .................... 30,000 705,000
USX-Marathon Group............... 21,600 533,250
-----------
2,796,950
-----------
OIL--INTEGRATED INTERNATIONAL (2.7%)
ENI Spa PLC ADR (b).............. 14,000 771,750
Texaco Inc. ..................... 7,200 391,050
-----------
1,162,800
-----------
PAPER & FOREST PRODUCTS (1.1%)
Georgia-Pacific Corp. ........... 9,700 492,275
-----------
RAILROADS (0.9%)
Burlington Northern Santa Fe
Corp. .......................... 16,600 402,550
-----------
</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.
10|
<PAGE> 505
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT/MANAGEMENT (3.7%)
Developers Diversified Realty
Corp. .......................... 20,000 $ 257,500
Health Care Property Investors,
Inc. ........................... 15,500 370,062
Healthcare Realty Trust, Inc. ... 22,500 351,563
Highwoods Properties, Inc. ...... 13,800 320,850
Nationwide Health Properties,
Inc. ........................... 23,400 321,750
-----------
1,621,725
-----------
RETAIL (0.7%)
Payless ShoeSource, Inc. (a)..... 6,000 282,000
-----------
STEEL (1.7%)
USX--U.S. Steel Group............ 22,000 726,000
-----------
TOBACCO (1.1%)
Philip Morris Cos. Inc. ......... 19,500 452,156
-----------
TOYS (0.9%)
Hasbro, Inc. .................... 20,000 381,250
-----------
Total Common Stocks (Cost
$38,706,314).................... 39,536,526
-----------
PREFERRED STOCKS (1.5%)
PAPER & FOREST PRODUCTS (0.8%)
International Paper Co.
5.25%........................... 6,000 327,000
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (0.7%)
General Growth Properties, Inc.
7.25%, 7/15/08 (c).............. 16,000 320,000
-----------
Total Preferred Stocks
(Cost $686,500)................. 647,000
-----------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.9%)
COMMERCIAL PAPER (8.9%)
Associates Corp. of North America
4.00%, due 1/3/00............... $1,385,000 $ 1,384,692
Ford Motor Credit Co.
4.50%, due 1/10/00.............. 1,500,000 1,498,312
General Electric Capital Corp.
5.25%, due 1/25/00.............. 1,000,000 996,499
-----------
Total Short-Term Investments
(Cost $3,879,503)............... 3,879,503
-----------
Total Investments
(Cost $43,272,317) (d).......... 101.5% 44,063,029(e)
Liabilities in Excess of Cash,
and Other Assets................ (1.5) (671,746)
----- ---------
Net Assets 100.0% $43,391,283
===== =========
</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 $43,334,110.
(e) At December 31, 1999, net unrealized appreciation was $728,919, 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 $3,425,629 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,696,710.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|11
<PAGE> 506
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$43,272,317).............................................. $44,063,029
Cash........................................................ 4,804
Receivables:
Fund shares sold.......................................... 479,631
Dividends and interest.................................... 101,418
Unamortized organization expense............................ 46,141
-----------
Total assets........................................ 44,695,023
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,172,409
MainStay Management....................................... 45,680
NYLIFE Distributors....................................... 23,517
Transfer agent............................................ 9,374
Custodian................................................. 6,258
Fund shares redeemed...................................... 5,098
Trustees.................................................. 303
Accrued expenses............................................ 41,101
-----------
Total liabilities................................... 1,303,740
-----------
Net assets.................................................. $43,391,283
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 15,883
Class B................................................... 20,200
Class C................................................... 699
Additional paid-in capital.................................. 41,737,477
Accumulated undistributed net realized gain on
investments............................................... 826,312
Net unrealized appreciation on investments.................. 790,712
-----------
Net assets.................................................. $43,391,283
===========
CLASS A
Net assets applicable to outstanding shares................. $18,764,395
===========
Shares of beneficial interest outstanding................... 1,588,299
===========
Net asset value per share outstanding....................... $ 11.81
Maximum sales charge (5.50% of offering price).............. 0.69
-----------
Maximum offering price per share outstanding................ $ 12.50
===========
CLASS B
Net assets applicable to outstanding shares................. $23,802,958
===========
Shares of beneficial interest outstanding................... 2,020,019
===========
Net asset value and offering price per share outstanding.... $ 11.78
===========
CLASS C
Net assets applicable to outstanding shares................. $ 823,930
===========
Shares of beneficial interest outstanding................... 69,925
===========
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> 507
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 821,328
Interest.................................................. 156,507
----------
Total income............................................ 977,835
----------
Expenses:
Management................................................ 190,667
Distribution--Class B..................................... 96,393
Distribution--Class C..................................... 2,169
Transfer agent............................................ 85,277
Registration.............................................. 36,911
Service--Class A.......................................... 35,241
Service--Class B.......................................... 32,131
Service--Class C.......................................... 723
Professional.............................................. 23,590
Custodian................................................. 22,573
Shareholder communication................................. 21,706
Recordkeeping............................................. 13,643
Amortization of organization expense...................... 13,490
Trustees.................................................. 786
Miscellaneous............................................. 18,492
----------
Total expenses before reimbursement..................... 593,792
Expense reimbursement by Manager............................ (45,799)
----------
Net expenses............................................ 547,993
----------
Net investment income....................................... 429,842
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 2,946,162
Net change in unrealized appreciation/depreciation on
investments............................................... 795,505
----------
Net realized and unrealized gain on investments............. 3,741,667
----------
Net increase in net assets resulting from operations........ $4,171,509
==========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Dividends recorded net of foreign withholding taxes of $5,304.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|13
<PAGE> 508
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998*
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 429,842 $ 73,306
Net realized gain on investments.......................... 2,946,162 526,098
Net change in unrealized appreciation/depreciation on
investments............................................. 795,505 (4,793)
----------- -----------
Net increase in net assets resulting from operations...... 4,171,509 594,611
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (269,644) (70,639)
Class B................................................. (171,600) (14,420)
Class C................................................. (3,987) (1)
From net realized gain on investments:
Class A................................................. (1,093,105) (73,706)
Class B................................................. (1,397,249) (28,837)
Class C................................................. (50,299) (2)
----------- -----------
Total dividends and distributions to shareholders..... (2,985,884) (187,605)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 7,269,510 9,963,096
Class B................................................. 23,104,511 4,192,218
Class C................................................. 1,014,522 300
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 1,141,978 79,421
Class B................................................. 1,489,350 38,060
Class C................................................. 49,257 3
----------- -----------
34,069,128 14,273,098
Cost of shares redeemed:
Class A................................................. (1,266,462) (15,950)
Class B................................................. (4,859,157) (207,914)
Class C................................................. (194,090) (1)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 27,749,419 14,049,233
----------- -----------
Net increase in net assets............................ 28,935,044 14,456,239
NET ASSETS:
Beginning of period......................................... 14,456,239 --
----------- -----------
End of period............................................... $43,391,283 $14,456,239
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ -- $ 3,420
=========== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
* 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> 509
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
----------------------------- ----------------------------- -----------------------------
June 1* June 1* September 1**
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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............. 0.22 0.07 0.15 0.04 0.15 0.04
Net realized and
unrealized gain on
investments........ 2.30 0.32 2.28 0.31 2.28 1.25
------- ------- ------- ------- ------- -------
Total from investment
operations......... 2.52 0.39 2.43 0.35 2.43 1.29
------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment
income............. (0.22) (0.07) (0.15) (0.04) (0.15) (0.04)
From net realized
gain on
investments........ (0.74) (0.07) (0.74) (0.07) (0.74) (0.07)
------- ------- ------- ------- ------- -------
Total dividends and
distributions...... (0.96) (0.14) (0.89) (0.11) (0.89) (0.11)
------- ------- ------- ------- ------- -------
Net asset value at
end of period...... $ 11.81 $ 10.25 $ 11.78 $ 10.24 $ 11.78 $ 10.24
======= ======= ======= ======= ======= =======
Total investment
return (a)......... 25.11% 4.01% 24.16% 3.56% 24.16% 14.30%
Ratios (to average
net assets)
Supplemental Data:
Net investment
income......... 1.94% 1.20%+ 1.19% 0.45%+ 1.19% 0.45%+
Net expenses..... 1.65% 3.11%+ 2.40% 3.86%+ 2.40% 3.86%+
Expenses (before
reimbursement).. 1.82% 3.11%+ 2.57% 3.86%+ 2.57% 3.86%+
Portfolio turnover
rate............... 193% 270% 193% 270% 193% 270%
Net assets at end of
period (in
000's)............. $18,764 $10,290 $23,803 $ 4,166 $ 824 $ --(b)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** Class C shares were first offered on September 1, 1998.
+ Annualized.
Total return is calculated exclusive of sales charges and is
(a) 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> 510
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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 total 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.
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
16|
<PAGE> 511
Notes to Financial Statements
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 Fund's 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 Fund's subadvisor, whose prices
reflect broker/dealer supplied valuations and electronic data processing
techniques if those prices are deemed by the Fund's 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 Fund's 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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
ORGANIZATION 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
|17
<PAGE> 512
MainStay Equity Income Fund
from generally accepted accounting principles. These "book/tax differences" are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal tax basis treatment; temporary
differences do not require reclassification. Permanent book-tax differences of
$11,969 and $13,490 are decreases to accumulated net investment loss and
additional paid-in capital, respectively. In addition, accumulated undistributed
net realized gain on investments has been increased by $1,521. These book-tax
differences are due primarily to the tax treatment of income earned from Real
Estate Investment Trusts.
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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year ended December
31, 1999, the Manager earned $190,667 and reimbursed the Fund $45,799.
18|
<PAGE> 513
Notes to Financial Statements (continued)
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, 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 $6,265 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $18,309 and $514, respectively, for the year ended December 31, 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 year ended December 31, 1999
amounted to $85,277.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $10,629,000, which represents 56.6% of the Class A net assets at
year end.
|19
<PAGE> 514
MainStay Equity Income 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 $590 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$13,643 for the year ended December 31, 1999.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $71,657 and $48,092, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998* THROUGH
DECEMBER 31, 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............................... 598 1,887 82 998 424 --
Shares issued in reinvestment of dividends
and distributions....................... 101 132 4 8 4 --
---- ----- --- ----- --- --
699 2,019 86 1,006 428 --
Shares redeemed........................... (115) (406) (16) (2) (21) --
---- ----- --- ----- --- --
Net increase.............................. 584 1,613 70 1,004 407 --(a)
==== ===== === ===== === ==
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
20|
<PAGE> 515
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Equity Income Fund (one of
the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
|21
<PAGE> 516
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 517
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN20-02/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay
Equity Income Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 518
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$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 3
Management Discussion and Analysis 5
Year-by-Year Performance 6
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
Report of Independent Accountants 25
The MainStay Funds 26
</TABLE>
<PAGE> 519
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
+ Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
2|
<PAGE> 520
The disclosure and footnotes on the following page are an integral part of these
graphs and should be carefully read in conjunction with them.
$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 12.84%, Since Inception -3.60%
<TABLE>
<CAPTION>
J.P.MORGAN EMERGING MARKETS
CLASS A BOND INDEX*
------- ---------------------------
<S> <C> <C>
6/1/98 9550 10000
6/98 9273 9711
9/98 7066 7649
12/98 7986 8408
3/99 8250 8834
6/99 8429 9297
9/99 8597 9409
12/99 9435 10593
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 12.01%, Since Inception -4.19%
<TABLE>
<CAPTION>
J.P.MORGAN EMERGING MARKETS
CLASS B BOND INDEX*
------- ---------------------------
<S> <C> <C>
6/1/98 10000 10000
6/98 9700 9711
9/98 7369 7649
12/98 8318 8408
3/99 8588 8834
6/99 8359 9297
9/99 8484 9409
12/99 9344 10593
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 16.01%, Since Inception -1.69%
<TABLE>
<CAPTION>
J.P.MORGAN EMERGING MARKETS
CLASS C BOND INDEX*
------- ---------------------------
<S> <C> <C>
6/1/98 10000 10000
6/98 9700 9711
9/98 7369 7649
12/98 8318 8408
3/99 8588 8834
6/99 8759 9297
9/99 8884 9409
12/99 9733 10593
</TABLE>
3
-
<PAGE> 521
- -------
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 figures 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 12/31/99, the EMBI
included thirty issues with a total face value of $103.5 billion and a
market capitalization of $74.6 billion. An investment cannot be made
directly into an index.
4
<PAGE> 522
Management Discussion and Analysis
Emerging markets entered 1999 still reeling from financial difficulties in Asia
and the devaluation of the Russian ruble. In January 1999, global economic woes
spread to Brazil, where the real was also devalued. Fortunately, quick action by
the Brazilian government helped restore confidence, and initial concerns about
economic collapse and hyperinflation were essentially put to rest. Brazil's 1999
inflation rate was below 10% and the economy has started to grow again.
The second and third quarters of 1999 were dominated by positive events in Asia
and a recovery in Russian debt, despite a de facto default on Soviet-era loans.
The South Korean economy started to show signs of a recovery in late 1998, and
by mid-1999, improvements in the economy, the government's fiscal position, and
the currency (the won) all helped return the country's debt rating to investment
grade. After a shaky start, Russian debt as measured by the J.P. Morgan EMBI
Index(1) returned 33.9% for 1999, making it the best-performing emerging debt
market.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Global High Yield Fund
returned 18.15% for Class A shares and 17.01% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the 24.51% return
of the average Lipper(2) emerging markets debt fund and the 25.97% return of the
J.P. Morgan Emerging Markets Bond Index. The Fund's underperformance was largely
due to being underweighted in Brazilian and Russian bonds, which made dramatic
comebacks during the course of the year.
RECOVERING MARKETS
Following the difficulties Brazil faced in 1998, we intentionally underweighted
the Fund in Brazilian bonds early in 1999. Armenio Fraga was appointed as head
of the nation's central bank and strict measures were initiated to seek to
improve the country's financial position. The market reacted quickly and
positively to these developments. Because the Fund was underweighted in Brazil,
the rapid turnaround had a negative impact on the Fund's performance,
particularly in the first quarter of 1999. Even so, two of the Fund's Brazilian
positions were stellar performers. Republic of Brazil FRN bonds, due April 15,
2014, returned 38.4% for the year, and Republic of Brazil 10 1/8% bonds, due May
15, 2027, returned 42.8% in 1999, helping to boost the Fund's performance.
Our strategy in Russia also carried a conservative bias. Focusing on the dire
economic and political situation in the country following the ruble's
devaluation and the government's decision to stop servicing Soviet-era debt, we
shied away
- -------
(1) See footnote on page 4 for more information on the J.P. Morgan EMBI Index.
(2) See footnote and table on page 9 for more information on Lipper Inc.
5
-
<PAGE> 523
YEAR-BY-YEAR PERFORMANCE
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
------- -------------------
<S> <C> <C>
12/98 -16.38 -16.82
12/99 18.15 17.01
</TABLE>
from Russian bonds in the Fund. With increasing foreign exchange reserves,
rising oil prices, and improving political and economic conditions, the Fund
reentered the Russian market in the fourth quarter of 1999. By year-end, Russian
bonds were offering yields greater than 20%, making them extremely attractive
relative to alternative investments. While Russian bonds contributed positively
to the Fund's performance, the Fund's late reentry into this market hurt its
performance relative to its peers.
The Fund's Korean debt exposure also contributed positively to performance as
the country's fundamentals and debt rating improved. Based on the J.P. Morgan
EMBI+,(3) Korean debt yield spreads contracted dramatically in 1999, with Korean
bonds denominated in U.S. dollars declining from 362 basis points over U.S.
Treasuries at the beginning of the year to just 142 basis points at year-end.
This contraction was positive for investors, although we reduced the Fund's
Korean position to pursue more attractive opportunities elsewhere in Asia and
Latin America.
OTHER LATIN MARKETS
Argentina elected De La Rua, an opposition party candidate, but still has a long
way to go in solving the country's financial problems, including a mounting
budget deficit. We anticipate that the new administration may receive
considerable assistance from the International Monetary Fund and are maintaining
both corporate and government positions in the country at what we believe are
attractive yields.
In Mexico, the first-ever Institutional Revolutionary Party (PRI) presidential
primary was held without incident, signaling that the country's economic
- -------
(3) The J.P. Morgan Emerging Markets Bond Index Plus (EMBI+) tracks total
returns for traded external debt instruments in the emerging markets. The
instruments include external-currency- denominated Brady bonds, loans, and
Eurobonds, as well as U.S.-dollar local markets instruments. The EMBI+
expands upon Morgan's original Emerging Markets Bond Index, which was
introduced in 1992 and covers only Brady bonds. An investment cannot be made
directly into an index.
6
<PAGE> 524
reforms are increasing democracy and transparency in the political process. We
believe these events are prerequisites for Mexico to achieve investment-grade
status. Through much of 1999, the Fund remained overweighted in Mexican
sovereign and corporate credits, both of which contributed positively to
performance. Believing that utilities, media, and communications would be top
performers, we bought and held the bonds of a Mexican direct TV company called
Innova, which returned 47.5% for the year. Even with this gain, we believe there
is more upside potential in this credit going into 2000.
Despite the negative impact of a natural disaster, Venezuela's economy has been
strengthened by rising oil prices and the passage of a new constitution.
Venezuela is also the only Latin country that has continued to retire debt
instead of adding to it. For the year, Venezuelan debt rose 30% as measured by
the J.P. Morgan EMBI Index.
OTHER FUND INVESTMENTS
Turkey suffered from devastating earthquakes in 1999, but the government has
managed to stay the course of economic and fiscal reform. The Fund continues to
hold Turkish bonds, anticipating progress in talks with the IMF and European
Union membership.
In the second half of 1999, we added less-well-known emerging-market sovereign
and corporate names to the Fund. In India, we added Reliance Industries, whose
dominant position in petrochemicals and textiles makes it one of the strongest
credits on the subcontinent. If India receives a credit upgrade in the coming
year, which we believe is possible, the company's bonds may be upgraded as well.
With political and economic turmoil subsiding in Indonesia, we added two
corporate credits to the Fund's portfolio. Indah Kiat, a paper and pulp company,
should begin to generate substantial free cash flow, which it intends to use to
retire debt. Although we only purchased the bonds in November, by year-end they
had already returned 11%. Freeport McMoran is a U.S. company that operates the
largest copper and gold mine in Indonesia, making it one of the nation's largest
employers and taxpayers, which may help insulate the company from political
instability. The company's bonds were purchased in December 1999 and we
anticipate that they will make a positive contribution to Fund performance in
2000.
In Malaysia, we purchased Petronas bonds for the Fund. Petronas is an
oil/commodities holding that should benefit from economic improvements in Japan
and Korea. Although there are many risk factors involved with foreign
investments, these bonds face little currency risk, as much of the company's
balance sheet is in U.S. dollars.
7
-
<PAGE> 525
LOOKING AHEAD
We expect positive performance from Brazil and believe the country may
outperform its Latin peers in 2000. "Exotic" bonds (bonds of considerably less-
developed markets) may perform well based on attractive yield spreads, but if
new issuance is strong early in 2000, it could detract from the performance of
more-established credits. Among corporate bonds, we continue to favor
commodities companies, specifically oil and paper names that have been
generating significant cash flows. We also see potential in media and
communications, as this persistent established-market theme spills over into
emerging economies.
While concerns over U.S. Federal Reserve rate hikes will affect emerging
markets, we believe much of that has already been reflected in bond pricing.
Whatever the global economy and individual 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.
Joseph Portera
Maureen McFarland
Portfolio Managers
MacKay Shields LLC
TARGETED DIVIDEND POLICY
The MainStay Global High Yield Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. Since the Fund's portfolio
managers did not engage in additional trading to accommodate dividend
payments, the Fund's portfolio turnover rate and transaction costs were not
affected by its targeted dividend policy.
Past performance is
no guarantee of
future results.
8
- -
<PAGE> 526
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 18.15% -0.76%
Class B 17.01% -1.69%
Class C 17.01% -1.69%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 12.84% -3.60%
Class B 12.01% -4.19%
Class C 16.01% -1.69%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 42 out of 26 out of
53 funds 51 funds
Class B 47 out of 28 out of
53 funds 51 funds
Class C 47 out of 42 out of
53 funds 52 funds
Average Lipper emerging
markets debt fund 24.51% -2.37%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.58 $0.7878 $0.0000
Class B $8.54 $0.7238 $0.0000
Class C $8.54 $0.7238 $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. 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. 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 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 figures 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 12/31/99. 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 12/31/99.
Lipper returns and rankings are unaudited.
9
-
<PAGE> 527
MainStay Global High Yield Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
LONG-TERM BONDS (97.9%)+
BRADY BONDS (27.4%)
ARGENTINA (2.7%)
Republic of Argentina
Series FRB
6.8125%, due 3/31/05 (a)....... $ 352,000 $ 320,320
-----------
BRAZIL (11.9%)
Republic of Brazil
Series RG
6.9375%, due 4/15/06 (a)....... 629,800 553,437
Series 20 year
8.00%, due 4/15/14 (c)......... 1,164,682 872,055
-----------
1,425,492
-----------
BULGARIA (3.3%)
Republic of Bulgaria
Series A
6.50%, due 7/28/24 (a)......... 500,000 401,250
-----------
PERU (3.9%)
Republic of Peru
Series 20 year
3.75%, due 3/7/17 (d).......... 750,000 465,000
-----------
POLAND (2.9%)
Republic of Poland
Series PDIB
6.00%, due 10/27/14
7.00%, beginning 10/27/02...... 400,000 354,500
-----------
VENEZUELA (2.7%)
Republic of Venezuela
Series DL
7.00%, due 12/18/07 (a)........ 404,762 319,762
-----------
Total Brady Bonds
(Cost $2,928,634).............. 3,286,324
-----------
CORPORATE BONDS (11.7%)
BRAZIL (4.0%)
Cia Energetica Minas Gerais
9.125%, due 11/18/04 (b)....... 100,000 94,000
Companhia Paranaense de Energia
Series REGS
9.75%, due 5/2/05.............. 200,000 191,000
Trikem S.A.
Series REGS
10.625%, due 7/24/07........... 100,000 71,000
</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 $ 123,500
-----------
479,500
-----------
INDIA (0.8%)
Reliance Industries Ltd.
Series REGS
10.50%, due 8/6/46............. 100,000 95,000
-----------
INDONESIA (0.5%)
Indah Kiat Pulp & Paper Corp.
10.00%, due 7/1/07............. 88,000 65,120
-----------
MALAYSIA (2.4%)
Petroliam Nasional Berhad
Series REGS
7.125%, due 10/18/06........... 100,000 96,100
Series REGS
7.625%, due 10/15/26........... 100,000 88,500
8.875%, due 8/1/04 (b)......... 100,000 104,150
-----------
288,750
-----------
MEXICO (2.1%)
Conproca S.A.
12.00%, due 6/16/10 (b)........ 250,000 251,250
-----------
TURKEY (1.3%)
Cellco Finance N.V.
12.75%, due 8/1/05 (b)......... 150,000 155,437
-----------
UNITED STATES (0.6%)
Freeport - McMoRan Copper & Gold
Inc.
7.50%, due 11/15/06............ 100,000 73,250
-----------
Total Corporate Bonds
(Cost $1,363,541).............. 1,408,307
-----------
GOVERNMENTS & FEDERAL AGENCIES (39.4%)
ARGENTINA (7.7%)
Republic of Argentina
9.75%, due 9/19/27............. 805,000 724,500
11.75%, due 4/7/09............. 200,000 200,000
-----------
924,500
-----------
BRAZIL (11.9%)
Republic of Brazil
10.125%, due 5/15/27........... 450,000 387,000
11.625%, due 4/15/04 (g)....... 1,045,000 1,043,433
-----------
1,430,433
-----------
KOREA (0.9%)
Republic of Korea
8.875%, due 4/15/08............ 100,000 105,500
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
- -
<PAGE> 528
Portfolio of Investments* December 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
MEXICO (7.5%)
United Mexican States
Series XW
10.375%, due 2/17/09........... $ 850,000 $ 905,250
-----------
PANAMA (2.1%)
Republic of Panama
8.875%, due 9/30/27............ 300,000 253,200
-----------
PHILIPPINES (0.8%)
Republic of Philippines
8.875%, due 4/15/08............ 100,000 97,875
-----------
RUSSIA (1.7%)
Russian Federation
Series REGS
12.75%, due 6/24/28............ 300,000 200,250
-----------
TURKEY (1.3%)
Republic of Turkey
12.375%, due 6/15/09........... 150,000 160,875
-----------
VENEZUELA (5.5%)
Republic of Venezuela
9.25%, due 9/15/27............. 987,000 656,355
-----------
Total Governments & Federal
Agencies
(Cost $4,500,217).............. 4,734,238
-----------
LOAN PARTICIPATIONS (2.1%)
ALGERIA (1.4%)
Algeria
6.8125%, due 9/4/06 (a)(f)..... 150,000 116,250
Tranche A
7.50%, due 3/4/00 (a)(f)....... 50,000 49,500
-----------
165,750
-----------
MOROCCO (0.7%)
Morocco, Tranche A
6.9375%, due 1/1/09 (a)(f)..... 100,000 90,250
-----------
Total Loan Participations
(Cost $242,087)................ 256,000
-----------
YANKEE BONDS (17.3%)
ARGENTINA (1.3%)
Acindar Industria Argentina de
Aceros S.A.
11.25%, due 2/15/04............ 100,000 80,000
Mastellone Hermanos S.A.
11.75%, due 4/1/08............. 100,000 82,000
-----------
162,000
-----------
CHILE (2.1%)
Empresa Nacional de Electridad
S.A.
8.50%, due 4/1/09.............. $ 250,000 $ 248,750
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
LUXEMBOURG (1.4%)
Millicom International Cellular
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01....... 200,000 165,000
-----------
MEXICO (9.7%)
Azteca Holdings S.A.
11.00%, due 6/15/02............ 150,000 136,500
Grupo Elektra S.A. de C.V.
12.75%, due 5/15/01............ 80,000 79,200
Grupo Televisa S.A.
11.875%, due 5/15/06........... 100,000 106,500
Innova S. de R.L.
12.875%, due 4/1/07............ 200,000 179,000
Petroleos Mexicanos
Series P
9.50%, due 9/15/27............. 350,000 350,000
Telefonos de Mexico S.A.
4.25%, due 6/15/04 (e)......... 150,000 195,562
TV Azteca S.A. de C.V.
Series B
10.50%, due 2/15/07............ 145,000 125,788
-----------
1,172,550
-----------
PHILIPPINES (2.8%)
National Power Corp.
9.625%, due 5/15/28............ 370,000 333,925
-----------
Total Yankee Bonds
(Cost $2,078,562).............. 2,082,225
-----------
Total Investments
(Cost $11,113,041) (h)......... 97.9% 11,767,094(i)
Cash and Other Assets,
Less Liabilities............... 2.1 254,498
----- ---------
Net Assets...................... 100.0% $12,021,592
===== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
(a) Floating rate. Rate shown is the rate in effect at
December 31, 1999.
(b) May be sold to institutional investors only.
(c) CIK ("Cash in Kind") -- interest payment is made with
cash or additional securities.
(d) 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.
(e) Convertible bond.
(f) Restricted security.
(g) Represents security of which a portion is out on loan.
(See Note 2)
(h) The cost stated also represents the aggregate cost for
Federal income tax purposes.
(i) At December 31, 1999 net unrealized appreciation for
securities was $654,053, 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 $793,214
and aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $139,161.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
-
<PAGE> 529
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$11,113,041).............................................. $11,767,094
Cash........................................................ 157,355
Collateral held for securities loaned, at value (Note 2).... 520,958
Receivables:
Interest.................................................. 271,739
Fund shares sold.......................................... 2,251
Unamortized organization expense............................ 46,141
-----------
Total assets.............................................. 12,765,538
-----------
LIABILITIES:
Securities lending collateral (Note 2)...................... 520,958
Payables:
Investment securities purchased........................... 150,000
Mainstay Management....................................... 12,824
Custodian................................................. 5,471
NYLIFE Distributors....................................... 4,942
Transfer agent............................................ 4,489
Trustees.................................................. 91
Accrued expenses............................................ 45,171
-----------
Total liabilities......................................... 743,946
-----------
Net assets.................................................. $12,021,592
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 9,546
Class B................................................... 4,399
Class C................................................... 93
Additional paid-in capital.................................. 13,374,351
Accumulated net realized loss on investments................ (2,020,850)
Net unrealized appreciation on investments.................. 654,053
-----------
Net assets.................................................. $12,021,592
===========
CLASS A
Net assets applicable to outstanding shares................. $ 8,186,038
===========
Shares of beneficial interest outstanding................... 954,639
===========
Net asset value per share outstanding....................... $ 8.58
Maximum sales charge (4.50% of offering price).............. 0.40
-----------
Maximum offering price per share outstanding................ $ 8.98
===========
CLASS B
Net assets applicable to outstanding shares................. $ 3,756,415
===========
Shares of beneficial interest outstanding................... 439,859
===========
Net asset value and offering price per share outstanding.... $ 8.54
===========
CLASS C
Net assets applicable to outstanding shares................. $ 79,139
===========
Shares of beneficial interest outstanding................... 9,267
===========
Net asset value and offering price per share outstanding.... $ 8.54
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
- -
<PAGE> 530
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $1,211,400
----------
Expenses:
Management................................................ 75,244
Transfer agent............................................ 50,287
Shareholder communication................................. 33,409
Registration.............................................. 31,577
Distribution--Class B..................................... 23,327
Distribution--Class C..................................... 291
Professional.............................................. 22,840
Custodian................................................. 21,135
Service--Class A.......................................... 19,001
Service--Class B.......................................... 7,776
Service--Class C.......................................... 97
Amortization of organization expense...................... 13,490
Recordkeeping............................................. 12,001
Trustees.................................................. 200
Miscellaneous............................................. 11,941
----------
Total expenses before waiver and reimbursement.......... 322,616
Fees waived and reimbursed by Manager....................... (116,251)
----------
Net expenses............................................ 206,365
----------
Net investment income....................................... 1,005,035
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... (752,911)
Foreign currency transactions............................. 12,863
----------
Net realized loss on investments and foreign currency
transactions.............................................. (740,048)
----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... 1,565,860
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.............................................. 1,562,334
----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 822,286
----------
Net increase in net assets resulting from operations........ $1,827,321
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 531
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998*
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,005,035 $ 413,053
Net realized loss on investments.......................... (752,911) (1,272,491)
Net realized gain (loss) on foreign currency
transactions............................................ 12,863 (11,682)
Net change in unrealized depreciation on investments...... 1,565,860 (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.............................................. 1,827,321 (1,779,401)
----------- -----------
Dividends to shareholders:
From net investment income:
Class A................................................. (739,975) (321,589)
Class B................................................. (285,613) (89,012)
Class C................................................. (3,998) (142)
----------- -----------
Total dividends to shareholders....................... (1,029,586) (410,743)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 437,798 9,504,312
Class B................................................. 1,318,076 2,974,159
Class C................................................. 86,821 19,635
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 28,858 11,928
Class B................................................. 121,870 32,959
Class C................................................. 2,180 11
----------- -----------
1,995,603 12,543,004
Cost of shares redeemed:
Class A................................................. (377,473) (116,560)
Class B................................................. (459,094) (136,060)
Class C................................................. (15,448) (19,971)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 1,143,588 12,270,413
----------- -----------
Net increase in net assets............................ 1,941,323 10,080,269
NET ASSETS:
Beginning of period......................................... 10,080,269 --
----------- -----------
End of period............................................... $12,021,592 $10,080,269
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ -- $ 1,284
=========== ===========
</TABLE>
- -------
* 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> 532
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- -----------------------------
June 1* June 1* September 1**
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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....... 0.78 0.34(a) 0.71 0.32(a) 0.71 0.27(a)
Net realized and unrealized
gain (loss) on
investments................ 0.58 (1.99) 0.56 (2.01) 0.56 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................. 1.37 (1.66) 1.28 (1.70) 1.28 1.07
------- ------- ------- ------- ------- -------
Less dividends from net
investment income.......... (0.79) (0.34) (0.72) (0.32) (0.72) (0.27)
------- ------- ------- ------- ------- -------
Net asset value at end of
period..................... $ 8.58 $ 8.00 $ 8.54 $ 7.98 $ 8.54 $ 7.98
======= ======= ======= ======= ======= =======
Total investment return
(b)........................ 18.15% (16.38)% 17.01% (16.82)% 17.01% 14.99%
Ratios (to average net
assets)/
Supplemental Data:
Net investment income.... 9.57% 7.40%+ 8.82% 6.65%+ 8.82% 6.65%+
Net expenses............. 1.70% 3.39%+ 2.45% 4.14%+ 2.45% 4.14%+
Expenses (before waiver
and reimbursement)..... 2.78% 3.59%+ 3.53% 4.34%+ 3.53% 4.34%+
Portfolio turnover rate..... 104% 96% 104% 96% 104% 96%
Net assets at end of period
(in 000's)................. $ 8,186 $ 7,548 $ 3,756 $ 2,532 $ 79 $ --(c)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Annualized.
Per share data based on average shares outstanding during
(a) the period.
Total return is calculated exclusive of sales charges and is
(b) not annualized.
(c) 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> 533
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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 also be 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
16
- -
<PAGE> 534
Notes to Financial Statements
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.
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 Fund's subadvisor, whose prices reflect broker/dealer
supplied valuations and electronic data processing techniques if those prices
are deemed by the Fund's 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 Fund's 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 year-end to credit loss in the event of a counterparty's failure to
perform its obligations.
17
-
<PAGE> 535
MainStay Global High Yield Fund
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 December 31, 1999, the Fund had portfolio securities with a fair market value
of $499,250 on loan to broker-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 $31, net of broker fees and
rebates, for the year ended December 31, 1999, which is included as interest
income on the Statement of Operations.
Investments made with cash collateral at December 31, 1999:
<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group............................... 958 $ 958
REPURCHASE AGREEMENT
Morgan (J.P.) Securities Inc.
5.50%, due 1/3/00
(Collateralized by
$543,935 First Chicago NBD
6.1413%, due 9/5/00 Market Value $546,000)........... 520,000
--------
Total investments made with cash collateral................. $520,958
========
</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 (the "1933 Act").
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
18
- -
<PAGE> 536
Notes to Financial Statements (continued)
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.
<TABLE>
<CAPTION>
PERCENT
DATE(S) OF PRINCIPAL 12/31/99 OF
SECURITY ACQUISITION AMOUNT COST VALUE NET ASSETS
-------- ----------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Algeria
6.8125%, due 9/4/06.................... 8/13/99 $150,000 $103,497 $116,250 1.0%
Tranche A
7.50%, due 3/4/00...................... 7/15/99 50,000 49,553 49,500 0.4
Morocco, Tranche A
6.9375%, due 1/1/09.................... 11/30/99 100,000 89,037 90,250 0.7
-------- -------- ---
$242,087 $256,000 2.1%
======== ======== ===
</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.
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.
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
19
-
<PAGE> 537
MainStay Global High Yield Fund
from generally accepted accounting principles. These "book/tax differences" are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their Federal tax basis treatment; temporary
differences do not require reclassification. A permanent book/tax difference of
$23,267 is an increase to accumulated undistributed net investment income. In
addition, decreases of $4,552, $12,863 and $14,956 have been made to accumulated
net realized loss on investments, accumulated undistributed net realized gain on
foreign currency transactions, and additional paid-in capital, respectively.
These book/tax differences are due to certain expenses being non-deductible for
tax purposes and the tax treatment of foreign currency losses.
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 year. 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.
20
- -
<PAGE> 538
Notes to Financial Statements (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 year end exchange rates are reflected
in unrealized foreign exchange gains or losses.
CONCENTRATION. As of December 31, 1999, the Fund invested approximately 27.8%
of its net assets in issuers in Brazil. The issuers' abilities to meet their
obligations may be affected by economic or political developments in the
specific region or country.
Substantially all of the Fund's net assets consist of securities which are
subject to greater price volatility, limited capitalization and liquidity, and
higher rates of inflation than securities of companies based in the United
States. In addition, certain securities may be subject to substantial
governmental involvement in the economy and social, economic and political
uncertainty.
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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year ended December 31, 1999, the
Manager earned $75,244, which was waived, and reimbursed Fund expenses of
$41,007. The fees waived and reimbursed by the Manager total $116,251.
21
-
<PAGE> 539
MainStay Global High Yield Fund
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, 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 $182 for the year ended December
31, 1999. The Fund was also advised that the Distributor retained contingent
deferred sales charges on redemptions of Class B and Class C shares of $2,637
and $119, respectively, for the year ended December 31, 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 amounted to $50,287 for the year ended
December 31, 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.
22
- -
<PAGE> 540
Notes to Financial Statements (continued)
CAPITAL. At December 31, 1999, New York Life held shares of Class A and Class B
with net asset values of $7,722,000 and $854,000, respectively. This represents
94.3% and 22.7%, respectively, of the net assets at year 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 $280 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$12,001 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
At December 31, 1999, capital loss carryforwards of $954,715 and $1,058,635,
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 and 2007, respectively. 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
$7,500 of qualifying realized capital losses that arose during the year after
October 31, 1999 as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $11,856 and $10,539, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
23
-
<PAGE> 541
MainStay Global High Yield Fund
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
JUNE 1, 1998*
YEAR ENDED THROUGH
DECEMBER 31, 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............................... 55 163 11 957 331 3
Shares issued in reinvestment of
dividends............................... 4 15 --(a) 2 4 --
--- --- -- --- --- --
59 178 11 959 335 3
Shares redeemed........................... (48) (55) (2) (15) (18) (3)
--- --- -- --- --- --
Net increase.............................. 11 123 9 944 317 --(a)
=== === == === === ==
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
24
- -
<PAGE> 542
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Global High Yield Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
25
-
<PAGE> 543
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 544
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN21-02/00
RECYCLE.LOGO
[MAINSTAY FUNDS LOGO]
MainStay
Global High Yield Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS.LOGO]
<PAGE> 545
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, S&P 500 Index, and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Accountants 22
The MainStay Funds 23
</TABLE>
<PAGE> 546
This page intentionally left blank
2|
<PAGE> 547
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment
Company Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
|3
<PAGE> 548
$10,000 Invested in the MainStay Growth
Opportunities Fund versus Lipper Growth &
Income Funds Index, S&P 500 Index, and Inflation
CLASS A SHARES SEC Returns: 1 Year 22.54%, Since Inception 26.57%
<TABLE>
<CAPTION>
LIPPER GROWTH &
MAINSTAY GROWTH INCOME FUNDS
PERIOD END OPPORTUNITIES FUND INDEX* INFLATION (CPI)(++) S&P 500 INDEX(+)
- ---------- ------------------ --------------- ----------------- --------------
<S> <C> <C> <C> <C>
6/1/98 9450 10000 10000 10000
6/98 10055 10120 10006 10406
9/98 9308 8858 10043 9371
12/98 11208 10298 10098 11367
3/99 11765 10517 10135 11934
6/99 12644 11493 10209 12776
9/99 11907 10584 10313 11978
12/99 14533 11741 10368 13760
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 23.80%, Since Inception 28.03%
<TABLE>
<CAPTION>
LIPPER GROWTH &
MAINSTAY GROWTH INCOME FUNDS
PERIOD END OPPORTUNITIES FUND INDEX* INFLATION (CPI)(++) S&P 500 INDEX(+)
- ---------- ------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
6/1/98 10000 10000 10000 10000
6/98 10630 10120 10006 10406
9/98 9820 8858 10043 9371
12/98 11800 10298 10098 11367
3/99 12360 10517 10135 11934
6/99 12730 11493 10209 12776
9/99 11971 10584 10313 11978
12/99 14799 11741 10368 13760
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 27.80%, Since Inception 30.20%
<TABLE>
<CAPTION>
LIPPER GROWTH &
MAINSTAY GROWTH INCOME FUNDS
PERIOD END OPPORTUNITIES FUND INDEX* S&P 500 INDEX(+) INFLATION (CPI)(++)
- ---------- ------------------ --------------- --------------- ------------------
<S> <C> <C> <C> <C>
6/1/98 10000 10000 10000 10000
6/98 10630 10120 10406 10006
9/98 9820 8858 9371 10043
12/98 11800 10298 11367 10098
3/99 12360 10517 11934 10135
6/99 13260 11493 12776 10209
9/99 12470 10584 11978 10313
12/99 15199 11741 13760 10368
</TABLE>
4|
<PAGE> 549
- -------
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 figures 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 thirty
largest qualifying funds in the growth and income investment objective. An
investment cannot be made directly into an index.
(+) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P
500 is an unmanaged index and is widely regarded as the standard for
measuring large-cap U.S. stock market performance. 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> 550
Portfolio Management Discussion and Analysis
The U.S. equity market experienced its fifth consecutive year of double-digit
returns in 1999. Strong domestic economic growth and impressive corporate
earnings gains combined with modest inflation to positively influence the
market, sending equity valuations to historically high levels, despite rising
interest rates.
In retrospect, we believe that 1999 will be remembered as a year in which momen-
tum investing generated superior returns. Many investors continued to pay
increasingly higher prices for future earnings growth potential, while virtually
ignoring many relatively cheaper stocks with more stable earnings trends. This
environment created a favorable backdrop for new equity issues, the majority of
which came from the technology and Internet-related sectors. These new issues
received a good deal of media attention, as investors placed extreme valuations
on a small number of stocks with limited operating history.
PERFORMANCE REVIEW
For the twelve months ended December 31, 1999, the MainStay Growth Oppor-
tunities Fund returned 29.67% for Class A shares and 28.80% for Class B and
Class C shares, excluding all sales charges. All share classes outperformed the
average Lipper(1) large-cap core fund, which returned 22.31% during the same
period. All share classes outperformed the 21.04% return of the S&P 500
Composite Stock Price Index(2) for the same period.
It is worth noting that Lipper began a new classification system for all mutual
funds during the period. This Fund is now classified as a large-cap core fund
instead of a growth and income fund. Given the Fund's ability to invest across
both growth and value stocks, we believe such a reclassification provides more
meaningful comparative results. Our ability to reposition the Fund's blend of
value and growth stocks and shift the Fund's style emphasis during the year had
a positive impact on the Fund's performance, while helping us manage volatility.
STRATEGIC STYLE AND SECTOR ALLOCATION
The Fund entered 1999 with a strong growth bias. Early in March, however, we
began moving into some value-oriented stocks, as corporate earnings started to
come in ahead of expectations. The market maintained its value bias through mid-
June, when growth stocks, led by technology issues, reestablished their market
leadership. We moved the Fund's holdings back toward more growth-oriented
equities as soon as it became apparent that the market's move into traditional
value stocks was going to be short-lived, despite continued strong earnings
growth. While many investors may expect value stocks to outperform when earnings
are accelerating, we believed that the underlying growth trend in the technology
sector would enable that group to outpace traditional value stocks in this
cycle.
- -------
(1) See footnote and table on page 9 for more information on Lipper Inc.
(2) See footnote on page 5 for more information on the S&P 500(R) Index.
6|
<PAGE> 551
YEAR-BY-YEAR PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
Period End Total Return %
- ---------- --------------
<S> <C>
12/98 18.60
12/99 29.67
12/98 18.00
12/99 28.80
</TABLE>
Given this view, we moderately overweighted the Fund in technology, the market's
best-performing sector, through most of the year. Although Internet stocks
gathered most of the headlines in 1999, the Fund profited by investing primarily
in Internet-infrastructure companies that enabled the growth of this medium. We
also added to the Fund's positions in the semiconductor industry, where we saw
favorable supply/demand dynamics that we believe may remain in place throughout
the year 2000.
One of the Fund's best-performing holdings was Nortel Networks (+304%)(3), a
telecommunications equipment manufacturer that benefited from its ability to
offer integrated network solutions spanning data and telephony. Another strong
performer for the Fund was Sun Microsystems (+261%), a leading network
integration company that has been a major beneficiary of the ongoing growth in
servers. Texas Instruments (+126%) is a leading semiconductor manufacturer that
capitalized on the growth in digitalization. Finally, two companies that we
highlighted last year, EMC Corp. (+157%), the dominant provider of memory
storage for computers, and Cisco Systems (+130%), the preeminent provider of
networking and communications equipment, were once again among the Fund's
strongest performers in 1999.
One of the most interesting purchases we made for the Fund during the year was
Cendant, a franchisor and direct marketer. We bought the stock based upon the
company's attractive relative valuation and our expectation that the company's
well-publicized shareholder lawsuit would be favorably resolved. The Fund was
rewarded with a 34% return from the stock, as the lawsuit ended positively for
the company and Liberty Media made a $400 million investment in Cendant.
- -------
(3) Returns reflect performance for the one-year period ended 12/31/99.
|7
<PAGE> 552
Two of the worst performers in the Fund's portfolio were Kroger and Safeway,
both large supermarket operators, which suffered as investors turned their
attention to faster-growing industries. We sold the Fund's position in Safeway
in November. We continue to hold Kroger, believing that the market has
undervalued its future earnings growth potential. Impacted by rising interest
rates, Freddie Mac, the government-sponsored mortgage provider, was another poor
performer, despite strong earnings. Our most significant sale of the year was
Iridium World Communications, a satellite phone provider. Having sold the
position in February at about $25 per share, the prudence of our action was
proven when the company filed for bankruptcy later in 1999, rendering its stock
virtually worthless.
LOOKING AHEAD
We maintain a positive outlook for the year 2000. At the same time, however, we
believe that U.S. equity-market performance will likely be more moderate than in
the last few years. First, although inflation at the consumer level has remained
modest throughout the current economic expansion, any Federal Reserve action may
impact the market. Second, while we continue to believe in the role of
technology and the Internet over the long term, we are concerned about the
valuation parameters attached to many of these stocks. Eventually, these
companies will most likely be evaluated for their real earnings and
profitability and not solely on potential revenue growth. We intend to seek
companies that are early adapters of technology in all sectors, as we believe
they will be the greatest beneficiaries of the information revolution. We also
plan to remain attentive to valuations as we search for attractive growth stocks
trading at discounts to their true potential. 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 LLC
Past performance is no guarantee of future results.
8|
<PAGE> 553
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 29.67% 31.17%
Class B 28.80% 30.20%
Class C 28.80% 30.20%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 22.54% 26.57%
Class B 23.80% 28.03%
Class C 27.80% 30.20%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR THROUGH 12/31/99
<S> <C> <C>
Class A 55 out of 27 out of
376 funds 324 funds
Class B 65 out of 30 out of
376 funds 324 funds
Class C 65 out of 97 out of
376 funds 351 funds
Average Lipper
large-cap core 22.31% 22.01%
fund(++)
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $15.37 $0.0000 $0.0085
Class B $15.19 $0.0000 $0.0085
Class C $15.19 $0.0000 $0.0085
</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 figures 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 12/31/99. 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 12/31/99. Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999,
is reflected in this material.
|9
<PAGE> 554
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (87.0%)+
AEROSPACE/DEFENSE (1.1%)
United Technologies Corp. ....... 15,000 $ 975,000
-----------
ALUMINUM (0.9%)
Alcoa Inc. ...................... 9,000 747,000
-----------
BANKS (2.2%)
Bank of New York Co., Inc.
(The)........................... 16,000 640,000
Chase Manhattan Corp. (The)...... 10,000 776,875
Mellon Financial Corp. .......... 14,000 476,875
-----------
1,893,750
-----------
BEVERAGES (0.7%)
Anheuser-Busch Cos., Inc. ....... 9,000 637,875
-----------
BIOTECHNOLOGY (0.8%)
Genentech, Inc. (a).............. 5,000 672,500
-----------
BROADCAST/MEDIA (5.6%)
AMFM Inc. (a).................... 7,432 581,554
CBS Corp. (a).................... 17,000 1,086,937
Clear Channel Communications,
Inc. (a)........................ 4,000 357,000
Comcast Corp. Special Class A.... 24,000 1,213,500
MediaOne Group, Inc. (a)......... 10,000 768,125
USA Networks, Inc. (a)........... 15,000 828,750
-----------
4,835,866
-----------
CHEMICALS (1.3%)
Eastman Chemical Co. ............ 7,500 357,656
Praxair Inc. .................... 10,000 503,125
Rohm and Haas Co. ............... 7,200 292,950
-----------
1,153,731
-----------
COMMUNICATIONS--EQUIPMENT (10.4%)
ADC Telecommunications, Inc.
(a)............................. 14,000 1,015,875
Cisco Systems, Inc. (a).......... 15,000 1,606,875
General Motors Corp. Class H
(a)............................. 10,000 960,000
Lucent Technologies Inc. ........ 9,900 740,644
Nokia Corp. ADR (b).............. 8,000 1,520,000
Nortel Networks Corp. ........... 13,000 1,313,000
QUALCOMM Inc. (a)................ 5,200 915,850
Tellabs, Inc. (a)................ 14,000 898,625
-----------
8,970,869
-----------
COMPUTER SOFTWARE & SERVICES (5.0%)
ACNielsen Corp. (a).............. 20,000 492,500
America Online, Inc. (a)......... 14,000 1,056,125
Mercury Interactive Corp. (a).... 6,000 647,625
Microsoft Corp. (a).............. 7,000 817,250
- ----------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES
(CONTINUED)
Oracle Corp. (a)................. 4,600 $ 515,487
Quintus Corp. (a)................ 5,000 229,375
Yahoo! Inc. (a).................. 1,200 519,225
-----------
4,277,587
-----------
COMPUTER SYSTEMS (3.6%)
Comdisco Inc. ................... 19,000 707,750
Compaq Computer Corp. ........... 16,000 433,000
EMC Corp. (a).................... 8,000 874,000
Sun Microsystems, Inc. (a)....... 14,000 1,084,125
-----------
3,098,875
-----------
CONTAINERS (1.0%)
Smurfit-Stone Container Corp.
(a)............................. 35,000 857,500
-----------
COSMETICS/PERSONAL CARE (1.0%)
Avon Products, Inc. ............. 25,000 825,000
-----------
ELECTRIC POWER COMPANIES (0.5%)
Duke Energy Corp. ............... 8,000 401,000
-----------
ELECTRICAL EQUIPMENT (3.2%)
General Electric Co. ............ 10,000 1,547,500
SCI Systems, Inc. (a)............ 10,000 821,875
SPX Corp. (a).................... 5,000 404,062
-----------
2,773,437
-----------
ELECTRONICS--SEMICONDUCTORS
(8.2%)
Advanced Micro Devices, Inc. (a). 17,500 506,406
Applied Materials, Inc. (a)...... 8,000 1,013,500
Intel Corp. ..................... 10,000 823,125
Motorola, Inc. .................. 8,000 1,178,000
National Semiconductor Corp.(a).. 15,000 642,187
Novellus Systems, Inc. (a)....... 6,000 735,188
Rambus Inc. (a).................. 2,500 168,594
Texas Instruments Inc. .......... 12,000 1,162,500
Vitesse Semiconductor Corp.(a)... 16,000 839,000
-----------
7,068,500
-----------
ENTERTAINMENT (1.3%)
Time Warner Inc. ................ 15,000 1,086,563
-----------
FINANCE (3.5%)
American Express Co. ............ 5,000 831,250
American General Corp. .......... 11,000 834,625
Citigroup Inc. .................. 16,000 889,000
Freddie Mac...................... 10,000 470,625
-----------
3,025,500
-----------
FOOD (0.5%)
International Home Foods, Inc.
(a)............................. 24,000 417,000
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10|
<PAGE> 555
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD & HEALTH CARE DISTRIBUTORS (0.9%)
Sysco Corp. ..................... 20,000 $ 791,250
-----------
HEALTH CARE -- DRUGS (2.4%)
Glaxo Wellcome PLC ADR (b)....... 10,000 558,750
Lilly (Eli) & Co. ............... 13,000 864,500
SmithKline Beecham PLC ADR (b)... 10,000 644,375
-----------
2,067,625
-----------
HEALTH CARE--MEDICAL PRODUCTS (0.4%)
Guidant Corp. (a)................ 8,000 376,000
-----------
HEALTH CARE--MISCELLANEOUS (3.5%)
Amgen Inc. (a)................... 8,000 480,500
Bristol-Myers Squibb Co. ........ 11,000 706,063
Johnson & Johnson................ 8,000 745,000
Warner-Lambert Co. .............. 12,750 1,044,703
-----------
2,976,266
-----------
HOUSEHOLD PRODUCTS (1.2%)
Proctor & Gamble Co. (The)....... 9,000 986,063
-----------
INSURANCE (3.5%)
Allstate Corp. (The)............. 30,000 720,000
American International Group,
Inc. ........................... 5,250 567,656
Marsh & McLennan Cos., Inc. ..... 11,000 1,052,563
ReliaStar Financial Corp. ....... 18,000 705,375
-----------
3,045,594
-----------
LEISURE TIME (0.5%)
Mirage Resorts, Inc. (a)......... 30,000 459,375
-----------
MANUFACTURING--DIVERSIFIED (0.8%)
Honeywell International Inc. .... 12,000 692,250
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (1.4%)
Coastal Corp. (The).............. 13,500 478,406
Enron Corp. ..................... 16,000 710,000
-----------
1,188,406
-----------
OIL & GAS SERVICES (1.4%)
Halliburton Co. ................. 14,000 563,500
Schlumberger Ltd. ............... 10,000 562,500
Transocean Sedco Forex Inc. ..... 1,936 65,219
-----------
1,191,219
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL (2.9%)
BP Amoco PLC ADR (b)............. 5,292 $ 313,882
Chevron Corp. ................... 12,000 1,039,500
Exxon Mobil Corp. ............... 13,820 1,113,373
-----------
2,466,755
-----------
PAPER & FOREST PRODUCTS (0.4%)
Boise Cascade Corp. ............. 9,000 364,500
-----------
PUBLISHING (0.6%)
McGraw-Hill Cos., Inc. (The)..... 9,000 554,625
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (1.4%)
Duke-Weeks Realty Corp. ......... 25,000 487,500
First Industrial Realty Trust
Inc. ........................... 25,000 685,938
-----------
1,173,438
-----------
RETAIL (3.8%)
Circuit City Stores,
Inc.--Circuit City Group........ 20,000 901,250
Dayton Hudson Corp. ............. 10,000 734,375
Kroger Co. (The) (a)............. 30,000 566,250
Wal-Mart Stores, Inc. ........... 15,000 1,036,875
-----------
3,238,750
-----------
SPECIALIZED SERVICES (2.1%)
Cendant Corp. (a)................ 35,000 929,688
Young & Rubicam Inc. ............ 12,500 884,375
-----------
1,814,063
-----------
TELECOMMUNICATIONS (5.1%)
Allegiance Telecom, Inc. (a)..... 6,500 599,625
Deltathree.com, Inc. Class A
(a)............................. 5,000 128,750
Loral Space & Communications Ltd.
(a)............................. 35,000 850,937
MCI WorldCom, Inc. (a)........... 12,000 636,750
Qwest Communications
International Inc. (a).......... 25,000 1,075,000
Sprint Corp. (FON Group)......... 12,000 807,750
Sprint Corp. (PCS Group) (a)..... 1,250 128,125
Time Warner Telecom Inc. Class A
(a)............................. 2,500 124,844
-----------
4,351,781
-----------
TELEPHONE (3.2%)
ALLTEL Corp. .................... 10,000 826,875
Bell Atlantic Corp............... 12,000 738,750
GTE Corp......................... 4,000 282,250
SBC Communications Inc........... 17,792 867,360
-----------
2,715,235
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|11
<PAGE> 556
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TEXTILES--HOME FURNISHINGS (0.7%)
WestPoint Stevens Inc............ 35,000 $ 612,500
-----------
Total Common Stocks
(Cost $56,180,169).............. 74,783,248
-----------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENT (12.7%)
COMMERCIAL PAPER (12.7%)
FMC Corp. 1.40%, due 1/3/00...... $10,930,000 10,929,150
-----------
Total Short-Term Investment
(Cost $10,929,150).............. 10,929,150
-----------
Total Investments
(Cost $67,109,319) (c).......... 99.7% 85,712,398(d)
Cash and Other Assets,
Less Liabilities................ 0.3 245,163
----- -----------
Net Assets....................... 100.0% $85,957,561
===== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $67,107,128.
(d) At December 31, 1999, net unrealized appreciation was $18,605,270, 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 $19,968,614 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,363,344.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12|
<PAGE> 557
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$67,109,319).............................................. $85,712,398
Cash........................................................ 7,461
Receivables:
Fund shares sold.......................................... 360,244
Dividends and interest.................................... 41,501
Unamortized organization expense............................ 46,141
-----------
Total assets........................................ 86,167,745
-----------
LIABILITIES:
Payables:
NYLIFE Distributors....................................... 51,858
MainStay Management....................................... 49,857
Fund shares redeemed...................................... 35,475
Transfer agent............................................ 20,026
Custodian................................................. 6,221
Trustees.................................................. 541
Accrued expenses............................................ 46,206
-----------
Total liabilities................................... 210,184
-----------
Net assets.................................................. $85,957,561
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 17,053
Class B................................................... 38,808
Class C................................................... 531
Additional paid-in capital.................................. 66,776,298
Accumulated undistributed net realized gain on
investments............................................... 521,792
Net unrealized appreciation on investments.................. 18,603,079
-----------
Net assets.................................................. $85,957,561
===========
CLASS A
Net assets applicable to outstanding shares................. $26,214,174
===========
Shares of beneficial interest outstanding................... 1,705,266
===========
Net asset value per share outstanding....................... $ 15.37
Maximum sales charge (5.50% of offering price).............. 0.89
-----------
Maximum offering price per share outstanding................ $ 16.26
===========
CLASS B
Net assets applicable to outstanding shares................. $58,937,495
===========
Shares of beneficial interest outstanding................... 3,880,775
===========
Net asset value and offering price per share outstanding.... $ 15.19
===========
CLASS C
Net assets applicable to outstanding shares................. $ 805,892
===========
Shares of beneficial interest outstanding................... 53,063
===========
Net asset value and offering price per share outstanding.... $ 15.19
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|13
<PAGE> 558
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 418,988
Interest.................................................. 334,653
-----------
Total income............................................ 753,641
-----------
Expenses:
Management................................................ 369,633
Distribution--Class B..................................... 255,673
Distribution--Class C..................................... 1,699
Transfer agent............................................ 159,352
Service--Class A.......................................... 46,221
Service--Class B.......................................... 85,224
Service--Class C.......................................... 566
Registration.............................................. 41,421
Professional.............................................. 30,678
Shareholder communication................................. 26,341
Custodian................................................. 22,328
Recordkeeping............................................. 20,936
Amortization of organization expense...................... 13,490
Trustees.................................................. 1,605
Miscellaneous............................................. 21,669
-----------
Total expenses.......................................... 1,096,836
-----------
Net investment loss......................................... (343,195)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 1,172,657
Net change in unrealized appreciation on investments........ 14,864,752
-----------
Net realized and unrealized gain on investments............. 16,037,409
-----------
Net increase in net assets resulting from operations........ $15,694,214
===========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $2,397.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14|
<PAGE> 559
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998*
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (343,195) $ (108,699)
Net realized gain (loss) on investments................... 1,172,657 (276,582)
Net change in unrealized appreciation on investments...... 14,864,752 3,738,327
----------- -----------
Net increase in net assets resulting from operations...... 15,694,214 3,353,046
----------- -----------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. (14,335) --
Class B................................................. (32,104) --
Class C................................................. (408) --
----------- -----------
Total distributions to shareholders................... (46,847) --
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 9,759,082 11,499,713
Class B................................................. 42,863,447 12,537,474
Class C................................................. 744,572 310
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. 14,255 --
Class B................................................. 31,469 --
Class C................................................. 402 --
----------- -----------
53,413,227 24,037,497
Cost of shares redeemed:
Class A................................................. (2,170,937) (106,967)
Class B................................................. (6,533,286) (1,639,458)
Class C................................................. (42,926) (2)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 44,666,078 22,291,070
----------- -----------
Net increase in net assets............................ 60,313,445 25,644,116
NET ASSETS:
Beginning of period......................................... 25,644,116 --
----------- -----------
End of period............................................... $85,957,561 $25,644,116
=========== ===========
</TABLE>
- -------
* Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
|15
<PAGE> 560
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ----------------------------
June 1* June 1* September 1**
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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)............. (0.02) (0.05) (0.11) (0.08) (0.11) (0.06)
Net realized and
unrealized gain on
investments.......... 3.54 1.91 3.51 1.88 3.51 2.64
------- ------- ------- ------- ------ ------
Total from investment
operations........... 3.52 1.86 3.40 1.80 3.40 2.58
------- ------- ------- ------- ------ ------
Less distributions:
From net realized
gain on
investments........ (0.01) -- (0.01) -- (0.01) --
------- ------- ------- ------- ------ ------
Net asset value at end
of period............ $ 15.37 $ 11.86 $ 15.19 $ 11.80 $15.19 $11.80
======= ======= ======= ======= ====== ======
Total investment
return (b)........... 29.67% 18.60% 28.80% 18.00% 28.80% 27.98%
Ratios (to average net
assets)/
Supplemental Data:
Net investment
loss............. (0.16%) (1.09%)+ (0.91%) (1.84%)+ (0.91%) (1.84%)+
Expenses........... 1.59% 2.53%+ 2.34% 3.28%+ 2.34% 3.28%+
Portfolio turnover
rate................. 72% 32% 72% 32% 72% 32%
Net assets at end of
period (in 000's).... $26,214 $13,293 $58,937 $12,351 $ 806 $ --(c)
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ 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> 561
Notes to Financial Statements
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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
|17
<PAGE> 562
MainStay Growth Opportunities Fund
supplied by the pricing agent or brokers selected by the Fund's 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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
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.
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $343,195, $329,705 and
$13,490 are decreases to accumulated net investment loss, accumulated
undistributed net realized gain on investments and additional paid-in capital,
respectively. These differences are due to net investment loss incurred by the
Fund for the year and the tax treatment of income earned from Real Estate
Investment Trusts.
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.
18|
<PAGE> 563
Notes to Financial Statements (continued)
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 LLC (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 LLC (the "Subadvisor"), a registered investment advisor 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 year ended December
31, 1999, the Manager earned $369,633. It was not necessary for the Manager to
reimburse the Fund for expenses.
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, 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
|19
<PAGE> 564
MainStay Growth Opportunities Fund
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 $10,507 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $37, $24,943 and $378, respectively, for the year ended December 31,
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 year ended December 31,
1999, amounted to $159,352.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $13,833,000 which represents 52.8% of the Class A net assets at
year 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 $1,141 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$20,936 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $227,903 of capital loss carryforwards during the current
year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $69,777 and $33,602, respectively.
20|
<PAGE> 565
Notes to Financial Statements (continued)
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998* THROUGH
DECEMBER 31, 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................................... 752 3,339 56 1,131 1,202 --
Shares issued in reinvestment of dividends and
distributions............................... 1 2 --(a) -- -- --
----- ----- -- ----- ----- --
753 3,341 56 1,131 1,202 --
Shares redeemed............................... (169) (506) (3) (10) (156) --
----- ----- -- ----- ----- --
Net increase.................................. 584 2,835 53 1,121 1,046 --(a)
===== ===== == ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
|21
<PAGE> 566
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Growth Opportunities Fund
(one of the portfolios constituting The MainStay Funds, hereafter referred to as
the "Fund") at December 31, 1999, the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
22|
<PAGE> 567
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 568
OFFICERS & TRUSTEES*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH McBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN22-02/00
[RECYCLED PAPER LOGO]
[MAINSTAY FUNDS LOGO]
MAINSTAY GROWTH
OPPORTUNITIES FUND
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 569
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,
Russell 1000 Value Index, and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
Report of Independent Accountants 21
The MainStay Funds 22
</TABLE>
<PAGE> 570
This page intentionally left blank
2
<PAGE> 571
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
<PAGE> 572
$10,000 Invested in the MainStay
Research Value Fund versus S&P 500/BARRA Value Index, Russell 1000 Value Index,
and Inflation
CLASS A SHARES SEC Returns: 1 Year 11.84%, Since Inception 9.33%
<TABLE>
<CAPTION>
PERIOD MAINSTAY RESEARCH S&P500/BARRA RUSSELL 1000 VALUE
END VALUE FUND VALUE INDEX* INFLATION (CPI)(++) INDEX(+)
- ------------ ----------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
6/1/98 9450.00 10000.00 10000.00 10000.00
6/98 9327.00 10076.00 10006.00 10128.00
9/98 8203.00 8775.00 10043.00 8955.00
12/98 9734.00 10305.00 10098.00 10442.00
3/99 10074.00 10598.00 10135.00 10591.00
6/99 11227.00 11743.00 10209.00 11786.00
9/99 10499.00 10659.00 10313.00 10631.00
12/99 11520.00 11615.00 10368.00 11208.00
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 12.56%, Since Inception 10.11%
<TABLE>
<CAPTION>
PERIOD MAINSTAY RESEARCH S&P500/BARRA RUSSELL 1000 VALUE
END VALUE FUND VALUE INDEX* INFLATION (CPI)(++) INDEX(+)
- ------------ ----------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00 10000.00
6/98 9870.00 10076.00 10006.00 10128.00
9/98 8660.00 8775.00 10043.00 8955.00
12/98 10250.00 10305.00 10098.00 10442.00
3/99 10590.00 10598.00 10135.00 10591.00
6/99 11309.00 11743.00 10209.00 11786.00
9/99 10560.00 10659.00 10313.00 10631.00
12/99 11650.00 11615.00 10368.00 11208.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 16.56%, Since Inception 12.47%
<TABLE>
<CAPTION>
PERIOD MAINSTAY RESEARCH S&P500/BARRA RUSSELL 1000 VALUE
END VALUE FUND VALUE INDEX* INFLATION (CPI)(++) INDEX(+)
- ------------ ----------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
6/1/98 10000.00 10000.00 10000.00 10000.00
6/98 9870.00 10076.00 10006.00 10128.00
9/98 8660.00 8775.00 10043.00 8955.00
12/98 10250.00 10305.00 10098.00 10442.00
3/99 10590.00 10598.00 10135.00 10591.00
6/99 11780.00 11743.00 10209.00 11786.00
9/99 11000.00 10659.00 10313.00 10631.00
12/99 12050.00 11615.00 10368.00 11208.00
</TABLE>
4
<PAGE> 573
- -------
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 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
widely regarded as the standard for measuring large-cap U.S. stock market
performance. 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.
(+) The MainStay Research Value Fund, going forward, will measure its
performance against the Russell 1000(R) Value Index. This index reflects
the holdings of the Fund better than the S&P 500/BARRA Value Index,
against which the Fund is currently measured, and the subadvisor believes
that the Russell 1000 Value Index is, therefore, a better performance
benchmark. The Russell 1000 Value Index is an unmanaged index that
measures the performance of those Russell 1000 companies with lower
price-to-book ratios and lower forecasted growth values. The Russell 1000
is an unmanaged index that measures the performance of the 1,000 largest
companies in the Russell 3000(R) Index, which, in turn, is an unmanaged
index that includes the 3,000 largest U.S. companies based on total
market capitalization. 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> 574
Portfolio Management Discussion and Analysis
The broader U.S. equity market struggled and bond yields rose during the twelve
months ended December 31, 1999, but technology stocks put on an extraordinary
performance. Although more than 50% of the stocks in the S&P 500 Composite Stock
Price Index(1) actually declined for the year, the technology sector rose
approximately 75% over the same period. The result was both a narrow market and
a wide divergence between growth and value stocks. Since technology stocks
represented about 30% of the S&P 500 Index at year-end, this growth-oriented
sector led the Index to a 21.04% annual return. In contrast, the Russell 1000(R)
Value Index(2) was up only 7.35% for the year.
In our view, equity investors had many channels to choose from during 1999, but
spent most of the year tuned in to three shows--the big show, the magic show,
and the no-show. The big show was, of course, the astronomical performance of
technology stocks trading at extremely high valuations. The magic show refers to
the steady levitating act of long-term bond yields throughout the year. Investor
preoccupation with faster-than-expected economic growth both domestically and
overseas led the bond market to conclude that an upsurge in inflation must be
just around the corner. Surprisingly, the U.S. equity market rose strongly in
the face of this challenging yield environment, with long-duration equities
performing strongest. Inflation remained low.
Finally, the no-show was Y2K. Not the year, naturally, but rather the global
catastrophes alarmists were predicting. We may yet be slightly premature, but to
date, critical resources such as electricity, gas, financial institutions,
defense systems, airlines, and telecommunications have all been functioning
smoothly and without interruption.
STRONG FUND PERFORMANCE
For the year ended December 31, 1999, the MainStay Research Value Fund returned
18.35% for Class A shares and 17.56% for Class B and Class C shares, excluding
all sales charges. All share classes significantly outperformed the average
Lipper(3) multi-cap value fund, which returned 7.78% for the same period and the
Russell 1000 Value Index, which returned 7.35% for the year.
The Fund's performance was due primarily to strong stock selection, as we
purchased and sold securities for the Fund's portfolio across a wide spectrum of
industries. In managing the Fund's investments we focused our research on
individual stock fundamentals rather than on the shifting macroeconomic
backdrop. The Fund's positions in technology stocks, purchased within our
valuation criteria some time ago, certainly bolstered Fund performance. Still,
it must be noted that we do not deliberately over- or underweight sectors in the
Fund, but rather construct the portfolio on a stock-by-stock basis in an effort
to generate strong risk-adjusted returns over time.
- -------
(1) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is widely regarded as the standard for measuring
large-cap U.S. stock market performance.
(2) See footnote on page 5 for more information on the Russell 1000(R) Value
Index.
(3) See footnote and table on page 9 for more information on Lipper Inc.
6
<PAGE> 575
[PERFORMANCE GRAPH]
YEAR-BY-YEAR PERFORMANCE
<TABLE>
<CAPTION>
YEAR END CLASS A CLASS B AND CLASS C
- ---------- ------- -------------------
<S> <C> <C>
12/98 3.00 2.50
12/99 18.35 17.56
</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.
DIVERSIFIED, RESEARCH-INTENSIVE VALUE APPROACH
The Fund's technology and media stocks were among its best-performing securities
for the year, including:
- - Texas Instruments, a manufacturer of semiconductor products, which rose on
improving growth prospects for digital signal processor end markets such as
modems and cellular handsets;
- - Tribune, a diversified media company, whose superior performance reflected
ongoing strength in advertising markets and consolidation among television
stations;
- - Seagate Technology, a data storage, retrieval, and management systems company
that rose on a pricing recovery and the rising value of its own investment
portfolio; and
- - News Corp., a global diversified media company, whose preferred stock rose on
a generally strong advertising market, a recovery in several overseas markets,
and investor recognition of the value of its affiliated companies.
Among the Fund's worst performers were interest-rate sensitive stocks, including
Ace Ltd. and XL Capital, both Bermuda-based global providers of property,
casualty, and liability insurance; Aetna, a leading name in insurance, health
benefits, and financial services; Xerox, a document-processing product and
service company; and Keyspan Energy, a distributor of natural gas and
electricity in the greater New York region.
7
<PAGE> 576
Past performance is no guarantee of future results.
LOOKING AHEAD
With such a wide divergence in the performance of growth and value sectors, the
investment environment has been challenging for the Fund. While there is no
doubt that technology is having a positive impact on the U.S. economy, most
notably in terms of enhanced productivity, we believe that ultimately investors
will sort out the worthy from the unworthy technology and Internet stocks, which
may lead to more divergent trends within this sector.
Given the large number of declining stocks in 1999, their low absolute
valuations, and even lower relative valuations, we see an expanding field of
undervalued equities with strong fundamentals. We will continue to focus our
research on these value opportunities, 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.
Jeffrey A. Kigner
G. Todd Silva
Portfolio Managers
John A. Levin & Co., Inc.
8
<PAGE> 577
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 18.35% 13.30%
Class B 17.56% 12.47%
Class C 17.56% 12.47%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 11.84% 9.33%
Class B 12.56% 10.11%
Class C 16.56% 12.47%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 62 out of 490 funds 52 out of 449 funds
Class B 66 out of 490 funds 63 out of 449 funds
Class C 66 out of 490 funds 69 out of 463 funds
Average Lipper
multi-cap value(++)
fund 7.78% 4.92%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.62 $0.0000 $0.5511
Class B $11.48 $0.0000 $0.5511
Class C $11.48 $0.0000 $0.5511
</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. 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. 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 figures 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 12/31/99. 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 12/31/99.
Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999, is
reflected in this material.
9
<PAGE> 578
MainStay Research Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.1%)+
AEROSPACE/DEFENSE (3.4%)
Rockwell International Corp. ... 5,600 $ 268,100
United Technologies Corp. ...... 9,032 587,080
-----------
855,180
-----------
AIRLINES (2.4%)
AMR Corp. (a)................... 8,950 599,650
-----------
AUTOMOBILES (2.4%)
Ford Motor Co. ................. 11,500 614,531
-----------
BANKS (6.9%)
Bank of New York Co., Inc.
(The).......................... 8,800 352,000
First Union Corp................ 7,600 249,375
Fleet Boston Financial Corp. ... 7,200 250,650
Mellon Financial Corp. ......... 11,400 388,312
Northern Trust Corp. ........... 9,600 508,800
-----------
1,749,137
-----------
BEVERAGES (4.1%)
Anheuser-Busch Cos. Inc. ....... 5,800 411,075
Coca-Cola Company (The)......... 6,600 384,450
PepsiCo, Inc. .................. 6,700 236,175
-----------
1,031,700
-----------
BROADCAST/MEDIA (0.9%)
Fox Entertainment Group Inc.
Class A (a).................... 8,900 221,944
-----------
CHEMICALS (2.7%)
Monsanto Co. ................... 19,500 694,687
-----------
COMPUTER SOFTWARE & SERVICES (2.6%)
First Data Corp................. 13,200 650,925
-----------
COMPUTER SYSTEMS (10.2%)
Compaq Computer Corp. .......... 24,800 671,150
Hewlett-Packard Co. ............ 3,500 398,781
International Business Machines
Corp. ......................... 4,500 486,000
Seagate Technology Inc. (a)..... 22,200 1,033,688
-----------
2,589,619
-----------
CONGLOMERATES (1.0%)
Textron Inc. ................... 3,200 245,400
-----------
CONTAINERS (0.7%)
Owens-Illinois, Inc. (a)........ 6,700 167,919
-----------
- ------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------
<S> <C> <C>
COSMETICS/PERSONAL CARE (1.4%)
Gillette Co. ................... 8,600 $ 354,213
-----------
ELECTRICAL EQUIPMENT (5.4%)
General Electric Co. ........... 5,200 804,700
Koninklijke Philips
Electronics.................... 4,252 574,020
-----------
1,378,720
-----------
ELECTRONICS -- SEMICONDUCTORS
(3.0%)
Texas Instruments Inc. ......... 7,800 755,625
-----------
ENTERTAINMENT (3.9%)
Viacom Inc. Class B (a)......... 12,100 731,294
Walt Disney Co. (The)........... 9,200 269,100
-----------
1,000,394
-----------
FOOD (2.1%)
Nabisco Holdings Corp. Class
A.............................. 9,900 313,087
Ralston Purina Co. ............. 7,800 217,425
-----------
530,512
-----------
FOOD & HEALTH CARE DISTRIBUTORS (1.7%)
McKesson HBOC, Inc. ............ 18,800 424,175
-----------
HARDWARE & TOOLS (2.2%)
Black & Decker Corp. (The)...... 10,750 561,687
-----------
HEALTH CARE -- MISCELLANEOUS (7.4%)
Aetna Inc. ..................... 6,000 334,875
American Home Products Corp. ... 11,500 453,531
Johnson & Johnson............... 5,900 549,438
Warner-Lambert Co. ............. 6,700 548,981
-----------
1,886,825
-----------
INSURANCE (2.5%)
Ace, Ltd. ...................... 14,800 246,975
Tokio Marine & Fire Insurance
Co. Ltd. (The)................. 3,500 206,937
XL Capital Limited.............. 3,400 176,375
-----------
630,287
-----------
MANUFACTURING -- DIVERSIFIED
(0.7%)
Tyco International Ltd. ........ 4,800 186,600
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (4.3%)
KeySpan Energy Corp............. 11,000 255,062
Williams Cos., Inc. (The)....... 27,450 838,941
-----------
1,094,003
-----------
OFFICE EQUIPMENT & SUPPLIES
(0.6%)
Xerox Corp. .................... 6,700 152,006
-----------
</TABLE>
10
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 579
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS--SERVICES (3.4%)
Schlumberger Ltd. .............. 8,400 $ 472,500
Transocean Sedco Forex, Inc. ... 1,626 54,784
Unocal Corp. ................... 9,600 322,200
-----------
849,484
-----------
OIL--INTEGRATED DOMESTIC (1.6%)
Conoco Inc. .................... 16,100 398,475
-----------
OIL--INTEGRATED INTERNATIONAL (1.1%)
Chevron Corp. .................. 3,300 285,863
-----------
PUBLISHING (3.7%)
Tribune Co. .................... 17,100 941,569
-----------
RETAIL (2.8%)
Dayton Hudson Corp. ............ 5,400 396,563
Federated Department Stores
(a)............................ 6,000 303,375
-----------
699,938
-----------
TELECOMMUNICATIONS--LONG DISTANCE (3.1%)
Loral Space & Communications
Ltd. (a)....................... 32,300 785,294
-----------
TELEPHONE (5.9%)
Bell Atlantic Corp. ............ 11,800 726,437
BellSouth Corp. ................ 16,300 763,044
-----------
1,489,481
-----------
Total Common Stocks
(Cost $20,791,542)............. 23,825,843
-----------
PREFERRED STOCK (4.1%)
BROADCAST/MEDIA (4.1%)
News Corp. Ltd.--Pfd ADR (b).... 30,800 1,029,875
-----------
Total Preferred Stock
(Cost $813,072)................ 1,029,875
-----------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.5%)
TIME DEPOSIT (1.5%)
Bank of New York Cayman
3.00%, due 1/3/00.............. $383,000 $ 383,000
-----------
Total Short-Term Investment
(Cost $383,000)................ 383,000
-----------
Total Investments
(Cost $21,987,614) (c)......... 99.7% 25,238,718(d)
Cash and Other Assets,
Less Liabilities............... 0.3 71,235
----- ----------
Net Assets...................... 100.0% $25,309,953
===== ==========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $22,119,220.
(d) At December 31, 1999, net unrealized appreciation was $3,119,498, 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 $4,292,055 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,172,557.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 580
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$21,987,614).............................................. $25,238,718
Cash........................................................ 324
Receivables:
Fund shares sold.......................................... 112,206
Dividends and interest.................................... 12,660
Unamortized organization expense............................ 46,141
-----------
Total assets........................................ 25,410,049
-----------
LIABILITIES:
Payables:
MainStay Management....................................... 28,799
NYLIFE Distributors....................................... 12,048
Transfer agent............................................ 6,973
Fund shares redeemed...................................... 6,022
Custodian................................................. 5,166
Trustees.................................................. 181
Accrued expenses............................................ 40,907
-----------
Total liabilities................................... 100,096
-----------
Net assets.................................................. $25,309,953
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 12,032
Class B................................................... 8,862
Class C................................................... 998
Additional paid-in capital.................................. 22,409,477
Accumulated distribution in excess of net realized gain on
investments............................................... (372,520)
Net unrealized appreciation on investments.................. 3,251,104
-----------
Net assets.................................................. $25,309,953
===========
CLASS A
Net assets applicable to outstanding shares................. $13,987,354
===========
Shares of beneficial interest outstanding................... 1,203,214
===========
Net asset value per share outstanding....................... $ 11.62
Maximum sales charge (5.50% of offering price).............. 0.68
-----------
Maximum offering price per share outstanding................ $ 12.30
===========
CLASS B
Net assets applicable to outstanding shares................. $10,176,268
===========
Shares of beneficial interest outstanding................... 886,168
===========
Net asset value and offering price per share outstanding.... $ 11.48
===========
CLASS C
Net assets applicable to outstanding shares................. $ 1,146,331
===========
Shares of beneficial interest outstanding................... 99,836
===========
Net asset value and offering price per share outstanding.... $ 11.48
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 581
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 248,157
Interest.................................................. 46,578
----------
Total income............................................ 294,735
----------
Expenses:
Management................................................ 170,746
Transfer agent............................................ 68,566
Distribution--Class B..................................... 54,900
Distribution--Class C..................................... 4,823
Registration.............................................. 32,580
Service--Class A.......................................... 30,312
Service--Class B.......................................... 18,300
Service--Class C.......................................... 1,608
Shareholder communication................................. 25,555
Professional.............................................. 23,274
Custodian................................................. 18,222
Amortization of organization expense...................... 13,490
Recordkeeping............................................. 12,000
Trustees.................................................. 546
Miscellaneous............................................. 13,970
----------
Total expenses before reimbursement..................... 488,892
Expense reimbursement by Manager............................ (67,846)
----------
Net Expenses............................................ 421,046
----------
Net investment loss......................................... (126,311)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 1,343,606
Net change in unrealized appreciation on investments........ 2,061,596
----------
Net realized and unrealized gain on investments............. 3,405,202
----------
Net increase in net assets resulting from operations........ $3,278,891
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $1,985.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 582
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998*
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (126,311) $ (107,527)
Net realized gain (loss) on investments................... 1,343,606 (464,079)
Net change in unrealized appreciation on investments...... 2,061,596 1,189,508
----------- -----------
Net increase in net assets resulting from operations...... 3,278,891 617,902
----------- -----------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. (422,405) --
Class B................................................. (310,298) --
Class C................................................. (34,003) --
In excess of net realized gain on investments:
Class A................................................. (205,234) --
Class B................................................. (150,764) --
Class C................................................. (16,522) --
----------- -----------
Total distributions to shareholders................... (1,139,226) --
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 1,987,704 10,183,730
Class B................................................. 5,412,093 4,678,889
Class C................................................. 958,968 124,376
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. 611,941 --
Class B................................................. 421,185 --
Class C................................................. 39,085 --
----------- -----------
9,430,976 14,986,995
Cost of shares redeemed:
Class A................................................. (391,083) (123,065)
Class B................................................. (934,710) (376,840)
Class C................................................. (39,885) (2)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 8,065,298 14,487,088
----------- -----------
Net increase in net assets............................ 10,204,963 15,104,990
NET ASSETS:
Beginning of period......................................... 15,104,990 --
----------- -----------
End of period............................................... $25,309,953 $15,104,990
=========== ===========
</TABLE>
- -------
* 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> 583
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ----------------------------
June 1* June 1* September 1**
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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)............. (0.03) (0.07) (0.09) (0.10) (0.09) (0.06)
Net realized and
unrealized gain on
investments.......... 1.90 0.37 1.87 0.35 1.87 2.01
------- ------- ------- ------- ------- -------
Total from investment
operations........... 1.87 0.30 1.78 0.25 1.78 1.95
------- ------- ------- ------- ------- -------
Less distributions:
From net realized
gain on
investments........ (0.37) -- (0.37) -- (0.37) --
In excess of net
realized gain on
investments........ (0.18) -- (0.18) -- (0.18) --
------- ------- ------- ------- ------- -------
Total Distributions... (0.55) -- (0.55) -- (0.55) --
------- ------- ------- ------- ------- -------
Net asset value at end
of period............ $ 11.62 $ 10.30 $ 11.48 $ 10.25 $ 11.48 $ 10.25
======= ======= ======= ======= ======= =======
Total investment
return (b)........... 18.35% 3.00% 17.56% 2.50% 17.56% 23.49%
Ratios (to average net
assets)
Supplemental Data:
Net investment
loss............. (0.33%) (1.48%)+ (1.08%) (2.23%)+ (1.08%) (2.23%)+
Net expenses....... 1.80% 3.15%+ 2.55% 3.90%+ 2.55% 3.90%+
Expenses (before
reimbursement)... 2.14% 3.15%+ 2.89% 3.90%+ 2.89% 3.90%+
Portfolio turnover
rate................. 63% 53% 63% 53% 63% 53%
Net assets at end of
period (in 000's).... $13,987 $10,378 $10,176 $ 4,589 $ 1,146 $ 138
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Annualized.
Per share data based on average shares outstanding during
(a) the period.
Total return is calculated exclusive of sales charges and is
(b) 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> 584
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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
16
<PAGE> 585
Notes to Financial Statements
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 Fund's 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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
ORGANIZATION 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes, but not for
Federal tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. Permanent
book-tax differences of $126,311 and $13,490 are decreases to accumulated net
investment loss and additional paid-in capital, respectively. In addition,
accumulated
17
<PAGE> 586
MainStay Research Value Fund
net realized loss on investments has been increased by $112,821. These book-tax
differences are due primarily to net investment loss incurred by the Fund in
1999 and the tax treatment of certain expenses.
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 LLC (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 year ended December
31, 1999, the Manager earned $170,746 and reimbursed the Fund $67,846.
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.
18
<PAGE> 587
Notes to Financial Statements (continued)
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 $3,915 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemption of Class B and Class C shares of
$15,496 and $100, respectively, for the year ended December 31, 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 year ended December 31,
1999, amounted to $68,566.
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 December 31, 1999, New York Life held shares of Class A and Class B
with net asset values of $10,458,000 and $1,148,000, respectively. This
represents 74.8% and 11.3%, respectively, of the net assets at year 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 $486 for the year ended December
31, 1999.
19
<PAGE> 588
MainStay Research Value Fund
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$12,000 for the year ended December 31, 1999.
NOTE 4--FEDERAL INCOME TAX:
The Fund intends to elect, to the extent provided by regulations, to treat
$242,971 of qualifying capital losses that arose during the year as if they
arose on January 1, 2000. In addition, the Fund utilized $410,996 of capital
loss carryforwards during the current year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $19,489 and $11,983, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998* THROUGH
DECEMBER 31, 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....................... 175 485 86 1,021 488 13
Shares issued in reinvestment of
distributions................... 55 38 4 -- -- --
--- --- --- ----- --- --
230 523 90 1,021 488 13
Shares redeemed................... (35) (85) (3) (13) (40) --
--- --- --- ----- --- --
Net increase...................... 195 438 87 1,008 448 13
=== === === ===== === ==
</TABLE>
- -------
<TABLE>
<C> <S>
* Commencement of operations.
** First offered on September 1, 1998.
</TABLE>
20
<PAGE> 589
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Research Value Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
21
<PAGE> 590
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 591
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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 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)2000. All rights reserved. MSAN23-02/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MAINSTAY
RESEARCH VALUE FUND
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 592
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
Year-by-Year Performance 7
Returns and Lipper Ratings 9
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 17
Report of Independent Accountants 22
The MainStay Funds 23
</TABLE>
<PAGE> 593
This page intentionally left blank
2
- -
<PAGE> 594
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.(*)
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
(*) Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
-
<PAGE> 595
$10,000 Invested in the MainStay Small Cap
Growth Fund versus Russell 2000 Index
and Inflation
CLASS A SHARES SEC Returns: 1 Year 96.19%, Since Inception 57.81%
<TABLE>
<CAPTION>
CLASS A RUSSELL 2000 INDEX(*) INFLATION (CPI)
------- --------------------- ---------------
<S> <C> <C> <C>
6/1/98 9450 10000 10000
6/98 10272 10021 10006
9/98 8505 8002 10043
12/98 9932 9307 10098
3/99 10159 8802 10135
6/99 12200 10136 10209
9/99 13428 9495 10313
12/99 20620 11246 10368
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 101.02%, Since Inception 60.35%
<TABLE>
<CAPTION>
CLASS B RUSSELL 2000 INDEX(*) INFLATION (CPI)
------- --------------------- ---------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10860 10021 10006
9/98 8980 8002 10043
12/98 10460 9307 10098
3/99 10680 8802 10135
6/99 12288 10136 10209
9/99 13498 9495 10313
12/99 21150 11246 10368
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 105.02%, Since Inception 62.26%
<TABLE>
<CAPTION>
CLASS C RUSSELL 2000 INDEX(*) INFLATIONI (CPI)I
------- --------------------- -----------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 10860 10021 10006
9/98 8980 8002 10043
12/98 10460 9307 10098
3/99 10680 8802 10135
6/99 12800 10136 10209
9/99 14060 9495 10313
12/99 21550 11246 10368
</TABLE>
4
- -
<PAGE> 596
- -------
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 figures 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(R) Index is an unmanaged index that measures the
performance of the 2,000 smallest companies in the Russell 3000(R) 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> 597
Portfolio Management Discussion and Analysis
During 1999, the stock market was volatile, but ended on a strong note for most
major indices. The first half of the year brought mostly positive returns, with
growth and value stock alternatively moving in and out of favor. Most indices
declined in the third quarter, as two Federal Reserve tightening moves raised
concerns about the impact of rising interest rates on stock market valuations
and economic growth.
These concerns were allayed when the Federal Reserve decided to leave the target
for the federal funds rate unchanged in early October. All major stock indices
rose significantly in the fourth quarter, despite an additional tightening move
on November 16, 1999. The stock market was buoyed by the combination of
continued strong economic growth, high consumer confidence, and modest
inflation.
Growth stocks dramatically outperformed value stocks during the latter part of
1999, resulting in an historically wide performance spread between the two
investment styles. Most investors favored companies that are developing new
technologies, products, and services for fast-growing markets such as the
Internet, biotechnology, and telecommunications. In this environment, small-cap
growth stocks were one of the best-performing asset classes, rising 43.09% for
the year as measured by the Russell 2000(R) Growth Index,(1) which was more than
twice the 21.04% return of the large-cap S&P 500 Index(2) for the year.
PERFORMANCE REVIEW
For the year ended December 31, 1999, the MainStay Small Cap Growth Fund
returned 107.61% for Class A shares and 106.02% for Class B and Class C shares,
excluding all sales charges. All share classes outperformed the 62.31% return of
the average Lipper(3) small-cap growth fund, to rank among the top 15% of funds
in their peer group. All share classes also outperformed the Fund's benchmarks,
the Russell 2000(R) Index, which returned 21.26% for the year, and the Russell
2000 Growth Index, which returned 43.09% over the same period. The Fund's
outperformance was largely due to careful security selection, tremendous
strength in its technology and communications holdings, and significant profits
and returns resulting from the Fund's investments in initial public offerings
(IPOs). It is impossible to predict whether future returns from IPOs will be as
successful as those made during this period. Moreover, as the Fund grows in
size, the effect of IPO investments on performance may decrease.
NEW STRATEGIC DIRECTIONS
In the first half of 1999, we made a critical investment decision to
significantly increase the Fund's weightings in the technology and
communications sectors. We began to invest in Internet and communications
companies with strong business models in areas such as business-to-business
e-commerce (Internet Capital Group, Vitria Technology), fiber-channel storage
(Brocade, QLogic,
- -------
(1) The Russell 2000(R) Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth
values. See footnote on page 5 for more information on 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. Results assume the reinvestment of
all income and capital gain distributions. An investment cannot be made
directly into an index.
(3) See footnote and table on page 9 for more information on Lipper Inc.
6
- -
<PAGE> 598
YEAR-BY-YEAR PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B & CLASS C
------- -----------------
<S> <C> <C>
12/98 5.10 4.60
12/99 107.61 106.02
</TABLE>
Emulex), and digital consumer electronics technology (SanDisk Corp.). Several of
these investments were among the Fund's top-performing securities for the year.
Although the Fund purchased Agile Software, a dynamic process and materials
supply chain management software company, in the second half of 1999, the stock
was the most significant contributor to the Fund's performance for the year.
In the latter part of the year, we increased the Fund's holdings in the
biotechnology sector, focusing on companies with strong technology and product
pipelines. One of the Fund's top-performing biotechnology stocks was Maxygen, a
company that uses a novel DNA technology to rapidly create modified genes that
exhibit desirable qualities. The Fund continues to hold this company, whose
technology has applications not only in the pharmaceutical industry, but also in
the agriculture and specialty-chemical industries.
Although many of these emerging companies do not have the near-term strong
earnings prospects that we typically look for in the Fund's traditional
holdings, we decided to focus more on discounted future cash flows to evaluate
these companies. The decision to significantly increase the Fund's exposure to
these areas had a strong positive impact on the Fund's performance.
MORE TRADITIONAL SECTORS
As 1999 progressed, we reduced the Fund's exposure to the financial sector,
eliminating several traditional bank stocks such as Cullen/Frost Bankers and
Southwest Bancorp, whose earnings prospects have been tempered by higher
interest rates. We also sold the Fund's holdings in health services companies
such as RehabCare Group and Total Renal Care, which were being constrained by
changes in government regulations and reimbursement. Underweighting these groups
contributed positively to performance.
7
-
<PAGE> 599
Past performance is no guarantee of future results.
The performance of many companies in the more traditional sectors of the market
lagged the results of the Fund's high-tech companies. In consumer services and
other sectors, the Fund holds numerous companies that have continued to show
strong revenue and earnings growth but have not yet appreciated in proportion to
that growth. Maximus, Mettler Toledo, and Gildan Activewear are a few examples.
We continue to hold many of these companies with strong management teams and
solid growth prospects, believing that the market will eventually recognize
their value and will reward them with higher stock prices.
The Fund's worst performers in 1999 included stocks in several different
sectors. American Bank Note Holographics fell victim to gross mismanagement and
the Fund sold the stock at a loss. NCO Group, a bad-debt collection company,
declined sharply late in the year on concerns about slowing revenue trends from
customers in the health care market. Arthrocare is a medical-device company that
the Fund sold on concerns about revenue growth and possible delays in
new-product approvals. Despite a negative impact on Fund performance, the
proceeds from the sales of American Bank Note Holographics and Arthrocare were
used to purchase stocks we believe have greater potential for price
appreciation.
LOOKING AHEAD
As of year-end, the Fund remained significantly overweighted in the technology
and communications sectors. Within the health care sector, the Fund is currently
emphasizing biotechnology companies over health services companies. We believe
that the Fund's holdings in these sectors will generate attractive performance
in the year ahead. The Fund remains underweighted in financial stocks, which we
believe are unlikely to deliver strong earnings results in the current
interest-rate environment. Finally, the Fund continues to maintain a
well-diversified portfolio of high-quality nontechnology names with strong
earnings prospects.
During 1999, small-cap growth stocks outperformed their large-cap counterparts
for the first time in many years. Despite the recent outperformance, small-cap
stocks in many sectors still appear to be undervalued relative to large-cap
names. We believe that the long-term outlook remains bright for small-cap
companies with high revenue growth, strong management, and solid business
models. Whatever the market or the economy may bring, the Fund will continue to
seek long-term capital appreciation by investing primarily in securities of
small-cap companies.
Rudolph C. Carryl
Edmund C. Spelman
Portfolio Managers
MacKay Shields LLC
8
- -
<PAGE> 600
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 107.61% 63.54%
Class B 106.02% 62.26%
Class C 106.02% 62.26%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 96.19% 57.81%
Class B 101.02% 60.35%
Class C 105.02% 62.26%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 33 out of 267 funds 25 out of 227 funds
Class B 37 out of 267 funds 27 out of 227 funds
Class C 37 out of 267 funds 66 out of 243 funds
Average Lipper
small-cap
growth
fund(++) 62.31% 35.78%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $21.82 $0.0000 $0.0000
Class B $21.55 $0.0000 $0.0000
Class C $21.55 $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 figures 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 12/31/99. 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
12/31/99. Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999,
is reflected in this material.
9
-
<PAGE> 601
MainStay Small Cap Growth Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.9%)+
AEROSPACE/DEFENSE (0.4%)
HEICO Corp...................... 20,000 $ 436,250
HEICO Corp. Class A............. 21,000 443,625
------------
879,875
------------
BIOTECHNOLOGY (2.4%)
Alkermes, Inc.(a)............... 13,500 663,188
Protein Design Labs, Inc. (a)... 34,000 2,380,000
Techne Corp. (a)................ 31,000 1,706,937
------------
4,750,125
------------
BROADCAST/MEDIA (3.3%)
Citadel Communications Corp.
(a)............................ 31,600 2,050,050
Classic Communications, Inc.
Class A (a).................... 35,000 1,279,688
Emmis Communications Class A
(a)............................ 11,800 1,470,759
Macrovision Corp. (a)........... 23,000 1,702,000
------------
6,502,497
------------
CHEMICALS (0.5%)
MacDermid, Inc.................. 26,000 1,067,625
------------
COMMUNICATIONS EQUIPMENT (1.6%)
Finisar Corp. (a)............... 20,000 1,797,500
Orckit Communications Ltd.
(a)............................ 40,000 1,372,500
------------
3,170,000
------------
COMPUTER SOFTWARE & SERVICES (19.0%)
Advanced Digital Information
Corp. (a)...................... 28,000 1,361,500
Advent Software, Inc. (a)....... 26,650 1,717,259
Clarify Inc. (a)................ 18,000 2,268,000
Daleen Technologies, Inc. (a)... 71,600 1,566,250
Exchange Applications, Inc.
(a)............................ 42,500 2,374,687
Great Plains Software, Inc.
(a)............................ 25,000 1,868,750
Legato Systems, Inc. (a)........ 22,000 1,513,875
Metamor Worldwide, Inc. (a)..... 35,000 1,019,375
NVIDIA Corp. (a)................ 40,600 1,905,663
Peregrine Systems, Inc. (a)..... 29,000 2,441,437
Project Software & Development,
Inc. (a)....................... 32,000 1,776,000
QRS Corp. (a)................... 23,600 2,461,775
RAVISENT Technologies Inc.
(a)............................ 78,000 2,998,125
Sanchez Computer Associates,
Inc. (a)....................... 25,000 1,029,688
SilverStream Software, Inc.
(a)............................ 15,000 1,785,000
THQ Inc. (a).................... 36,000 834,750
TSI International Software Ltd.
(a)............................ 35,000 1,981,875
Verity, Inc. (a)................ 31,400 1,336,463
Vitria Technology, Inc. (a)..... 22,000 5,148,000
------------
37,388,472
------------
- --------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMPUTER SYSTEMS (1.9%)
SanDisk Corp. (a)............... 38,500 $ 3,705,625
------------
COMPUTERS--NETWORKING (4.5%)
Ancor Communications, Inc.
(a)............................ 39,500 2,681,062
Emulex Corp. (a)................ 31,400 3,532,500
JNI Corp. (a)................... 22,500 1,485,000
Paradyne Networks, Inc. (a)..... 40,000 1,090,000
------------
8,788,562
------------
COMPUTERS--PERIPHERAL (5.3%)
Crossroads Systems Inc. (a)..... 30,000 2,535,000
Cybex Computer Products Corp.
(a)............................ 47,300 1,915,650
Immersion Corp. (a)............. 40,000 1,535,000
SCM Microsystems, Inc. (a)...... 41,000 2,621,437
SmartDisk Corp. (a)............. 55,000 1,801,250
------------
10,408,337
------------
ELECTRIC POWER COMPANIES (2.4%)
Calpine Corp. (a)............... 43,000 2,752,000
Independent Energy Holdings PLC
ADR (a)(b)..................... 57,000 1,898,812
------------
4,650,812
------------
ELECTRICAL EQUIPMENT (1.5%)
Gilat Satellite Networks Ltd.
(a)............................ 25,600 3,040,000
------------
ELECTRONICS--COMPONENTS (1.7%)
Audiovox Corp. Class A (a)...... 43,500 1,321,313
Zoran Corp. (a)................. 38,000 2,118,500
------------
3,439,813
------------
ELECTRONICS--INSTRUMENTATION
(3.4%)
Mettler-Toledo International
Inc. (a)....................... 58,900 2,249,244
Optimal Robotics Corp. Class A
(a)............................ 103,000 3,836,750
Waters Corp. (a)................ 11,400 604,200
------------
6,690,194
------------
ELECTRONICS--SEMICONDUCTORS
(0.8%)
NETsilicon, Inc. (a)............ 5,000 100,312
QLogic Corp. (a)................ 10,000 1,598,750
------------
1,699,062
------------
ENGINEERING & CONSTRUCTION
(0.7%)
Dycom Industries, Inc. (a)...... 30,000 1,321,875
------------
FINANCE (0.6%)
BlackRock, Inc. Class A (a)..... 71,000 1,220,313
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
- -
<PAGE> 602
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD (0.5%)
American Italian Pasta Co. Class
A (a).......................... 30,000 $ 922,500
------------
FOOD & HEALTH CARE DISTRIBUTORS (0.7%)
Patterson Dental Co. (a)........ 31,200 1,329,900
------------
HEALTH CARE--DRUGS (3.5%)
Andrx Corp. (a)................. 33,300 1,409,006
Celgene Corp. (a)............... 15,300 1,071,000
King Pharmaceuticals, Inc.
(a)............................ 49,650 2,783,503
Taro Pharmaceutical Industries
Ltd. (a)....................... 115,800 1,679,100
------------
6,942,609
------------
HEALTH CARE--MEDICAL PRODUCTS (2.1%)
CONMED Corp. (a)................ 41,000 1,060,875
Datascope Corp.................. 10,000 400,000
PolyMedica Corp. (a)............ 75,000 1,734,375
Syncor International Corp.
(a)............................ 29,100 847,538
------------
4,042,788
------------
HOUSEHOLD--FURNISHINGS &
APPLIANCES (1.0%)
Salton, Inc. (a)................ 57,100 1,909,281
------------
INTERNET SOFTWARE & SERVICES
(16.0%)
Agile Software Corp. (a)........ 25,000 5,430,860
C-bridge Internet Solutions,
Inc. (a)....................... 15,000 729,375
Engage Technologies, Inc. (a)... 39,300 2,358,000
InterVU Inc. (a)................ 44,000 4,620,000
InterWorld Corp. (a)............ 20,000 1,707,500
iXL Enterprises, Inc. (a)....... 36,000 1,998,000
Media Metrix, Inc. (a).......... 35,000 1,251,250
National Information Consortium,
Inc. (a)....................... 43,000 1,376,000
RADWARE Ltd. (a)................ 47,250 2,037,656
VerticalNet, Inc. (a)........... 14,000 2,296,000
Viador, Inc. (a)................ 72,500 3,072,188
Viant Corp. (a)................. 14,000 1,386,000
WorldGate Communications, Inc.
(a)............................ 40,000 1,902,500
Xpedior, Inc. (a)............... 47,300 1,359,875
------------
31,525,204
------------
INVESTMENT BANK/BROKERAGE (0.6%)
Wit Capital Group, Inc. (a)..... 74,000 1,258,000
------------
MACHINERY (0.5%)
Applied Power Inc. Class A...... 28,300 1,040,025
------------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
MANUFACTURING (0.7%)
Dionex Corp. (a)................ 33,000 $ 1,359,188
------------
RETAIL (3.8%)
Cost Plus Inc. (a).............. 37,600 1,339,500
Duane Reade Inc. (a)............ 16,300 449,269
Linens 'n Things, Inc. (a)...... 32,900 974,662
Men's Wearhouse, Inc. (The)
(a)............................ 47,950 1,408,531
REX Stores Corp. (a)............ 68,000 2,380,000
Talbots, Inc. (The)............. 23,000 1,026,375
------------
7,578,337
------------
SCHOOLS (0.4%)
Edison Schools, Inc. (a)........ 50,000 787,500
------------
SPECIALIZED SERVICES (4.0%)
Corporate Executive Board Co.
(The) (a)...................... 26,000 1,452,750
Iron Mountain Inc. (a).......... 28,450 1,118,441
MAXIMUS, Inc. (a)............... 34,200 1,160,662
MedQuist Inc. (a)............... 41,000 1,058,313
NCO Group, Inc. (a)............. 43,500 1,310,437
Profit Recovery Group
International, Inc. (The)
(a)............................ 63,650 1,690,703
------------
7,791,306
------------
SPECIALTY PRINTING (0.8%)
Valassis Communications, Inc.
(a)............................ 36,700 1,550,575
------------
STEEL (0.2%)
Gibraltar Steel Corp............ 21,000 490,875
------------
TECHNOLOGY (1.8%)
Maxygen, Inc. (a)............... 50,000 3,550,000
------------
TELECOMMUNICATIONS (6.6%)
AirGate PCS, Inc. (a)........... 69,000 3,639,750
LCC International, Inc. Class A
(a)............................ 206,000 4,107,125
Primus Telecommunications Group,
Inc. (a)....................... 61,000 2,333,250
Terayon Communication Systems,
Inc. (a)....................... 18,000 1,130,625
Tut Systems, Inc. (a)........... 32,000 1,716,000
------------
12,926,750
------------
TEXTILES--APPAREL MANUFACTURERS (1.0%)
Gildan Activeware Inc. Class A
(a)............................ 105,000 1,903,125
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
-
<PAGE> 603
MainStay Small Cap Growth Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION (0.7%)
Expeditors International of
Washington, Inc. .............. 31,800 $ 1,393,238
------------
Total Common Stocks (Cost
$118,789,821).................. 187,024,388
------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.6%)
COMMERCIAL PAPER (8.6%)
Associates Corp. of North
America
4.00%, due 1/3/00.............. $5,970,000 5,968,673
Ford Motor Credit Co.
5.68%, due 1/12/00............. 3,000,000 2,994,791
6.35%, due 1/7/00.............. 2,000,000 1,997,877
General Electric Capital Corp.
5.57%, due 1/11/00............. 3,000,000 2,995,356
Merrill Lynch & Co. Inc.
5.80%, due 1/19/00............. 3,000,000 2,991,296
------------
Total Short-Term Investments
(Cost $16,947,993)............. 16,947,993
------------
Total Investments
(Cost $135,737,814) (c)........ 103.5% 203,972,381(d)
Liabilities in Excess of Cash,
and Other Assets............... (3.5) (6,982,767)
---------- ------------
Net Assets...................... 100.0% $196,989,614
========== ============
</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 December 31, 1999, net unrealized appreciation was $68,234,567, 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 $71,047,074 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,812,507.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
- -
<PAGE> 604
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$135,737,814)............................................. $203,972,381
Cash........................................................ 10,325
Receivables:
Fund shares sold.......................................... 2,080,092
MainStay Management....................................... 135,830
Dividends................................................. 845
Unamortized organization expense............................ 46,141
------------
Total assets........................................ 206,245,614
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 8,850,451
MainStay Management....................................... 144,012
NYLIFE Distributors....................................... 105,164
Fund shares redeemed...................................... 68,547
Transfer agent............................................ 33,085
Custodian................................................. 6,781
Trustees.................................................. 943
Accrued expenses............................................ 47,017
------------
Total liabilities................................... 9,256,000
------------
Net assets.................................................. $196,989,614
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 29,543
Class B................................................... 60,562
Class C................................................... 943
Additional paid-in capital.................................. 122,495,925
Accumulated net realized gain on investments................ 6,168,074
Net unrealized appreciation on investments.................. 68,234,567
------------
Net assets.................................................. $196,989,614
============
CLASS A
Net assets applicable to outstanding shares................. $ 64,470,439
============
Shares of beneficial interest outstanding................... 2,954,347
============
Net asset value per share outstanding....................... $ 21.82
Maximum sales charge (5.50% of offering price).............. 1.27
------------
Maximum offering price per share outstanding................ $ 23.09
============
CLASS B
Net assets applicable to outstanding shares................. $130,487,049
============
Shares of beneficial interest outstanding................... 6,056,204
============
Net asset value and offering price per share outstanding.... $ 21.55
============
CLASS C
Net assets applicable to outstanding shares................. $ 2,032,126
============
Shares of beneficial interest outstanding................... 94,311
============
Net asset value and offering price per share outstanding.... $ 21.55
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 605
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 269,980
Dividends (a)............................................. 31,251
-----------
Total income............................................ 301,231
-----------
Expenses:
Management................................................ 707,275
Distribution--Class B..................................... 327,239
Distribution--Class C..................................... 2,652
Transfer agent............................................ 255,827
Service--Class A.......................................... 66,855
Service--Class B.......................................... 109,080
Service--Class C.......................................... 884
Registration.............................................. 63,229
Professional.............................................. 31,634
Custodian................................................. 28,255
Recordkeeping............................................. 25,029
Shareholder communication................................. 22,455
Amortization of organization expense...................... 13,490
Trustees.................................................. 2,172
Miscellaneous............................................. 25,310
-----------
Total expenses.......................................... 1,681,386
-----------
Net investment loss......................................... (1,380,155)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 9,165,533
Net change in unrealized appreciation on investments........ 64,530,904
-----------
Net realized and unrealized gain on investments............. 73,696,437
-----------
Net increase in net assets resulting from operations........ $72,316,282
===========
</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.
14
- -
<PAGE> 606
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998(*)
Year ended through
December 31, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $(1,380,155) $ (290,244)
Net realized gain (loss) on investments................... 9,165,533 (1,630,794)
Net change in unrealized appreciation on investments...... 64,530,904 3,703,663
------------ -----------
Net increase in net assets resulting from operations...... 72,316,282 1,782,625
------------ -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 45,801,102 15,576,522
Class B................................................. 77,404,539 21,163,932
Class C................................................. 1,625,927 577
Cost of shares redeemed:
Class A................................................. (23,160,400) (991,817)
Class B................................................. (12,976,606) (1,464,204)
Class C................................................. (88,853) (12)
------------ -----------
Increase in net assets derived from capital share
transactions......................................... 88,605,709 34,284,998
------------ -----------
Net increase in net assets............................ 160,921,991 36,067,623
NET ASSETS:
Beginning of period......................................... 36,067,623 --
------------ -----------
End of period............................................... $196,989,614 $36,067,623
============ ===========
</TABLE>
- -------
<TABLE>
<C> <S>
(*) 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> 607
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------------- --------------------------- -------------------------------
June 1(*) June 1(*) September 1(**)
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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)................. (0.20) (0.10) (0.29) (0.12) (0.29) (0.09)
Net realized and
unrealized gain on
investments......... 11.51 0.61 11.38 0.58 11.38 2.12
------- ------- -------- ------- ------ ------
Total from investment
operations.......... 11.31 0.51 11.09 0.46 11.09 2.03
------- ------- -------- ------- ------ ------
Net asset value at
end of
period.............. $ 21.82 $ 10.51 $ 21.55 $ 10.46 $21.55 $10.46
======= ======= ======== ======= ====== ======
Total investment
return (b).......... 107.61% 5.10% 106.02% 4.60% 106.02% 24.08%
Ratios (to average
net assets)
Supplemental Data:
Net investment
loss............ (1.48%) (2.12%)(+) (2.23%) (2.87%)(+) (2.23%) (2.87%)(+)
Expenses.......... 1.91% 2.63%(+) 2.66% 3.38%(+) 2.66% 3.38%(+)
Portfolio turnover
rate................ 86% 32% 86% 32% 86% 32%
Net assets at end of
period
(in 000's).......... $64,470 $15,319 $130,487 $20,748 $2,032 $ 1
</TABLE>
- -------
<TABLE>
<C> <S>
(*) Commencement of Operations.
(**) Class C shares were first offered on September 1, 1998.
(+) Annualized.
Per share data based on average shares outstanding during
(a) the period.
Total return is calculated exclusive of sales charges and is
(b) 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> 608
Notes to Financial Statements
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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
17
-
<PAGE> 609
MainStay Small Cap Growth Fund
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 Fund's 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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
ORGANIZATION 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $1,380,155,
18
- -
<PAGE> 610
Notes to Financial Statements (continued)
$1,366,665 and $13,490 are decreases to accumulated net investment loss,
accumulated undistributed net realized gain on investments and additional
paid-in capital, respectively, due primarily from net investment loss incurred
by the Fund in 1999.
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 LLC (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 LLC
(the "Subadvisor"), a registered investment advisor 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 year ended December 31, 1999, the Manager
earned $707,275.
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, Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has
19
-
<PAGE> 611
MainStay Small Cap Growth Fund
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 $14,800 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class A, Class B and Class C
shares of $933, $47,467 and $401, respectively, for the year ended December 31,
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 year ended December 31, 1999
amounted to $255,827.
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 December 31, 1999, New York Life held shares of Class A with a net
asset value of $19,638,000 which represents 30.5% of the net assets of Class A
at year 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 $1,376 for the year ended
December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$25,029 for the year ended December 31, 1999.
20
- -
<PAGE> 612
Notes to Financial Statements (continued)
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $1,410,209 of capital loss carryforwards during the current
year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were $138,370 and $59,923, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998(*) THROUGH
DECEMBER 31, 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................................... 2,911 5,003 100 1,563 2,140 1
Shares issued in reinvestment of dividends and
distributions............................... -- -- -- -- -- --
------ ----- --- ----- ----- --
2,911 5,003 100 1,563 2,140 1
Shares redeemed............................... (1,414) (930) (6) (106) (157) --
------ ----- --- ----- ----- --
Net increase.................................. 1,497 4,073 94 1,457 1,983 1
====== ===== === ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
(*) Commencement of operations.
(**) First offered on September 1, 1998.
</TABLE>
21
-
<PAGE> 613
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Small Cap Growth Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
22
- -
<PAGE> 614
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 615
Officers & Trustees(*)
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
(*) As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN24-02/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay
Small Cap Growth Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 616
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
Year-by-Year Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 16
Report of Independent Accountants 21
The MainStay Funds 22
</TABLE>
<PAGE> 617
This page intentionally left blank
2
<PAGE> 618
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.(*)
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 2000
- ---------------
(*) Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
-
<PAGE> 619
$10,000 Invested in the MainStay
Small Cap Value Fund versus Russell 2000
Index and Inflation
CLASS A SHARES SEC Returns: 1 Year 0.27%, Since Inception -6.07%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
VALUE FUND RUSSELL 2000 INDEX(*) INFLATION (CPI)(+)
-------------- ------------------- ----------------
<S> <C> <C> <C>
6/1/98 9450 10000 10000
6/98 9119 10021 10006
9/98 7532 8002 10043
12/98 8533 9307 10098
3/99 7749 8802 10135
6/99 9119 10136 10209
9/99 8600 9495 10313
12/99 9055 11246 10368
</TABLE>
CLASS B SHARES SEC Returns: 1 Year 0.35%, Since Inception -5.76%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
VALUE FUND RUSSELL 2000 INDEX(*) INFLATION (CPI)(+)
-------------- --------------------- ------------------
<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
9/99 8620.00 9495.00 10313.00
12/99 9102.00 11246.00 10368.00
</TABLE>
CLASS C SHARES SEC Returns: 1 Year 4.35%, Since Inception -3.30%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
VALUE FUND RUSSELL 2000 INDEX(*) INFLATION (CPI)(+)
-------------- --------------------- ------------------
<S> <C> <C> <C>
6/1/98 10000 10000 10000
6/98 9640 10021 10006
9/98 7950 8002 10043
12/98 9000 9307 10098
3/99 8150 8802 10135
6/99 9580 10136 10209
9/99 9020 9495 10313
12/99 9481 11246 10368
</TABLE>
4
<PAGE> 620
- -------
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 figures 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(R) Index is an unmanaged index that measures the
performance of the 2,000 smallest companies in the Russell 3000(R) 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> 621
- -------
(1) See footnote on page 5 for more information on the Russell 2000(R) Index.
(2) The Russell 2000(R) Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth
values.
(3) The Russell 2000(R) Value Index measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
(4) See footnote and table on page 9 for more information on Lipper Inc.
(5) Returns reflect performance for the one-year period ended 12/31/99.
Portfolio Management Discussion and Analysis
The small-cap equity market generally outperformed both large-cap and mid-cap
stocks for the twelve months ended December 31, 1999. Yet within the small-cap
sector there was an historically wide divergence between growth and value
stocks, primarily as a result of the speculative nature of the market. Notably,
at year-end 1999, in terms of market capitalization growth stocks represented
11% more of the Russell 2000(R) Index(1) than at the end of the previous year.
In terms of market capitalization the technology sector comprised 30% of the
Russell 2000 Index, 12% higher than at the end of 1998. Led by the
momentum-driven technology sector, the Russell 2000(R) Growth Index(2) gained
43% for the twelve months ended December 31, 1999. Internet-related stocks alone
contributed 7.8% to the 43% performance of that Index. On the other hand, the
Russell 2000(R) Value Index(3) fell 1.5%, as traditional valuation and
fundamental measures were largely ignored in the wake of the enthusiasm
surrounding technology stocks.
Other stronger-performing small-cap sectors for the year included utilities and
producer durables. Weaker-performing sectors included auto and transportation,
financial services, and consumer staples.
PERFORMANCE REVIEW
For the twelve months ended December 31, 1999, the MainStay Small Cap Value Fund
returned 6.11% for Class A shares and 5.35% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the 6.33% return
of the average Lipper(4) small-cap value fund over the same period. The primary
reason for the Fund's shortfall was sticking to its discipline of seeking
companies with true value characteristics, such as low price-to-earnings and
price-to-book ratios, during a year when small-cap growth equities dramatically
outperformed small-cap value stocks. Still, the Fund benefited from its
diversified portfolio and its focus on well-managed companies that are growing
but selling at valuation discounts. All share classes underperformed the Russell
2000 Index which returned 21.26% for the period.
Although we made no major shifts in industry weightings during the year, several
new investments in the technology and energy sectors helped the Fund's
performance. The Fund also benefited from the sale at significant premiums of
stocks of companies that were takeover targets.
TECHNOLOGY SECTOR FOCUS AND OTHER CONTRIBUTORS
As expected, many of the Fund's biggest successes in 1999 were technology
related. Hadco Corp., the largest domestic printed circuit-board manufacturer,
was up 46%(5) during the year. C&D Technologies gained 55% on increasing
6
<PAGE> 622
YEAR-BY-YEAR PERFORMANCE
[PERFORMANCE CHART; BAR GRAPH]
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
------- -------------------
<S> <C> <C>
12/98 -9.7 -10
12/99 6.11 5.35
</TABLE>
demand for its wireless communications products, which resulted in strong
earnings growth.
Several Fund purchases in the technology sector also resulted in significant
gains. In April, the Fund bought the stock of Tekelec, a company that adds
intelligence to communications networks for applications like caller-ID and 800-
service, and by year-end the stock gained 142%. A June purchase of Clearnet
Communications, a leading digital wireless company in Canada, proved timely as
the stock subsequently appreciated 164%.
Other successful additions to the Fund's portfolio included Noble Drilling in
the energy sector and Jones Intercable in the broadcast/media sector. Noble
Drilling benefited from an improved outlook for offshore drilling as oil prices
rose, and from the time we purchased the stock in March through year-end, the
stock gained 91%. Jones Intercable, a leading cable TV company, moved up 95%
during the year, as it offered subscribers digital services and Internet
connections.
The Fund also benefited from external interest in several companies in its
portfolio. Profitable sales were made during the year in Sbarro, Optek
Technology, and Varlen after each received takeover proposals. The Fund also
sold Giant Industries, when refining margins declined after oil prices rose.
The portfolio's worst performer was Norstan, a provider of communications
products and services that reported disappointing earnings. The stock fell 64%.
We continue to hold this stock as new management has been installed. ISB
Financial, a bank in Louisiana, declined 28% on difficulties with merger
integration and pressure from higher interest rates. American Medical Security
Group, an insurance company, was down 58% on disappointing pricing trends
7
-
<PAGE> 623
Past performance is
no guarantee of
future results.
in Florida medical insurance. Since the company has a strong balance sheet,
however, we anticipate a steady recovery for this stock in the year 2000 as
other regions grow.
LOOKING FORWARD
Due to the underperformance of many of the value-oriented sectors of the
small-cap market, we firmly believe there will be significant opportunities to
buy well-managed companies with strong potential at substantial valuation
discounts in early 2000. Our research indicates that many of these stocks are in
the industrial sector, but real estate investment trusts (REITs) and some
financial stocks are also attractively priced. We anticipate that it will be
difficult to find undervalued stocks in the technology sector, as these names
continue to soar.
Our focus in 2000 will likely be on monitoring the Federal Reserve's efforts to
decelerate the economy without driving it into a recession. The outcome of that
effort could be critical to the Fund's ongoing investment strategy. 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.
8
<PAGE> 624
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS(*)
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 6.11 % -2.66%
Class B 5.35 % -3.30%
Class C 5.35 % -3.30%
</TABLE>
FUND SEC RETURNS(*)
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 0.27 % -6.07%
Class B 0.35 % -5.76%
Class C 4.35 % -3.30%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
1 YEAR LIFE OF FUND THROUGH 12/31/99
<S> <C> <C>
Class A 128 out of 89 out of
312 funds 275 funds
Class B 138 out of 102 out of
312 funds 275 funds
Class C 138 out of 96 out of
312 funds 285 funds
Average Lipper small-cap
value fund(++) 6.33% -4.15%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.56 $0.0000 $0.0206
Class B $9.46 $0.0000 $0.0206
Class C $9.46 $0.0000 $0.0206
</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. 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. 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 figures 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 12/31/99. 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 12/31/99.
Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999, is
reflected in this material.
9
-
<PAGE> 625
MainStay Small Cap Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
------------------------------
<S> <C> <C>
COMMON STOCKS (94.4%)(+)
AUTO PARTS & EQUIPMENT (3.0%)
Aftermarket Technology Corp.
(a)............................. 36,200 $ 432,137
Borg-Warner Automotive, Inc. .... 5,500 222,750
Mark IV Industries, Inc. ........ 15,600 275,925
-----------
930,812
-----------
BANKS (5.0%)
Colonial BancGroup, Inc. (The)... 27,000 280,125
ISB Financial Corp. ............. 13,400 184,250
Local Financial Corp. (a)........ 35,200 365,200
Peoples Heritage Financial Group,
Inc. ........................... 22,050 332,128
Staten Island Bancorp, Inc. ..... 23,700 426,600
-----------
1,588,303
-----------
BROADCAST/MEDIA (1.6%)
Jones Intercable, Inc. Class A
(a)............................. 7,200 499,050
-----------
BUILDING MATERIALS (3.2%)
NCI Building Systems, Inc. (a)... 23,400 432,900
Simpson Manufacturing Co., Inc.
(a)............................. 13,000 568,750
-----------
1,001,650
-----------
CHEMICALS (1.7%)
Schulman (A.), Inc. ............. 32,200 525,262
-----------
COMMUNICATIONS--EQUIPMENT (6.0%)
EMS Technologies, Inc. (a)....... 21,900 257,325
Plantronics, Inc. (a)............ 7,300 522,406
Tekelec (a)...................... 50,000 1,125,000
-----------
1,904,731
-----------
COMPUTER SOFTWARE & SERVICES
(7.1%)
IMRglobal Corp. (a).............. 27,700 347,981
Mastech Corp. (a)................ 17,800 440,550
Shared Medical Systems Corp. .... 8,900 453,344
Systems & Computer Technology
Corp. (a)....................... 21,700 352,625
THQ Inc. (a)..................... 28,350 657,366
-----------
2,251,866
-----------
COSMETICS/PERSONAL CARE (2.7%)
Rexall Sundown, Inc. (a)......... 34,600 356,812
Steiner Leisure Ltd. (a)......... 29,000 483,938
-----------
840,750
-----------
ELECTRIC POWER COMPANIES (2.2%)
TNP Enterprises, Inc. ........... 16,600 684,750
-----------
- --------------------------------------------------------------
(+) Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (8.1%)
C&D Technologies, Inc. .......... 14,100 $ 599,250
Hadco Corp. (a).................. 11,200 571,200
Harman International Industries,
Inc. ........................... 14,100 791,362
Technitrol, Inc. ................ 13,700 609,650
-----------
2,571,462
-----------
ELECTRONICS--SEMICONDUCTORS
(2.5%)
Etec Systems, Inc. (a)........... 17,700 794,287
-----------
FOOD (1.3%)
Smithfield Foods, Inc. (a)....... 16,600 398,400
-----------
HEALTH CARE--MEDICAL PRODUCTS
(5.9%)
Arrow International, Inc. ....... 14,600 423,400
Beckman Coulter, Inc. ........... 10,000 508,750
DENTSPLY International, Inc. .... 19,400 458,325
West Pharmaceutical Services,
Inc. ........................... 15,400 476,438
-----------
1,866,913
-----------
HEALTH CARE--MISCELLANEOUS (4.0%)
Mallinckrodt Inc. ............... 13,600 432,650
Orthodontic Centers of America,
Inc. (a)........................ 37,800 451,237
US Oncology, Inc. (a)............ 74,696 368,812
-----------
1,252,699
-----------
HOUSEWARES (0.9%)
Oneida Ltd. ..................... 13,100 284,925
-----------
INSURANCE (2.0%)
American Medical Security Group,
Inc. (a)........................ 37,400 224,400
MIIX Group, Inc. (The)........... 27,000 394,875
-----------
619,275
-----------
MACHINERY--DIVERSIFIED (2.3%)
IDEX Corp. ...................... 12,100 367,538
Specialty Equipment Cos., Inc.
(a)............................. 14,800 354,275
-----------
721,813
-----------
MANUFACTURING (6.3%)
Brady Corp. Class A.............. 11,200 380,100
CLARCOR Inc. .................... 16,700 300,600
Harsco Corp. .................... 8,700 276,225
Hussmann International, Inc. .... 23,900 359,994
Lancaster Colony Corp. .......... 14,000 463,750
Matthews International Corp. .... 7,900 217,250
-----------
1,997,919
-----------
METALS--PROCESSING & FABRICATION
(0.7%)
Hawk Corp. Class A (a)........... 38,400 223,200
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
- -
<PAGE> 626
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OFFICE EQUIPMENT & SUPPLIES
(1.7%)
Hunt Corp. ...................... 12,700 $ 120,650
Reynolds & Reynolds Co. (The).... 19,100 429,750
-----------
550,400
-----------
OIL & GAS SERVICES (2.7%)
Noble Drilling Corp. (a)......... 26,400 864,600
-----------
PAPER & FOREST PRODUCTS (2.1%)
FiberMark, Inc. (a).............. 26,700 313,725
Wausau-Mosinee Paper Corp. ...... 30,200 352,963
-----------
666,688
-----------
PUBLISHING (3.4%)
Hollinger International Inc. .... 32,300 417,881
R. H. Donnelley Corp. (a)........ 33,800 637,975
-----------
1,055,856
-----------
REAL ESTATE INVESTMENT/
MANAGEMENT (4.5%)
Bedford Property Investors,
Inc. ........................... 16,800 286,650
JP Realty, Inc. ................. 15,300 239,063
Koger Equity, Inc. .............. 22,200 374,625
LNR Property Corp. .............. 13,800 274,275
Pan Pacific Retail Properties,
Inc. ........................... 15,700 256,106
-----------
1,430,719
-----------
RESTAURANTS (2.9%)
Buffets, Inc. (a)................ 59,500 595,000
Landry's Seafood Restaurants,
Inc. (a)........................ 36,100 313,619
-----------
908,619
-----------
RETAIL (1.4%)
Payless ShoeSource, Inc. (a)..... 9,500 446,500
-----------
SPECIALIZED SERVICES (1.0%)
Staff Leasing, Inc. (a).......... 34,200 324,900
-----------
SPECIALTY PRINTING (1.2%)
Banta Corp. ..................... 16,500 372,281
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------------
<S> <C> <C>
TELECOMMUNICATIONS--LONG DISTANCE
(4.3%)
Clearnet Communications Inc.
Class A (a)..................... 35,100 $ 1,206,563
Norstan, Inc. (a)................ 23,800 151,725
-----------
1,358,288
-----------
TRANSPORTATION (1.4%)
Arnold Industries, Inc. ......... 30,700 431,719
-----------
TRUCKERS (1.3%)
Heartland Express, Inc. (a)...... 26,600 418,950
-----------
Total Common Stocks (Cost
$28,097,474).................... 29,787,587
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.9%)
TIME DEPOSIT (4.9%)
Bank of New York Cayman 3.00%,
due 1/3/2000.................... $1,558,000 1,558,000
-----------
Total Short-Term Investment (Cost
$1,558,000)..................... 1,558,000
-----------
Total Investments (Cost
$29,655,474) (b)................ 99.3% 31,345,587(c)
Cash and Other Assets, Less
Liabilities..................... 0.7 215,874
---------- -----------
Net Assets....................... 100.0% $31,561,461
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) The cost for Federal income tax purposes is $29,672,012.
(c) At December 31, 1999, net unrealized appreciation was $1,673,575, 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 $4,488,302 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $2,814,727.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
-
<PAGE> 627
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$29,655,474).............................................. $31,345,587
Cash........................................................ 30,645
Receivables:
Investment securities sold................................ 194,319
Dividends and interest.................................... 37,784
Fund shares sold.......................................... 36,153
Unamortized organization expense............................ 46,141
-----------
Total assets........................................ 31,690,629
-----------
LIABILITIES:
Payables:
MainStay Management....................................... 39,543
NYLIFE Distributors....................................... 16,526
Fund shares redeemed...................................... 13,164
Transfer agent............................................ 10,092
Custodian................................................. 6,583
Trustees.................................................. 237
Accrued expenses............................................ 43,023
-----------
Total liabilities................................... 129,168
-----------
Net assets.................................................. $31,561,461
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 15,900
Class B................................................... 16,619
Class C................................................... 670
Additional paid-in capital.................................. 30,477,147
Accumulated undistributed net investment income............. 7,770
Accumulated net realized loss on investments................ (646,758)
Net unrealized appreciation on investments.................. 1,690,113
-----------
Net assets.................................................. $31,561,461
===========
CLASS A
Net assets applicable to outstanding shares................. $15,205,264
===========
Shares of beneficial interest outstanding................... 1,590,020
===========
Net asset value per share outstanding....................... $ 9.56
Maximum sales charge (5.50% of offering price).............. 0.56
-----------
Maximum offering price per share outstanding................ $ 10.12
===========
CLASS B
Net assets applicable to outstanding shares................. $15,722,400
===========
Shares of beneficial interest outstanding................... 1,661,928
===========
Net asset value and offering price per share outstanding.... $ 9.46
===========
CLASS C
Net assets applicable to outstanding shares................. $ 633,797
===========
Shares of beneficial interest outstanding................... 67,005
===========
Net asset value and offering price per share outstanding.... $ 9.46
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
- -
<PAGE> 628
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 362,323
Interest.................................................. 64,435
----------
Total income............................................ 426,758
----------
Expenses:
Management................................................ 279,625
Transfer agent............................................ 115,074
Distribution--Class B..................................... 103,154
Distribution--Class C..................................... 3,334
Registration.............................................. 34,518
Service--Class A.......................................... 34,410
Service--Class B.......................................... 34,385
Service--Class C.......................................... 1,111
Shareholder communication................................. 27,586
Custodian................................................. 25,871
Professional.............................................. 23,655
Amortization of organization expense...................... 13,490
Recordkeeping............................................. 13,044
Trustees.................................................. 820
Miscellaneous............................................. 14,888
----------
Total expenses before reimbursement..................... 724,965
Expense reimbursement by Manager............................ (87,709)
----------
Net expenses............................................ 637,256
----------
Net investment loss......................................... (210,498)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 174,014
Net change in unrealized depreciation on investments........ 1,788,220
----------
Net realized and unrealized gain on investments............. 1,962,234
----------
Net increase in net assets resulting from operations........ $1,751,736
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 629
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
June 1, 1998(*)
Year ended through
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss....................................... $ (210,498) $ (145,914)
Net realized gain (loss) on investments................... 174,014 (611,042)
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,788,220 (98,107)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 1,751,736 (855,063)
----------- -----------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. (32,590) --
Class B................................................. (34,208) --
Class C................................................. (1,376) --
----------- -----------
Total distributions to shareholders................... (68,174) --
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 3,577,142 13,399,780
Class B................................................. 8,566,971 10,830,274
Class C................................................. 540,308 183,607
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. 30,736 --
Class B................................................. 32,019 --
Class C................................................. 684 --
----------- -----------
12,747,860 24,413,661
Cost of shares redeemed:
Class A................................................. (1,602,497) (201,264)
Class B................................................. (3,817,385) (676,513)
Class C................................................. (130,900) --
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 7,197,078 23,535,884
----------- -----------
Net increase in net assets............................ 8,880,640 22,680,821
NET ASSETS:
Beginning of period......................................... 22,680,821 --
----------- -----------
End of period............................................... $31,561,461 $22,680,821
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 7,770 $ 7,614
=========== ===========
</TABLE>
- -------
<TABLE>
<C> <S>
(*) 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> 630
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------------- --------------------------- ------------------------------
June 1(*) June 1(*) September 1(**)
Year ended through Year ended through Year ended through
December 31, December 31, December 31, December 31, December 31, 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).................. (0.03) (0.06) (0.10) (0.09) (0.10) (0.06)
Net realized and
unrealized gain
(loss) on
investments.......... 0.58 (0.91) 0.58 (0.91) 0.58 1.57
------- ------- ------- ------- ------ ------
Total from investment
operations........... 0.55 (0.97) 0.48 (1.00) 0.48 1.51
------- ------- ------- ------- ------ ------
Less distributions:
From net realized
gain on
investments........ (0.02) -- (0.02) -- (0.02) --
------- ------- ------- ------- ------ ------
Net asset value at end
of period............ $ 9.56 $ 9.03 $ 9.46 $ 9.00 $ 9.46 $ 9.00
======= ======= ======= ======= ====== ======
Total investment
return (b)........... 6.11% (9.70%) 5.35% (10.00%) 5.35% 20.16%
Ratios (to average net
assets)/
Supplemental Data:
Net investment
loss............. (0.34%) (1.53%)(+) (1.09%) (2.28%)(+) (1.09%) (2.28%)(+)
Net expenses....... 1.90% 3.14%(+) 2.65% 3.89%(+) 2.65% 3.89%(+)
Expenses (before
reimbursement)... 2.21% 3.14%(+) 2.96% 3.89%(+) 2.96% 3.89%(+)
Portfolio turnover
rate................. 42% 24% 42% 24% 42% 24%
Net assets at end of
period (in 000's).... $15,205 $12,339 $15,722 $10,145 $ 634 $ 196
</TABLE>
- -------
<TABLE>
<C> <S>
( *) Commencement of Operations.
(**) Class C shares were first offered on September 1, 1998.
( +) Annualized.
Per share data based on average shares outstanding during
(a) the period.
Total return is calculated exclusive of sales charges and is
(b) 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> 631
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. No sales charge applies on
investments of $1 million or more in Class A shares, but a contingent deferred
sales charge is imposed on certain redemptions of such shares within one year of
the date of purchase. 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.
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
16
- -
<PAGE> 632
Notes to Financial Statements
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 Fund's
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
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment would be made.
ORGANIZATION 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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $210,654, and $56,707 are
decreases to accumulated net investment loss and additional paid-in capital,
respectively. In addition, an increase of $153,947 has been made to accumulated
net realized loss on investments. These permanent book-tax differences are due
primarily to net investment loss incurred by the Fund in 1999 and the tax
treatment of income earned from Real Estate Investment Trusts.
17
-
<PAGE> 633
MainStay Small Cap Value 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 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 LLC (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 year ended December
31, 1999, the Manager earned $279,625 and reimbursed the Fund $87,709.
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, 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
18
- -
<PAGE> 634
Notes to Financial Statements (continued)
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 $5,914 for the year ended
December 31, 1999. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $21,039 and $576, respectively, for the year ended December 31, 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 year ended December 31,
1999, amounted to $115,074.
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 December 31, 1999, New York Life held shares of Class A and Class B
with net asset values of $8,604,000 and $946,000, respectively. This represents
56.6% and 6.0%, respectively, of the net assets at year 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 $703 for the year ended December
31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$13,044 for the year ended December 31, 1999.
19
-
<PAGE> 635
MainStay Small Cap Value Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund intends to elect, to the extent provided by regulations, to treat
$642,742 of qualifying capital losses that arose during the year as if they
arose on January 1, 2000. In addition, the Fund utilized $594,148 of capital
loss carryforwards during the current year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $17,723 and $11,137, respectively.
NOTE 6--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 1, 1998(*) THROUGH
DECEMBER 31, 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................................. 398 960 60 1,390 1,207 22
Shares issued in reinvestment of dividends
and distributions......................... 3 3 --(a) -- -- --
----- ---- --- ----- ----- --
401 963 60 1,390 1,207 22
Shares redeemed............................. (177) (428) (15) (24) (80) --
----- ---- --- ----- ----- --
Net increase................................ 224 535 45 1,366 1,127 22
===== ==== === ===== ===== ==
</TABLE>
- -------
<TABLE>
<C> <S>
(*) Commencement of operations.
(**) First offered on September 1, 1998.
(a) Less than one thousand.
</TABLE>
20
- -
<PAGE> 636
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay Small Cap Value Fund (one
of the portfolios constituting The MainStay Funds, hereafter referred to as the
"Fund") at December 31, 1999, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
21
-
<PAGE> 637
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 638
Officers & Trustees(*)
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
(*) As of December 31, 1999.
[MAINSTAY INVESTMENTS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN25-02/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay
Small Cap Value Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY INVESTMENTS LOGO]
<PAGE> 639
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in the MainStay MAP Equity
Fund versus the S&P 500 Index, the Lipper
Growth & Income Fund Index, and Inflation--
Class A, B, C, and I Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 15
Notes to Financial Statements 20
Report of Independent Accountants 26
The MainStay Funds 27
</TABLE>
<PAGE> 640
This page intentionally left blank
2
<PAGE> 641
President's Letter
The twentieth century has been a period of unprecedented change. From the dawn
of air travel and overseas radio, we've advanced to an age when computers, cell
phones, and satellites can instantly connect people anywhere around the globe.
During the past hundred years, scientists have discovered penicillin, virtually
eradicated polio, unraveled the secrets of DNA, and sent men to the moon and
back.
Financially, the world has also seen tremendous evolution and growth. From 1900
to the bull market of the 1990s, most investors have weathered wars,
depressions, recessions, oil embargoes, runaway inflation, currency
devaluations, and major shifts in political power. Yet despite the market's ups
and downs, investors have continued to increase their commitment and exposure to
the capital markets and have looked to mutual funds as a primary vehicle for
helping them meet their financial objectives. As a result, mutual funds as a
group have grown from small beginnings in the mid-1920s to over $6.8 trillion in
assets under management as of December 31, 1999.*
MainStay(R) Funds is proud to be part of America's financial heritage and the
growth of the mutual fund industry. At the dawn of a new millennium, we believe
it's helpful to look back at how far we've come. During the last few years,
we've witnessed a clear upward trend in the value of the broad equity market,
with returns exceeding historical norms.(+) While many of the positive
demographic and economic trends contributing to such unprecedented growth remain
in place today, this period has indeed been unusual. New challenges and
opportunities are to be expected in an ever-changing world, but are difficult to
anticipate. As a result, it is prudent to periodically meet with your investment
professional to review your strategies and make sure they're consistent with
your long-term goals.
At MainStay Funds, we seek to help you steer your portfolio with a steady hand
by focusing on discipline and consistency of style. Our Funds' portfolio
managers continue to manage their portfolios according to investment strategies
based on ongoing market or securities research and backed by many years of
investment experience. Though popular trends may get a great deal of short-term
publicity, they do not sway the investment disciplines of the Funds' portfolio
managers. This may help give you the consistency needed to pursue specific goals
in a well-rounded investment program.
This annual report explains the events that affected your MainStay investment
during the twelve months ended December 31, 1999. The portfolio manager
commentary can tell you more about the Fund's investment strategies and
performance results. If you have any questions, your investment professional
will be pleased to assist you.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
January 2000
- ---------------
* Source: "Trends in Mutual Fund Investing, December 1999," Investment Company
Institute.
(+) Source: Stocks, Bonds, Bills, and Inflation(R) 1999 Yearbook, (C) 1999
Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and
Sinquefield. All rights reserved. Used with permission.
3
-
<PAGE> 642
$10,000 Invested in the MainStay MAP Equity
Fund versus the S&P 500 Index, the Lipper Growth & Income Fund Index, and
Inflation
CLASS I SHARES SEC Returns: 1 Year 6.85%, 5 Years 22.89%, 10 Years 15.41%
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
-------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
12/89 10000.00 10000.00 9525.00 10000.00
12/90 9690.00 9401.00 9032.00 10625.00
12/91 12636.00 12010.00 11534.00 10942.00
12/92 13597.00 13166.00 12760.00 11265.00
12/93 14943.00 15091.00 13862.00 11574.00
12/94 15160.00 15029.00 14250.00 11875.00
12/95 20851.00 19710.00 18898.00 12184.00
12/96 25634.00 23783.00 23438.00 12587.00
12/97 34186.00 30176.00 30082.00 12801.00
12/98 43956.00 34274.00 37392.00 13007.00
12/99 53205.00 38339.00 41929.00 13356.00
</TABLE>
CLASS A SHARES SEC Return: Since Inception 1.61%
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
-------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 10000.00 10000.00 9550.00 10000.00
6/30/99 10544.00 10339.00 9858.00 10000.00
9/30/99 9885.00 9512.00 9119.00 10102.00
12/31/99 11356.00 10364.00 10161.00 10157.00
</TABLE>
CLASS B SHARES SEC Return: Since Inception 2.23%
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
-------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 10000.00 10000.00 10000.00 10000.00
6/30/99 10544.00 10339.00 9909.00 10000.00
9/30/99 9885.00 9512.00 9151.00 10102.00
12/31/99 11356.00 10364.00 10223.00 10157.00
</TABLE>
4
<PAGE> 643
CLASS C SHARES SEC Return: Since Inception 6.23%
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
-------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 10000.00 10000.00 10000.00 10000.00
6/30/99 10544.00 10339.00 10326.00 10000.00
9/30/99 9885.00 9512.00 9536.00 10102.00
12/31/99 11356.00 10364.00 10623.00 10157.00
</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.
MainStay Management LLC has contractually agreed to limit total annual fund
operating expenses to 1.00% for Class I shares, 1.25% for Class A shares
and 2.00% for Class B and Class C shares through May 31, 2001, after which
time MainStay Management LLC may discontinue the limitation. Without such
expense limitations, performance may have been lower. 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 12/31/89 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. The Class I graph assumes an
initial investment of $10,000 made on 12/31/89 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. The Class A graph assumes
an initial investment of $10,000 made on 6/9/99 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 6/9/99. Performance reflects a 5% 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 6/9/99 and reflects the 1%
CDSC, as it would 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 widely regarded as the standard for measuring
large-cap U.S. stock market performance. 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 thirty 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.
5
-
<PAGE> 644
Portfolio Management Discussion and Analysis
For the twelve months ended December 31, 1999, the S&P 500 Composite Stock Price
Index(1) appreciated in excess of 20% for a record fifth consecutive year, and
small-cap stocks outperformed both their large-cap and mid-cap counterparts for
the first time in five years. Within each capitalization sector of the U.S.
equity market, growth stocks were very much in favor during 1999, led by
technology and Internet-related stocks. Except during the second quarter of
1999, value stocks were largely neglected. Over the course of the year,
small-cap growth stocks outperformed small-cap value stocks by more than 40%.
Volatility within the U.S. equity markets remained high. The S&P 500 Index
advanced as 1999 began, although sell-offs in large-cap technology stocks raised
early concerns. April saw shifts into small- and mid-cap stocks as large-cap
growth stocks underperformed their value counterparts for the first time in
nearly one and a half years. Strength in energy-related stocks, positive
earnings surprises, and a rotation into cyclicals led to the stronger returns in
these long out-of-favor value sectors. By June, technology stocks pushed
large-cap growth stocks back into the lead. Third-quarter equity returns were
negative across small-, mid-, and large-capitalization indices. Large cap-stock
performance soared for the year, but small-cap stocks outperformed for the
fourth quarter, as many investors sought to take advantage of lower valuations
among small-cap equities.
PERFORMANCE REVIEW
For the twelve months ended December 31, 1999, the MainStay MAP Equity Fund
returned 12.18% for Class I shares, excluding all sales charges, underperforming
the 22.49% return of the average Lipper(2) multi-cap core fund and the 21.04%
return of the S&P 500 Index for the same period. For the period from June 9,
1999--date of initial offering--through December 31, 1999, Class A shares
returned 7.53% and Class B and Class C shares returned 7.23%, excluding all
sales charges.
The primary reason for the Fund's underperformance in 1999 was its value
discipline, which seeks companies with low price to book value or price to cash
flow ratios plus a catalyst, such as management changes, restructurings, or
sales of underperforming assets, that may unlock a company's potential. Unlike
some value managers who tried to improve returns by stepping into the growth
arena, we remained focused on our value-oriented process.
Given our strict discipline, it is worth noting that the Fund outperformed the
Russell 3000(R) Value Index,(3) which returned 6.65% for the year ended
- --------
(1) See footnote on page 5 for more information on the S&P 500() Index.
(2) See footnote and table on page 10 for more information on Lipper Inc.
(3) The Russell 3000(R) Value Index measures the performance of those Russell
3000 Index companies with lower price-to-book ratios and lower forecasted
growth values. The Russell 3000 Index is an unmanaged index that includes
the 3,000 largest U.S. companies based on total market capitalization. An
investment cannot be made directly into an index.
6
<PAGE> 645
YEAR-BY-YEAR PERFORMANCE
CLASS I SHARES
<TABLE>
<CAPTION>
CLASS I SHARES
--------------
<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
12/99 12.18
</TABLE>
CLASS A, B, AND C SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------ -------------------------------------------
<S> <C>
12/99 7.53 Class A
12/99 7.23 Class B and Class C
</TABLE>
December 31, 1999. Through most of the year, approximately two-thirds of the
portfolio was invested in mid-cap and small-cap securities. Thus, it is also
notable that the Fund outperformed the Russell Midcap(TM) Value Index,(4) which
had a -0.11% return for 1999. Several of the Fund's holdings blossomed from
value to growth stocks during the year.
It is also worth noting that Morningstar(5) rated the MainStay MAP Equity Fund
Class I shares four stars overall as of December 31, 1999. The Fund's Class I
shares received four stars for the three-, five-, and ten-year periods ended
December 31, 1999, from among 3,469, 2,180, and 770 domestic equity funds,
respectively.
- -------
(4) The Russell Midcap(TM) Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000() Index, which
in turn, is an unmanaged index that measures the performance of the 1,000
largest companies in the Russell 3000() Index. The Russell Midcap Value
Index is an unmanaged index that measures the performance of those Russell
Midcap companies with lower price-to-book ratios and lower forecasted growth
values. An investment cannot be made directly into an index.
(5) 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) to five
(high) stars are based on a fund's three-, five-, and ten-year average
annual returns (if applicable) with fee adjustments in excess of 90-day
Treasury bill returns, and a risk factor that reflects fund performance
below 90-day Treasury bill 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. Funds (or share classes) are not rated until they have
three years of performance history.
7
-
<PAGE> 646
The reorganization of the MAP-Equity Fund into the MainStay MAP Equity Fund on
June 9, 1999, was a significant event for Fund shareholders. The Fund maintained
its investment objective and policies, as well as two of its long-standing
portfolio managers.
DIVERSIFIED VALUE APPROACH
The following were among the Fund's top performing securities during 1999.
- - TriQuint Semiconductor rose more than 600% since we purchased it for the Fund
in March 1999. The company's new semiconductor fab product surfaced without
serious complications, its price-earnings multiple increased, gross margins
expanded, volume surged, earnings exceeded expectations, and demand from its
traditional customers, including Nokia, Ericsson, QUALCOMM, and Nortel
strengthened in the accelerating pace of the communications revolution.
- - Seagate Technology was up 51% for the year since the Fund's purchase. The
stock rose on improved operations in its base disc-drive business and a
subsidiary's merger with Veritas Software, which created several billion
dollars of added value.
- - Catalina Marketing stock had quadrupled from the Fund's initial purchase price
a few years ago. The Fund added to its position in 1999 when we realized the
company's coupon-distribution web site was attracting substantial traffic. The
stock price rose substantially when the company's volume came in ahead of
expectations and earnings surged.
- - Titan Corp. appreciated more than 400% since we purchased it for the Fund
during the year. Titan Corp. is a major supplier to the nation's security
services. The first of its technology subsidiaries, an e-commerce software
operation, is about to go public.
- - American Express rose 62% for the year, as heavy Internet investments helped
the company emerge as a leader in on-line banking.
Not all of the Fund's stocks performed as well. CVS was among the Fund's
worst-performing stocks, as the company faced new competition from Internet drug
stores and the ripple effect of a close competitor's near meltdown that raised
questions about the drug-chain business overall. Louisiana-Pacific also
performed poorly as the company, in the midst of a turnaround, was hurt by a
price decline in oriented strand fiber board. Harte-Hanks suffered from Internet
competition and lower-than-expected growth rates. Despite a negative impact on
performance in 1999, we maintained the Fund's holdings in each of these stocks,
as we continue to believe in their long-range potential.
8
<PAGE> 647
RESHAPING THE PORTFOLIO
We made some significant purchases and sales for the Fund during 1999. Besides
those already mentioned, we initiated positions in KN Energy (now Kinder
Morgan), Clorox, Becton Dickinson, and PathoGenesis. Each of these stocks was
bought after its price declined, as we sought to take advantage of attractive
near-term prospects among companies that might benefit from management
restructurings or insider buying. One major sale was Bankers Trust, which was
acquired by Deutsche Bank. We tendered the Fund's shares with a positive impact
on performance. We reduced the Fund's position in Motorola prior to the Iridium
bankruptcy and in VICORP Restaurants, which held a cash tender at a premium
price at year-end 1999.
LOOKING AHEAD
We believe that the U.S. economy still has substantial momentum and that the
financial fundamentals for both households and businesses remain strong. We also
feel that the Federal Reserve could continue to raise interest rates in the
first half of 2000, as it seeks to slow real economic growth to a more
sustainable pace. We will factor these considerations into our stock-selection
process as the new year gets underway. We also anticipate selling certain stocks
in the near term because they have reached hard-to-justify valuations.
We continue to search for off-the-beaten-path value situations with catalysts
that may improve the company's prospects over time. Without capitalization
constraints, we enjoy the flexibility to invest the Fund's assets in a
diversified, eclectic selection of securities. 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.
9
-
<PAGE> 648
Returns and Lipper Rankings as of 12/31/99
FUND AVERAGE ANNUAL TOTAL RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a 7.53%
Class B n/a n/a n/a 7.23%
Class C n/a n/a n/a 7.23%
Class I 12.18% 24.09% 15.98% 12.10%
</TABLE>
FUND SEC RETURNS*
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a 1.61%
Class B n/a n/a n/a 2.23%
Class C n/a n/a n/a 6.23%
Class I 6.85% 22.89% 15.41% 11.91%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
LIFE OF FUND
1 YEAR 5 YEARS 10 YEARS THROUGH 12/31/99
<S> <C> <C> <C> <C>
Class A n/a n/a n/a 329 out of
446 funds
Class B n/a n/a n/a 333 out of
446 funds
Class C n/a n/a n/a 333 out of
446 funds
Class I 285 out of 44 out of 25 out of 14 out of
387 funds 143 funds 68 funds 29 funds
Average Lipper
multi-cap
core fund(++) 22.49% 23.07% 15.51% 12.31%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 12/31/99
<TABLE>
<CAPTION>
NAV 12/31/99 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $26.22 $0.0770 $0.9411
Class B $26.15 $0.0720 $0.9411
Class C $26.15 $0.0720 $0.9411
Class I $26.25 $0.1093 $1.1411
</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. MainStay Management
LLC has contractually agreed to limit total annual fund operating expenses to
1.00% for Class I shares, 1.25% for Class A shares
10
- -
<PAGE> 649
and 2.00% for Class B and Class C shares through May 31, 2001, after which
time MainStay Management LLC may discontinue the limitation. Without such
expense limitations, performance may have been lower. 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 loads and expense
structures.
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 12/31/99. 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 12/31/99. Lipper
averages are not class specific. Lipper returns and rankings are unaudited.
(++) Lipper's new fund classification structure, effective September 1999, is
reflected in this material.
11
-
<PAGE> 650
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.0%)+
AEROSPACE/DEFENSE (2.5%)
Boeing Co. (The)................. 16,148 $ 671,151
Lockheed Martin Corp. ........... 67,000 1,465,625
-----------
2,136,776
-----------
BANKS (4.1%)
Northern Trust Corp. ............ 28,010 1,484,530
Popular, Inc. ................... 20,940 585,011
State Street Corp. .............. 20,000 1,461,250
-----------
3,530,791
-----------
BEVERAGES (0.1%)
PepsiCo, Inc. ................... 3,597 126,794
-----------
BIOTECHNOLOGY (1.6%)
Biogen, Inc. (a)................. 16,112 1,361,464
-----------
BROADCAST/MEDIA (0.5%)
MediaOne Group, Inc. (a)......... 5,928 455,344
-----------
BUILDING MATERIALS (5.0%)
Martin Marietta Materials,
Inc. ........................... 20,000 820,000
Valspar Corp. (The).............. 3,445 144,259
Vulcan Materials Co.............. 84,478 3,373,840
-----------
4,338,099
-----------
CHEMICALS (1.5%)
IMC Global Inc. ................. 5,850 95,794
Great Lakes Chemical Corp. ...... 30,405 1,161,091
-----------
1,256,885
-----------
COMMUNICATIONS--EQUIPMENT (2.5%)
Cabletron Systems, Inc. (a)...... 17,100 444,600
CommScope, Inc. (a).............. 28,318 1,141,569
Nortel Networks Corp. ........... 5,472 552,672
-----------
2,138,841
-----------
COMPUTER SOFTWARE & SERVICES (11.7%)
ACNielsen Corp. (a).............. 93,259 2,296,503
Ardent Software, Inc. (a)........ 24,300 947,700
Avid Technology, Inc. (a)........ 12,432 162,393
Electronic Data Systems Corp. ... 12,113 810,814
Informix Corp. (a)............... 70,000 800,625
National Computer Systems,
Inc. ........................... 75,940 2,857,243
Shared Medical Systems Corp. .... 6,282 319,989
Titan Corp. (The) (a)............ 40,000 1,885,000
-----------
10,080,267
-----------
COMPUTER SYSTEMS (5.1%)
Seagate Technology, Inc. (a)..... 94,000 4,376,875
-----------
- --------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
COSMETICS/PERSONAL CARE (0.5%)
Gillette Co. (The)............... 9,823 $ 404,585
-----------
ELECTRIC POWER COMPANIES (0.8%)
Reliant Energy, Inc. ............ 31,622 723,353
-----------
ELECTRICAL EQUIPMENT (0.3%)
Checkpoint Systems, Inc. (a)..... 23,203 236,381
-----------
ELECTRONICS--COMPONENTS (1.1%)
Arrow Electronics, Inc. (a)...... 36,475 925,553
-----------
ELECTRONICS--SEMICONDUCTORS
(2.9%)
Motorola, Inc. .................. 6,131 902,790
TriQuint Semiconductor, Inc.
(a)............................. 14,439 1,606,339
-----------
2,509,129
-----------
ENTERTAINMENT (3.2%)
Time Warner, Inc. ............... 38,702 2,803,476
-----------
FINANCE (2.3%)
American Express Co. ............ 12,207 2,029,414
-----------
FOOD (2.0%)
Bestfoods........................ 6,589 346,334
Quaker Oats Co. (The)............ 14,349 941,653
Ralston Purina Co................ 14,641 408,118
-----------
1,696,105
-----------
HEALTH CARE--DRUGS (5.8%)
PathoGenesis Corp. (a)........... 106,800 2,289,525
Pharmacia & Upjohn, Inc. ........ 56,657 2,549,565
Schering-Plough Corp. ........... 4,584 193,388
-----------
5,032,478
-----------
HEALTH CARE--MEDICAL PRODUCTS (1.8%)
Becton, Dickinson & Co. ......... 56,900 1,522,075
-----------
HEALTH CARE--MISCELLANEOUS (1.7%)
Caremark Rx, Inc. (a)............ 47,942 242,706
Johnson & Johnson................ 13,027 1,213,139
-----------
1,455,845
-----------
HOUSEHOLD PRODUCTS (2.7%)
Clorox Co. (The)................. 45,500 2,292,063
-----------
HOUSEWARES (0.1%)
Tupperware Corp. ................ 6,079 102,963
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
- -
<PAGE> 651
Portfolio of Investments December 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE (3.1%)
ALLmerica Financial Corp. ....... 40,251 $ 2,238,962
SAFECO Corp. (The)............... 17,680 439,790
-----------
2,678,752
-----------
MANUFACTURING--DIVERSIFIED (2.0%)
Minnesota Mining and
Manufacturing Co. .............. 10,790 1,056,071
Pentair, Inc. ................... 1,774 68,299
Tyco International Ltd. ......... 15,032 584,369
-----------
1,708,739
-----------
NATURAL GAS DISTRIBUTORS &
PIPELINES (3.7%)
Kinder Morgan, Inc. ............. 156,900 3,167,419
-----------
OIL & GAS SERVICES (2.8%)
Apache Corp. .................... 5,661 209,103
Devon Energy Corp. .............. 18,242 599,706
Santa Fe Synder Corp. (a)........ 200,000 1,600,000
-----------
2,408,809
-----------
OIL--INTEGRATED INTERNATIONAL
(1.5%)
BP Amoco PLC ADR (b)............. 14,736 874,029
Royal Dutch Petroleum Co. ADR
(b)............................. 6,415 387,707
-----------
1,261,736
-----------
PAPER & FOREST PRODUCTS (1.6%)
Louisiana-Pacific Corp. ......... 97,863 1,394,548
-----------
PUBLISHING (1.1%)
Meredith Corp. .................. 15,400 641,988
R.H. Donnelley Inc. (a).......... 9,808 185,126
Thomas Nelson, Inc............... 10,082 93,258
Times Mirror Co. (The)........... 49 3,283
-----------
923,655
-----------
REAL ESTATE INVESTMENT/
MANAGEMENT (0.6%)
Health Care Property Investors,
Inc. ........................... 14,946 356,836
United Dominion Realty Trust,
Inc. ........................... 21,339 210,723
-----------
567,559
-----------
RESTAURANTS (1.4%)
VICORP Restaurants, Inc. (a)..... 73,135 1,179,302
-----------
</TABLE>
<TABLE>
- --------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
RETAIL (4.7%)
Burlington Coat Factory Warehouse
Corp. .......................... 31,348 $ 434,954
Charming Shoppes, Inc. (a)....... 67,200 445,200
CVS Corp. ....................... 45,776 1,828,179
Kroger Co. (The) (a)............. 30,128 568,666
Mazel Stores, Inc. (a)........... 49,600 458,800
Penney (J.C.) Co., Inc. ......... 6,242 124,450
Systemax Inc. (a)................ 20,306 172,601
-----------
4,032,850
-----------
RETAIL--INTERNET (0.4%)
Webvan Group Inc. (a)............ 19,500 321,750
-----------
SPECIALIZED SERVICES (8.7%)
Catalina Marketing Corp. (a)..... 31,537 3,650,408
Cendant Corp. (a)................ 13,000 345,312
Dun & Bradstreet Corp. (The)..... 19,920 587,640
Gartner Group, Inc. (a).......... 2,178 30,084
Harte-Hanks, Inc. ............... 85,662 1,863,148
IMS Health Inc. ................. 16,730 454,847
National Service Industries,
Inc. ........................... 18,744 552,948
-----------
7,484,387
-----------
TELECOMMUNICATIONS--LONG DISTANCE
(3.3%)
Qwest Communications
International Inc. (a).......... 22,000 946,000
Sprint Corp. .................... 21,734 1,462,970
Sprint Corp. (PCS Group) (a)..... 3,933 403,132
-----------
2,812,102
-----------
TELEPHONE (1.7%)
GTE Corp. ....................... 5,237 369,536
US West, Inc. ................... 15,500 1,116,000
-----------
1,485,536
-----------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Burlington Industries, Inc.
(a)............................. 14,286 57,144
-----------
TOYS (0.5%)
Mattel, Inc. .................... 31,700 416,063
-----------
TRANSPORTATION (0.0%)(c)
Petroleum Helicopters, Inc. ..... 2,534 24,706
-----------
WASTE DISPOSAL (0.0%)(c)
Safety-Kleen Corp. (a)........... 3,500 39,594
-----------
Total Common Stocks
(Cost $61,624,021).............. 83,500,207
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 652
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS (0.3%)
BROADCAST/MEDIA (0.3%)
News Corp. Ltd., Pfd. ADR
(a)(b).......................... 8,614 $ 288,031
-----------
MISCELLANEOUS (0.0%)(c)
Craig Corp., Class A (a)......... 3,242 20,262
-----------
Total Preferred Stocks
(Cost $92,849).................. 308,293
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.3%)
TIME DEPOSIT (3.3%)
Bank of New York Cayman
3.00%, due 1/3/00............... $2,850,000 2,850,000
-----------
Total Short-Term Investment
(Cost $2,850,000)............... 2,850,000
-----------
Total Investments
(Cost $64,566,870) (d).......... 100.6% 86,658,500(e)
Liabilities in Excess of Cash,
and Other Assets................ (0.6) (559,397)
---------- -----------
Net Assets....................... 100.0% $86,099,103
========== ===========
</TABLE>
- -------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Less than one tenth of a percent.
(d) The cost for Federal income tax purposes is $64,552,738.
(e) At December 31, 1999, net unrealized appreciation was $22,105,762, 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 $25,759,586 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,653,824.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
- -
<PAGE> 653
Statement of Assets and Liabilities as of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$64,566,870).............................................. $86,658,500
Cash........................................................ 22,412
Receivables:
Fund shares sold.......................................... 230,213
Dividends and interest.................................... 37,334
Investment securities sold................................ 15,752
-----------
Total assets........................................ 86,964,211
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 720,032
MainStay Management....................................... 50,410
Transfer agent............................................ 30,421
Fund shares redeemed...................................... 17,912
NYLIFE Distributors....................................... 12,124
Custodian................................................. 6,738
Trustees.................................................. 612
Accrued expenses............................................ 26,859
-----------
Total liabilities................................... 865,108
-----------
Net assets.................................................. $86,099,103
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 3,299
Class B................................................... 4,402
Class C................................................... 948
Class I................................................... 24,177
Additional paid-in capital.................................. 62,874,856
Accumulated undistributed net realized gain on
investments............................................... 1,099,791
Net unrealized appreciation on investments.................. 22,091,630
-----------
Net assets.................................................. $86,099,103
===========
CLASS A
Net assets applicable to outstanding shares................. $ 8,650,528
===========
Shares of beneficial interest outstanding................... 329,877
===========
Net asset value per share outstanding....................... $ 26.22
Maximum sales charge (5.50% of offering price).............. 1.53
-----------
Maximum offering price per share outstanding................ $ 27.75
===========
CLASS B
Net assets applicable to outstanding shares................. $11,510,516
===========
Shares of beneficial interest outstanding................... 440,249
===========
Net asset value and offering price per share outstanding.... $ 26.15
===========
CLASS C
Net assets applicable to outstanding shares................. $ 2,478,166
===========
Shares of beneficial interest outstanding................... 94,785
===========
Net asset value and offering price per share outstanding.... $ 26.15
===========
CLASS I
Net assets applicable to outstanding shares................. $63,459,893
===========
Shares of beneficial interest outstanding................... 2,417,670
===========
Net asset value and offering price per share outstanding.... $ 26.25
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
-
<PAGE> 654
Statement of Operations for the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 760,892
Interest.................................................. 187,056
----------
Total income............................................ 947,948
----------
Expenses:
Management................................................ 371,497
Transfer agent............................................ 130,889
Professional.............................................. 49,705
Custodian................................................. 47,066
Shareholder communication................................. 24,169
Distribution--Class B..................................... 21,328
Distribution--Class C..................................... 3,802
Registration.............................................. 17,891
Recordkeeping............................................. 15,964
Service--Class A.......................................... 8,249
Service--Class B.......................................... 7,109
Service--Class C.......................................... 1,267
Trustees.................................................. 6,934
Miscellaneous............................................. 47,757
----------
Total expenses before reimbursement..................... 753,627
----------
Expense reimbursement by Manager............................ (65,954)
----------
Net expenses................................................ 687,673
----------
Net investment income....................................... 260,275
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 4,098,524
Net change in unrealized appreciation on investments........ 4,226,445
----------
Net realized and unrealized gain on investments............. 8,324,969
----------
Net increase in net assets resulting from operations........ $8,585,244
==========
</TABLE>
- -------
(a) Dividends recorded net of foreign withholding taxes of $2,400.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
- -
<PAGE> 655
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 260,275 $ 1,056,936
Net realized gain on investments.......................... 4,098,524 24,437,046
Net change in unrealized appreciation on investments...... 4,226,445 (7,605,790)
------------ ------------
Net increase in net assets resulting from operations...... 8,585,244 17,888,192
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (11,898) --
Class B................................................. (1,837) --
Class C................................................. (222) --
Class I................................................. (269,185) (1,058,983)
From net realized gain on investments:
Class A................................................. (310,408) --
Class B................................................. (381,844) --
Class C................................................. (81,020) --
Class I................................................. (2,719,235) (12,763,987)
------------ ------------
Total dividends and distributions to shareholders..... (3,775,649) (13,822,970)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 9,046,008 --
Class B................................................. 11,149,210 --
Class C................................................. 2,347,220 --
Class I................................................. 13,782,334 10,253,237
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 264,532 --
Class B................................................. 365,251 --
Class C................................................. 79,366 --
Class I................................................. 2,757,364 12,935,771
------------ ------------
39,791,285 23,189,008
Cost of shares redeemed:
Class A................................................. (900,257) --
Class B................................................. (279,066) --
Class C................................................. (28,635) --
Class I................................................. (17,708,062) (61,012,177)
------------ ------------
Increase (decrease) in net assets derived from capital
share transactions................................... 20,875,265 (37,823,169)
------------ ------------
Net increase (decrease) in net assets................. 25,684,860 (33,757,947)
NET ASSETS:
Beginning of year........................................... 60,414,243 94,172,190
------------ ------------
End of year................................................. $86,099,103 $ 60,414,243
============ ============
Accumulated undistributed net investment income at end of
year...................................................... $ -- $ 45,300
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
-
<PAGE> 656
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
December 31, December 31, December 31,
1999 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $25.38 $ 25.38 $25.38
------ ------- ------
Net investment income....................................... 0.05 0.02 0.02
Net realized and unrealized gain on investments............. 1.81 1.76 1.76
------ ------- ------
Total from investment operations............................ 1.86 1.78 1.78
------ ------- ------
Less dividends and distributions:
From net investment income................................ (0.08) (0.07) (0.07)
From net realized gain on investments..................... (0.94) (0.94) (0.94)
Distribution in excess of net investment income........... -- -- --
------ ------- ------
Total dividends and distributions........................... (1.02) (1.01) (1.01)
------ ------- ------
Net asset value at end of period............................ $26.22 $ 26.15 $26.15
====== ======= ======
Total investment return (a)................................. 7.53% 7.23% 7.23%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)............................ 0.46%+ (0.29)%+ (0.29)%+
Net expenses............................................ 1.25%+ 2.00%+ 2.00%+
Expenses (before reimbursement)......................... 1.41%+ 2.16%+ 2.16%+
Portfolio turnover rate..................................... 32% 32% 32%
Net assets at end of period (in 000's)...................... $8,651 $11,511 $2,478
</TABLE>
- -------
<TABLE>
<C> <S>
* The financial information for the year ended December 31,
1998 and prior relates to the MAP-Equity Fund shares, which
were reorganized into Class I shares as of the close of
business on June 8, 1999. Financial information for the year
ending December 31, 1999 represents the combined results of
operations of the MAP-Equity Fund and MainStay MAP Equity
Fund.
** Class A, B and C shares first offered on June 9, 1999.
+ 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> 657
<TABLE>
<CAPTION>
Class I*
-----------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 24.58 $ 22.73 $ 20.66 $ 19.36 $ 16.67
------- ------- ------- ------- -------
0.11 0.33 0.28 0.36 0.43
2.81 4.81 5.49 4.16 4.90
------- ------- ------- ------- -------
2.92 5.14 5.77 4.52 5.33
------- ------- ------- ------- -------
(0.11) (0.33) (0.29) (0.36) (0.43)
(1.14) (2.96) (3.41) (2.86) (2.07)
-- -- -- -- (0.14)
------- ------- ------- ------- -------
(1.25) (3.29) (3.70) (3.22) (2.64)
------- ------- ------- ------- -------
$ 26.25 $ 24.58 $ 22.73 $ 20.66 $ 19.36
======= ======= ======= ======= =======
12.18% 24.23% 27.99% 23.82% 32.50%
0.39% 1.10% 1.18% 1.82% 2.30%
0.88% 0.70% 0.82% 0.74% 0.81%
0.96% 0.77% 0.82% 0.74% 0.81%
32% 41% 58% 53% 39%
$63,460 $60,414 $94,172 $73,591 $60,467
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
-
<PAGE> 658
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 acquisition was accomplished by a tax free exchange of Class I shares
of MainStay MAP Equity Fund in the amount equal to the outstanding shares
MAP-Equity Fund, effective on June 9, 1999. The financial statements of the
MainStay MAP Equity Fund reflect the historical financial results of the
MAP-Equity Fund prior to the reorganization. Prior to the reorganization, the
MainStay MAP Equity Fund had not commenced operations and had no assets or
liabilities. MainStay Management LLC agreed to bear all costs related to the
reorganization.
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. No sales charge applies on investments of $1
million or more in Class A shares, but a contingent deferred sales charge is
imposed on certain redemptions of such shares within one year of the date of
purchase. 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. Prior to reorganization Class I shares were subject to a 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 under a distribution plan pursuant to Rule 12b-1
under the 1940 Act. Class I shares are not subject to a distribution or service
fee and may be sold to institutional investors and other individuals, as
detailed in the prospectus.
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.
20
- -
<PAGE> 659
Notes to Financial Statements
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.
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 Fund's 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
Fund's 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.
21
-
<PAGE> 660
MainStay MAP Equity Fund
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. These "book/tax differences" are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax basis treatment; temporary differences do not require
reclassification. Permanent book-tax differences of $12,146 and $10,287 are
increases to additional paid-in capital and accumulated undistributed net
realized gain on investments, respectively. In addition, a decrease of $22,433
has been made to accumulated undistributed net investment income. These book/tax
differences are due primarily to the tax treatment of income earned from Real
Estate Investment Trusts.
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 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, LLC (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 December 31,
1999, the Manager earned $316,850 and reimbursed the Fund
22
- -
<PAGE> 661
Notes to Financial Statements (continued)
$65,954. 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.
At December 31, 1999, the amount of such expenses was $65,954.
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 "Advisor") to MAP-Equity Fund ("MAP"),
the predecessor to the Fund. Under investment advisory and service agreements,
the Advisor was paid a fee at an annual rate of 0.50% of the first $200 million
of MAP's net assets, 0.45% of the next $100 million of such value, 0.40% of the
next $100 million of such value, and 0.35% of such value in excess of $400
million. 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 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, Inc. (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.
23
-
<PAGE> 662
MainStay MAP Equity 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 Fund shares was $10,715 for the period June
9, 1999 through December 31, 1999. The Fund was also advised that the
Distributor retained contingent deferred sales charges on redemption of Class B
shares of $912 for the period ended December 31, 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 December 31, 1999 amounted to $97,554. Prior
to June 9, 1999 State Street Bank & Trust Co. served as transfer agent for
MAP-Equity Fund.
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.
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 the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $376 for the period June 9, 1999
through December 31, 1999.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$15,964 for the period June 9, 1999 through December 31, 1999.
24
- -
<PAGE> 663
Notes to Financial Statements (continued)
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the year ended December 31, 1999, purchases and sales of securities,
other than short-term securities, were $39,232 and $20,746, respectively.
NOTE 5--LINE OF CREDIT:
The Fund and certain affiliated funds maintain a line of credit of $375,000,000
with a syndicate of banks 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 0.075% of the average
commitment amount, regardless of usage, to The Bank of New York, which acts as
agent to the syndicate. 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 during the year ended December 31, 1999.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------- -----------------
CLASS A* CLASS B* CLASS C* CLASS I(a) CLASS I
-------- -------- -------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Shares sold.......................... 354 437 93 551 420
Shares issued in reinvestment of
dividends and distributions........ 11 14 3 110 569
--- --- -- ---- ------
365 451 96 661 989
Shares redeemed...................... (35) (11) (1) (701) (2,674)
--- --- -- ---- ------
Net increase (decrease).............. 330 440 95 (40) (1,685)
=== === == ==== ======
</TABLE>
- -------
<TABLE>
<C> <S>
* First offered on June 9, 1999.
(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.
</TABLE>
25
-
<PAGE> 664
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The MainStay Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of MainStay MAP Equity Fund (formerly
MAP-Equity Fund, now one of the portfolios constituting The MainStay Funds and
hereafter referred to as the "Fund") at December 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 2000
26
- -
<PAGE> 665
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 LLC(1)
Parsippany, New Jersey
MAINSTAY'S
INVESTMENT SUBADVISORS
MACKAY SHIELDS LLC(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 LLC(1)
New York, New York
MONITOR CAPITAL ADVISORS LLC(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> 666
Officers & Trustees*
<TABLE>
<S> <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
RICHARD S. TRUTANIC Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH MCBRIEN Secretary
</TABLE>
DECHERT PRICE & RHOADS
Legal Counsel
* As of December 31, 1999.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.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)2000. All rights reserved. MSAN30-02/00
RECYCLE.LOGO
[MAINSTAY FUNDS LOGO]
MainStay
MAP Equity Fund
ANNUAL REPORT
DECEMBER 31, 1999
[MAINSTAY.LOGO]