<PAGE> 1
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in MainStay
California Tax Free Fund versus Lehman
Brothers Municipal Bond Index and
Inflation--Class A, Class B, and Class C
Shares 3
Portfolio Management Discussion and
Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 24
</TABLE>
<PAGE> 2
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
2
<PAGE> 3
$10,000 Invested in MainStay California
Tax Free Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES Total Returns: 1 Year -4.24%, 5 Years 3.27%, Since Inception
4.65%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX LEHMAN BROTHERS
PERIOD END FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
---------- ----------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 $ 9,550 $ 10,000 $ 10,000
12/91 9,748 10,335 10,051
12/92 10,516 11,247 10,349
12/93 11,852 12,628 10,632
12/94 11,273 11,975 10,908
12/95 12,984 14,066 11,192
12/96 13,430 14,689 11,563
12/97 14,491 16,038 11,758
12/98 15,263 17,077 11,947
12/99 14,227 16,513 12,267
6/00 14,889 17,251 12,521
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year -4.98%, 5 Years 3.65%, Since Inception 5.04%
Class C Total Returns: 1 Year -0.98%, 5 Years 3.99%, Since Inception 5.04%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CALIFORNIA TAX LEHMAN BROTHERS
PERIOD END FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
---------- ----------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 $ 10,000 $ 10,000 $ 10,000
12/91 10,207 10,335 10,051
12/92 10,011 11,247 10,349
12/93 12,410 12,628 10,632
12/94 11,804 11,975 10,908
12/95 13,564 14,066 11,192
12/96 13,984 14,689 11,563
12/97 15,050 16,038 11,758
12/98 15,813 17,077 11,947
12/99 14,716 16,513 12,267
6/00 15,382 17,251 12,521
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge.
Class B share performance 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 sales
charges and expense structures. Class C share performance includes the
historical performance of the Class B shares for periods from 10/1/91
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
* The Lehman Brothers Municipal Bond Index 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. You cannot
invest directly in 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> 4
Portfolio Management Discussion and Analysis
The U.S. economy powered into the new millennium without a hitch. Optimism for
the economy's long-term potential was reflected in strong business and consumer
spending, sizeable foreign capital flows, and a federal budget surplus. Even so,
the Federal Reserve questioned whether the U.S. could continue to maintain a
combination of low inflation, low unemployment, and strong economic growth.
Higher labor costs and rising asset values posed realistic obstacles to such a
scenario.
In response to 5.5% annualized GDP growth in the first quarter of 2000, the
Federal Reserve raised the targeted federal funds rate by 0.25% on both February
2 and March 21. As economic growth continued unabated into the second quarter,
the Fed tightened interest rates by another 0.50% on May 16. After that,
economic data began showing signs of a broad-based slowdown -- with shrinking
private-sector payrolls, declining retail sales, and a one-year low in housing
starts. Choosing to wait and see whether the slowdown is temporary or
sustainable, the Federal Reserve voted to hold interest rates steady at its June
meeting.
During the semiannual period, municipal market yields, like those of their
taxable counterparts, were volatile and generally tracked the economic data and
moves by the Federal Reserve. As in the Treasury market, the long end of the
municipal yield curve outperformed. Municipal yields reached their highest
levels in more than five years at the end of May, but over the six months,
5-year municipal yields fell 0.06%, 10-year yields rose 0.07%, and 30-year
yields declined 0.21%. In June, intermediate maturities started to perform
particularly well, as individual investors considered yields on these
intermediate-term securities attractive, without the risk of longer-duration
bonds.
Higher interest rates continued to dampen refunding volume in the municipal
market. New issuance fell to $92 billion in the first six months of the year, a
22% decrease versus the same period in 1999. On the other hand, demand from
individuals seemed to vary in tandem with volatility in the equity markets. As
the U.S. economy continued to advance at a rapid pace and tax coffers remained
healthy, credit quality was solid in the municipal market. The sustained
national expansion has resulted in greater economic diversity and increased
financial flexibility in many states, including California.
The California economy continued to outpace the rest of the country. Numbers
released during the first half of 2000 show that in 1999, personal income in
California rose 6.9% and employment growth was 3.3%, the largest gains for the
state in more than a decade. The state has increased its diversification across
industry sectors and has benefited from improving Asian economies. Thus, we
expect California to continue to outperform the rest of the nation.
4
<PAGE> 5
-------
(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.
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN%
---------- ------------
<S> <C>
12/91 2.07
12/92 7.88
12/93 12.71
12/94 -4.88
12/95 15.18
12/96 3.44
12/97 7.90
12/98 5.33
12/99 -6.79
6/00 4.65
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 8 for
more information of performance.
CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
[BAR CHART]
PERIOD END TOTAL RETURN%
---------- ------------
<S> <C>
12/91 2.07
12/92 7.88
12/93 12.71
12/94 -4.88
12/95 14.91
12/96 3.10
12/97 7.63
12/98 5.07
12/99 -6.94
6/00 4.52
</TABLE>
Past performance is no guarantee of future results. Class B returns reflect the
historical performance of the Class A shares through 12/94. Class C share
returns reflect the historical performance of the Class B shares through 8/98.
See footnote * on page 8 for more information on performance.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, the MainStay California Tax Free Fund
returned 4.65% for Class A shares and 4.52% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the 4.95% return
of the average Lipper(1) California municipal debt fund but slightly
outperformed the 4.48% return of the Lehman Brothers Municipal Bond Index(2)
during the semiannual period.
5
<PAGE> 6
-------
(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.
PORTFOLIO MANAGEMENT DECISIONS
Value was added to the Fund by maintaining a high-quality portfolio. This,
however, was not enough to offset the Fund's overweighted position in long-term
bonds and exposure to educational facility bonds, both of which detracted from
Fund performance. Strong retail-driven demand for short- to intermediate-term
bonds fueled by California's strong economic growth led those maturities to
outperform the longer end of the yield curve during the semiannual period. In
the case of educational facility bonds, competition from California's state
school system kept smaller private schools in the state from meeting their
revenue targets. The state schools' programs had become more flexible in meeting
the demands of part-time students in terms of hours and satellite campus
locations. These concerns caused yield spreads to widen and the private schools'
bonds to underperform. We sold the Fund's position in these bonds, which proved
beneficial as they continued to perform poorly after the sale.
LOOKING AHEAD
Economic indicators announced late in the semiannual period were a little weaker
than earlier reports, including a weaker National Purchasing Manager's report
and a cooler labor market, as measured by weekly jobless claims. We believe that
the current slowdown in U.S. economic growth is only temporary. Given tight
labor markets, we believe that inflation risks have not abated. Thus, while
recent weaker economic numbers may allow the Federal Reserve to stay on hold for
a couple of months, we are not convinced that it has completed its cycle of
interest-rate increases. In our view, the Federal Reserve will likely resume
tightening later in the summer.
Given this view, we plan to reduce some of the Fund's exposure to the long end
of the yield curve in favor of intermediate maturities. We believe intermediate
yields will continue to be attractive, given the government's focus on both
short- and long-term securities in its Treasury buyback program. We also believe
intermediate-term bonds may benefit as political proposals to use the budget
surplus to reduce taxes and increase spending start to emerge--and as retail
investors and insurance companies focus their purchases on that portion of the
yield curve.
We intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the yield differences between securities rated AAA
and those rated BBB(3) are adequate to justify taking on the additional credit
risk. We also intend to continue avoiding the risks associated with downgrades
in the health care sector and the prepayment risk of housing bonds. Rather, we
anticipate an emphasis on essential-service revenue bonds, such as those issued
to finance transportation, sewers, electric utilities, and education projects.
Whatever the
6
<PAGE> 7
Past performance is
no guarantee of
future results.
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.
John Fitzgerald
Laurie Walters
Portfolio Managers
MacKay Shields LLC
TARGETED DIVIDEND POLICY
The MainStay California Tax Free Fund seeks to maintain a fixed dividend,
with changes made only on an infrequent basis. In January 2000, the Fund
increased its dividend to more accurately reflect the level of current
earnings within the Fund. The increase did not materially impact 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 by its targeted
dividend policy.
7
<PAGE> 8
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 0.27% 4.23% 5.20%
Class B 0.02% 3.99% 5.04%
Class C 0.02% 3.99% 5.04%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A -4.24% 3.27% 4.65%
Class B -4.98% 3.65% 5.04%
Class C -0.98% 3.99% 5.04%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 93 out of 80 out of 40 out of
111 funds 85 funds 44 funds
Class B 95 out of 82 out of 77 out of
111 funds 85 funds 78 funds
Class C 95 out of n/a 94 out of
111 funds 106 funds
Average Lipper
CA municipal
debt fund 1.35% 5.09% 5.84%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.10 $0.1986 $0.0000
Class B $9.08 $0.1866 $0.0000
Class C $9.08 $0.1866 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Performance figures for this class include
the historical performance of the Class A shares for periods from inception
(10/1/91) through 12/31/94. Performance figures for the two classes vary
after this date based on differences in their sales charges and expense
structures. Class C shares are subject to a CDSC of 1% if redeemed within
one year of purchase. Performance figures for this class include the
historical performance of the Class B shares for periods from inception
(10/1/91) through 8/31/98. Performance figures for the two classes vary
after this date based on differences in their sales charges.
8
<PAGE> 9
+ 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. Since-inception
rankings reflect the performance of each share class from its initial
offering date through 6/30/00. 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. Since-inception return for the average Lipper peer fund is for
the period from 10/1/91 through 6/30/00.
9
<PAGE> 10
MainStay California Tax Free Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (93.0%)+
CALIFORNIA (83.5%)
California Educational
Facilities Authority Revenue
Pooled College & University
Projects, Series B
6.30%, due 4/1/21 (b).......... $ 500,000 $ 506,205
Stanford University, Series N
5.20%, due 12/1/27 (b)......... 1,200,000 1,122,732
California Housing Finance
Agency
Single Family Mortgage
Series D-2
(zero coupon), due 2/1/29
(a)............................ 3,000,000 480,600
California Infrastructure &
Economic Development Bank Revenue
Series A
5.625%, due 7/1/20............. 1,000,000 994,060
California Pollution Control
Financing Authority Revenue
San Diego Gas & Electric
Series A
5.90%, due 6/1/14.............. 400,000 426,040
California State General
Obligation
5.75%, due 12/1/29............. 1,000,000 1,002,670
California State Public Works
Board Lease Revenue
Department of Corrections
State Prisons
Series A
5.00%, due 12/1/19............. 1,000,000 934,520
California Statewide Community
Development Authority
Partnership
5.50%, due 8/15/31............. 1,000,000 959,570
Catholic HealthCare West
6.50%, due 7/1/20.............. 1,000,000 993,370
Escondido California
Union High School District
(zero coupon), due 11/1/12..... 1,350,000 718,808
Los Angeles California
Department of Water & Power
Electric Plant Revenue
6.375%, due 2/1/20............. 2,000,000 2,082,840
Los Angeles California
Wastewater Systems Revenue
Series A
5.00%, due 6/1/28.............. 500,000 449,755
Los Angeles County California
Transportation Commission
Sales Tax Revenue
Series A
6.00%, due 7/1/23 (d).......... 950,000 999,723
</TABLE>
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
Oakland California
General Obligation
Series C, Measure K
5.90%, due 12/15/22............ $1,000,000 $ 1,020,170
Pomona California Public
Financing
Authority Revenue
Water Facilities Project
Series AC
5.50%, due 5/1/29.............. 500,000 487,610
San Diego County Water Authority
Revenue Partnership, Series A
4.75%, due 5/1/20.............. 1,000,000 884,120
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 1,064,530
Issue 2
6.75%, due 5/1/20.............. 500,000 534,060
San Marino California Unified
School District, Series B
5.00%, due 6/1/23.............. 1,000,000 918,800
Santa Clara California
Electric Revenue, Series A
6.25%, due 7/1/19.............. 1,090,000 1,133,447
Unified School District
5.50%, due 7/1/25.............. 1,000,000 979,390
Santa Monica-Malibu
Unified School District
5.25%, due 8/1/17.............. 1,000,000 993,820
-----------
19,686,840
-----------
PUERTO RICO (5.2%)
Puerto Rico Commonwealth
Infrastructure Financing
Authority
Series A
5.00%, due 7/1/13.............. 500,000 492,255
Puerto Rico Electric Power
Authority Revenue, Series U
6.00%, due 7/1/14.............. 705,000 730,641
-----------
1,222,896
-----------
VIRGIN ISLANDS (4.3%)
Virgin Islands Public Finance
Authority Revenue, Gross Receipts Taxes
Series A
6.50%, due 10/1/24............. 1,000,000 1,014,620
-----------
Total Long-Term Municipal Bonds
(Cost $22,184,923)............. 21,924,356
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 11
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL BOND (4.2%)
Metropolitan Water District
Southern California Waterworks
Revenue Authority
Series C
4.15%, due 7/1/28 (c)......... $1,000,000 $ 1,000,000
-----------
Total Short-Term Municipal Bonds
(Cost $1,000,000).............. 1,000,000
-----------
Total Investments
(Cost $23,184,923) (e)......... 97.2% 22,924,356(f)
Cash and Other Assets,
Less Liabilities............... 2.8 648,751
----- ---------
Net Assets...................... 100.0% $23,573,107
===== ==========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT DEPRECIATION (h)
------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)(g)
Municipal Bond
September 2000
(30 Year).......... (9.0) $(15,656)
--------
Total Futures
Contracts
(Settlement Value
$845,813)........... $(15,656)
==========
</TABLE>
-------
(a) Interest on this security is subject to alternative minimum tax.
(b) Segregated as collateral for futures contracts.
(c) Variable rate security that may be tendered back to the issuer at any time
prior to maturity at par.
(d) Prerefunding securities-issuer has or will issue new bonds and use the
proceeds to purchase Treasury securities that mature at or near the same
date as the original issue's call date.
(e) The cost stated also represents the aggregate cost for federal income tax
purposes.
(f) At June 30, 2000, net unrealized depreciation was $260,567, 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 $205,927 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $466,494.
(g) Less than one tenth of a percent.
(h) Represents the difference between the value of the contracts at the time
they were opened and the value at June 30, 2000.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 12
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$23,184,923).............................................. $22,924,356
Cash........................................................ 216,004
Receivables:
Investment securities sold................................ 2,216,428
Interest.................................................. 339,449
-----------
Total assets........................................ 25,696,237
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,966,663
Shareholder communication................................. 24,603
Transfer agent............................................ 8,951
MainStay Management....................................... 7,028
NYLIFE Distributors....................................... 7,024
Custodian................................................. 6,322
Variation margin on futures contracts..................... 5,344
Trustees.................................................. 143
Accrued expenses............................................ 13,658
Dividend payable............................................ 83,394
-----------
Total liabilities................................... 2,123,130
-----------
Net assets.................................................. $23,573,107
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 13,639
Class B................................................... 11,329
Class C................................................... 969
Additional paid-in capital.................................. 25,597,564
Accumulated undistributed net investment income............. 23,145
Accumulated net realized loss on investments................ (1,797,316)
Net unrealized depreciation on investments and futures
contracts................................................. (276,223)
-----------
Net assets.................................................. $23,573,107
===========
CLASS A
Net assets applicable to outstanding shares................. $12,411,457
===========
Shares of beneficial interest outstanding................... 1,363,878
===========
Net asset value per share outstanding....................... $ 9.10
Maximum sales charge (4.50% of offering price).............. 0.43
-----------
Maximum offering price per share outstanding................ $ 9.53
===========
CLASS B
Net assets applicable to outstanding shares................. $10,281,836
===========
Shares of beneficial interest outstanding................... 1,132,935
===========
Net asset value and offering price per share outstanding.... $ 9.08
===========
CLASS C
Net assets applicable to outstanding shares................. $ 879,814
===========
Shares of beneficial interest outstanding................... 96,947
===========
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.
12
<PAGE> 13
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 694,705
----------
Expenses:
Management................................................ 59,142
Service--Class A.......................................... 15,682
Service--Class B.......................................... 12,705
Service--Class C.......................................... 1,184
Transfer agent............................................ 27,036
Distribution--Class B..................................... 12,705
Distribution--Class C..................................... 1,185
Professional.............................................. 10,377
Custodian................................................. 8,728
Shareholder communication................................. 6,344
Recordkeeping............................................. 6,000
Registration.............................................. 2,859
Trustees.................................................. 258
Miscellaneous............................................. 8,865
----------
Total expenses before reimbursement..................... 173,070
Expense reimbursement from Manager.......................... (12,504)
----------
Net expenses............................................ 160,566
----------
Net investment income....................................... 534,139
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions..................................... (642,231)
Futures transactions...................................... 16,851
----------
Net realized loss on investments............................ (625,380)
----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... 1,191,579
Futures transactions...................................... (35,094)
----------
Net unrealized gain on investments.......................... 1,156,485
----------
Net realized and unrealized gain on investments............. 531,105
----------
Net increase in net assets resulting from operations........ $1,065,244
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 14
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 534,139 $ 1,151,090
Net realized loss on investments.......................... (625,380) (1,171,936)
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,156,485 (1,872,932)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 1,065,244 (1,893,778)
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (278,405) (669,100)
Class B................................................. (213,147) (466,785)
Class C................................................. (19,442) (17,129)
From net realized gain on investments:
Class A................................................. -- (31,459)
Class B................................................. -- (25,724)
Class C................................................. -- (2,513)
----------- -----------
Total dividends and distributions to shareholders..... (510,994) (1,212,710)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 168,561 2,594,754
Class B................................................. 383,181 2,819,909
Class C................................................. -- 1,230,588
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 103,187 374,661
Class B................................................. 92,293 282,622
Class C................................................. 15,918 19,069
----------- -----------
763,140 7,321,603
Cost of shares redeemed:
Class A................................................. (1,201,818) (7,416,573)
Class B................................................. (1,002,691) (2,225,311)
Class C................................................. (202,585) (155,441)
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (1,643,954) (2,475,722)
----------- -----------
Net decrease in net assets............................ (1,089,704) (5,582,210)
NET ASSETS:
Beginning of period......................................... 24,662,811 30,245,021
----------- -----------
End of period............................................... $23,573,107 $24,662,811
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 23,145 $ --
=========== ===========
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 15
This page intentionally left blank
15
<PAGE> 16
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 8.89 $ 9.98 $ 9.93 $ 9.78 $ 9.95 $ 9.10
------- ------- ------- ------- ------- -------
Net investment income..................... 0.20 0.41 0.44 0.48 0.49 0.50
Net realized and unrealized gain (loss) on
investments............................. 0.21 (1.07) 0.08 0.27 (0.16) 0.85
------- ------- ------- ------- ------- -------
Total from investment operations.......... 0.41 (0.66) 0.52 0.75 0.33 1.35
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income.............. (0.20) (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......... (0.20) (0.43) (0.47) (0.60) (0.50) (0.50)
------- ------- ------- ------- ------- -------
Net asset value at end of period.......... $ 9.10 $ 8.89 $ 9.98 $ 9.93 $ 9.78 $ 9.95
======= ======= ======= ======= ======= =======
Total investment return (a)............... 4.65% (6.79%) 5.33% 7.90% 3.44% 15.18%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................. 4.63%++ 4.27% 4.42% 4.88% 5.0% 5.3%
Net expenses.......................... 1.24%++ 1.24% 1.24% 1.24% 1.24% 1.24%
Expenses (before reimbursement)....... 1.35%++ 1.31% 1.40% 1.26% 1.3% 1.4%
Portfolio turnover rate................... 22% 123% 104% 108% 79% 107%
Net assets at end of period (in 000's).... $12,411 $13,048 $19,204 $18,199 $18,098 $19,825
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 17
<TABLE>
<CAPTION>
Class B Class C
--------------------------------------------------------- ----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, -------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ------- ------- ------ ------ ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.87 $ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 9.10 $ 8.87 $ 9.95 $ 9.95
------- ------- ------- ------ ------ ------ ------ ------ ------
0.19 0.38 0.42 0.45 0.45 0.52 0.19 0.38 0.13
0.21 (1.05) 0.07 0.27 (0.16) 0.81 0.21 (1.05) 0.02
------- ------- ------- ------ ------ ------ ------ ------ ------
0.40 (0.67) 0.49 0.72 0.29 1.33 0.40 (0.67) 0.15
------- ------- ------- ------ ------ ------ ------ ------ ------
(0.19) (0.39) (0.43) (0.45) (0.45) (0.52) (0.19) (0.39) (0.14)
-- (0.02) (0.01) (0.12) -- -- -- (0.02) (0.01)
------- ------- ------- ------ ------ ------ ------ ------ ------
(0.19) (0.41) (0.44) (0.57) (0.45) (0.52) (0.19) (0.41) (0.15)
------- ------- ------- ------ ------ ------ ------ ------ ------
$ 9.08 $ 8.87 $ 9.95 $ 9.90 $ 9.75 $ 9.91 $ 9.08 $ 8.87 $ 9.95
======= ======= ======= ====== ====== ====== ====== ====== ======
4.52% (6.94%) 5.07% 7.63% 3.10% 14.91% 4.52% (6.94%) 1.51%
4.38%++ 4.02% 4.17% 4.63% 4.7% 5.1% 4.38%++ 4.02% 4.17%++
1.49%++ 1.49% 1.49% 1.49% 1.49% 1.49% 1.49%++ 1.49% 1.49%++
1.60%++ 1.56% 1.65% 1.51% 1.6% 1.7% 1.60%++ 1.56% 1.65%++
22% 123% 104% 108% 79% 107% 22% 123% 104%
$10,282 $10,573 $11,040 $7,288 $5,089 $1,963 $ 880 $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.
17
<PAGE> 18
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 (and certain other qualified purchases) 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.
18
<PAGE> 19
Notes to Financial Statements unaudited
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 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 may 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 may enter into contracts for the
future delivery of debt securities in order to attempt to protect against the
effects of adverse changes in interest rates, to lengthen or shorten the average
maturity or duration of the Fund's portfolio or to try to enhance the Fund's
returns.
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
19
<PAGE> 20
MainStay California Tax Free Fund
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.
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.
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 plans)
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.
20
<PAGE> 21
Notes to Financial Statements unaudited (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 six months ended June
30, 2000 the Manager earned $59,142 and reimbursed the Fund $12,504.
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 distribution plans (the
"Plans") 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 plans provide 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 Plans provide 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 $242 for the six months ended
June 30, 2000. The Fund was also advised that the Distributor retained
contingent deferred sales charges for redemptions of Class B and Class C shares
of $6,326 and $1,867, respectively, for the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend
21
<PAGE> 22
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 six months ended June 30, 2000 amounted to $27,036.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $2,467,213, which represents 19.9% of the
Class A net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $243 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 2000.
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 has
elected, to the extent provided by the regulations, to treat $395,216 of
qualifying capital losses that arose during the prior 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 six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $5,124 and $7,467, 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 six months ended June 30, 2000.
22
<PAGE> 23
Notes to Financial Statements unaudited (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------------- ----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................ 19 43 --(a) 273 290 132
Shares issued in reinvestment of
dividends and distributions.......... 12 10 2 39 30 2
---- ---- --- ---- ---- ---
31 53 2 312 320 134
Shares redeemed........................ (134) (113) (22) (769) (237) (17)
---- ---- --- ---- ---- ---
Net increase (decrease)................ (103) (60) (20) (457) 83 117
==== ==== === ==== ==== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand.
</TABLE>
23
<PAGE> 24
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
24
<PAGE> 25
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<PAGE> 26
This page intentionally left blank
<PAGE> 27
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS 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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSCT11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
California Tax Free Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 28
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in MainStay Capital
Appreciation Fund versus S&P 500 Index and
Inflation--Class A, Class B, and Class C
Shares 3
Portfolio Management Discussion and Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 29
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
2
<PAGE> 30
$10,000 Invested in MainStay
Capital Appreciation Fund
versus S&P 500 Index and Inflation
CLASS A SHARES Total Returns: 1 Year 11.23%, 5 Years 22.91%, 10 Years 20.91%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CAPITAL
PERIOD END APPRECIATION FUND S&P 500 INDEX* INFLATION (CPI)+
---------- ----------------- -------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,450 $ 10,000 $ 10,000
12/90 9,839 9,690 10,625
12/91 16,565 12,636 10,942
12/92 18,387 13,597 11,265
12/93 20,964 14,963 11,574
12/94 20,644 15,160 11,875
12/95 28,032 20,851 12,184
12/96 33,403 25,634 12,587
12/97 41,453 34,186 12,801
12/98 57,721 43,956 13,007
12/99 72,092 53,205 13,356
6/00 73,165 52,981 13,632
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year 11.84%, 5 Years 23.34%, 10 Years 21.17%
Class C Total Returns: 1 Year 15.84%, 5 Years 23.51%, 10 Years 21.17%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY CAPITAL
PERIOD END APPRECIATION FUND S&P 500 INDEX* INFLATION (CPI)+
---------- ----------------- -------------- ----------------
<S> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 10,000
12/90 10,411 9,690 10,625
12/91 17,529 12,636 10,942
12/92 19,457 13,597 11,265
12/93 22,184 14,963 11,574
12/94 21,846 15,160 11,875
12/95 29,515 20,851 12,184
12/96 34,993 25,634 12,587
12/97 43,199 34,186 12,801
12/98 59,680 43,956 13,007
12/99 73,947 53,205 13,356
6/00 74,778 52,981 13,632
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge
and includes the historical performance of the Class B shares for periods
from inception (5/1/86) through 12/31/94. Performance figures for the two
classes vary after this date based on differences in their sales charges
and expense structures. Class C share performance includes the historical
performance of the Class B shares for periods from inception (5/1/86)
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered generally representative of the
large-cap U.S. stock market. Total returns reflect the reinvestment of all
dividends and capital gains. You cannot invest directly in 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> 31
-------
(1) See footnote and table on page 8 for more information about Lipper Inc.
(2) See footnote on page 3 for more information about the S&P 500 Index.
Portfolio Management Discussion and Analysis
The stock market's modest declines during the first half of 2000 masked the
volatility most investors experienced along the way. Most technology and
telecommunications stocks advanced rapidly in the first quarter, peaking in mid-
March, only to drop precipitously in April and May and recover strongly in June.
Early in the year, many investors feared that an aggressive Federal Reserve
would derail the U.S. economy's extended growth. By the end of the reporting
period, however, many observers believed that Fed tightening was starting to
wind down. The six interest-rate hikes we've seen since late June 1999 have made
definite impressions on the economy--with slower sales, weaker employment
growth, and moderating consumer confidence.
Whether the Federal Reserve has successfully orchestrated a "soft landing" for
the economy remains to be seen. We will closely monitor second-quarter earnings
reports and corporate managers' comments on their companies future prospects as
we seek to gauge the velocity of a possible earnings slowdown.
PERFORMANCE REVIEW
For the six-month period ended June 30, 2000, MainStay Capital Appreciation Fund
returned 1.49% for Class A shares and 1.12% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the 2.98% return
of the average Lipper(1) large-cap growth fund but outperformed the -0.42%
return of the S&P 500 Index(2) for the first six months of 2000.
The most notable sector in the first half of 2000 was clearly technology, which
accounted for some of the Fund's best- and worst-performing stocks. Corning, a
fiber-optic manufacturer, benefited from the changing telecommunications
infrastructure and was the Fund's best-performing holding, climbing more than
100% through the end of June in an otherwise difficult market. Other strong
performers included EMC, First Data, Intel, and Oracle.
Unfortunately, gains in these issues were not enough to offset losses in other
technology holdings--including Motorola, due to concerns about slower growth in
its cell phone business; Microsoft, which declined precipitously following an
antitrust ruling that may break up the company; and Compuware, whose
information-technology business remained under pressure. Fortunately, we sold
the Fund's position in Compuware at a sizeable gain in the first quarter. The
company has since missed its projections several times. The Fund remains
overweighted in technology, given the sector's robust earnings outlook, and the
performance of the Fund's technology holdings helped it outperform the S&P 500
during the reporting period.
4
<PAGE> 32
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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
6/00 1.49
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares through 12/94. See footnote * on
page 8 for more information on performance.
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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
6/00 1.12
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares through 12/94. See
footnote * on page 8 for more information on performance.
A SEARCH FOR SAFE HAVENS
Turbulence in the technology sector led investors to look for safe havens, and
in the second quarter of 2000, that meant health care stocks. Pharmaceuticals
emerged from the political cloud surrounding Medicare drug coverage and possible
price controls, as recent proposals appeared to be less severe. This, combined
with the completion of the human genome project, drew attention to the biotech
sector. Schering-Plough, Merck, Genentech, and Amgen began the year largely
overshadowed by technology-stock advances, but were among the Fund's
best-performing holdings during the second quarter.
5
<PAGE> 33
We increased the Fund's exposure to this group with new purchases of Allergan,
Baxter, Bristol-Meyers, and IVAX, all of which contributed positively to the
Fund's performance. The Fund's underweighted position in traditional
pharmaceutical stocks, however, detracted from performance as drug stocks
recorded outstanding advances from early March through the end of June.
OTHER SECTORS
After declining in the first quarter, financial stocks recovered in the second,
but gave back most of their gains in June when a few regional banks faced
credit-quality issues. A stagnant IPO calendar didn't help brokerage-related
stocks such as Goldman Sachs, but if Fed tightening slows or stops, these stocks
may be poised for gains. AIG, Providian, and Citigroup recorded market-beating
gains in the second quarter and were positive contributors to the Fund's
performance. Year-to-date, the group has had a neutral impact on performance.
Consumer cyclical stocks suffered severely from slowing retail sales, moderating
employment growth, soaring fuel prices, and higher mortgage rates, causing
almost all of the Fund's holdings in this sector to decline sharply. Circuit
City and Home Depot were among the worst performers, but may now be selling at a
discount. On a brighter note, Kohl's advanced on its successful entry into the
New York market. The Fund took some profits in Circuit City, Home Depot, and
Kohl's to reduce exposure to this out-of-favor group. We also eliminated the
Fund's holdings in Cendant, IMS Health, and Carnival, all of which posed
earnings risks. The Fund's overweighted position in this sector detracted from
performance for the six-month reporting period.
Among media stocks, Viacom gained 20% in the second quarter, following its
merger with CBS, and Time Warner outpaced the market on a pending merger with
AOL. Nevertheless, other media stocks suffered as "dot.com fever" gave way to
concerns about whether advertising revenues could be sustained. Clear Channel
and AMFM declined on radio industry worries. We took some profits in this sector
and eliminated the Fund's position in Comcast at a loss for the Fund when cash
flow failed to grow at the rates we expected.
PURCHASES AND SALES
New purchases for the Fund during the reporting period included Cypress
Semiconductor, Nokia, Tellabs, Enron, Applied Materials, Analog Devices,
Household International, Medimmune, and Protein Design Labs. The Fund also
purchased a small position in EDS, but later sold it at a loss, after the
company surprised the market by missing anticipated earnings.
Significant sales during the first half of 2000 included Global Crossing,
Honeywell, Dollar General, Interpublic Group, Johnson & Johnson, America Online,
and Cardinal Health.
6
<PAGE> 34
Past performance is
no guarantee of
future results.
LOOKING AHEAD
Given the strong fundamental growth drivers in place for the economy, we remain
optimistic about the outlook for growth equities--although our view remains
tempered by the potential for rising interest rates. Even so, we believe that
companies that can deliver consistently strong revenue and earnings-per-share
growth will remain attractive to investors.
Whatever the markets may bring, the Fund will continue to seek long-term growth
of capital. Dividend income, if any, will remain an incidental consideration.
Rudolph C. Carryl
Edmund C. Spelman
Portfolio Managers
MacKay Shields LLC
7
<PAGE> 35
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 17.70% 24.31% 21.59% 17.16%
Class B 16.84% 23.51% 21.17% 16.87%
Class C 16.84% 23.51% 21.17% 16.87%
</TABLE>
FUND TOTAL RETURNS*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 11.23% 22.91% 20.91% 16.69%
Class B 11.84% 23.34% 21.17% 16.87%
Class C 15.84% 23.51% 21.17% 16.87%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 352 out of 128 out of n/a 111 out of
456 funds 194 funds 183 funds
Class B 366 out of 143 out of 9 out of 21 out of
456 funds 194 funds 63 funds 48 funds
Class C 366 out of n/a n/a 312 out of
456 funds 387 funds
Average Lipper
large-cap growth
fund 26.43% 25.59% 18.47% 16.38%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $57.97 $0.0000 $0.0000
Class B $55.77 $0.0000 $0.0000
Class C $55.77 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares
8
<PAGE> 36
are subject to a CDSC of 1% if redeemed within one year of purchase.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 8/31/98.
Performance figures for the two classes vary after this date based on
differences in their sales charges.
+ 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. Since-inception
rankings reflect the performance of each share class from its initial
offering date through 6/30/00. 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. Since-inception return for the average Lipper peer fund is for
the period from 5/1/86 through 12/31/99.
9
<PAGE> 37
MainStay Capital Appreciation Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.9%)+
BIOTECHNOLOGY (2.6%)
Genentech, Inc. (a).......... 500,000 $ 86,000,000
Protein Design Labs, Inc.
(a)......................... 125,000 20,619,138
--------------
106,619,138
--------------
BROADCAST/MEDIA (4.0%)
AMFM Inc. (a)................ 759,000 52,371,000
Clear Channel Communications,
Inc. (a).................... 586,800 44,010,000
Fox Entertainment Group, Inc.
Class A (a)................. 455,000 13,820,625
Univision Communications Inc.
Class A (a)................. 205,000 21,217,500
USA Networks, Inc. (a)....... 1,450,700 31,371,387
--------------
162,790,512
--------------
COMMUNICATIONS--EQUIPMENT (12.6%)
Cisco Systems, Inc. (a)...... 2,480,100 157,641,356
Corning Inc. ................ 735,000 198,358,125
Lucent Technologies Inc. .... 792,300 46,943,775
Nokia OYJ PLC ADR (b)........ 757,200 37,812,675
Tellabs, Inc. (a)............ 1,096,100 75,014,344
--------------
515,770,275
--------------
COMPUTER SOFTWARE & SERVICES (6.3%)
First Data Corp. ............ 353,200 17,527,550
Microsoft Corp. (a).......... 1,248,900 99,912,000
Oracle Corp. (a)............. 1,686,000 141,729,375
--------------
259,168,925
--------------
COMPUTER SYSTEMS (7.4%)
EMC Corp. (a)................ 2,134,800 164,246,175
Sun Microsystems, Inc. (a)... 1,533,000 139,407,187
--------------
303,653,362
--------------
ELECTRIC POWER COMPANIES (2.7%)
AES Corp. (The) (a).......... 2,422,600 110,531,125
--------------
ELECTRICAL EQUIPMENT (1.8%)
General Electric Co. ........ 1,388,100 73,569,300
--------------
ELECTRONICS--SEMICONDUCTORS (11.2%)
Analog Devices, Inc. (a)..... 488,600 37,133,600
Applied Materials, Inc.
(a)......................... 434,400 39,367,500
Cypress Semiconductor Corp.
(a)......................... 540,600 22,840,350
Intel Corp. ................. 1,172,000 156,681,750
Motorola, Inc. .............. 2,284,800 66,402,000
Texas Instruments Inc. ...... 2,007,400 137,883,287
--------------
460,308,487
--------------
</TABLE>
-------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT (4.4%)
Time Warner Inc. ............ 998,000 $ 75,848,000
Viacom Inc. Class B (a)...... 1,533,322 104,553,394
--------------
180,401,394
--------------
FINANCE (2.6%)
Citigroup Inc. .............. 1,781,700 107,347,425
--------------
HEALTH CARE--DRUGS (5.3%)
Andrx Corp. (a).............. 223,500 14,286,545
Celgene Corp. (a)............ 380,400 22,396,050
IVAX Corp. (a)............... 498,100 20,671,150
Merck & Co., Inc. ........... 1,123,900 86,118,837
Schering-Plough Corp. ....... 1,463,700 73,916,850
--------------
217,389,432
--------------
HEALTH CARE--MEDICAL PRODUCTS (4.8%)
Baxter International Inc. ... 590,900 41,547,656
Guidant Corp. (a)............ 999,300 49,465,350
Medtronic, Inc. ............. 1,757,900 87,565,394
PE Corp-PE Biosystems
Group....................... 298,000 19,630,750
--------------
198,209,150
--------------
HEALTH CARE--MISCELLANEOUS (3.7%)
Allergan, Inc. .............. 146,500 10,914,250
Amgen Inc. (a)............... 1,077,700 75,708,425
Bristol-Myers Squibb Co. .... 703,100 40,955,575
MedImmune, Inc. (a).......... 324,900 24,042,600
--------------
151,620,850
--------------
HOUSEHOLD PRODUCTS (2.1%)
Colgate-Palmolive Co. ....... 1,463,100 87,603,113
--------------
INSURANCE (3.2%)
American International Group,
Inc. ....................... 745,885 87,641,488
Marsh & McLennan Cos.,
Inc. ....................... 431,600 45,075,225
--------------
132,716,713
--------------
INVESTMENT BANK/BROKERAGE (1.0%)
Goldman Sachs Group, Inc.
(The)....................... 410,800 38,974,650
--------------
LEISURE TIME (2.5%)
Harley-Davidson, Inc. ....... 2,693,900 103,715,150
--------------
MANUFACTURING (2.9%)
Tyco International Ltd. ..... 2,480,634 117,520,036
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES
(1.5%)
Enron Corp. ................. 946,400 61,042,800
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 38
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PERSONAL LOANS (2.1%)
Household International,
Inc. ....................... 609,500 $ 25,332,344
Providian Financial Corp. ... 652,950 58,765,500
--------------
84,097,844
--------------
RETAIL (8.7%)
Bed Bath & Beyond Inc. (a)... 1,130,800 40,991,500
Circuit City Stores-Circuit
City Group.................. 1,437,200 47,697,075
CVS Corp. ................... 771,200 30,848,000
Home Depot, Inc. (The)....... 1,435,350 71,677,791
Kohl's Corp. (a)............. 2,239,700 124,583,312
Staples, Inc. (a)............ 2,529,150 38,885,681
--------------
354,683,359
--------------
SPECIALIZED SERVICES (1.2%)
Omnicom Group Inc. .......... 555,500 49,474,219
--------------
TELECOMMUNICATIONS (2.9%)
Nextel Communications Inc.
Class A (a)................. 436,000 26,677,750
WorldCom, Inc. (a)........... 1,977,420 90,714,142
--------------
117,391,892
--------------
TELEPHONE (1.4%)
ALLTEL Corp. ................ 912,200 56,499,388
--------------
Total Common Stocks
(Cost $2,302,775,380)....... 4,051,098,539
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.1%)
COMMERCIAL PAPER (1.1%)
Goldman Sachs Group, Inc.
(The)
6.95%, due 7/3/00........... $14,660,000 $ 14,654,338
Prudential Funding Corp.
6.72%, due 7/3/00........... 4,050,000 4,048,487
6.76%, due 7/6/00........... 26,155,000 26,130,434
--------------
Total Short-Term Investments
(Cost $44,833,259).......... 44,833,259
--------------
Total Investments
(Cost $2,347,608,639) (c)... 100.0% 4,095,931,798(d)
Liabilities in Excess of
Cash, and Other Assets...... 0.0(e) (1,362,923)
----- --------------
Net Assets................... 100.0% $4,094,568,875
===== ==============
</TABLE>
-------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for federal income tax
purposes.
(d) At June 30, 2000, net unrealized appreciation was $1,748,323,159, 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 $1,797,800,963 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $49,477,804.
(e) 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.
11
<PAGE> 39
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$2,347,608,639)........................................... $4,095,931,798
Cash........................................................ 2,291
Receivables:
Investment securities sold................................ 20,805,302
Fund shares sold.......................................... 2,578,516
Dividends................................................. 1,151,735
--------------
Total assets........................................ 4,120,469,642
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 15,057,848
Fund shares redeemed...................................... 4,555,777
NYLIFE Distributors....................................... 2,945,019
MainStay Management....................................... 1,763,351
Transfer agent............................................ 1,078,192
Trustees.................................................. 28,405
Custodian................................................. 24,824
Accrued expenses............................................ 447,351
--------------
Total liabilities................................... 25,900,767
--------------
Net assets.................................................. $4,094,568,875
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 104,478
Class B................................................... 620,243
Class C .................................................. 5,371
Additional paid-in capital.................................. 1,963,405,345
Accumulated net investment loss............................. (25,340,995)
Accumulated undistributed net realized gain on
investments............................................... 407,451,274
Net unrealized appreciation on investments.................. 1,748,323,159
--------------
Net assets.................................................. $4,094,568,875
==============
CLASS A
Net assets applicable to outstanding shares................. $ 605,685,885
==============
Shares of beneficial interest outstanding................... 10,447,765
==============
Net asset value and offering price per share outstanding.... $ 57.97
Maximum sales charge (5.50% of offering price).............. 3.37
--------------
Maximum offering price per share outstanding................ $ 61.34
==============
CLASS B
Net assets applicable to outstanding shares................. $3,458,929,363
==============
Shares of beneficial interest outstanding................... 62,024,323
==============
Net asset value and offering price per share outstanding.... $ 55.77
==============
CLASS C
Net assets applicable to outstanding shares................. $ 29,953,627
==============
Shares of beneficial interest outstanding................... 537,119
==============
Net asset value and offering price per share outstanding.... $ 55.77
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 40
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 6,331,202
Interest.................................................. 956,077
------------
Total income............................................ 7,287,279
------------
Expenses:
Management................................................ 14,414,582
Distribution--Class B..................................... 12,723,200
Distribution--Class C..................................... 99,362
Service--Class A.......................................... 730,876
Service--Class B.......................................... 4,241,067
Service--Class C.......................................... 33,121
Transfer agent............................................ 3,295,664
Shareholder communication................................. 277,779
Recordkeeping............................................. 213,463
Custodian................................................. 180,979
Professional.............................................. 114,925
Registration.............................................. 112,066
Trustees.................................................. 53,313
Miscellaneous............................................. 99,764
------------
Total expenses before waiver............................ 36,590,161
Fees waived by Manager...................................... (3,961,887)
------------
Net expenses............................................ 32,628,274
------------
Net investment loss......................................... (25,340,995)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................ 143,908,791
Net change in unrealized appreciation on investments........ (66,169,649)
------------
Net realized and unrealized gain on investments............. 77,739,142
------------
Net increase in net assets resulting from operations........ $ 52,398,147
============
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $21,766.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 41
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss....................................... $ (25,340,995) $ (38,752,546)
Net realized gain on investments.......................... 143,908,791 502,721,524
Net change in unrealized appreciation on investments...... (66,169,649) 327,050,222
-------------- --------------
Net increase in net assets resulting from operations...... 52,398,147 791,019,200
-------------- --------------
Distributions to shareholders:
From net realized gain on investments:
Class A................................................. -- (33,915,675)
Class B................................................. -- (215,135,762)
Class C................................................. -- (1,404,342)
-------------- --------------
Total distributions to shareholders................... -- (250,455,779)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 350,670,797 899,579,615
Class B................................................. 325,179,511 712,233,735
Class C................................................. 8,953,416 20,574,280
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 30,937,086
Class B................................................. -- 209,660,459
Class C................................................. -- 983,032
-------------- --------------
684,803,724 1,873,968,207
Cost of shares redeemed:
Class A................................................. (345,532,161) (813,609,261)
Class B................................................. (391,764,789) (650,816,257)
Class C................................................. (2,693,399) (2,209,178)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (55,186,625) 407,333,511
-------------- --------------
Net increase (decrease) in net assets................. (2,788,478) 947,896,932
NET ASSETS:
Beginning of period......................................... 4,097,357,353 3,149,460,421
-------------- --------------
End of period............................................... $4,094,568,875 $4,097,357,353
============== ==============
Accumulated net investment loss at end of period............ $ (25,340,995) $ --
============== ==============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 42
This page intentionally left blank
15
<PAGE> 43
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ---------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 57.12 $ 48.74 $ 36.60 $ 30.56 $ 25.90 $ 19.11
-------- -------- -------- -------- -------- -------
Net investment income (loss) (a)................. (0.18) (0.24) (0.14) (0.16) (0.08) 0.03
Net realized and unrealized gain on
investments.................................... 1.03 12.22 14.42 7.48 5.05 6.81
-------- -------- -------- -------- -------- -------
Total from investment operations................. 0.85 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................. $ 57.97 $ 57.12 $ 48.74 $ 36.60 $ 30.56 $ 25.90
======== ======== ======== ======== ======== =======
Total investment return (b)...................... 1.49% 24.90% 39.24% 24.10% 19.16% 35.79%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)................. (0.63%)++ (0.47%) (0.34%) (0.48%) (0.3%) 0.2%
Expenses..................................... 1.19%++ 1.19% 1.23% 1.09% 1.1% 1.1%
Net Expenses (after waiver).................. 0.99%++ 1.00% 1.04% 1.09% 1.1% 1.1%
Portfolio turnover rate.......................... 25% 41% 29% 35% 16% 29%
Net assets at end of period (in 000's)........... $605,686 $587,633 $394,848 $216,292 $126,958 $44,434
</TABLE>
-------
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 44
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------- -----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ------------------------------------------------------------ June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ---------- ---------- ---------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 55.15 $ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 19.11 $ 55.15 $ 47.54 $36.15
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------
(0.37) (0.61) (0.45) (0.34) (0.22) (0.08) (0.37) (0.61) (0.10)
0.99 11.82 14.11 7.39 5.01 6.79 0.99 11.82 13.63
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------
0.62 11.21 13.66 7.05 4.79 6.71 0.62 11.21 13.53
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------
-- (3.60) (2.14) (1.28) (0.31) (0.05) -- (3.60) (2.14)
---------- ---------- ---------- ---------- ---------- -------- ------- ------- ------
$ 55.77 $ 55.15 $ 47.54 $ 36.02 $ 30.25 $ 25.77 $ 55.77 $ 55.15 $47.54
========== ========== ========== ========== ========== ======== ======= ======= ======
1.12% 23.90% 38.15% 23.45% 18.56% 35.11% 1.12% 23.90% 37.66%
(1.38%)++ (1.22%) (1.09%) (1.00%) (0.8%) (0.4%) (1.38%)++ (1.22%) (1.09%)++
1.94%++ 1.94% 1.98% 1.61% 1.6% 1.7% 1.94%++ 1.94% 1.98%++
1.74%++ 1.75% 1.79% 1.61% 1.6% 1.7% 1.74%++ 1.75% 1.79%++
25% 41% 29% 35% 16% 29% 25% 41% 29%
$3,458,929 $3,486,486 $2,753,012 $1,869,664 $1,342,578 $856,221 $29,954 $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> 45
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 (and certain other qualified purchases) 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> 46
Notes to Financial Statements unaudited
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 may 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.
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
19
<PAGE> 47
MainStay Capital Appreciation Fund
can be made. The investment income and expenses (other than expenses incurred
under the distribution plans) 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 six
months ended June 30, 2000 the Manager earned $14,414,582 and waived $3,961,887
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 distribution plans (the
"Plans") 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
20
<PAGE> 48
Notes to Financial Statements unaudited (continued)
net assets of the Fund's Class B and Class C shares. The Distribution Plans
provide 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 Plans provide 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 $21,600 for the six months ended
June 30, 2000. 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 $7,061, $1,963,673 and $12,892, respectively, for the six months ended
June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $3,295,664.
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 $41,295 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$213,463 for the six months ended June 30, 2000.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $983,648 and $1,028,177, 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
21
<PAGE> 49
MainStay Capital Appreciation Fund
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 six months ended June 30, 2000.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 6,196 5,982 165 17,460 14,271 412
Shares issued in reinvestment of
distributions............................. -- -- -- 564 3,960 18
------ ------ --- ------- ------- ---
6,196 5,982 165 18,024 18,231 430
Shares redeemed............................. (6,036) (7,179) (49) (15,836) (12,923) (43)
------ ------ --- ------- ------- ---
Net increase (decrease)..................... 160 (1,197) 116 2,188 5,308 387
====== ====== === ======= ======= ===
</TABLE>
-------
* Unaudited.
22
<PAGE> 50
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 51
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSCA11-08/00
[RECYCLE LOGO]
[THE MAINSTAY(R) FUNDS LOGO]
MainStay(R)
Capital Appreciation Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 52
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay Convertible Fund
versus Credit Suisse First Boston Convertible
Securities Index and Inflation--Class A,
Class B, and Class C Shares 4
Portfolio Management Discussion and Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 17
Notes to Financial Statements 22
The MainStay(R) Funds 28
</TABLE>
<PAGE> 53
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2
<PAGE> 54
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
-
<PAGE> 55
$10,000 Invested in MainStay
Convertible Fund versus Credit Suisse
First Boston Convertible Securities
Index and Inflation
CLASS A SHARES Total Returns: 1 Year 23.36%, 5 Years 13.59%, 10 Years 15.37%
[PERFORMANCE LINE GRAPH]
<TABLE>
<CAPTION>
CREDIT SUISSE FIRST BOSTON
MAINSTAY CONVERTIBLE CONVERTIBLE SECURITIES
PERIOD END FUND INDEX* INFLATION (CPI)+
---------- -------------------- -------------------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,450.00 $10,000.00 $10,000.00
12/90 8,817.00 9,313.00 10,625.00
12/91 13,091.00 12,026.00 10,942.00
12/92 14,807.00 14,141.00 11,265.00
12/93 18,429.00 16,766.00 11,574.00
12/94 18,182.00 15,974.00 11,875.00
12/95 22,495.00 19,679.00 12,184.00
12/96 25,223.00 22,023.00 12,587.00
12/97 28,089.00 25,690.00 12,801.00
12/98 28,435.00 28,685.00 13,007.00
12/99 38,077.00 38,297.00 13,356.00
6/00 41,861.00 39,664.00 13,632.00
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year 24.49%, 5 Years 13.87%, 10 Years 15.60%
Class C Total Returns: 1 Year 28.49%, 5 Years 14.11%, 10 Years 15.60%
[PERFORMANCE LINE GRAPH]
<TABLE>
<CAPTION>
CREDIT SUISSE FIRST BOSTON
MAINSTAY CONVERTIBLE CONVERTIBLE SECURITIES
PERIOD END FUND INDEX* INFLATION (CPI)+
---------- -------------------- -------------------------- ----------------
<S> <C> <C> <C>
12/89 $10,000.00 $10,000.00 $10,000.00
12/90 9,330.00 9,313.00 10,625.00
12/91 13,853.00 12,026.00 10,942.00
12/92 15,668.00 14,141.00 11,265.00
12/93 19,502.00 16,766.00 11,574.00
12/94 19,241.00 15,974.00 11,875.00
12/95 23,671.00 19,679.00 12,184.00
12/96 26,367.00 22,023.00 12,587.00
12/97 29,181.00 25,690.00 12,801.00
12/98 29,334.00 28,685.00 13,007.00
12/99 38,985.00 38,297.00 13,356.00
6/00 42,704.00 39,664.00 13,632.00
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge
and includes the historical performance of the Class B shares for periods
from inception (5/1/86) through 12/31/94. Performance figures for the two
classes vary after this date based on differences in their sales charges
and expense structures. Class C share performance includes the historical
performance of the Class B shares for periods from inception (5/1/86)
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
* The Credit Suisse 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. Total
returns reflect the reinvestment of all income and capital gains. You
cannot invest directly in 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> 56
-------
(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. You cannot invest directly in an index.
(2) See footnote and table on page 9 for more information about Lipper Inc.
(3) See footnote on page 4 for more information about the Credit Suisse First
Boston Convertible Securities Index.
Portfolio Management Discussion and Analysis
During the first half of 2000, three distinct market trends emerged. First, from
the beginning of the year until mid-March, the NASDAQ(1) continued a surge that
began in October 1999. Valuations for speculative issues rose to excessive
levels while many companies outside the technology arena lagged. Next, ongoing
tightening by the Federal Reserve burst the valuation bubble and the NASDAQ
declined from mid-March until about Memorial Day. Finally, with signs that the
economy was slowing, many investors concluded that the Federal Reserve
tightening was nearing an end. This led to the third market phase, in which the
market rose again.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Convertible Fund returned 9.94%
for Class A shares and 9.54% for Class B and Class C shares, excluding all sales
charges. All share classes outperformed the 6.30% return of the average
Lipper(2) convertible securities fund and the 3.57% return of the Credit Suisse
First Boston Convertible Securities Index.(3)
Consistent application of the Fund's investment disciplines was largely
responsible for its outperformance during the reporting period.
STRONG PERFORMERS
Two companies that helped performance were Amdocs and Calpine. Amdocs provides
billing software for telephone companies, to help them with more complex
products and billing arrangements. With the growth of new telephone Internet
services, Amdoc's comprehensive solutions to software upgrade needs helped the
convertible rise 96% during the first half of 2000. Calpine, an independent
power producer, is taking advantage of electric utility deregulation to build
low-cost power plants in areas with substantial power needs. The value of
Calpine's services has been demonstrated by the number of power outages in the
last few years--leading the value of the company's stock to increase by 105%
during the semiannual reporting period.
Our decision to overweight the Fund in energy and oil service companies also
contributed to its positive performance. It has been our ongoing belief that a
potential natural gas shortage, combined with high oil prices, would lead to
increased oil and gas drilling--and recently, BP Amoco announced increases in
its drilling budget. Oil and gas companies that paid insufficient attention to
exploration and production over the last few years are now playing "catch up."
After the Asian financial crisis, global economic growth slowed and demand for
5
-
<PAGE> 57
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[PERFORMANCE BAR GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/89 6.74%
12/90 -6.70
12/91 48.47
12/92 13.11
12/93 24.47
12/94 -1.34
12/95 23.72
12/96 12.13
12/97 11.36
12/98 1.23
12/99 33.91
6/00 9.94
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares for periods through 12/94. See
footnote * on page 9 for more information on performance.
CLASS B AND CLASS C SHARES
[PERFORMANCE BAR GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/89 6.74%
12/90 -6.70
12/91 48.47
12/92 13.11
12/93 24.47
12/94 -1.34
12/95 23.02
12/96 11.39
12/97 10.67
12/98 0.53
12/99 32.90
6/00 9.54
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares for periods through
8/98. See footnote * on page 9 for more information on performance.
oil faltered. Now that the world economy is well on the road to recovery, oil
and gas are in short supply--a dynamic that bodes well for drilling and oil
service companies.
Part of the Fund's outperformance can be explained more by what the Fund did not
own, rather than what the Fund did own. Several companies issued convertibles
early in the year when their stocks were at speculative highs. As the market
subsequently declined, many of these issues followed their underlying stocks to
considerably lower valuations. The Fund's outperformance was largely due to our
decision to pass on these deals.
6
<PAGE> 58
STRATEGIC BUYING OPPORTUNITIES
Throughout the first six months of 2000, much of the Fund's success came from
seeking opportunities amid market volatility. As just one example, working with
our high-yield group we purchased a convertible bond issued by Efficient
Networks. The company supplies customer-premise equipment for DSL services,
which provide a way for small businesses and individuals to enjoy high-speed
Internet access. The stock reached extraordinarily high valuations early in the
year and corrected significantly in March and April. We took advantage of the
correction to buy the bonds several times throughout the period at prices
ranging from $66 to $75, with a yield of 15%. Buying Efficient Networks bonds at
these prices greatly limited the Fund's downside risk while providing exposure
to a company that was well positioned to take advantage of the strong DSL
market. Since we purchased the bonds for the Fund, their price has risen about
14%.
WEAKER PERFORMERS
Despite the Fund's strong performance, not all of its securities were winners
during the first half of the year. Two of the Fund's most disappointing holdings
were Rhythms NetConnections and Network Plus. Rhythms is a DSL provider.
Unfortunately, some of the company's competitors announced disappointing results
and Rhythms' stock declined in sympathy. While progress in adding subscribers
has been slower than anticipated, we believe the problem lies in the Regional
Bell Operating Companies' slow provisioning of customers rather than lack of
demand. For this reason, the Fund continues to hold its position.
Network Plus is a phone company focusing on the Northeast. In the midst of a
weak stock market, the company announced that expenses would be higher than
expected, causing the stock to decline precipitously. Given the company's
powerful sales force, strong customer service operation, and efficient billing
systems, we believe Network Plus may be an excellent takeover target--
particularly in a field littered with companies that have good network assets,
but poor sales and weak back-office operations. Since missing estimates has been
common in the industry over the last year, rather than being discouraged, we
have added to the Fund's position in Network Plus.
LOOKING AHEAD
We will continue to seek opportune times to purchase securities we believe have
attractive risk/reward profiles. We will also take profits when we believe
valuations and fundamentals make such action advisable.
The convertible market continues to offer exposure to sectors of the market that
have strong growth prospects--primarily technology and telecom. Yet many
convertible securities are backed by strong cash flow or other fundamental
strengths, which we believe may offer a measure of protection in declining
markets and may help mute the price volatility we expect in the months ahead.
7
-
<PAGE> 59
Past performance is no guarantee of future results.
Whatever 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
High-yield securities ("junk bonds") are generally considered speculative
because they present a greater risk of loss than higher-quality debt securities
and may be subject to great price volatility.
8
<PAGE> 60
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 30.54% 14.88% 16.03% 11.69%
Class B 29.49% 14.11% 15.60% 11.40%
Class C 29.49% 14.11% 15.60% 11.40%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 23.36% 13.59% 15.37% 11.24%
Class B 24.49% 13.87% 15.60% 11.40%
Class C 28.49% 14.11% 15.60% 11.40%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 26 out of 18 out of n/a 14 out of
64 funds 34 funds 29 funds
Class B 28 out of 22 out of 6 out of 3 out of
64 funds 34 funds 17 funds 7 funds
Class C 28 out of n/a n/a 24 out of
64 funds 56 funds
Average Lipper
convertible
securities 25.73% 16.24% 13.61% 9.99%
fund
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $15.72 $0.2535 $0.0000
Class B $15.72 $0.1959 $0.0000
Class C $15.72 $0.1959 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (5/1/86) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. 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.
Since-inception return for the average Lipper peer fund is for the period
from 5/1/86 through 6/30/00.
9
-
<PAGE> 61
MainStay Convertible Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (72.0%)+
CONVERTIBLE BONDS (41.2%)
ADVERTISING & MARKETING SERVICES (1.1%)
Getty Images, Inc.
5.00%, due 3/15/07 (c)........ $1,500,000 $ 1,241,250
Lamar Advertising Co.
5.25%, due 9/15/06............ 6,500,000 7,239,375
------------
8,480,625
------------
AUTO PARTS & EQUIPMENT (0.6%)
MascoTech, Inc.
4.50%, due 12/15/03........... 3,700,000 2,775,000
Tower Automotive, Inc.
5.00%, due 8/1/04............. 2,000,000 1,545,000
------------
4,320,000
------------
BANKS (1.8%)
European Bank for
Reconstruction &
Development
0.75%, due 7/2/01 (d)......... 6,590,000 6,935,975
Mitsubishi Bank Limited
International Finance
(Bermuda) Trust
3.00%, due 11/30/02........... 6,850,000 7,081,187
------------
14,017,162
------------
BIOTECHNOLOGY (0.7%)
Centocor, Inc.
4.75%, due 2/15/05............ 4,000,000 5,415,000
------------
BROADCAST/MEDIA (1.2%)
Clear Channel Communications,
Inc.
1.50%, due 12/1/02............ 5,000,000 4,900,000
News America Holdings, Inc.
(zero coupon), due 3/11/13
(e)........................... 3,900,000 4,321,707
------------
9,221,707
------------
CHEMICALS (0.5%)
Aventis S.A.
3.25%, due 10/22/03 (d)....... E3,831,300 3,754,504
------------
COMMUNICATIONS--EQUIPMENT (2.9%)
Anixter International, Inc.
(zero coupon), due 6/28/20.... $17,500,000 4,550,000
Aspect Communications Corp.
(zero coupon), due 8/10/18.... 18,400,000 7,544,000
Comverse Technology, Inc.
4.50%, due 7/1/05............. 1,195,000 5,208,706
Tekelec, Inc.
3.25%, due 11/2/04............ 1,825,000 5,021,031
------------
22,323,737
------------
COMPUTER SOFTWARE & SERVICES (5.2%)
America Online, Inc.
(zero coupon), due 12/6/19.... 8,000,000 4,050,000
Applied Magnetics Corp.
7.00%, due 3/15/06 (f)........ 4,805,000 12,013
----------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
BEA Systems, Inc.
4.00%, due 12/15/06........... $1,000,000 $ 1,570,000
4.00%, due 12/15/06 (c)....... 2,000,000 3,140,000
i2 Technologies, Inc.
5.25%, due 12/15/06........... 1,500,000 2,313,750
Mercury Interactive Corp.
4.75%, due 7/1/07 (c)......... 5,000,000 5,393,750
Network Associates, Inc.
(zero coupon), due 2/13/18.... 26,000,000 9,262,500
Rational Software Corp.
5.00%, due 2/1/07 (c)......... 7,000,000 10,246,250
Veritas Software Corp.
1.856%, due 8/13/06........... 1,100,000 3,460,875
------------
39,449,138
------------
ELECTRICAL EQUIPMENT (1.3%)
ASE Test Ltd.
1.00%, due 7/1/04 (c)......... 6,500,000 8,263,125
1.00%, due 7/1/04 (d)......... 1,250,000 1,589,063
------------
9,852,188
------------
ELECTRONICS--COMPONENTS (2.3%)
Atmel Corp.
(zero coupon), due 4/21/18
Burr-Brown Corp.
4.25%, due 2/15/07 (c)........ 1,500,000 2,523,750
Cypress Semiconductor Corp.
4.00%, due 2/1/05............. 3,900,000 4,528,875
SCI Systems, Inc.
3.00%, due 3/15/07............ 10,000,000 9,800,000
Vitese Semiconductor Corp.
4.00%, due 3/15/05 (c)........ 1,000,000 927,500
------------
17,780,125
------------
ELECTRONICS--INSTRUMENTATION (1.0%)
STMicroelectronics N.V.
Series DTC
(zero coupon), due 9/22/09
(e)........................... 1,100,000 1,898,875
Thermo Instrument Systems, Inc.
Series RG
4.00%, due 1/15/05............ 6,750,000 5,830,312
------------
7,729,187
------------
ELECTRONICS--SEMICONDUCTORS (7.3%)
Adaptec, Inc.
4.75%, due 2/1/04............. 3,900,000 3,290,625
Advanced Energy Industries,
Inc.
5.25%, due 11/15/06........... 4,120,000 5,587,750
Amkor Technology, Inc.
5.00%, due 3/15/07 (c)........ 7,750,000 7,062,187
Cymer, Inc.
3.50%, due 8/6/04
7.25%, beginning 8/5/00....... 3,500,000 3,941,875
Integrated Process Equipment
Corp.
6.25%, due 9/15/04............ 2,300,000 1,819,875
Kulicke & Soffa Industries,
Inc.
4.75%, due 12/15/06........... 3,300,000 4,789,125
Lam Research Corp.
5.00%, due 9/1/02............. 3,560,000 4,943,950
Lattice Semiconductor Corp.
4.75%, due 11/1/06............ 2,830,000 5,118,762
LSI Logic Corp.
4.00%, due 2/15/05............ 1,500,000 1,584,375
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
-
<PAGE> 62
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
ELECTRONICS--SEMICONDUCTORS (CONTINUED)
Photronics, Inc.
6.00%, due 6/1/04............. $7,850,000 $ 8,949,000
S3, Incorporated
5.75%, due 10/1/03............ 5,665,000 5,452,562
Semtech Corp.
4.50%, due 2/1/07 (c)......... 2,800,000 3,059,000
------------
55,599,086
------------
EMPLOYMENT SERVICES (0.1%)
Personnel Group of America,
Inc.
5.75%, due 7/1/04............. 2,000,000 842,500
------------
FINANCE (0.2%)
Belgelec Finance S.A.
1.50%, due 8/4/04............. E1,173,480 1,235,473
------------
FINANCIAL--MISCELLANEOUS (1.2%)
Morgan Stanley Dean Witter &
Co.
(zero coupon), due 8/17/05.... $7,000,000 6,752,550
Texaco Capital, Inc.
3.50%, due 8/5/04 (d)......... 2,550,000 2,507,288
------------
9,259,838
------------
GOLD & PRECIOUS METAL MINING (0.5%)
Coeur d'Alene Mines Corp.
7.25%, due 10/31/05........... 8,150,000 3,708,250
------------
HEALTH CARE--DRUGS (0.9%)
CV Therapeutics, Inc.
4.75%, due 3/7/07 (c)......... 2,000,000 2,442,500
Roche Holdings AG
(zero coupon), due 1/19/15
(d)(e)........................ 4,500,000 4,162,500
------------
6,605,000
------------
HEALTH CARE--HOSPITAL MANAGEMENT (0.5%)
Universal Health Services, Inc.
0.426%, due 6/23/20........... 7,500,000 3,515,625
------------
HEALTH CARE--MEDICAL PRODUCTS (0.4%)
Elan Finance Corp. Ltd.
(zero coupon), due 12/14/18
(e)(g)........................ 4,000,000 2,940,000
------------
INTERNET SOFTWARE & SERVICES (1.7%)
Internet Capital Group, Inc.
5.50%, due 12/21/04........... 5,000,000 3,268,750
Juniper Networks, Inc.
4.75%, due 3/15/07............ 6,000,000 6,660,000
USinternetworking, Inc.
7.00%, due 11/1/04............ 2,000,000 2,810,000
------------
12,738,750
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
INVESTMENT BANK/BROKERAGE (1.7%)
Lehman Brothers Holdings, Inc.
0.25%, due 7/8/03............. $6,500,000 $ 6,532,500
Merrill Lynch & Co., Inc.
0.25%, due 5/10/06............ 3,600,000 3,784,500
1.00%, due 7/20/06............ 4,000,000 3,030,000
------------
13,347,000
------------
MANUFACTURING--DIVERSIFIED (0.5%)
Mark IV Industries, Inc.
4.75%, due 11/1/04............ 4,500,000 4,179,375
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.5%)
Devon Energy Corp.
4.95%, due 8/15/08............ 3,910,000 3,729,163
------------
PAPER & FOREST PRODUCTS (0.3%)
Thermo Fibertek, Inc.
4.50%, due 7/15/04 (c)........ 3,000,000 2,535,000
------------
POLLUTION CONTROL (0.4%)
Waste Management, Inc.
4.00%, due 2/1/02............. 3,000,000 2,808,750
------------
REAL ESTATE--INVESTMENT MANAGEMENT (0.7%)
Macerich Co. (The)
7.25%, due 12/15/02 (c)....... 2,591,000 2,312,468
Series BREG
7.25%, due 12/15/02 (d)....... 2,340,000 2,088,450
New World Capital Finance
3.00%, due 6/9/04 (d)......... 1,000,000 895,000
------------
5,295,918
------------
RETAIL STORES--SPECIALTY (0.2%)
Office Depot, Inc.
(zero coupon), due 11/1/08
(e)........................... 2,250,000 1,597,500
------------
SPECIALIZED SERVICES (0.6%)
CUC International, Inc.
3.00%, due 2/15/02............ 5,350,000 4,868,500
------------
SPECIALTY PRINTING (0.6%)
World Color Press, Inc.
6.00%, due 10/1/07............ 4,050,000 4,333,500
------------
TELECOMMUNICATIONS (2.6%)
Allied Riser Communications
Corp.
7.50%, due 6/15/07 (c)........ 7,200,000 7,236,000
Efficient Networks, Inc.
5.00%, due 3/15/05 (c)........ 9,750,000 7,312,500
ITC/DeltaCom, Inc.
4.50%, due 5/15/06............ 5,500,000 5,568,750
------------
20,117,250
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
-
<PAGE> 63
MainStay Convertible Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (0.9%)
Nextel Communications, Inc.
5.25%, due 1/15/10............ $6,700,000 $ 6,767,000
------------
TELEPHONE (0.8%)
Bell Atlantic Financial
Services, Inc.
4.25%, due 9/15/05 (c)........ 3,525,000 4,573,688
Corecomm Ltd.
6.00%, due 10/1/06............ 1,500,000 1,376,250
------------
5,949,938
------------
Total Convertible Bonds
(Cost $308,940,664)........... 314,316,789
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (30.8%)
AEROSPACE/DEFENSE (1.6%)
Titan Capital Trust
5.75% (c)..................... 217,500 11,989,687
------------
AUTO PARTS & EQUIPMENT (0.5%)
Tower Automotive Capital Trust
6.75%......................... 116,000 3,654,000
------------
BANKS--REGIONAL (0.9%)
National Australia Bank Ltd.
7.875% (h).................... 250,000 7,078,125
------------
BROADCAST/MEDIA (0.4%)
Emmis Communications Corp.
6.25%, Series A............... 10,000 580,000
Mediaone Group, Inc.
6.25%......................... 25,000 2,248,438
------------
2,828,438
------------
BUILDING MATERIALS (0.2%)
Owens Corning Capital L.L.C.
6.50% (c)..................... 50,000 1,200,000
------------
CABLE TV (0.5%)
UnitedGlobalCom, Inc.
7.00%, Series D (i1).......... 79,000 3,515,500
------------
CONSUMER SERVICES (0.1%)
Carriage Services Capital Trust
7.00%......................... 30,000 720,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
CONTAINERS--METAL & GLASS (0.2%)
Owens-Illinois, Inc.
4.75%......................... 84,000 $ 1,869,000
------------
ELECTRIC POWER COMPANIES (0.8%)
AES Trust III
6.75%......................... 83,000 5,986,375
------------
ENERGY SOURCES (0.3%)
Chesapeake Energy Corp.
7.00%......................... 30,000 1,920,000
------------
ENTERTAINMENT (0.4%)
Seagram Co. Ltd.
7.50%......................... 52,000 2,795,000
------------
FINANCE (0.0%) (B)
Timet Capital Trust I
6.625%........................ 35,000 341,250
------------
FINANCIAL--MISCELLANEOUS (1.1%)
Kmart Financing I
7.75%......................... 45,000 1,639,688
Sovereign Capital Trust II
7.50% (j)(k).................. 155,000 6,994,375
------------
8,634,063
------------
FOOD (1.0%)
Chiquita Brands International,
Inc.
$2.875, Series A.............. 40,300 564,200
$3.75, Series B............... 49,700 964,493
Suiza Capital Trust II
5.50%......................... 155,000 5,890,000
------------
7,418,693
------------
FOOD & HEALTH CARE DISTRIBUTORS (0.5%)
Owens & Minor Trust I
5.375%, Series A (l).......... 86,600 3,745,450
------------
HEALTH CARE--DRUGS (0.3%)
Pharmacia Corp.
6.50%......................... 50,000 2,262,500
------------
HEALTH CARE--LONG TERM CARE (0.0%) (b)
Sun Financing I
7.00% (c)(m).................. 240,000 2,400
------------
HOMEBUILDING (0.1%)
Kaufman & Broad Home Corp.
8.25%......................... 100,000 650,000
------------
INDEPENDENT POWER PRODUCERS (0.6%)
Calpine Capital Trust
5.50% (c)..................... 65,000 4,655,625
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
-
<PAGE> 64
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
INSURANCE--LIFE & HEALTH (1.1%)
Lincoln National Corp.
7.75%......................... 65,000 $ 1,316,250
MetLife, Inc.
8.00%......................... 100,000 6,918,750
------------
8,235,000
------------
INSURANCE--PROPERTY & CASUALITY (1.3%)
ACE Ltd.
8.25%......................... 155,000 9,697,187
------------
INTERNET SOFTWARE & SERVICES (0.4%)
Rhythms NetConnections, Inc.
6.75% (c)..................... 70,000 3,185,000
------------
INVESTMENT BANK/BROKERAGE (0.1%)
Merrill Lynch & Co., Inc.
6.25%, Series IGL (n)......... 38,800 589,275
------------
IRON & STEEL (0.3%)
WHX Corp.
$3.75, Series B............... 123,200 2,125,200
------------
MACHINERY--DIVERSIFIED (0.3%)
Ingersoll-Rand Co.
6.75%......................... 96,100 1,958,038
------------
METALS--MINING (0.0%) (b)
Freeport McMoRan Copper &
Gold, Inc.
7.00% (i2).................... 18,000 239,625
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.3%)
Coastal Corp. (The)
6.625%........................ 200,000 7,000,000
El Paso Energy Capital Trust I
4.75%......................... 105,200 6,772,250
Enron Corp.
7.00%......................... 130,000 3,948,750
------------
17,721,000
------------
OIL & GAS (0.8%)
Valero Energy Corp.
7.75% (o)..................... 232,000 6,177,000
------------
OIL & GAS--DRILLING (2.3%)
Newfield Financial Trust I
6.50%, Series A (p)........... 80,000 4,760,000
Weatherford International, Inc.
5.00%......................... 284,400 12,904,650
------------
17,664,650
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
OIL & GAS--EXPLORATION & PRODUCTION (0.9%)
Apache Corp.
6.50% (i3).................... 61,000 $ 3,156,750
Unocal Capital Trust
6.25%......................... 73,400 3,367,225
------------
6,523,975
------------
OIL--INTEGRATED DOMESTIC (0.5%)
Kerr-McGee Corp.
5.50%......................... 75,000 3,731,250
------------
OIL--INTEGRATED INTERNATIONAL (0.2%)
Pogo Trust I
6.50%, Series A............... 35,000 1,872,500
------------
PAPER & FOREST PRODUCTS (0.9%)
Georgia-Pacific Corp.
7.50%......................... 60,000 1,920,000
International Paper Co.
5.25%......................... 130,700 4,917,588
------------
6,837,588
------------
PUBLISHING--NEWSPAPERS (0.3%)
Tribune Co.
6.25%......................... 125,000 2,093,750
------------
RAILROADS (0.9%)
Canadian National Railway Co.
5.25%......................... 82,400 3,708,000
Union Pacific Capital Trust
6.25%......................... 79,300 3,062,963
------------
6,770,963
------------
REAL ESTATE--INVESTMENT MANAGEMENT (1.2%)
Archstone Communities Trust
$1.75, Series A............... 46,700 1,447,700
General Growth Properties, Inc.
7.25% (i4)(j)................. 365,100 7,940,925
------------
9,388,625
------------
SPECIALIZED SERVICES (0.4%)
Cendant Corp.
7.50%......................... 158,000 3,436,500
------------
STEEL (0.5%)
Bethlehem Steel Corp.
$3.50 (c)..................... 240,000 3,840,000
------------
TELECOMMUNICATIONS (4.5%)
Adelphia Communications Corp.
5.50%, Series D............... 48,900 7,390,012
Alliant Energy Corp.
7.25% (c)(q).................. 85,500 5,963,625
Amdocs Automatic Common
Exchange Security Trust
6.75%......................... 32,800 2,070,500
DECS Trust V
7.25%......................... 139,000 4,543,563
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 65
MainStay Convertible Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
DECS Trust VI
6.25%......................... 80,000 $ 5,490,000
Loral Space & Communications
Ltd.
6.00%, Series C............... 15,800 367,350
McLeodUSA Incorporated
6.75%, Series A............... 2,000 1,114,000
Metromedia International Group,
Inc.
7.25%......................... 44,000 1,232,000
Qwest Trends Trust
5.75% (c)..................... 78,500 6,368,312
------------
34,539,362
------------
TELECOMMUNICATIONS--LONG DISTANCE (1.9%)
Global Crossing Ltd.
6.375%........................ 2,000 154,750
7.00%......................... 30,700 5,522,162
Network Plus Corp.
7.50% (i5).................... 150,000 4,668,750
NEXTLINK Communications, Inc.
6.50%......................... 24,900 4,394,850
------------
14,740,512
------------
TELEPHONE (0.2%)
Viatel Financing Trust I
7.75% (c)..................... 45,000 1,721,250
------------
Total Convertible Preferred
Stocks
(Cost $246,315,618)........... 234,354,356
------------
Total Convertible Securities
(Cost $555,256,282)........... 548,671,145
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
CORPORATE BONDS (0.2%)
BANKS--SAVINGS & LOAN (0.2%)
Westfed Holdings, Inc.
15.50%, due 9/15/99 (f)....... $4,500,000 1,215,000
------------
HOUSING (0.0%) (b)
UDC Homes, Inc.
Series C
(zero coupon), due 11/1/00
(a)(r)(s)..................... 18,799 2
------------
Total Corporate Bonds
(Cost $3,777,934)............. 1,215,002
------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCKS (20.1%)
AEROSPACE/DEFENSE (0.2%)
Raytheon Co. .................. 80,000 1,540,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
BROADCAST/MEDIA (0.5%)
Clear Channel Communications,
Inc. (a)...................... 20,000 $ 1,500,000
Emmis Communications Corp.
(a)........................... 60,000 2,482,500
Pegasus Communications Corp.
(a)........................... 480 23,550
------------
4,006,050
------------
CHEMICALS (0.2%)
RPM, Inc. of Ohio.............. 177,078 1,792,915
------------
COMMUNICATIONS--EQUIPMENT (0.2%)
Harmonic, Inc. (a)............. 55,000 1,361,250
------------
COMPUTER SOFTWARE & SERVICES (0.4%)
Comdisco, Inc. ................ 25,000 557,813
Ingram Micro, Inc. (a)......... 50,000 871,875
Peoplesoft, Inc. (a)........... 100,000 1,675,000
------------
3,104,688
------------
COMPUTER SYSTEMS (0.2%)
Unisys Corp. (a)............... 12,713 185,133
------------
COMPUTERS--PERIPHERALS (0.3%)
Certicom Corp. (a)............. 20,000 1,369,688
Extended Systems, Inc. (a)..... 10,000 960,000
------------
2,329,688
------------
ELECTRIC POWER COMPANIES (0.2%)
Citizens Communications Co.
(a)........................... 100,000 1,725,000
------------
ELECTRICAL EQUIPMENT (0.2%)
ASE Test Ltd. (a).............. 40,000 1,177,500
------------
ELECTRONICS--COMPONENTS (2.0%)
Bookham Technology PLC ADR
(a)(u)........................ 20,000 1,185,000
Genisis Microchip, Inc. (a).... 107,500 1,921,562
Intergrated Device Technology,
Inc. (a)...................... 40,000 2,395,000
Microsemi Corp. (a)............ 286,000 9,706,125
------------
15,207,687
------------
ELECTRONICS--SEMICONDUCTORS (1.9%)
Helix Technology Corp. ........ 158,500 6,181,500
Intersil Holding Corp. (a)..... 50,000 2,703,125
S3, Incorporated (a)........... 140,000 2,065,000
Trikon Technologies, Inc.
(a)........................... 80,000 1,520,001
Xicor, Inc. (a)................ 340,000 2,273,750
------------
14,743,376
------------
ENTERTAINMENT (0.0%) (B)
Alliance Gaming Corp. (a)...... 110,898 270,314
------------
FINANCE (0.7%)
AMC Financial, Inc. (a)........ 26,157 78,471
Nasdaq--100 Shares (a)......... 60,000 5,591,250
------------
5,669,721
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
-
<PAGE> 66
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL--MISCELLANEOUS (1.8%)
American General Corp. ........ 118,834 $ 7,248,850
S&P 500 Depository Receipt..... 45,000 6,537,658
------------
13,786,508
------------
HEALTH CARE--DRUGS (0.6%)
CV Therapeutics, Inc. (a)...... 47,000 3,257,687
Merck & Co., Inc. ............. 17,000 1,302,625
------------
4,560,312
------------
HEALTH CARE--LONG TERM CARE (0.0%) (b)
Meditrust Companies............ 6,000 22,500
------------
HEALTH CARE--MISCELLANEOUS (0.1%)
HEALTHSOUTH Corp. (a).......... 50,000 359,375
Manor Care, Inc. (a)........... 100,000 700,000
------------
1,059,375
------------
HEALTH CARE--SPECIALIZED SERVICES (0.1%)
Beverly Enterprises, Inc.
(a)........................... 285,400 802,687
------------
HOUSEHOLD PRODUCTS (0.5%)
Proctor & Gamble Company
(The)......................... 60,000 3,435,000
------------
INTERNET SOFTWARE & SERVICES (0.3%)
Bluestone Software, Inc. (a)... 25,000 642,187
Descartes Systems Group, Inc.
(a)........................... 50,300 1,546,725
Open Market, Inc. (a).......... 25,000 345,313
------------
2,534,225
------------
INVESTMENT BANK/BROKERAGE (0.3%)
Wit Soundview Group, Inc.
(a)........................... 262,500 2,817,780
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.1%)
Coastal Corp. (The)............ 12,000 730,500
------------
OIL & GAS (0.3%)
Santa Fe Snyder Corp. (a)...... 198,360 2,256,346
------------
OIL & GAS--DRILLING (1.3%)
Nabors Industries, Inc. (a).... 150,000 6,234,375
Santa Fe International Corp.
(a)........................... 50,000 1,746,875
Tidewater, Inc. ............... 50,000 1,800,000
------------
9,781,250
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.7%)
Burlington Resources, Inc. .... 50,000 1,912,500
Union Pacific Resources Group,
Inc. ......................... 165,500 3,641,000
------------
5,553,500
------------
OIL & GAS--WELL EQUIPMENT & SERVICES (1.5%)
Baker Hughes, Inc. ............ 250,000 8,000,000
Cooper Cameron Corp. (a)....... 50,000 3,300,000
------------
11,300,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
OIL--INTEGRATED DOMESTIC (1.1%)
Amerada Hess Corp. ............ 36,800 $ 2,272,400
Sunoco, Inc. .................. 120,000 3,532,500
Tosco Corp. ................... 100,000 2,831,250
------------
8,636,150
------------
OIL--INTEGRATED INTERNATIONAL (0.4%)
Texaco, Inc. .................. 50,000 2,662,500
------------
PAPER & FOREST PRODUCTS (0.1%)
Repap Enterprises, Inc.
(a)(t)........................ 9,294,809 564,576
------------
POLLUTION CONTROL (0.2%)
Waste Management, Inc. ........ 70,000 1,330,000
------------
REAL ESTATE--INVESTMENT MANAGEMENT (1.1%)
Equity Office Properties
Trust......................... 62,000 1,708,875
Healthcare Realty Trust,
Inc. ......................... 60,000 1,023,750
Highwoods Properties, Inc. .... 101,300 2,431,200
Nationwide Health Properties,
Inc. ......................... 60,000 836,250
Simon Property Group, Inc. .... 89,200 1,979,125
------------
7,979,200
------------
RESTAURANTS (0.5%)
Wendy's International, Inc. ... 200,000 3,562,500
------------
RETAIL STORES--FOOD CHAINS (0.9%)
Kroger Co. (a)................. 200,000 4,412,500
Safeway, Inc. (a).............. 60,000 2,707,500
------------
7,120,000
------------
RETAIL STORES--SPECIALTY (0.2%)
Office Depot, Inc. (a)......... 200,000 1,250,000
------------
TELECOMMUNICATIONS (0.5%)
Ditech Communications Corp.
(a)........................... 35,000 3,309,687
Intermedia Communications, Inc.
(a)........................... 16,500 490,875
------------
3,800,562
------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.2%)
United States Cellular Corp.
(a)........................... 29,000 1,816,125
------------
TELEPHONE (0.3%)
Telephonos de Mexico S.A. de
C.V. ADR (u).................. 40,000 2,285,000
------------
TEXTILES--SPECIALTY (0.0%) (b)
Burlington Industries, Inc.
(a)........................... 28,200 47,588
------------
Total Common Stocks
(Cost $163,968,953)........... 152,807,506
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
-
<PAGE> 67
MainStay Convertible Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (0.5%)
METALS--MISCELLANEOUS (0.5%)
Freeport McMoRan Copper &
Gold, Inc.
7.00%, Series Silver
(i6)(v)....................... 330,000 $ 3,960,000
------------
Total Preferred Stock
(Cost $5,626,500)............. 3,960,000
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.7%)
COMMERCIAL PAPER (6.7%)
American Express Credit Corp.
6.88%, due 7/3/00............. $7,075,000 7,072,295
Associates Corp. of North
America
6.53%, due 7/19/00............ 7,000,000 6,977,095
Deutsche Bank Financial, Inc.
6.54%, due 7/17/00............ 10,000,000 9,970,849
Prudential Funding Corp.
6.52%, due 7/7/00............. 7,000,000 6,992,360
6.72%, due 7/3/00............. 12,300,000 12,295,404
Salomon Smith Barney Holdings,
Inc.
6.57%, due 7/11/00............ 7,910,000 7,895,540
------------
Total Short-Term Investments
(Cost $51,203,543)............ 51,203,543
------------
Total Investments
(Cost $779,833,212)(w)........ 99.5% 757,857,196(x)
Cash and Other Assets,
Less Liabilities.............. 0.5 3,773,650
----------- ------------
Net Assets..................... 100.0% $761,630,846
=========== ============
</TABLE>
-------
<TABLE>
<S> <C>
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Eurobond--bond denominated in U.S. dollars or other
currencies and sold to investors outside the country
whose currency is used.
(e) LYON--Liquid Yield Option Note: callable, zero coupon
securities priced at a deep discount from par. They
include a "put" feature that enables holders to redeem
them at a specific date, at a specific price. Put prices
reflect fixed interest rates, and therefore increase
over time.
(f) Issue in default.
(g) Yankee bond.
(h) Capital Unit--each unit consists of $25 principal amount
of 7.875% Perpetual Capital Securities and a purchase
contract to make Optional Unit Exchanges.
(i1) Depository Shares--each share represents 0.05 shares of
7.00% Senior Cumulative convertible preferred stock,
Series D.
(i2) Depository Shares--each share represents 0.05 shares of
step-up preferred stock.
(i3) Depository Shares--each share represents 0.02 shares of
preferred stock.
(i4) Depository Shares--each share represents 0.025 shares of
7.25% Preferred Income Equity Redeemable Stock, Series
A.
(i5) Depository Shares--each share represents 0.10 shares of
Series A cumulative convertible preferred stock.
(i6) Depository Shares--each share represents 0.025 shares of
a share of silver denominated preferred stock.
(j) PIERS--Preferred Income Equity Redeemable Stock.
(k) 155,000 Units--each unit reflects 1 preferred share plus
1 warrant to acquire 5.3355 shares of common stock at a
future date.
(l) TECONS--Term Convertible Security.
(m) TIPS--Trust Issued Preferred Stock.
(n) STRYPES--Structured Yield Product Exchangeable for IMC
Global, Inc. common stock.
(o) PEPS--Premium Equity Participating Security.
(p) QUIPS--Quarterly Income Convertible Preferred Security.
(q) PHONES--Participation Hybird Option Note Exchangeable
Security.
(r) Issuer in bankruptcy.
(s) Fair valued security.
(t) Canadian security.
(u) ADR--American Depository Receipt.
(v) Dividend equals U.S. dollar equivalent of 0.04125 oz. of
silver per share.
(w) The cost for federal income tax purposes is
$781,997,352.
(x) At June 30, 2000 net unrealized depreciation was
$24,140,156, 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 $62,641,000 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $86,781,156.
(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.
16
-
<PAGE> 68
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$779,833,212)............................................. $757,857,196
Cash........................................................ 1,946,269
Receivables:
Investment securities sold................................ 44,130,603
Dividends and interest.................................... 3,988,256
Fund shares sold.......................................... 903,457
------------
Total assets........................................ 808,825,781
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 39,823,255
Fund shares redeemed...................................... 766,613
NYLIFE Distributors....................................... 585,176
MainStay Management....................................... 455,937
Transfer agent............................................ 238,293
Trustees.................................................. 4,612
Custodian................................................. 1,909
Accrued expenses............................................ 233,674
Unrealized depreciation on foreign currency forward
contracts................................................. 116,330
Dividend payable............................................ 4,969,136
------------
Total liabilities................................... 47,194,935
------------
Net assets.................................................. $761,630,846
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 38,124
Class B................................................... 443,062
Class C................................................... 3,218
Additional paid-in capital.................................. 647,442,640
Accumulated undistributed net investment income............. 1,047,443
Accumulated undistributed net realized gain on
investments............................................... 134,842,231
Accumulated net realized loss on foreign currency
transactions.............................................. (82,857)
Net unrealized depreciation on investments.................. (21,976,016)
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (126,999)
------------
Net assets.................................................. $761,630,846
============
CLASS A
Net assets applicable to outstanding shares................. $ 59,934,593
============
Shares of beneficial interest outstanding................... 3,812,432
============
Net asset value per share outstanding....................... $ 15.72
Maximum sales charge (5.50% of offering price).............. 0.91
------------
Maximum offering price per share outstanding................ $ 16.63
============
CLASS B
Net assets applicable to outstanding shares................. $696,636,566
============
Shares of beneficial interest outstanding................... 44,306,212
============
Net asset value and offering price per share outstanding.... $ 15.72
============
CLASS C
Net assets applicable to outstanding shares................. $ 5,059,687
============
Shares of beneficial interest outstanding................... 321,789
============
Net asset value and offering price per share outstanding.... $ 15.72
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
-
<PAGE> 69
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 9,460,698
Interest.................................................. 7,489,843
------------
Total income............................................ 16,950,541
------------
Expenses:
Management................................................ 2,649,050
Distribution--Class B..................................... 2,548,983
Distribution--Class C..................................... 10,858
Service--Class A.......................................... 66,529
Service--Class B.......................................... 849,661
Service--Class C.......................................... 3,619
Transfer agent............................................ 702,935
Professional.............................................. 57,402
Shareholder communication................................. 52,082
Recordkeeping............................................. 50,053
Custodian................................................. 43,288
Registration.............................................. 24,795
Trustees.................................................. 8,947
Miscellaneous............................................. 31,421
------------
Total expenses.......................................... 7,099,623
------------
Net investment income....................................... 9,850,918
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 91,779,330
Option transactions....................................... (90,650)
Foreign currency transactions............................. (82,857)
------------
Net realized gain on investments and foreign currency
transactions.............................................. 91,605,823
------------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (34,524,437)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 359,065
------------
Net unrealized loss on investments and foreign currency
transactions.............................................. (34,165,372)
------------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 57,440,451
------------
Net increase in net assets resulting from operations........ $ 67,291,369
============
</TABLE>
-------
<TABLE>
<C> <S>
(a) Dividends recorded net of foreign withholding taxes of
$4,131.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
-
<PAGE> 70
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 9,850,918 $ 20,513,701
Net realized gain on investments and foreign currency
transactions............................................ 91,605,823 125,222,461
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (34,165,372) 42,693,616
------------- -------------
Net increase in net assets resulting from operations...... 67,291,369 188,429,778
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (923,932) (1,474,632)
Class B................................................. (8,705,651) (17,931,053)
Class C................................................. (49,847) (9,726)
From net realized gain on investments:
Class A................................................. -- (4,372,928)
Class B................................................. -- (63,118,328)
Class C................................................. -- (121,115)
------------- -------------
Total dividends and distributions to shareholders..... (9,679,430) (87,027,782)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 18,684,650 8,434,825
Class B................................................. 44,537,688 30,485,720
Class C................................................. 3,919,429 1,224,187
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 405,995 5,526,918
Class B................................................. 3,834,839 73,686,440
Class C................................................. 15,189 117,744
------------- -------------
71,397,790 119,475,834
Cost of shares redeemed:
Class A................................................. (9,599,999) (16,196,518)
Class B................................................. (63,162,681) (198,039,708)
Class C................................................. (395,475) (69,526)
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (1,760,365) (94,829,918)
------------- -------------
Net increase in net assets............................ 55,851,574 6,572,078
NET ASSETS:
Beginning of period......................................... 705,779,272 699,207,194
------------- -------------
End of period............................................... $ 761,630,846 $ 705,779,272
============= =============
Accumulated undistributed net investment income at end of
period.................................................... $ 1,047,443 $ 875,955
============= =============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
-
<PAGE> 71
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period... $ 14.53 $ 12.49 $ 13.53 $ 13.81 $ 13.45 $ 11.67
------- ------- ------- ------- ------- -------
Net investment income.................... 0.24 0.55 0.57 0.60 0.57 0.59
Net realized and unrealized gain (loss)
on investments......................... 1.19 3.55 (0.38) 0.91 1.02 2.14
Net realized and unrealized gain (loss)
on foreign currency transactions....... 0.01 (0.00)(b) (0.02) 0.03 0.02 (0.00)(b)
------- ------- ------- ------- ------- -------
Total from investment operations......... 1.44 4.10 0.17 1.54 1.61 2.73
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income............. (0.25) (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........ (0.25) (2.06) (1.21) (1.82) (1.25) (0.95)
------- ------- ------- ------- ------- -------
Net asset value at end of period......... $ 15.72 $ 14.53 $ 12.49 $ 13.53 $ 13.81 $ 13.45
======= ======= ======= ======= ======= =======
Total investment return (a).............. 9.94% 33.91% 1.23% 11.36% 12.13% 23.72%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................ 3.37%++ 3.84% 3.74% 4.10% 4.4% 4.9%
Expenses............................. 1.23%++ 1.29% 1.40% 1.45% 1.5% 1.5%
Portfolio turnover rate.................. 124% 374% 347% 273% 296% 243%
Net assets at end of period (in 000's)... $59,935 $46,254 $42,376 $64,246 $56,621 $26,836
</TABLE>
-------
<TABLE>
<C> <S>
* Class C Shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
(c) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
-
<PAGE> 72
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------------- -----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ---------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- -------- -------- -------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.53 $ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 11.67 $ 14.53 $ 12.49 $ 12.64
-------- -------- -------- -------- -------- -------- -------- -------- --------
0.20 0.44 0.46 0.51 0.48 0.51 0.20 0.44 0.26
1.18 3.55 (0.37) 0.91 1.02 2.14 1.18 3.55 0.47
0.01 (0.00)(b) (0.02) 0.03 0.02 (0.00)(b) 0.01 (0.00)(b) 0.02
-------- -------- -------- -------- -------- -------- -------- -------- --------
1.39 3.99 0.07 1.45 1.52 2.65 1.39 3.99 0.75
-------- -------- -------- -------- -------- -------- -------- -------- --------
(0.20) (0.41) (0.46) (0.51) (0.54) (0.47) (0.20) (0.41) (0.26)
-- (1.54) (0.64) (1.22) (0.63) (0.40) -- (1.54) (0.64)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(0.20) (1.95) (1.10) (1.73) (1.17) (0.87) (0.20) (1.95) (0.90)
-------- -------- -------- -------- -------- -------- -------- -------- --------
$ 15.72 $ 14.53 $ 12.49 $ 13.52 $ 13.80 $ 13.45 $ 15.72 $ 14.53 $ 12.49
======== ======== ======== ======== ======== ======== ======== ======== ========
9.54% 32.90% 0.53% 10.67% 11.39% 23.02% 9.54% 32.90% 6.06%
2.62%++ 3.09% 2.99% 3.47% 3.8% 4.3% 2.62%++ 3.09% 2.99%++
1.98%++ 2.04% 2.15% 2.08% 2.1% 2.1% 1.98%++ 2.04% 2.15%++
124% 374% 347% 273% 296% 243% 124% 374% 347%
$696,637 $658,197 $656,831 $841,540 $797,243 $427,461 $ 5,060 $ 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.
21
-
<PAGE> 73
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 (and certain other qualified purchases) 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's principal investments include 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.
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> 74
Notes to Financial Statements unaudited
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 may 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.
23
-
<PAGE> 75
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 period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 2000:
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT UNREALIZED
SOLD PURCHASED DEPRECIATION
------------ ---------- ------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
-------------------------------
Japanese Yen vs. U.S. Dollar, expiring 8/15/00........ Y719,600,000 $6,744,142 $(116,330)
=========
</TABLE>
-------
Y Japenese Yen.
PURCHASED OPTIONS. 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.
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.
24
-
<PAGE> 76
Notes to Financial Statements unaudited (continued)
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 plans)
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 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 six months ended June 30, 2000 the Manager
earned $2,649,050.
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.
25
-
<PAGE> 77
MainStay Convertible 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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 $6,686 for the six months ended
June 30, 2000. 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 $319, $373,623 and $854, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $702,935.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $7,234 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$50,053 for the six months ended June 30, 2000.
26
-
<PAGE> 78
Notes to Financial Statements unaudited (continued)
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than U.S. Government securities, securities subject to repurchase
transactions and short-term securities, were $888,047 and $902,279,
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 six months ended June 30, 2000.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------------- ----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................... 1,225 2,909 256 598 2,193 88
Shares issued in reinvestment of
dividends and distributions......... 25 243 1 396 5,271 8
----- ------ --- ------ ------- ---
1,250 3,152 257 994 7,464 96
Shares redeemed....................... (622) (4,138) (26) (1,203) (14,753) (5)
----- ------ --- ------ ------- ---
Net increase (decrease)............... 628 (986) 231 (209) (7,289) 91
===== ====== === ====== ======= ===
</TABLE>
-------
* Unaudited.
27
-
<PAGE> 79
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
28
-
<PAGE> 80
This page intentionally left blank
<PAGE> 81
This page intentionally left blank
<PAGE> 82
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSC11-08/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Convertible Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 83
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in MainStay
Equity Index Fund versus S&P 500 Index and
Inflation 3
Portfolio Management Discussion and Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 7
Portfolio of Investments 8
Financial Statements 16
Notes to Financial Statements 20
The MainStay(R) Funds 25
</TABLE>
<PAGE> 84
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
2
<PAGE> 85
$10,000 Invested in MainStay
Equity Index Fund versus S&P 500 Index
and Inflation
CLASS A SHARES Total Returns: 1 Year 3.13%, 5 Years 21.99%, Since Inception
17.92%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY EQUITY INDEX
PERIOD END FUND S&P 500 INDEX* INFLATION (CPI)+
---------- --------------------- -------------- ----------------
<S> <C> <C> <C>
12/20/90 $ 9,700.00 $ 10,000.00 $ 10,000.00
12/90 9,710.00 10,000.00 10,000.00
12/91 12,430.00 13,040.00 10,298.00
12/92 13,200.00 14,032.00 10,603.00
12/93 14,391.00 15,441.00 10,893.00
12/94 14,463.00 15,645.00 11,177.00
12/95 19,657.00 21,518.00 11,467.00
12/96 23,988.00 25,454.00 11,847.00
12/97 31,728.00 35,280.00 12,047.00
12/98 40,514.00 45,361.00 12,241.00
12/99 48,613.00 54,913.00 12,568.00
6/00 48,151.00 54,677.00 12,828.00
</TABLE>
-
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. Total returns include change in share price,
reinvestment of dividend and capital gain distributions, and maximum sales
charges. Performance figures reflect certain historical fee waivers and/or
expense limitations, without which total return figures may have been lower. The
graph assumes an initial investment of $10,000 and reflects the effect of the
maximum 3.0% initial sales charge.
* "S&P 500(R)" and "S&P(R)" are trademarks of The McGraw-Hill Companies, Inc.
and have been licensed for use by Monitor Capital Advisors LLC. S&P does
not sponsor, endorse, sell, or promote the Fund or represent the
advisability of investing in the Fund. The S&P 500 is an unmanaged index
and is considered generally representative of the large-cap U.S. stock
market. Total returns reflect the reinvestment of all dividends and capital
gains. You cannot invest directly in 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> 86
-------
(1) S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use by Monitor Capital Advisors LLC. S&P does not sponsor, endorse, sell
or promote the Fund or represent the advisability of investing in the Fund.
See footnote on page 3 for more information about 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. You cannot invest directly in an index.
(3) See footnote and table on page 7 for more information about Lipper Inc.
(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 10-year average annual
returns (if applicable) 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. Past
performance is no guarantee of future results.
Portfolio Management Discussion and Analysis
The S&P 500 Index(1) declined 0.42% in the first six months of 2000, posting its
first semiannual loss since 1994. The equity market remained extremely narrow
throughout, but, interestingly, Microsoft alone accounted for the entirety of
the Index decline during the period. S&P 500 Index growth stocks continued to
outperform value stocks over the six months.
For the most part, the year began well since anticipated Y2K problems failed to
materialize. As the technology-laden NASDAQ Composite Index(2) rose in January
and February, the S&P 500 Index declined, only to recover and peak in
March--rising 9.78% for the month, the highest monthly gain since December 1991.
The sell-off that began in late March and carried into April may have been
triggered by the Justice Department's ruling in the Microsoft antitrust case,
but probably reflected deeper economic concerns.
Leading indicators pointed to economic growth rates that many investors feared
would be difficult to sustain and might pose a threat of higher inflation.
Interest-rate hikes by the Federal Reserve of 25 basis points in February and
March, followed by a 50 basis-point increase in May, seemed to validate these
concerns. The S&P 500 Index fell almost 10% from March 24 through May 23, before
partially recovering in June on the heels of more promising economic news.
Employment numbers and other indicators suggested that economic growth was
slowing. Concerns about corporate earnings and profit growth in a slowing
economic environment persisted.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Equity Index Fund returned
-0.95% for Class A shares, excluding all sales charges. The Fund underperformed
the -0.85% return of the average Lipper(3) S&P 500 Index objective fund and the
-0.42% return of the S&P 500 Index over the same period. Investors should expect
the Fund to lag the Index, since the Fund incurs expenses that a hypothetical
index investment does not.
It is worth noting that Morningstar(4) rated MainStay Equity Index Fund Class A
shares four stars overall out of 3,642 domestic equity funds as of June 30,
2000. The Fund, which is offered only as Class A shares, rated three stars out
of 3,642 domestic equity funds for the three-year period then ended and four
stars out of 2,328 domestic equity funds for the five-year period then ended.
4
<PAGE> 87
-------
(5) Returns reflect performance for the six-month period ended 6/30/00.
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD END CLASS A SHARES TOTAL RETURN %
----------- -------------- --------------
<S> <C>
12/91 [BAR GRAPH] 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
6/00 -0.95
</TABLE>
Past performance is no guarantee of future results. See footnote* on page 7 for
more information on performance.
KEY SECTORS AND SECURITIES
Only four sectors--health care, energy, utilities, and technology--outperformed
the S&P 500 Index during the reporting period. Health care, energy, and
utilities are traditionally defensive sectors, which did well while investors
closely monitored any signals from the Federal Reserve. Within the technology
sector, several companies figured prominently in lists of both the best
performers and worst performers. For example, Scientific-Atlanta (+167.9%), a
maker of cable set-top boxes, benefited from strong demand for its product, as
did Advanced Micro Devices (+167.0%), which produces semiconductors for consumer
PCs. "New Economy" bellwethers Intel (+62.4%), Oracle (+50.0%), and Cisco
Systems (+18.7%) also performed well. Because of their higher weightings in the
Index, these issues had an even greater impact on the performance of the S&P 500
over the reporting period than stocks with considerably higher returns.(5)
Outside of technology, Nabisco Group (+144.1%) was a top performer, with the
run-up in its price resulting from a bidding war that was eventually won by
Philip Morris. Pfizer (+48.0%), a major pharmaceutical company, was also among
the best performers in the Index. The five worst performers in terms of total
return were all technology issues--Novell (-76.8%), Compuware Corp. (-72.2%),
Citrix Systems (-69.2%), QUALCOMM (-65.9%), and Parametric Technology (-59.4%).
Although Microsoft Corp. (-31.5%) substantially outperformed QUALCOMM in terms
of total return, Microsoft's 3.4% weighting in the Index as of June 30, 2000,
made it the strongest negative contributor to Index performance during the
reporting period. QUALCOMM was second, with
5
-
<PAGE> 88
Past performance is no guarantee of future results.
Proctor & Gamble (-47.8%), AT&T (-37.7%), and America Online (-30.1%) rounding
out the five worst-performing stocks when both weightings and returns were taken
into account.
In anticipation of a Fed-induced slowdown, economically-sensitive sectors, such
as basic materials and consumer cyclicals, were among the worst-performing
segments of the market, both in terms of total return and in terms of impact
with sector weightings taken into account. Communication services also performed
poorly on both measures during the semiannual period.
Corporate activity was significant. Thus, Index turnover was higher than in the
previous period, with almost 30 changes to the Index. Collectively, however,
these additions and deletions accounted for less than 5% of the total Index
capitalization.
LOOKING AHEAD
We believe that at the end of June, the environment for U.S. equity investors
appeared less hostile than it had been in previous months. Daily volatility had
subsided from the very high levels witnessed earlier this spring. We believe the
Federal Reserve appears capable of successfully engineering a "soft landing" for
the U.S. economy, and stock valuations are generally below their previous highs.
In our view, someone comfortable investing in the U.S. stock market last
December should be even more comfortable investing today.
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
The Fund may invest in derivatives, which may increase the volatility of the
Fund's net asset value and may result in a loss to the Fund.
6
<PAGE> 89
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 6.32% 22.74% 18.30%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 3.13% 21.99% 17.92%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Equity Index Fund 93 out of 42 out of 13 out of
119 funds 45 funds 13 funds
Average Lipper S&P
500 Index
objective fund 6.58% 23.23% 19.06%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $46.91 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain historical fee waivers
and/or expense limitations, without which total return figures may have
been lower.
MainStay Equity Index Fund is offered as Class A shares only. Class A
shares are sold with a maximum initial sales charge of 3.0%.
(+) 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. Since-inception Fund ranking and since-inception return for the
average Lipper peer fund are for the period from 12/20/90 through
6/30/00.
7
-
<PAGE> 90
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.4%)+
AEROSPACE/DEFENSE (0.8%)
Boeing Co. (The)................. 87,257 $ 3,648,434
General Dynamics Corp. .......... 20,013 1,045,679
Goodrich (B.F.) Co. (The)........ 11,091 377,787
Lockheed Martin Corp. ........... 39,800 987,538
Northrop Grumman Corp. .......... 7,009 464,346
Raytheon Co. Class B............. 34,077 655,982
Rockwell International Corp. .... 19,324 608,706
United Technologies Corp. ....... 47,678 2,807,042
--------------
10,595,514
--------------
AIRLINES (0.2%)
AMR Corp. (a).................... 15,545 410,971
Delta Air Lines, Inc. ........... 12,238 618,784
Southwest Airlines Co. .......... 50,783 961,703
US Airways Group, Inc. (a)....... 7,432 289,848
--------------
2,281,306
--------------
ALUMINUM (0.2%)
Alcan Aluminum Ltd. ............. 22,763 705,653
Alcoa Inc........................ 86,272 2,501,888
--------------
3,207,541
--------------
AUTO PARTS & EQUIPMENT (0.1%)
Cooper Tire & Rubber Co. ........ 7,680 85,440
Delphi Automotive Systems
Corp. .......................... 56,736 826,218
Genuine Parts Co. ............... 18,076 361,520
Goodyear Tire & Rubber Co.
(The)........................... 15,720 314,400
Visteon Corp. (a)................ 13,084 158,649
--------------
1,746,227
--------------
AUTOMOBILES (0.7%)
Ford Motor Co. .................. 121,317 5,216,631
General Motors Corp. ............ 53,414 3,101,350
--------------
8,317,981
--------------
BANKS--MAJOR REGIONAL (2.9%)
AmSouth Bancorp.................. 39,493 622,015
Bank of New York Co., Inc.
(The)........................... 73,825 3,432,863
Bank One Corp. .................. 115,309 3,062,895
BB&T Corp. ...................... 34,757 829,823
Comerica Inc. ................... 15,682 703,730
Fifth Third Bancorp.............. 30,368 1,920,776
Firstar Corp. ................... 98,514 2,074,951
FleetBoston Financial Corp. ..... 90,037 3,061,258
Huntington Bancshares Inc. ...... 22,890 361,948
KeyCorp.......................... 45,174 796,192
Mellon Financial Corp. .......... 49,038 1,786,822
National City Corp. ............. 62,328 1,063,472
Northern Trust Corp. ............ 22,672 1,475,097
Old Kent Financial Corp. ........ 13,020 348,285
-----------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
---------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
BANKS--MAJOR REGIONAL (CONTINUED)
PNC Financial Services Group,
Inc. (The)...................... 29,535 $ 1,384,453
Regions Financial Corp. ......... 22,561 448,400
SouthTrust Corp. ................ 16,747 378,901
State Street Corp. .............. 16,236 1,722,031
Summit Bancorp................... 17,376 427,884
SunTrust Banks, Inc. ............ 30,236 1,381,407
Synovus Financial Corp. ......... 27,275 480,722
Union Planters Corp. ............ 14,262 398,445
U.S. Bancorp..................... 73,274 1,410,524
Wachovia Corp. .................. 20,486 1,111,365
Wells Fargo Co. ................. 160,940 6,236,425
--------------
36,920,684
--------------
BANKS--MONEY CENTER (1.4%)
Bank of America Corp. ........... 166,440 7,156,920
Chase Manhattan Corp. (The)...... 124,416 5,730,912
First Union Corp. ............... 99,322 2,464,427
Morgan (J.P.) & Co., Inc. ....... 16,255 1,790,082
--------------
17,142,341
--------------
BANKS--SAVINGS & LOANS (0.2%)
Charter One Financial, Inc....... 20,500 471,500
Golden West Financial Corp. ..... 16,197 661,040
Washington Mutual, Inc. ......... 54,731 1,580,358
--------------
2,712,898
--------------
BEVERAGES--ALCOHOLIC (0.3%)
Anheuser-Busch Cos., Inc. ....... 45,158 3,372,738
Brown-Forman Corp.
Class B......................... 6,915 371,681
Coors (Adolph) Co.
Class B......................... 3,704 224,092
--------------
3,968,511
--------------
BEVERAGES--SOFT DRINKS (1.7%)
Coca-Cola Co. (The) (c).......... 247,221 14,199,756
Coca-Cola Enterprises Inc. ...... 42,806 698,273
PepsiCo, Inc..................... 143,900 6,394,556
--------------
21,292,585
--------------
BROADCAST/MEDIA (0.8%)
Clear Channel Communications,
Inc. (a)........................ 33,539 2,515,425
Comcast Corp. Special Class A
(a)............................. 89,656 3,631,068
MediaOne Group Inc. (a).......... 61,137 4,061,484
--------------
10,207,977
--------------
BUILDING MATERIALS (0.1%)
Masco Corp. ..................... 44,594 805,479
Owens Corning.................... 5,476 50,653
Sherwin-Williams Co. (The)....... 17,074 361,755
Vulcan Materials Co. ............ 10,200 435,413
--------------
1,653,300
--------------
</TABLE>
8
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 91
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS (0.8%)
Air Products & Chemicals,
Inc. ........................... 23,228 $ 715,713
Dow Chemical Co. (The)........... 66,753 2,015,106
Du Pont (E.I.) De Nemours &
Co. ............................ 105,101 4,598,169
Eastman Chemical Co. ............ 7,996 381,809
Hercules Inc. ................... 10,147 142,692
Praxair, Inc. ................... 15,863 593,871
Rohm & Haas Co. ................. 21,332 735,954
Union Carbide Corp. ............. 13,447 665,627
--------------
9,848,941
--------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ............ 11,449 768,514
Engelhard Corp. ................. 12,582 214,680
FMC Corp. (a).................... 3,312 192,096
PPG Industries, Inc. ............ 17,435 772,589
--------------
1,947,879
--------------
CHEMICALS--SPECIALTY (0.0%) (B)
Grace (W.R.) & Co. (a)........... 6,989 84,742
Great Lakes Chemical Corp. ...... 5,861 184,621
Sigma-Aldrich Corp. ............. 10,141 296,624
--------------
565,987
--------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (8.5%)
ADC Telecommunications, Inc.
(a)............................. 30,200 2,533,025
Andrew Corp. (a)................. 8,100 271,856
Cabletron Systems, Inc. (a)...... 18,635 470,534
Cisco Systems, Inc. (a).......... 686,892 43,660,573
Comverse Technology, Inc. (a).... 15,400 1,432,200
Corning Inc. .................... 27,715 7,479,586
Lucent Technologies Inc. ........ 316,757 18,767,852
Network Appliance, Inc. (a)...... 30,600 2,463,300
Nortel Networks Corp. ........... 289,696 19,771,752
QUALCOMM, Inc. (a)............... 74,100 4,446,000
Scientific-Atlanta, Inc. ........ 15,798 1,176,951
Tellabs, Inc. (a)................ 40,468 2,769,529
3Com Corp. (a)................... 34,657 1,997,109
--------------
107,240,267
--------------
COMPUTER SOFTWARE & SERVICES (8.9%)
Adobe Systems Inc. .............. 11,860 1,541,800
America Online Inc. (a).......... 227,362 11,993,346
Autodesk, Inc. .................. 5,920 205,350
Automatic Data Processing,
Inc. ........................... 63,230 3,386,757
BMC Software, Inc. (a)........... 23,800 868,329
Ceridian Corp. (a)............... 14,555 350,230
Citrix Systems, Inc. (a)......... 17,800 337,087
Computer Associates
International, Inc. ............ 59,080 3,024,157
Computer Sciences Corp. (a)...... 16,694 1,246,833
Compuware Corp. (a).............. 37,007 383,948
Electronic Data Systems Corp. ... 47,344 1,952,940
Equifax Inc. .................... 14,515 381,019
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
First Data Corp. ................ 42,196 $ 2,093,976
Microsoft Corp. (a)(c)........... 522,528 41,802,240
Novell, Inc. (a)................. 33,614 310,929
Oracle Corp. (a)................. 283,584 23,838,780
Parametric Technology Corp.
(a)............................. 27,929 307,219
Paychex, Inc. ................... 37,140 1,559,880
PeopleSoft, Inc. (a)............. 25,433 426,003
Sabre Holdings Corp. (a)......... 13,033 371,441
Sapient Corp. (a)................ 6,100 652,319
Shared Medical Systems Corp. .... 2,698 196,785
Siebel Systems, Inc. (a)......... 19,300 3,156,756
VERITAS Software Corp. (a)....... 39,200 4,430,212
Yahoo! Inc. (a).................. 52,900 6,552,987
--------------
111,371,323
--------------
COMPUTER SYSTEMS (6.8%)
Apple Computer, Inc. (a)......... 32,274 1,690,351
Compaq Computer Corp. ........... 170,105 4,348,309
Dell Computer Corp. (a).......... 257,699 12,707,782
EMC Corp. (a).................... 204,108 15,703,559
Gateway Inc. (a)................. 31,868 1,808,509
Hewlett-Packard Co. ............. 99,902 12,475,262
International Business Machines
Corp. .......................... 176,694 19,359,036
Lexmark International Group, Inc.
(a)............................. 12,900 867,525
NCR Corp. (a).................... 9,700 377,694
Seagate Technology, Inc. (a)..... 21,712 1,194,160
Silicon Graphics, Inc. (a)....... 6,408 24,030
Sun Microsystems, Inc. (a)....... 158,432 14,407,410
Unisys Corp. (a)................. 30,760 447,943
--------------
85,411,570
--------------
CONGLOMERATES (0.1%)
Textron Inc. .................... 15,218 826,528
--------------
CONTAINERS--METAL & GLASS (0.0%) (B)
Ball Corp. ...................... 3,050 98,172
Crown Cork & Seal Co., Inc. ..... 12,408 186,120
Owens-Illinois, Inc. (a)......... 15,747 184,043
--------------
468,335
--------------
CONTAINERS--PAPER (0.0%) (B)
Bemis Co., Inc. ................. 5,373 180,667
Pactiv Corp. (a)................. 17,084 134,537
Temple-Inland Inc. .............. 5,583 234,486
--------------
549,690
--------------
COSMETICS/PERSONAL CARE (0.4%)
Alberto-Culver Co. Class B....... 5,703 174,298
Avon Products, Inc. ............. 24,354 1,083,753
Gillette Co. (The)............... 104,322 3,644,750
International Flavors &
Fragrances Inc.................. 10,650 321,497
--------------
5,224,298
--------------
</TABLE>
9
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 92
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC POWER COMPANIES (1.5%)
Ameren Corp. .................... 13,806 $ 465,953
American Electric Power Co.,
Inc. ........................... 32,198 953,866
Cinergy Corp. ................... 16,061 408,552
CMS Energy Corp. ................ 11,800 261,075
Consolidated Edison, Inc. ....... 22,474 665,792
Constellation Energy Group,
Inc. ........................... 15,058 490,326
CP&L Energy, Inc. ............... 16,094 514,002
Dominion Resources, Inc. ........ 23,882 1,023,971
DTE Energy Co. .................. 14,628 447,068
Duke Energy Corp. ............... 36,737 2,071,048
Edison International............. 35,036 718,238
Entergy Corp. ................... 24,217 658,400
FirstEnergy Corp. ............... 23,700 553,988
Florida Progress Corp. .......... 9,900 464,063
FPL Group, Inc. ................. 18,016 891,792
GPU, Inc. ....................... 12,658 342,557
New Century Energies Inc. ....... 11,535 346,050
Niagara Mohawk Holdings Inc.
(a)............................. 18,877 263,098
Northern States Power Co. ....... 15,404 310,968
PECO Energy Co. ................. 16,891 680,918
PG&E Corp. ...................... 38,708 953,185
Pinnacle West Capital Corp. ..... 8,500 287,937
PPL Corp. ....................... 15,894 348,675
Public Service Enterprise Group
Inc. ........................... 22,127 766,147
Reliant Energy, Inc. ............ 29,870 883,032
Southern Co. (The)............... 64,797 1,510,580
TXU Corp. ....................... 26,365 777,768
Unicom Corp. .................... 17,753 686,819
--------------
18,745,868
--------------
ELECTRICAL EQUIPMENT (4.8%)
American Power Conversion Corp.
(a)............................. 19,400 791,762
Cooper Industries, Inc. ......... 9,560 311,298
Emerson Electric Co. ............ 42,656 2,575,356
General Electric Co. (c)......... 985,839 52,249,467
Grainger (W.W.), Inc. ........... 9,479 292,072
Molex Inc. ...................... 19,500 938,437
Sanmina Corp. (a)................ 13,300 1,137,150
Solectron Corp. (a).............. 59,622 2,496,671
Thomas & Betts Corp. ............ 5,758 110,122
--------------
60,902,335
--------------
ELECTRONICS--DEFENSE (0.0%) (B)
PerkinElmer, Inc. ............... 4,552 301,001
--------------
ELECTRONICS--INSTRUMENTATION
(0.3%)
Agilent Technologies, Inc. (a)... 45,445 3,351,569
Tektronix, Inc. ................. 4,716 348,984
--------------
3,700,553
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
ELECTRONICS--SEMICONDUCTORS
(7.5%)
Adaptec, Inc. (a)................ 10,300 $ 234,325
Advanced Micro Devices, Inc.
(a)............................. 14,843 1,146,622
Altera Corp. (a)................. 20,000 2,038,750
Analog Devices, Inc. (a)......... 35,000 2,660,000
Applied Materials, Inc. (a)...... 76,808 6,960,725
Broadcom Corp. (a)............... 5,147 1,126,871
Conexant Systems, Inc. (a)....... 21,600 1,050,300
Intel Corp. ..................... 334,490 44,717,132
KLA-Tencor Corp. (a)............. 18,524 1,084,812
Linear Technology Corp. ......... 31,100 1,988,456
LSI Logic Corp. (a).............. 29,996 1,623,534
Maxim Integrated Products, Inc.
(a)............................. 27,900 1,895,456
Micron Technology, Inc. (a)...... 54,282 4,780,209
MIPS Technologies, Inc. (a)...... 888 34,189
Motorola, Inc. .................. 210,261 6,110,710
National Semiconductor Corp.
(a)............................. 16,951 961,969
Novellus Systems, Inc. (a)....... 13,000 735,313
Teradyne, Inc. (a)............... 17,200 1,264,200
Texas Instruments Inc. .......... 163,756 11,247,990
Xilinx, Inc. (a)................. 31,800 2,625,487
--------------
94,287,050
--------------
ENGINEERING & CONSTRUCTION (0.0%) (B)
Fluor Corp. ..................... 7,617 240,888
--------------
ENTERTAINMENT (2.4%)
Seagram Co. Ltd. (The)........... 43,137 2,501,946
Time Warner Inc. ................ 129,135 9,814,260
Viacom Inc. Class B (a).......... 152,312 10,385,774
Walt Disney Co. (The)............ 206,807 8,026,697
--------------
30,728,677
--------------
FINANCIAL--MISCELLANEOUS (4.3%)
AFLAC Inc. ...................... 26,800 1,231,125
American Express Co. ............ 133,403 6,953,631
American General Corp. .......... 25,286 1,542,446
Associates First Capital Corp.
Class A......................... 73,379 1,637,269
Citigroup Inc. .................. 337,073 20,308,648
Fannie Mae....................... 100,610 5,250,585
Franklin Resources Inc. ......... 24,962 758,221
Freddie Mac...................... 70,090 2,838,645
MBIA Inc. ....................... 10,057 484,622
MBNA Corp. ...................... 80,865 2,193,463
Morgan Stanley Dean Witter &
Co. ............................ 113,070 9,413,078
Price (T. Rowe) Associates,
Inc. ........................... 12,800 544,000
SLM Holding Corp. ............... 16,451 615,884
--------------
53,771,617
--------------
FOOD (1.3%)
Bestfoods........................ 28,113 1,946,825
Campbell Soup Co. ............... 43,930 1,279,461
ConAgra, Inc. ................... 49,211 938,085
General Mills, Inc. ............. 29,102 1,113,152
Heinz (H.J.) Co. ................ 36,199 1,583,706
</TABLE>
10
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 93
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD (CONTINUED)
Hershey Foods Corp. ............. 14,040 $ 683,572
Kellogg Co. ..................... 40,858 1,215,526
Nabisco Group Holdings Corp. .... 32,761 849,739
Quaker Oats Co. (The)............ 13,617 1,022,977
Ralston-Ralston Purina Group..... 30,640 610,885
Sara Lee Corp. .................. 89,006 1,718,928
Unilever N.V. ................... 57,652 2,479,036
Wrigley (Wm.) Jr. Co. ........... 11,668 935,628
--------------
16,377,520
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.3%)
Cardinal Health, Inc. ........... 27,348 2,023,752
McKesson HBOC, Inc. ............. 27,993 586,103
SUPERVALU Inc. .................. 12,063 229,951
SYSCO Corp. ..................... 33,335 1,404,237
--------------
4,244,043
--------------
GOLD & PRECIOUS METALS MINING (0.1%)
Barrick Gold Corp. .............. 39,415 716,860
Homestake Mining Co. ............ 26,254 180,496
Newmont Mining Corp. ............ 16,887 365,182
Placer Dome Inc. ................ 32,900 314,606
--------------
1,577,144
--------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)....... 8,716 342,648
Snap-on Inc. .................... 6,562 174,713
Stanley Works (The).............. 8,950 212,563
--------------
729,924
--------------
HEALTH CARE--DIVERSIFIED (3.3%)
Abbott Laboratories.............. 153,311 6,831,921
Allergan, Inc. .................. 13,548 1,009,326
American Home Products Corp. .... 130,254 7,652,423
Bristol-Myers Squibb Co. ........ 197,073 11,479,502
Johnson & Johnson................ 138,944 14,154,920
Mallinckrodt Inc. ............... 7,069 307,060
--------------
41,435,152
--------------
HEALTH CARE--DRUGS (5.8%)
Lilly (Eli) & Co. ............... 109,702 10,956,487
Merck & Co., Inc. ............... 229,662 17,597,851
Pfizer Inc. ..................... 624,277 29,965,296
Pharmacia Corp. ................. 125,733 6,498,824
Schering-Plough Corp. ........... 146,259 7,386,080
Watson Pharmaceuticals, Inc.
(a)............................. 9,700 521,375
--------------
72,925,913
--------------
HEALTH CARE--HMOS (0.2%)
Aetna Inc. ...................... 14,133 907,162
Humana Inc. (a).................. 16,878 82,280
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
HEALTH CARE--HMOS (CONTINUED)
UnitedHealth Group Inc. (a)...... 16,219 $ 1,390,779
Wellpoint Health Networks Inc.
(a)............................. 6,800 492,575
--------------
2,872,796
--------------
HEALTH CARE--HOSPITAL MANAGEMENT (0.2%)
HCA-The Healthcare Co. .......... 57,281 1,739,910
Tenet Healthcare Corp. (a)....... 31,290 844,830
--------------
2,584,740
--------------
HEALTH CARE--MEDICAL PRODUCTS (1.1%)
Bard (C.R.), Inc. ............... 5,199 250,202
Bausch & Lomb Inc. .............. 5,789 447,924
Baxter International Inc. ....... 29,415 2,068,242
Becton, Dickinson & Co. ......... 25,230 723,786
Biomet, Inc. .................... 11,355 436,458
Boston Scientific Corp. (a)...... 39,948 876,359
Guidant Corp. (a)................ 30,465 1,508,017
Medtronic, Inc. ................. 120,188 5,986,865
PE Corp.-PE Biosystems Group..... 20,700 1,363,612
St. Jude Medical, Inc. (a)....... 8,529 391,268
--------------
14,052,733
--------------
HEALTH CARE--MISCELLANEOUS (0.9%)
ALZA Corp. (a)................... 10,155 600,414
Amgen Inc. (a)................... 103,312 7,257,668
Biogen, Inc. (a)................. 15,100 973,950
HEALTHSOUTH Corp. (a)............ 41,903 301,178
Manor Care, Inc. (a)............. 11,142 77,994
MedImmune, Inc. (a).............. 20,800 1,539,200
Quintiles Transnational Corp.
(a)............................. 11,600 163,850
--------------
10,914,254
--------------
HEAVY DUTY TRUCKS & PARTS (0.1%)
Cummins Engine Co., Inc. ........ 4,289 116,875
Dana Corp. ...................... 16,689 353,598
Eaton Corp. ..................... 7,232 484,544
ITT Industries, Inc. ............ 8,789 266,966
Navistar International Corp.
(a)............................. 6,458 200,602
PACCAR Inc. ..................... 7,909 313,889
--------------
1,736,474
--------------
HOMEBUILDING (0.0%) (B)
Centex Corp. .................... 5,963 140,130
Kaufman & Broad Home Corp. ...... 4,123 81,687
Pulte Corp. ..................... 4,352 94,112
--------------
315,929
--------------
HOTEL/MOTEL (0.2%)
Carnival Corp. .................. 61,854 1,206,153
Harrah's Entertainment, Inc.
(a)............................. 12,913 270,366
</TABLE>
11
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 94
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOTEL/MOTEL (CONTINUED)
Hilton Hotels Corp. ............. 36,362 $ 340,899
Marriott International, Inc.
Class A......................... 24,751 892,583
--------------
2,710,001
--------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong Holdings, Inc. ........ 3,988 61,066
Leggett & Platt, Inc. ........... 20,200 333,300
Maytag Corp. .................... 8,874 327,229
Whirlpool Corp. ................. 7,651 356,728
--------------
1,078,323
--------------
HOUSEHOLD PRODUCTS (1.3%)
Clorox Co. (The)................. 23,680 1,061,160
Colgate-Palmolive Co. ........... 57,592 3,448,321
Fort James Corp. ................ 22,226 513,976
Kimberly-Clark Corp. ............ 55,801 3,201,582
Procter & Gamble Co. (The)....... 130,627 7,478,396
--------------
15,703,435
--------------
HOUSEWARES (0.1%)
Fortune Brands, Inc. ............ 16,871 389,087
Newell Rubbermaid Inc. .......... 28,592 736,244
Tupperware Corp. ................ 5,805 127,710
--------------
1,253,041
--------------
INSURANCE BROKERS (0.3%)
Aon Corp. ....................... 25,826 802,220
Marsh & McLennan Cos., Inc. ..... 26,785 2,797,359
--------------
3,599,579
--------------
INSURANCE--LIFE (0.2%)
Conseco, Inc. ................... 32,639 318,230
Jefferson-Pilot Corp. ........... 10,767 607,663
Lincoln National Corp. .......... 20,326 734,277
Torchmark Corp. ................. 13,464 332,392
UNUMProvident Corp. ............. 24,148 484,469
--------------
2,477,031
--------------
INSURANCE--MULTI-LINE (1.6%)
American International Group,
Inc. ........................... 154,015 18,096,763
CIGNA Corp. ..................... 16,247 1,519,094
Hartford Financial Services
Group, Inc. (The)............... 21,484 1,201,761
--------------
20,817,618
--------------
INSURANCE--PROPERTY & CASUALTY (0.5%)
Allstate Corp. (The)............. 74,346 1,654,198
Chubb Corp. (The)................ 17,714 1,089,411
Cincinnati Financial Corp. ...... 16,390 515,261
Loews Corp. ..................... 9,893 593,580
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
INSURANCE--PROPERTY & CASUALTY (CONTINUED)
MGIC Investment Corp. ........... 11,072 $ 503,776
Progressive Corp. (The).......... 7,422 549,228
SAFECO Corp. .................... 13,773 273,738
St. Paul Cos., Inc. (The)........ 21,150 721,744
--------------
5,900,936
--------------
INVESTMENT BANK/BROKERAGE (0.9%)
Bear Stearns Cos., Inc. (The).... 12,364 514,651
Lehman Brothers Holdings Inc. ... 11,909 1,126,145
Merrill Lynch & Co., Inc. ....... 37,094 4,265,810
Paine Webber Group Inc. ......... 14,600 664,300
Schwab (Charles) Corp. (The)..... 134,374 4,518,326
--------------
11,089,232
--------------
LEISURE TIME (0.1%)
Brunswick Corp. ................. 9,191 152,226
Harley-Davidson, Inc. ........... 30,400 1,170,400
--------------
1,322,626
--------------
MACHINERY--DIVERSIFIED (0.3%)
Briggs & Stratton Corp. ......... 2,377 81,412
Caterpillar Inc. ................ 35,408 1,199,446
Deere & Co. ..................... 23,411 866,207
Ingersoll-Rand Co. .............. 16,744 673,946
Thermo Electron Corp. (a)........ 16,010 337,211
Timken Co. (The)................. 6,121 114,004
--------------
3,272,226
--------------
MANUFACTURING--DIVERSIFIED (1.3%)
Crane Co. ....................... 6,415 155,965
Danaher Corp. ................... 14,313 707,599
Dover Corp. ..................... 20,484 830,882
Honeywell International Inc. .... 79,609 2,681,828
Illinois Tool Works Inc. ........ 29,996 1,709,772
Johnson Controls, Inc. .......... 8,540 438,209
Millipore Corp. ................. 4,508 339,791
Pall Corp. ...................... 12,569 232,526
Parker-Hannifin Corp. ........... 10,984 376,202
Sealed Air Corp. (a)............. 8,410 440,474
Tyco International Ltd. ......... 168,634 7,989,036
--------------
15,902,284
--------------
METALS--MINING (0.1%)
Freeport-McMoRan Copper & Gold
Inc. Class B (a)................ 16,522 152,828
Inco Ltd. (a).................... 19,367 297,768
Phelps Dodge Corp. .............. 7,883 293,149
--------------
743,745
--------------
MISCELLANEOUS (0.5%)
AES Corp. (The) (a).............. 41,558 1,896,084
American Greetings Corp. Class
A............................... 6,830 129,770
Archer-Daniels-Midland Co. ...... 62,234 610,671
</TABLE>
12
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 95
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MISCELLANEOUS (CONTINUED)
Minnesota Mining & Manufacturing
Co. ............................ 40,007 $ 3,300,578
TRW, Inc. ....................... 12,094 524,577
--------------
6,461,680
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.8%)
Coastal Corp. (The).............. 21,553 1,312,039
Columbia Energy Group............ 8,413 552,103
Eastern Enterprises.............. 2,323 146,349
El Paso Energy Corp. ............ 23,164 1,179,916
Enron Corp. ..................... 71,398 4,605,171
NICOR Inc. ...................... 4,919 160,483
ONEOK, Inc. ..................... 3,019 78,305
Peoples Energy Corp. ............ 3,574 115,708
Sempra Energy.................... 20,391 346,647
Williams Cos., Inc. (The)........ 43,435 1,810,697
--------------
10,307,418
--------------
OFFICE EQUIPMENT & SUPPLIES
(0.2%)
Pitney Bowes Inc. ............... 27,051 1,082,040
Xerox Corp. ..................... 66,747 1,385,000
--------------
2,467,040
--------------
OIL & GAS DRILLING (0.0%) (B)
Rowan Cos., Inc. (a)............. 8,466 257,155
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.3%)
Anadarko Petroleum Corp. ........ 12,269 605,015
Apache Corp. .................... 11,241 661,111
Burlington Resources Inc. ....... 21,447 820,348
Union Pacific Resources Group,
Inc. ........................... 25,396 558,712
Unocal Corp. .................... 24,511 811,927
--------------
3,457,113
--------------
OIL & WELL--EQUIPMENT & SERVICES (0.7%)
Baker Hughes Inc. ............... 32,955 1,054,560
Halliburton Co. ................. 44,338 2,092,200
McDermott International, Inc. ... 5,946 52,399
Schlumberger Ltd. ............... 55,092 4,111,241
Transocean Sedco Forex Inc. ..... 20,865 1,114,973
--------------
8,425,373
--------------
OIL--INTEGRATED DOMESTIC (0.5%)
Amerada Hess Corp. .............. 9,210 568,718
Ashland Inc. .................... 7,437 260,760
Conoco Inc. Class B.............. 63,045 1,548,543
Kerr-McGee Corp. ................ 9,572 564,150
Occidental Petroleum Corp. ...... 35,060 738,451
Phillips Petroleum Co. .......... 25,439 1,289,439
Sunoco Inc. ..................... 9,124 268,588
Tosco Corp. ..................... 15,300 433,181
USX-Marathon Group............... 31,185 781,574
--------------
6,453,404
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL
(3.9%)
Chevron Corp. ................... 65,135 $ 5,524,263
Exxon Mobil Corp. ............... 346,863 27,228,745
Royal Dutch Petroleum Co. ADR
(d)............................. 214,233 13,188,719
Texaco Inc. ..................... 55,496 2,955,162
--------------
48,896,889
--------------
PAPER & FOREST PRODUCTS (0.3%)
Boise Cascade Corp. ............. 5,564 143,968
Georgia-Pacific Group............ 17,288 453,810
International Paper Co. ......... 48,315 1,440,397
Louisiana-Pacific Corp. ......... 10,791 117,352
Mead Corp. (The)................. 10,287 259,747
Potlatch Corp. .................. 2,959 98,017
Westvaco Corp. .................. 10,098 250,557
Weyerhaeuser Co. ................ 23,784 1,022,712
Willamette Industries, Inc. ..... 11,127 303,211
--------------
4,089,771
--------------
PERSONAL LOANS (0.4%)
Capital One Financial Corp. ..... 19,838 885,271
Countrywide Credit Industries,
Inc. ........................... 11,329 343,410
Household International, Inc. ... 48,314 2,008,051
Providian Financial Corp. ....... 14,268 1,284,120
--------------
4,520,852
--------------
PHOTOGRAPHY/IMAGING (0.2%)
Eastman Kodak Co. ............... 31,787 1,891,327
Polaroid Corp. .................. 4,454 80,450
--------------
1,971,777
--------------
POLLUTION CONTROL (0.1%)
Allied Waste Industries, Inc.
(a)............................. 18,900 189,000
Waste Management, Inc. .......... 61,452 1,167,588
--------------
1,356,588
--------------
PUBLISHING (0.1%)
Harcourt General Inc. ........... 7,354 399,874
McGraw-Hill Cos., Inc. (The)..... 19,871 1,073,034
Meredith Corp. .................. 5,296 178,740
--------------
1,651,648
--------------
PUBLISHING--NEWSPAPER (0.3%)
Dow Jones & Co., Inc. ........... 9,089 665,769
Gannett Co., Inc. ............... 26,663 1,594,781
Knight-Ridder, Inc. ............. 7,916 421,032
New York Times Co. (The) Class
A............................... 17,791 702,745
Tribune Co. ..................... 23,836 834,260
--------------
4,218,587
--------------
RAILROADS (0.3%)
Burlington Northern Santa Fe
Corp. .......................... 42,731 980,142
CSX Corp. ....................... 21,874 463,456
Kansas City Southern Industries,
Inc. ........................... 11,100 984,431
</TABLE>
13
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 96
MainStay Equity Index Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RAILROADS (CONTINUED)
Norfolk Southern Corp. .......... 38,267 $ 569,222
Union Pacific Corp. ............. 24,940 927,456
--------------
3,924,707
--------------
RESTAURANTS (0.5%)
Darden Restaurants, Inc. ........ 13,065 212,306
McDonald's Corp. ................ 133,457 4,395,740
Starbucks Corp. (a).............. 18,300 698,831
Tricon Global Restaurants, Inc.
(a)............................. 15,503 437,960
Wendy's International, Inc. ..... 12,422 221,267
--------------
5,966,104
--------------
RETAIL STORES--APPAREL (0.3%)
Gap, Inc. (The).................. 84,935 2,654,219
Limited, Inc. (The).............. 42,934 928,448
TJX Cos., Inc. (The)............. 32,420 607,875
--------------
4,190,542
--------------
RETAIL STORES--DEPARTMENT (0.3%)
Dillard's, Inc. Class A.......... 10,593 129,764
Federated Department Stores, Inc.
(a)............................. 21,015 709,256
Kohl's Corp. (a)................. 32,802 1,824,611
May Department Stores Co.
(The)........................... 33,660 807,840
Nordstrom, Inc. ................. 14,262 344,071
Penney (J.C.) Co., Inc. ......... 26,495 488,502
--------------
4,304,044
--------------
RETAIL STORES--DRUGS (0.3%)
Longs Drug Stores Corp. ......... 3,869 84,151
Rite Aid Corp. .................. 26,157 171,655
Walgreen Co. .................... 100,621 3,238,739
--------------
3,494,545
--------------
RETAIL STORES--FOOD (0.5%)
Albertson's, Inc. ............... 42,484 1,412,593
Great Atlantic & Pacific Tea Co.,
Inc. (The)...................... 3,778 62,809
Kroger Co. (The) (a)............. 83,272 1,837,189
Safeway Inc. (a)................. 49,554 2,236,124
Winn-Dixie Stores, Inc. ......... 15,059 215,532
--------------
5,764,247
--------------
RETAIL STORES--GENERAL MERCHANDISE (2.4%)
Kmart Corp. (a).................. 49,847 339,583
Sears, Roebuck & Co. ............ 35,240 1,149,705
Target Corp. .................... 44,712 2,593,296
Wal-Mart Stores, Inc. ........... 445,212 25,655,341
--------------
29,737,925
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
RETAIL STORES--SPECIALTY (1.8%)
AutoZone, Inc. (a)............... 15,190 $ 334,180
Bed Bath & Beyond Inc. (a)....... 13,500 489,375
Best Buy Co. Inc. (a)............ 20,600 1,302,950
Circuit City Stores-Circuit City
Group........................... 20,336 674,901
Consolidated Stores Corp. (a).... 11,048 132,576
Costco Wholesale Corp. (a)....... 44,164 1,457,412
CVS Corp. ....................... 39,425 1,577,000
Dollar General Corp. ............ 33,385 651,007
Home Depot, Inc. (The)........... 231,094 11,540,257
Lowe's Cos., Inc. ............... 38,362 1,575,240
Office Depot, Inc. (a)........... 33,100 206,875
RadioShack Corp. ................ 19,742 935,277
Staples Inc. (a)................. 47,363 728,206
Tiffany & Co. ................... 7,400 499,500
Toys "R" Us, Inc. (a)............ 24,553 357,553
--------------
22,462,309
--------------
SHOES (0.1%)
NIKE, Inc. Class B............... 28,141 1,120,363
Reebok International Ltd. (a).... 5,603 89,298
--------------
1,209,661
--------------
SPECIALIZED SERVICES (0.6%)
Block (H&R), Inc. ............... 9,854 319,023
Cendant Corp. (a)................ 73,711 1,031,954
Convergys Corp. (a).............. 15,300 793,688
Dun & Bradstreet Corp. (The)..... 16,495 472,169
Ecolab Inc. ..................... 13,125 512,695
IMS Health Inc. ................. 31,920 574,560
Interpublic Group of Cos., Inc.
(The)........................... 28,172 1,211,396
National Service Industries,
Inc. ........................... 4,213 82,154
Omnicom Group Inc. .............. 18,036 1,606,331
Young & Rubicam Inc. ............ 6,800 388,875
--------------
6,992,845
--------------
SPECIALTY PRINTING (0.0%) (B)
Deluxe Corp. .................... 7,833 184,565
Donnelley (R.R.) & Sons Co. ..... 12,943 292,027
--------------
476,592
--------------
STEEL (0.1%)
Allegheny Technologies Inc. ..... 9,688 174,384
Bethlehem Steel Corp. (a)........ 13,200 47,025
Nucor Corp. ..................... 8,873 294,473
USX-U.S. Steel Group............. 8,924 165,652
Worthington Industries, Inc. .... 9,202 96,621
--------------
778,155
--------------
</TABLE>
14
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 97
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (3.1%)
AT&T Corp. ...................... 320,597 $ 10,138,880
Global Crossing Ltd. (a)......... 78,233 2,058,506
Nextel Communications, Inc. Class
A (a)........................... 72,754 4,451,636
Sprint Corp. (FON Group)......... 87,232 4,448,832
Sprint Corp. (PCS Group) (a)..... 86,554 5,149,963
WorldCom, Inc. (a)............... 285,342 13,090,064
--------------
39,337,881
--------------
TELEPHONE (3.7%)
ALLTEL Corp. .................... 31,572 1,955,491
Bell Atlantic Corp. ............. 154,386 7,844,738
BellSouth Corp. ................. 187,923 8,010,218
CenturyTel, Inc. ................ 13,900 399,625
GTE Corp. ....................... 96,139 5,984,653
Qwest Communications
International Inc. (a).......... 64,100 3,184,969
SBC Communications Inc. ......... 342,909 14,830,814
US West Inc. .................... 50,775 4,353,956
--------------
46,564,464
--------------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Liz Claiborne, Inc. ............. 6,287 221,617
Russell Corp. ................... 3,409 68,180
Springs Industries, Inc. Class
A............................... 1,820 58,581
V.F. Corp. ...................... 12,075 287,536
--------------
635,914
--------------
TOBACCO (0.5%)
Philip Morris Cos. Inc. ......... 228,387 6,066,530
UST Inc. ........................ 17,220 252,919
--------------
6,319,449
--------------
TOYS (0.1%)
Hasbro, Inc. .................... 19,661 296,144
Mattel, Inc. .................... 42,062 554,692
--------------
850,836
--------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
FedEx Corp. (a).................. 28,720 1,091,360
Ryder System, Inc. .............. 6,464 122,412
--------------
1,213,772
--------------
Total Common Stocks (Cost
$843,562,800)................... 1,250,575,658(e)
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.6%)
U.S. GOVERNMENT (0.6%)
United States Treasury Bills
5.68%, due 10/5/00 (c)....... $6,500,000 $ 6,401,364
5.72%, due 10/12/00 (c)...... 1,000,000 983,609
--------------
Total Short-Term Investments
(Cost $7,384,973)............ 7,384,973
--------------
Total Investments
(Cost $850,947,773) (f)...... 100.0% 1,257,960,631(g)
Cash and Other Assets,
Less Liabilities............. 0.0(b) 15,277
----- -----------
Net Assets.................... 100.0% $1,257,975,908
===== ===========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG DEPRECIATION(h)
-------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%) (b)
Standard & Poor's 500
September 2000........ 17 $(869)
----------
Total Futures Contracts
(Settlement Value
$6,239,425) (e)....... $(869)
==========
</TABLE>
-------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated as collateral for futures contracts.
(d) ADR--American Depository Receipt.
(e) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 99.9% of net assets.
(f) The cost for federal income tax purposes is $851,471,065.
(g) At June 30, 2000, net unrealized appreciation was $406,489,566, 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 $476,894,083 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $70,404,517.
(h) Represents the difference between the value of the contracts at the time
they were opened and the value at June 30, 2000.
15
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 98
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$850,947,773)............................................. $1,257,960,631
Cash........................................................ 105,546
Receivables:
Investment securities sold................................ 3,386,547
Fund shares sold.......................................... 3,193,228
Dividends and interest.................................... 1,078,851
Variation margin receivable on futures contracts............ 3,241
Other assets................................................ 5,221
--------------
Total assets........................................ 1,265,733,265
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 4,952,169
Fund shares redeemed...................................... 1,526,346
MainStay Management....................................... 528,314
Transfer agent............................................ 266,078
NYLIFE Distributors....................................... 257,906
Custodian................................................. 53,428
Trustees.................................................. 8,950
Accrued expenses............................................ 164,166
--------------
Total liabilities................................... 7,757,357
--------------
Net assets.................................................. $1,257,975,908
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized.......... $ 268,184
Additional paid-in capital.................................. 837,856,568
Accumulated undistributed net investment income............. 1,754,484
Accumulated undistributed net realized gain on
investments............................................... 11,084,683
Net unrealized appreciation on investments.................. 407,011,989
--------------
Net assets applicable to outstanding shares................. $1,257,975,908
==============
Shares of beneficial interest outstanding................... 26,818,392
==============
Net asset value per share outstanding....................... $ 46.91
Maximum sales charge (3.00% of offering price).............. 1.45
--------------
Maximum offering price per share outstanding................ $ 48.36
==============
</TABLE>
16
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 99
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 6,975,504
Interest.................................................. 299,517
------------
Total income............................................ 7,275,021
------------
Expenses:
Management................................................ 3,060,751
Distribution.............................................. 1,530,375
Transfer agent............................................ 709,136
Shareholder communication................................. 91,579
Recordkeeping............................................. 74,475
Custodian................................................. 55,886
Professional.............................................. 45,829
Registration.............................................. 28,839
Trustees.................................................. 16,262
Miscellaneous............................................. 42,042
------------
Total expenses.......................................... 5,655,174
------------
Net investment income....................................... 1,619,847
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from:
Security transactions..................................... 11,140,562
Futures transactions...................................... (1,751,130)
------------
Net realized gain on investments............................ 9,389,432
------------
Net change in unrealized appreciation on investments:
Security transactions..................................... (23,357,307)
Futures transactions...................................... (64,654)
------------
Net unrealized loss on investments.......................... (23,421,961)
------------
Net realized and unrealized loss on investments............. (14,032,529)
------------
Net decrease in net assets resulting from operations........ $(12,412,682)
============
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $36,212.
17
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 100
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 1,619,847 $ 5,292,924
Net realized gain on investments.......................... 9,389,432 21,903,883
Net change in unrealized appreciation on investments...... (23,421,961) 168,170,091
-------------- --------------
Net increase (decrease) in net assets resulting from
operations.............................................. (12,412,682) 195,366,898
-------------- --------------
Dividends and distributions to shareholders:
From net investment income................................ -- (5,158,287)
From net realized gain on investments..................... -- (26,146,715)
-------------- --------------
Total dividends and distributions to shareholders....... -- (31,305,002)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares.......................... 199,201,071 739,024,365
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions............. -- 31,295,583
-------------- --------------
199,201,071 770,319,948
Cost of shares redeemed................................... (182,830,618) (477,483,720)
-------------- --------------
Increase in net assets derived from capital share
transactions........................................... 16,370,453 292,836,228
-------------- --------------
Net increase in net assets.............................. 3,957,771 456,898,124
NET ASSETS:
Beginning of period......................................... 1,254,018,137 797,120,013
-------------- --------------
End of period............................................... $1,257,975,908 $1,254,018,137
============== ==============
Accumulated undistributed net investment income at end of
period.................................................... $ 1,754,484 $ 134,637
============== ==============
</TABLE>
-------
* Unaudited.
18
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 101
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Six months
ended Year ended December 31,
June 30, ------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period..... $ 47.36 $ 39.47 $ 30.91 $ 23.37 $ 19.15 $ 14.09
---------- ---------- -------- -------- -------- --------
Net investment income...................... 0.06 0.20 0.21 0.30 0.30 0.24
Net realized and unrealized gain (loss) on
investments.............................. (0.51) 7.69 8.35 7.24 3.92 4.82
---------- ---------- -------- -------- -------- --------
Total from investment operations........... (0.45) 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 period........... $ 46.91 $ 47.36 $ 39.47 $ 30.91 $ 23.37 $ 19.15
========== ========== ======== ======== ======== ========
Total investment return (a)................ (0.95)% 19.99% 27.69% 32.26% 22.04% 35.91%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.................. 0.26%++ 0.50% 0.68% 1.25% 1.8% 1.7%
Net expenses........................... 0.92%++ 0.94% 0.96% 0.80% 0.8% 1.1%
Expenses (before reimbursement)........ 0.92%++ 0.94% 0.99% 0.99% 1.0% 1.1%
Portfolio turnover rate.................... 2% 3% 4% 3% 3% 4%
Net assets at end of period (in 000's)..... $1,257,976 $1,254,018 $797,120 $435,689 $225,750 $109,308
</TABLE>
-------
<TABLE>
<C> <S>
Total return is calculated exclusive of sales charge and is
(a) not annualized.
+ Unaudited.
++ Annualized.
</TABLE>
19
-
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 102
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
20
-
<PAGE> 103
Notes to Financial Statements unaudited
Fund's subadvisor believes that the particular event would materially affect net
asset value, in which case an adjustment may 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> 104
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 six months ended June 30, 2000, the Manager
earned $3,060,751.
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.
22
-
<PAGE> 105
Notes to Financial Statements unaudited (continued)
The Plan provides that the distribution and service fees are payable to the
Distributor regardless of the amounts actually expended by the Distributor for
distribution of the Fund's shares and service activities.
SALES CHARGE. The Fund was advised that the amount of sales charge retained by
the Distributor was $136,894 for the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $709,136.
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 $12,596 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$74,475 for the six months ended June 30, 2000.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $46,987 and $23,959, 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 six months ended June 30, 2000.
23
-
<PAGE> 106
MainStay Equity Index Fund
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
---------------- -----------------
<S> <C> <C>
Shares sold........................................... 4,327 17,456
Shares issued in reinvestment of dividends and
distributions....................................... -- 695
------ -------
4,327 18,151
Shares redeemed....................................... (3,988) (11,173)
Reduction of shares due to reverse share split........ -- (695)
------ -------
Net increase.......................................... 339 6,283
====== =======
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
NOTE 7--GUARANTEE:
NYLIFE LLC ("NYLIFE"), 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 (including
cumulative reinvested dividends and distributions attributable to such share)
("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> 107
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
25
-
<PAGE> 108
This page intentionally left blank
26
-
<PAGE> 109
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSEI11-08/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Equity Index Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 110
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in 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 and Six-Month Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 27
</TABLE>
<PAGE> 111
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
2
<PAGE> 112
$10,000 Invested in MainStay
Government Fund versus Lehman Brothers
Government Bond Index and Inflation
CLASS A SHARES Total Returns: 1 Year -0.54%, 5 Years 4.32%, 10 Years 5.76%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GOVERNMENT LEHMAN BROTHERS
PERIOD END FUND GOVERNMENT BOND INDEX* INFLATION (CPI)+
---------- ------------------- ---------------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,550 $ 10,000 $ 10,000
12/90 10,211 10,872 10,625
12/91 11,579 12,538 10,942
12/92 12,021 13,444 11,265
12/93 12,728 14,877 11,574
12/94 12,366 14,374 11,875
12/95 14,391 17,011 12,184
12/96 14,674 17,482 12,587
12/97 16,013 19,158 12,801
12/98 17,345 21,045 13,007
12/99 16,857 20,576 13,356
6/00 17,626 21,599 13,632
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year -1.84%, 5 Years 4.24%, 10 Years 5.85%
Class C Total Returns: 1 Year 2.16%, 5 Years 4.57%, 10 Years 5.85%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GOVERNMENT LEHMAN BROTHERS
PERIOD END FUND GOVERNMENT BOND INDEX* INFLATION (CPI)+
---------- ------------------- ---------------------- ----------------
<S> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 10,000
12/90 12,125 12,538 10,942
12/91 12,588 13,444 11,265
12/92 13,328 14,877 11,574
12/93 12,948 14,374 11,875
12/94 14,980 17,011 12,184
12/95 15,168 17,482 12,587
12/96 16,463 19,158 12,801
12/97 17,701 21,045 13,007
12/98 17,064 20,576 13,356
12/99 17,771 21,599 13,632
6/00 17,771 21,599 13,632
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge
and includes the historical performance of the Class B shares for periods
from inception (5/1/86) through 12/31/94. Performance figures for the two
classes vary after this date based on differences in their sales charges
and expense structures. Class C share performance includes the historical
performance of the Class B shares for periods from inception (5/1/86)
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
* The Lehman Brothers Government Bond Index includes issues of the U.S.
government and its agencies, 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 total
returns reflect the reinvestment of all income and capital gains. You
cannot invest directly in 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> 113
Portfolio Management Discussion and Analysis
The rapid pace of economic expansion in the first quarter of 2000 gave way to
indications of a slowing economy in the second quarter. As a series of Federal
Reserve interest-rate hikes worked their way into the economy, consumer spending
slowed to below the rate of personal income growth. These first signs of a
slowing economy, however, did not stop the Federal Reserve from raising interest
rates by 25 basis points in both February and March and another 50 basis points
in May. While bond prices generally decline when interest rates rise, the
government's decision to use a portion of its surplus to repurchase Treasury
securities helped to stabilize prices during the first half of 2000.
Ongoing increases in short-term rates took their toll on the short end of the
yield curve, but the Federal Reserve's decision to leave rates unchanged in June
2000 caused the prices of short-term securities to rise. Longer-term securities,
on the other hand, reacted in the opposite manner, as many investors' appetite
for risk increased. As the differences in yield between government and agency
securities reached near record levels, many investors moved out of long-term
Treasuries seeking to profit as yield spreads narrowed.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Government Fund returned 4.56%
for Class A shares and 4.14% for Class B and Class C shares, excluding all sales
charges. All share classes outperformed the 3.95% return of the average
Lipper(1) general U.S. government fund over the same period. All share classes
underperformed the 4.97% return of Lehman Brothers Government Bond Index(2) for
the six months ended June 30, 2000.
The Fund benefited from its strategy of shortening duration through April then
increasing duration in May to take advantage of shifting market preferences and
the Federal Reserve's evolving interest-rate policy. The Fund's minimal position
in agency securities hurt performance during the second quarter, when these
issues outperformed.
U.S. TREASURY AND AGENCY SECURITIES
During the first quarter of 2000, the Fund had little exposure to high-coupon,
long-dated Treasuries, which tended to perform well as the government continued
to repurchase Treasury securities. Recognizing the potential in these
securities, we increased the Fund's exposure to them in the second quarter of
2000, with a positive impact on performance.
The Fund's yield-curve positioning did not materially impact performance during
the reporting period. During the second quarter, we positioned the Fund with a
bias for steepening, which helped performance in June, but hurt performance
earlier in April and May.
-------
(1) See footnote and table on page 8 for more information about Lipper Inc.
(2) See footnote on page 3 for more information about the Lehman Brothers
Government Bond Index.
4
<PAGE> 114
YEAR-BY-YEAR SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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
6/00 4.56
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares through 12/94. See footnote * on
page 8 for more information on performance.
CLASS B AND CLASS C SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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 -3.60
6/00 4.14
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of the Class B shares through 8/98. See
footnote * on page 8 for more information on performance.
With Treasury securities outperforming in the early months of 2000, the Fund
held practically no agency securities. This was consistent with general market
sentiment until June, when the Federal Reserve decided to leave rates un-
changed. This triggered a sudden surge of activity in agency securities, which
pushed prices higher and caused yield spreads to contract in the agency market.
Unfortunately, the Fund was not positioned to take advantage of this market
shift.
5
<PAGE> 115
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
For most of the first half of 2000, the Fund remained largely neutral in its
weightings of collateralized securities. We did, however, decide to overweight
the Fund in mortgage-backed bonds issued by the Government National Mortgage
Association, which are backed by the full faith and credit of the U.S.
government, versus those issued by the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation. This positioning proved positive
during the first five months of 2000, but detracted from performance in June
when the market became less risk averse. Even so, the net impact for the
six-month period was positive for the Fund. The Fund also purchased FNMA 8.5%
coupon bonds, seeking to take advantage of what we perceived to be attractive
pricing opportunities. The securities had a positive impact on the Fund's
performance.
At the short end of the yield curve, the Fund is now overweighted in high-
quality asset-backed securities and collateralized mortgage-backed securities,
which are providing incremental yields of 75 to 100 basis points while helping
to maintain the overall credit quality of the portfolio. The Fund's short-term
securities also include floating-rate notes, which we purchased seeking to
capture attractive yield spreads and rising interest rates while protecting
principal.
LOOKING AHEAD
The fundamental question facing the market during the second half of 2000 will
be whether an economic slowdown can be sustained. If economic activity
accelerates, we may see another Federal Reserve tightening move. But even if the
economy slows, we don't anticipate Federal Reserve easing in the near term.
Since the Treasury may continue to buy back debt regardless of economic
activity, we expect the yield curve to remain inverted for the foreseeable
future. We are likely to increase the Fund's weighting in agency paper, and we
will likely look for opportunities to add exposure to mortgage-backed and asset-
backed bonds.
Whatever the markets or the economy may bring, the Fund will continue to seek a
high level of current income, consistent with safety of principal.
Gary Goodenough
Joseph Portera
Portfolio Managers
MacKay Shields LLC
Investments in the Fund are not guaranteed, even though some of the Fund's
investments are guaranteed by the U.S. government or its agencies or
instrumentalities. The Fund may invest in derivatives, which may increase the
volatility of the Fund's net asset value and may result in a loss to the Fund.
Past performance is
no guarantee of
future results.
6
<PAGE> 116
TARGETED DIVIDEND POLICY
The MainStay Government Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. During the first half of 2000, the
Fund maintained a stable dividend, which did not materially impact 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 by its targeted
dividend policy.
7
<PAGE> 117
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 4.14% 5.29% 6.25% 6.42%
Class B 3.16% 4.57% 5.85% 6.13%
Class C 3.16% 4.57% 5.85% 6.13%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A -0.54% 4.32% 5.76% 6.07%
Class B -1.84% 4.24% 5.85% 6.13%
Class C 2.16% 4.57% 5.85% 6.13%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 52 out of 57 out of n/a 56 out of
184 funds 126 funds 117 funds
Class B 130 out of 100 out of 46 out of 26 out of
184 funds 126 funds 50 funds 30 funds
Class C 130 out of n/a n/a 120 out of
184 funds 174 funds
Average Lipper
general U.S.
government fund 3.60% 5.19% 6.82% 6.80%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $7.86 $0.2376 $0.0000
Class B $7.84 $0.2058 $0.0000
Class C $7.84 $0.2058 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 4.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (5/1/86) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
8
<PAGE> 118
+ 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. Since-inception
rankings reflect the performance of each share class from its initial
offering date through 6/30/00. 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.
Since-inception return for the average Lipper peer fund is for the period
from 5/1/86 through 6/30/00.
9
<PAGE> 119
MainStay Government Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
LONG-TERM INVESTMENTS (103.5%)+
ASSET-BACKED SECURITIES (10.4%)
AIRPLANE LEASES (1.0%)
AerCo Ltd.
Series 1X Class A1
6.8413%, due 7/15/23 (c)..... $ 4,185,000 $ 4,184,163
-------------
AUTO LEASES (2.0%)
Ford Credit Auto Owner Trust
Series 2000-B Class A3
6.97%, due 4/15/03 (b)....... 3,550,000 3,542,154
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02 (b)....... 5,470,000 5,402,172
-------------
8,944,326
-------------
AUTOMOBILES (1.1%)
Daimler Chrysler Auto Trust
Series 2000-B Class A3
7.53%, due 5/10/04 (b)....... 4,695,000 4,722,513
-------------
ELECTRIC POWER COMPANY (2.1%)
Boston Edison Co.
Series 1999-1 Class A2
6.45%, due 9/15/05 (b)....... 4,715,000 4,634,280
West Penn Funding, Inc.
Series 1999-A Class A4
6.98%, due 06/25/08 (b)...... 4,790,000 4,664,741
-------------
9,299,021
-------------
ELECTRIC SOURCES (0.7%)
PECO Energy Transition Trust
Series 2000-A Class A2
7.30%, due 9/1/02 (b)........ 2,825,000 2,825,876
-------------
EQUIPMENT LOANS (2.4%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05 (b)....... 5,280,000 5,131,474
CNH Case Equipment Trust
Series 2000-A Class B
7.32%, due 2/15/07 (b)....... 3,928,554 3,911,465
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02 (b)...... 1,393,708 1,376,189
-------------
10,419,128
-------------
HOME EQUITY LOANS (0.7%)
Southern Pacific Secured
Assets Corp.
Series 1997-1 Class A1
6.81%, due 4/25/27 (c)....... 3,191,804 3,189,889
-------------
---------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
STUDENT LOANS (0.4%)
Nellie Mae, Inc.
Series 1996-1 Class A1
6.6325%, due 12/15/04 (c).... $ 1,512,909 $ 1,511,699
-------------
Total Asset-Backed Securities
(Cost $45,380,250)........... 45,096,615
-------------
MORTGAGE-BACKED SECURITIES (2.2%)
COMMERCIAL MORTGAGE LOANS (COLLATERIZED MORTGAGE OBLIGATIONS)
(2.2%)
GMAC Commercial Mortgage
Securities, Inc.
Series 1998-C2 Class A2
6.42%, due 5/15/35........... 3,060,000 2,863,854
Merrill Lynch Mortgage
Investors. Inc.
Series 1995-C2 Class A1
6.985%, due 6/15/21 (c)...... 3,025,991 2,981,872
Salomon Brothers Mortgage
Securities VII, Inc.
Series 2000-C1 Class A1
7.46%, due 11/18/08.......... 3,680,000 3,684,379
-------------
Total Mortgage-Backed
Securities
(Cost $9,596,820)............ 9,530,105
-------------
U.S. GOVERNMENT & FEDERAL AGENCIES (90.9%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.3%)
5.375%, due 3/15/02.......... 9,280,000 9,054,310
5.625%, due 3/15/01.......... 10,000,000 9,919,300
-------------
18,973,610
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (25.0%)
7.00%, due 11/1/29 (b)....... 21,653,661 20,902,495
7.50%, due 10/1/29 (b)....... 21,390,419 21,083,038
7.50%, due 7/17/30 TBA (a)... 53,795,000 53,021,966
8.50%, due 7/17/30 TBA (a)... 13,825,000 14,084,219
-------------
109,091,718
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (15.3%)
6.50%, due 7/15/28-5/15/29... 21,701,209 20,616,148
6.50%, due 8/23/30 TBA (a)... 5,400,000 5,123,250
7.00%, due 7/24/30 TBA (a)... 42,245,000 41,057,071
-------------
66,796,469
-------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 120
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
UNITED STATES TREASURY BONDS (36.2%)
6.25%, due 8/15/23 (d)....... $ 9,825,000 $ 9,886,406
6.25%, due 5/15/30 (d)....... 7,525,000 7,898,842
7.50%, due 11/15/16.......... 5,165,000 5,817,082
8.75%, due 8/15/20 (d)....... 27,070,000 34,801,733
8.875%, due 8/15/17.......... 8,072,000 10,289,298
11.25%, due 2/15/15 (d)...... 26,590,000 39,137,023
11.625%, due 11/15/02 (d).... 30,000,000 33,300,000
12.00%, due 8/15/13 (d)...... 12,280,000 16,578,000
-------------
157,708,384
-------------
UNITED STATES TREASURY NOTES (10.1%)
5.25%, due 8/15/03 (d)....... 4,400,000 4,265,228
5.875%, due 11/30/01 (d)..... 20,135,000 19,971,302
6.25%, due 2/28/02........... 1,360,000 1,355,322
6.50%, due 2/15/10 (d)....... 17,990,000 18,605,618
-------------
44,197,470
-------------
Total U.S. Government &
Federal Agencies
(Cost $391,973,263).......... 396,767,651
-------------
Total Long-Term Investments
(Cost $446,950,333).......... 451,394,371
-------------
SHORT-TERM INVESTMENTS (21.2%)
FEDERAL AGENCIES (21.2%)
FEDERAL HOME LOAN BANK
(DISCOUNT NOTE) (5.6%)
6.39%, due 7/7/00............ 13,460,000 13,445,624
6.41%, due 7/19/00 (b)....... 4,700,000 4,684,912
6.48%, due 7/3/00............ 6,345,000 6,342,716
-------------
24,473,252
-------------
FEDERAL MORTGAGE CORP.
(DISCOUNT NOTE) (7.4%)
6.29%, due 8/15/00........... 11,545,000 11,452,174
6.37%, due 7/5/00............ 7,210,000 7,204,874
6.42%, due 7/5/00............ 13,530,000 13,520,335
-------------
32,177,383
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(DISCOUNT NOTE) (8.2%)
6.39%, due 7/25/00 (b)....... $ 10,000,000 $ 9,957,218
6.40%, due 7/17/00 (b)....... 10,000,000 9,971,474
6.41%, due 7/20/00 (b)....... 7,875,000 7,848,277
6.42%, due 8/1/00 (b)........ 8,145,000 8,099,827
-------------
35,876,796
-------------
Total Short-Term Investments
(Cost $92,527,431)........... 92,527,431
-------------
Total Investments
(Cost $539,477,764) (e)...... 124.7% 543,921,802(f)
Liabilities in Excess of
Cash and Other Assets........ (24.7) (107,575,692)
---- -------------
Net Assets.................... 100.0% $ 436,346,110
==== =============
</TABLE>
-------
(a) 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.
(b) Segregated as collateral for TBA.
(c) Floating rate. Rate shown is the rate in effect at June 30, 2000.
(d) Represents securities out on loan or a portion of which is out on loan. (See
note 2)
(e) The cost stated also represents the aggregate cost for federal income tax
purposes.
(f) At June 30, 2000 net unrealized appreciation was $4,444,038, 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 $6,854,134 and aggregate unrealized depreciation
for all investments on which there was an excess of cost over market value
of $2,410,096.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 121
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$539,477,764)............................................. $ 543,921,802
Collateral held for securities loaned, at value (Note 2).... 175,344,254
Cash........................................................ 3,643
Receivables:
Investment securities sold................................ 6,375,574
Interest.................................................. 5,295,237
Fund shares sold.......................................... 976,416
-------------
Total assets........................................ 731,916,926
-------------
LIABILITIES:
Securities lending collateral (Note 2)...................... 175,344,254
Payables:
Investment securities purchased........................... 117,032,898
Fund shares redeemed...................................... 404,642
NYLIFE Distributors....................................... 341,637
MainStay Management....................................... 221,718
Transfer agent............................................ 178,126
Custodian................................................. 26,500
Trustees.................................................. 2,929
Accrued expenses............................................ 90,180
Dividend payable............................................ 1,927,932
-------------
Total liabilities................................... 295,570,816
-------------
Net assets.................................................. $ 436,346,110
=============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 37,738
Class B................................................... 517,775
Class C................................................... 735
Additional paid-in capital.................................. 581,200,945
Accumulated distribution in excess of net investment
income.................................................... (357,965)
Accumulated net realized loss on investments................ (149,497,156)
Net unrealized appreciation on investments.................. 4,444,038
-------------
Net assets.................................................. $ 436,346,110
=============
CLASS A
Net assets applicable to outstanding shares................. $ 29,646,455
=============
Shares of beneficial interest outstanding................... 3,773,790
=============
Net asset value per share outstanding....................... $ 7.86
Maximum sales charge (4.50% of offering price).............. 0.37
-------------
Maximum offering price per share outstanding................ $ 8.23
=============
CLASS B
Net assets applicable to outstanding shares................. $ 406,123,002
=============
Shares of beneficial interest outstanding................... 51,777,497
=============
Net asset value and offering price per share outstanding.... $ 7.84
=============
CLASS C
Net assets applicable to outstanding shares................. $ 576,653
=============
Shares of beneficial interest outstanding................... 73,519
=============
Net asset value and offering price per share outstanding.... $ 7.84
=============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 122
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 16,159,177
------------
Expenses:
Distribution--Class B..................................... 1,624,087
Distribution--Class C..................................... 1,997
Management................................................ 1,385,726
Service--Class A.......................................... 35,362
Service--Class B.......................................... 541,357
Service--Class C.......................................... 667
Transfer agent............................................ 556,884
Shareholder communication................................. 37,356
Recordkeeping............................................. 36,360
Professional.............................................. 28,613
Registration.............................................. 18,854
Trustees.................................................. 5,253
Custodian................................................. 3,811
Miscellaneous............................................. 8,877
------------
Total expenses.......................................... 4,285,204
------------
Net investment income....................................... 11,873,973
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................ (12,566,875)
Net change in unrealized depreciation on investments........ 19,130,008
------------
Net realized and unrealized gain on investments............. 6,563,133
------------
Net increase in net assets resulting from operations........ $ 18,437,106
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 123
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- -------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 11,873,973 $ 25,461,280
Net realized loss on investments.......................... (12,566,875) (29,290,292)
Net change in unrealized appreciation (depreciation) on
investments............................................. 19,130,008 (16,969,853)
------------- -------------
Net increase (decrease) in net assets resulting from
operations.............................................. 18,437,106 (20,798,865)
------------- -------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (877,064) (1,500,555)
Class B................................................. (11,340,824) (24,305,589)
Class C................................................. (14,050) (14,601)
Return of capital:
Class A................................................. -- (200,587)
Class B................................................. -- (3,249,055)
Class C................................................. -- (1,952)
------------- -------------
Total dividends and distributions to shareholders..... (12,231,938) (29,272,339)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 16,990,008 44,753,027
Class B................................................. 13,418,349 68,966,524
Class C................................................. 131,633 672,418
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 623,442 1,429,048
Class B................................................. 7,489,378 21,630,528
Class C................................................. 9,052 10,429
------------- -------------
38,661,862 137,461,974
Cost of shares redeemed:
Class A................................................. (22,488,287) (31,746,715)
Class B................................................. (104,071,583) (150,154,715)
Class C................................................. (104,098) (222,503)
------------- -------------
Decrease in net assets derived from capital share
transactions......................................... (88,002,106) (44,661,959)
------------- -------------
Net decrease in net assets............................ (81,796,938) (94,733,163)
NET ASSETS:
Beginning of period......................................... 518,143,048 612,876,211
------------- -------------
End of period............................................... $ 436,346,110 $ 518,143,048
============= =============
Accumulated distribution in excess of net investment at the
end of period............................................. $ (357,965) $ --
============= =============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 124
This page intentionally left blank
15
<PAGE> 125
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 7.75 $ 8.46 $ 8.27 $ 8.06 $ 8.41 $ 7.76
------- ------- ------- ------- ------- -------
Net investment income.............................. 0.22 0.42 0.43 0.50 0.50 0.58
Net realized and unrealized gain (loss) on
investments...................................... 0.13 (0.65) 0.24 0.21 (0.35) 0.65
------- ------- ------- ------- ------- -------
Total from investment operations................... 0.35 (0.23) 0.67 0.71 0.15 1.23
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income....................... (0.24) (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.................. (0.24) (0.48) (0.48) (0.50) (0.50) (0.58)
------- ------- ------- ------- ------- -------
Net asset value at end of period................... $ 7.86 $ 7.75 $ 8.46 $ 8.27 $ 8.06 $ 8.41
======= ======= ======= ======= ======= =======
Total investment return (a)........................ 4.56% (2.81)% 8.32% 9.12% 1.97% 16.38%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.......................... 5.85%++ 5.17% 5.20% 6.23% 6.3% 7.3%
Expenses....................................... 1.15%++ 1.13% 1.12% 1.09% 1.0% 1.0%
Portfolio turnover rate............................ 196% 255% 371% 338% 307% 540%
Net assets at end of period (in 000's)............. $29,646 $34,116 $22,189 $17,114 $16,413 $12,784
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one cent per share.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 126
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------------- -----------------------------------------
Six months Six months September 1,*
ended Year ended December 31, ended Year ended through
June 30, ---------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- -------- -------- -------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7.73 $ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.76 $ 7.73 $ 8.44 $ 8.43
-------- -------- -------- -------- -------- -------- -------- -------- --------
0.19 0.36 0.37 0.45 0.46 0.54 0.19 0.36 0.12
0.13 (0.66) 0.24 0.21 (0.37) 0.65 0.13 (0.66) 0.03
-------- -------- -------- -------- -------- -------- -------- -------- --------
0.32 (0.30) 0.61 0.66 0.09 1.19 0.32 (0.30) 0.15
-------- -------- -------- -------- -------- -------- -------- -------- --------
(0.21) (0.36) (0.37) (0.45) (0.46) (0.54) (0.21) (0.36) (0.12)
-- -- -- -- -- (0.00)(b) -- -- --
-- (0.05) (0.05) -- -- -- -- (0.05) (0.02)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(0.21) (0.41) (0.42) (0.45) (0.46) (0.54) (0.21) (0.41) (0.14)
-------- -------- -------- -------- -------- -------- -------- -------- --------
$ 7.84 $ 7.73 $ 8.44 $ 8.25 $ 8.04 $ 8.41 $ 7.84 $ 7.73 $ 8.44
======== ======== ======== ======== ======== ======== ======== ======== ========
4.14% (3.60%) 7.52% 8.54% 1.25% 15.69% 4.14% (3.60%) 1.75%
5.10%++ 4.42% 4.45% 5.67% 5.7% 6.7% 5.10%++ 4.42% 4.45%++
1.90%++ 1.88% 1.87% 1.65% 1.6% 1.7% 1.90%++ 1.88% 1.87%++
196% 255% 371% 338% 307% 540% 196% 255% 371%
$406,123 $483,495 $590,592 $636,491 $782,970 $990,184 $ 577 $ 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> 127
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 (and certain other qualified purchases) 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> 128
Notes to Financial Statements unaudited
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 may 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 June 30, 2000, the Fund had portfolio securities on loan with a market value
of $170,077,556 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> 129
MainStay Government Fund
Net income earned by the Fund for securities lending transactions amounted to
$273,814, net of broker fees and rebates, for the six months ended June 30,
2000, which is included as interest income on the Statement of Operations.
Investments made with cash collateral at June 30, 2000:
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group............................... 2,132,298 $ 2,132,298
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Aesop Funding Corp.
7.06%, due 7/5/00......................................... $ 4,250,000 4,246,671
Bavaria Universal Funding Corp.
6.65%, due 7/24/00........................................ 10,000,000 9,957,769
Crown Point Capital Co.
6.65%, due 7/12/00........................................ 10,268,000 10,247,230
First Express Funding Corp.
6.96%, due 7/6/00......................................... 15,000,000 14,985,521
Morgan Stanley Dean Witter & Co.
7.26%, due 8/7/00......................................... 20,000,000 20,000,386
Public Square Funding L.L.C.
6.72%, due 7/26/00........................................ 9,640,000 9,595,281
Washington Gas Light Co.
7.10%, due 7/3/00......................................... 3,000,000 2,998,817
------------
72,031,675
------------
REPURCHASE AGREEMENTS
Bear Stearns Securities Corp.
6.70%, due 7/3/00
(Collateralized by
$12,410,873 GMAC Commercial Mortgage Corp.
7.0103%, due 9/20/05 Market Value $12,410,873
$660,000 GMAC Commercial Mortgage Corp.
7.1015%, due 9/20/12 Market Value $660,000
$9,441,900 PNC Mortgage Acceptance Corp.
6.44%, due 6/25/29 Market Value $9,092,720
$145,000 PNC Mortgage Acceptance Corp.
7.33%, due 10/10/09 Market Value $651,983).............. 20,050,000 20,050,000
</TABLE>
20
<PAGE> 130
Notes to Financial Statements unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (continued)
Credit Suisse First Boston Corp.
7.17%, due 7/3/00
(Collateralized by
$407,987 Commonwealth Edison Co.
7.375%, due 9/15/02 Market Value $407,987
$6,112,960 Kinder Morgan Inc.
6.65%, due 3/1/05 Market Value $6,112,960
$19,104,330 Millennium America Inc.
7.00%, due 11/15/06 Market Value $19,104,330)........... $25,000,000 $ 25,000,000
Deutsche Bank Securities
7.19%, due 7/3/00
(Collateralized by
$6,494,373 German Hong Kong Residential
Mortgage Funding Ltd.
7.5275%, due 10/18/27 Market Value $6,494,373).......... 6,367,031 6,367,031
Morgan (J.P.) Securities Inc.
6.95%, due 7/3/00
(Collateralized by
$20,396,256 Bank of America Corp.
6.75%, due 9/15/05 Market Value $20,812,706
$5,105,464 Caterpillar Financial Service Corp.
6.51%, due 6/5/02 Market Value $5,188,707).............. 24,763,250 24,763,250
Prudential Securities Inc.
7.25%, due 7/3/00
(Collateralized by
$2,934,678 First Data Corp.
6.625%, due 4/1/03 Market Value $2,983,551
$3,416,034 Merrill Lynch Mortgage Investors, Inc.
7.325%, due 6/15/18 Market Value $3,416,034
$1,201,598 Morgan Stanley Dean Witter & Co.
8.00%, due 6/15/10 Market Value $1,201,598
$2,808,700 News America Holdings Inc.
7.375%, due 10/17/08 Market Value $2,852,539
$2,327,600 Pegasus Aviation Lease Securitization
5.878%, due 3/25/29 Market Value $2,327,600
$1,852,052 Residential Asset Securities Corp.
6.39%, due 4/25/27 Market Value $1,852,052
</TABLE>
21
<PAGE> 131
MainStay Government Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (continued)
Prudential Securities Inc.
7.25%, due 7/3/00
(Collateralized by (continued)
$3,758,225 Small Business Administration
10.125%, due 6/25/09 Market Value $3,758,225
$1,022,435 Small Business Administration
10.625%, due 7/25/06 Market Value $1,022,435
$1,391,156 Temple-Inland Inc.
6.75%, due 3/1/09 Market Value $1,425,557
$2,496,250 Transamerica Financial Corp.
7.0275%, due 9/17/01 Market Value $2,500,912
$2,764,827 U.S. Treasury Note
5.50%, due 8/15/28 Market Value $2,826,701)............. $25,000,000 $ 25,000,000
------------
101,180,281
------------
Total investment made with cash collateral.................. $175,344,254
============
</TABLE>
Non-cash collateral received and held by the Fund at June 30, 2000:
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
United States Treasury Bonds
6.125%, due 11/15/27...................................... 50,000 $ 50,250
6.25%, due 8/15/23........................................ 965,000 993,950
6.375%, due 8/15/27....................................... 81,000 85,278
6.875%, due 8/15/25....................................... 305,000 339,598
8.125%, due 8/15/19....................................... 75,000 92,836
------------
Total non-cash collateral................................... $ 1,561,912
============
Total collateral............................................ $176,906,166
============
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
22
<PAGE> 132
Notes to Financial Statements unaudited (continued)
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.
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 plans)
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. Under the supervision of the Trust's Board of
Trustees and the Manager, the Subadvisor is responsible for the day-to-day
portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 0.60% of the Fund's
average daily net assets. The Manager has voluntarily established a fee
breakpoint, which may be discontinued at any time, of 0.55% on assets in excess
of $1 billion. For the six months ended June 30, 2000 the Manager earned
$1,385,726. It was not necessary for the Manager to waive part of its fee during
the period.
23
<PAGE> 133
MainStay Government Fund
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. 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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 $318 for the six months ended
June 30, 2000. 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 $473, $194,959 and $186, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $556,884.
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 $4,956 for the six months ended
June 30, 2000.
24
<PAGE> 134
Notes to Financial Statements unaudited (continued)
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$36,360 for the six months ended June 30, 2000.
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 has elected, to the extent provided by the regulations, to treat
approximately $290,430 of qualifying capital losses that arose during the prior
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 six months ended June 30, 2000, purchases and sales of U.S.
Government securities were $873,101 and $831,701, respectively. Purchases and
sales of securities other than U.S. Government securities and short-term
securities, were $27,944 and $97,584, 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 six months ended June 30, 2000.
25
<PAGE> 135
MainStay Government Fund
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 2,181 1,726 17 5,540 8,457 85
Shares issued in reinvestment of dividends
and distributions........................ 80 967 1 178 2,696 1
------ ------- --- ------ ------- ---
2,261 2,693 18 5,718 11,153 86
Shares redeemed............................ (2,891) (13,425) (13) (3,938) (18,629) (28)
------ ------- --- ------ ------- ---
Net increase (decrease).................... (630) (10,732) 5 1,780 (7,476) 58
====== ======= === ====== ======= ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
26
<PAGE> 136
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
27
<PAGE> 137
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSG11-08/00
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[MAINSTAY FUNDS LOGO]
MainStay(R)
Government Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 138
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay High Yield
Corporate Bond Fund versus Credit Suisse
First Boston High Yield Index and
Inflation--Class A, Class B,
and Class C Shares 4
Portfolio Management Discussion and Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 23
Notes to Financial Statements 28
The MainStay(R) Funds 38
</TABLE>
<PAGE> 139
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2
<PAGE> 140
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 141
$10,000 Invested in MainStay High Yield
Corporate Bond Fund versus Credit Suisse First Boston High Yield Index and
Inflation
CLASS A SHARES Total Returns: 1 Year -0.05%, 5 Years 8.90%, 10 Years 12.11%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD CREDIT SUISSE FIRST BOSTON
PERIOD END CORPORATE BOND FUND HIGH YIELD INDEX* INFLATION (CPI)+
---------- ------------------- -------------------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,550 $ 10,000 $ 10,000
12/90 8,801 9,363 10,625
12/91 11,641 13,459 10,942
12/92 14,161 15,703 11,265
12/93 17,227 18,671 11,574
12/94 17,485 18,492 11,875
12/95 21,031 21,709 12,184
12/96 24,465 24,403 12,587
12/97 27,451 27,485 12,801
12/98 28,019 27,645 13,007
12/99 30,913 28,552 13,356
6/00 31,417 28,414 13,632
</TABLE>
CLASS B AND CLASS C SHARES Class B Total Returns: 1 Year -1.14%, 5 Years 8.91%,
10 Years 12.23%
Class C Total Returns: 1 Year 2.86%, 5 Years 9.19%,
10 Years 12.23%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY HIGH YIELD CREDIT SUISSE FIRST BOSTON
PERIOD END CORPORATE BOND FUND HIGH YIELD INDEX* INFLATION (CPI)+
---------- ------------------- -------------------------- ----------------
<S> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 10,000
12/90 9,215 9,363 10,625
12/91 12,189 13,459 10,942
12/92 14,828 15,703 11,265
12/93 18,038 18,671 11,574
12/94 18,308 18,492 11,875
12/95 21,918 21,709 12,184
12/96 25,331 24,403 12,587
12/97 28,527 27,485 12,801
12/98 28,627 27,645 13,007
12/99 31,350 28,552 13,356
6/00 31,739 28,414 13,632
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge
and includes the historical performance of the Class B shares for periods
from inception (5/1/86) through 12/31/94. Performance figures for the two
classes vary after this date based on differences in their sales charges
and expense structures. Class C share performance includes the historical
performance of the Class B shares for periods from inception (5/1/86)
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
* The Credit Suisse 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. Total returns reflect reinvestment of all income and
capital gains. You cannot invest directly in 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> 142
-------
(1) See footnote and table on page 10 for more information about Lipper Inc.
(2) See footnote on page 4 for more information about the Credit Suisse First
Boston High Yield Index.
(3) Debt rated BB by Standard & Poor's 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 obligation.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
During the first half of 2000, the biggest drivers in the high-yield market were
rising interest rates, rising high-yield default rates, and poor liquidity.
During the reporting period, the Federal Reserve increased the targeted federal
funds rate by 25 basis points on February 2 and again on March 21, then by 50
basis points on May 16, 2000. Rising interest rates had a negative impact on
high-yield returns.
During the six-month reporting period, default rates rose above historical
levels, reaching 5% of the market on an annualized basis. The combination of
rising interest rates and above-average defaults sparked investors to pull money
out of the high-yield market, with five of six months showing net redemptions
from mutual funds pursuing high current yields.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay High Yield Corporate Bond Fund
returned 1.63% for Class A shares and 1.24% for Class B and Class C shares,
excluding all sales charges. All share classes outperformed the -1.66% return of
the average Lipper(1) high current yield fund and the -0.48% return of the
Credit Suisse First Boston High Yield Index(2) over the same period.
The Fund's strong relative performance during the reporting period was largely
due to careful credit analysis. Amid difficult market conditions and net
redemptions for the asset class, there were fewer positive credit events in the
high-yield market than in the first six months of 1999, underscoring the
importance of disciplined research in security selection.
The Fund managed its duration closely within the range of major high-yield
benchmarks to avoid imbedding an implicit interest-rate bet in the Fund's
portfolio. This strategy had a slightly negative impact on the Fund, since
securities rated BB, which tend to have longer duration, outperformed securities
rated B, which the Fund overweighted during the reporting period. While
higher-quality securities outperformed, the Fund benefited from higher yields
among single-B credits,(3) and we believe they may enhance performance in later
periods.
TOP-PERFORMING SECURITIES
Many of the Fund's top-performing securities had declined in the second half of
1999 and rebounded during the first half of 2000. IPC Magazines benefited as
investors became more confident that operating momentum was improving and that
the firm might be acquired by an investment-grade buyer. UIH Australia,
5
<PAGE> 143
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
PERIOD RND TOTAL RETURN %
---------- ------------
<S> <C>
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
6/00 1.63
Past performance is no guarantee of future results. The returns reflect the
historical performance of the Class B shares through 12/98. See footnote * on
page 10 for more information on performance.
</TABLE>
CLASS B AND CLASS C SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
PERIOD RND TOTAL RETURN %
---------- ------------
<S> <C>
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
6/00 1.24
Past performance is no guarantee of future results. Class C
share returns reflect the historical performance of the
Class B shares through 8/98. See footnote * on page 10 for
more information on performance.
</TABLE>
the Fund's largest position at the end of the reporting period, contributed
positively to performance as many investors concluded that the bonds will be
called in mid-2001. Cirrus Logic convertibles also contributed positively to
performance, as the stock and bonds both rallied on a stronger earnings outlook
and news that the company was actively repurchasing its bonds.
SIGNIFICANT PURCHASES AND SALES
During the reporting period, the Fund increased its cable exposure by purchasing
Charter Communications, Adelphia Communications, and Cablevision
6
<PAGE> 144
-------
(4) 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. You cannot invest directly in an index.
SA as spreads widened. We moved to a market-weighted position in the
telecommunications and Internet software and services sectors, by purchasing
Exodus Communications, Crown Castle, PSINet, and Nextel Communications bonds.
Following the sharp decline in the NASDAQ Composite Index,(4) the Fund bought
several "busted converts" or convertibles whose underlying stock had fallen to a
point where the convertible feature was virtually valueless. As the NASDAQ
rebounded, we sold the securities with a positive impact on performance. We
continue to hold Internet Capital Group and Digital Island bonds, both of which
yield more than 15% and have strong asset coverage.
We cut our position in the theatre sector, selling Loews Cineplex and United
Artist bonds during the first half, with a negative impact on the Fund's
performance. While both credits appeared to have adequate asset coverage,
continued capital expansion and a tough operating environment caused us to
reassess our valuation methodology. We also sold G&G Retail at a loss after
learning that the company would have weak second-quarter operating results.
While each of these sales had a negative impact on the Fund's performance, by
the end of the reporting period all of these issues were trading below the
Fund's sale prices. As a result, we believe the sales were timely and
beneficial.
SECTOR WEIGHTINGS
In terms of sector weightings, the Fund closed the first half of the year
positioned much the way it started. There were no major changes in our exposure
to countries as the Fund's emerging-market exposure remained low and its
European exposure reflected a market weighting.
During the reporting period, the Fund did increase its weighting in
telecommunications. This sector has seen a decline during the year, as several
telecom credits have missed earnings, run out of liquidity, or issued new
securities, causing spreads to widen. Seeking to take advantage of low
valuations and the possibility of positive events in a rapidly consolidating
industry, the Fund has moved from an underweighted position to a market weight
in the telecommunications sector. The Fund remains focused on companies with
strong asset coverage, unique assets, and solid management.
As of the end of June 2000, the Fund remained overweighted in health care,
utilities, real estate, and financials. These sectors offer what we believe to
be attractive default-adjusted spreads and should perform well in a slowing
economy. The Fund remains underweighted in economically sensitive industries,
including automotive, steel, housing, paper, and energy. While we maintained a
positive view of the energy sector during the reporting period, we did not
believe valuations justified giving the sector a market weighting.
7
<PAGE> 145
LOOKING AHEAD
During the first half of 2000, high-yield spreads widened from 573 basis points
over Treasuries to 728 basis points. At current yields, we believe the market is
attractive, since investors are receiving a 120% premium over 10-year
Treasuries. In particular, we believe the lower-quality portion of the market
offers the best value, as spreads on securities rated B are substantially wider
than spreads on BB-rated bonds.
While default rates impact returns and have received considerable negative
press, we believe that the market has already accounted for higher default rates
than most analysts are forecasting. Given yields of 13% and higher, we believe
the asset class should perform well even with a high default rate--and
particularly well if the Federal Reserve is nearing the end of its moves to
raise interest rates.
If the U.S. economy experiences anything other than a soft landing, our outlook
would change. We believe that higher default rates would cause high-yield
securities to underperform. In our view, a significant increase in inflation
would also threaten the high-yield market, causing Treasury yields to widen
substantially. Although we view these scenarios as unlikely, if they were to
occur, we would probably seek to upgrade the quality of the portfolio, since
higher-quality issues would be likely to outperform.
Whatever the markets or the economy may bring, the Fund will continue to seek
maximum current income through investment in a diversified portfolio of
high-yield debt securities, with capital appreciation as a secondary objective.
Donald Morgan
Portfolio Manager
MacKay Shields LLC
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets.
High-yield securities ("junk bonds") are generally considered speculative
because they present a greater risk of loss than higher-quality debt securities
and may be subject to greater price volatility.
Past performance is no guarantee of future results.
8
<PAGE> 146
TARGETED DIVIDEND POLICY
The MainStay High Yield Corporate Bond Fund seeks to maintain a fixed
dividend, with changes made only on an infrequent basis. In April 2000, the
Fund increased its dividend to reflect a higher level of current earnings
within the Fund. The increase did not materially impact 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 by its targeted dividend policy.
9
<PAGE> 147
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 4.66% 9.91% 12.63% 9.96%
Class B 3.86% 9.19% 12.23% 9.68%
Class C 3.86% 9.19% 12.23% 9.68%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A -0.05% 8.90% 12.11% 9.60%
Class B -1.14% 8.91% 12.23% 9.68%
Class C 2.86% 9.19% 12.23% 9.68%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 27 out of 3 out of n/a 3 out of
351 funds 122 funds 108 funds
Class B 35 out of 7 out of 2 out of 3 out of
351 funds 122 funds 53 funds 33 funds
Class C 35 out of n/a n/a 16 out of
351 funds 292 funds
Average Lipper high
current yield fund -0.77% 6.42% 9.72% 8.18%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $7.17 $0.3576 $0.0000
Class B $7.16 $0.3294 $0.0000
Class C $7.16 $0.3294 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (5/1/86) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
10
<PAGE> 148
+ 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. Since-inception
rankings reflect the performance of each share class from its initial
offering date through 6/30/00. 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. Since-inception return for the average Lipper peer fund is for
the period from 5/1/86 through 6/30/00.
11
<PAGE> 149
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (84.0%)+
ASSET-BACKED SECURITIES (1.7%)
ELECTRIC POWER COMPANIES (1.4%)
AES Eastern Energy, L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17............ $ 19,080,000 $ 18,574,762
9.67%, due 1/2/29............ 20,000,000 19,981,800
Midland Funding Corp. I
Series C-91
10.33%, due 7/23/02.......... 9,862,810 10,094,764
Series C-94
10.33%, due 7/23/02.......... 2,045,879 2,093,994
--------------
50,745,320
--------------
ENTERTAINMENT (0.1%)
United Artists Theatre Co.
Pass-Through Certificates
Series 95-A
9.30%, due 7/1/15............ 8,241,092 5,493,759
--------------
EQUIPMENT LOANS (0.2%)
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04 (c)(d).... 7,377,772 6,998,997
--------------
Total Asset-Backed Securities
(Cost $64,974,942)........... 63,238,076
--------------
CONVERTIBLE BONDS (3.3%)
BEVERAGES--SOFT DRINKS (0.1%)
Triarc Companies, Inc.
(zero coupon), due 2/9/18.... 11,960,000 2,975,050
--------------
ELECTRONICS--COMPONENTS (0.6%)
Cirrus Logic, Inc.
6.00%, due 12/15/03.......... 24,402,000 21,656,775
--------------
GOLD & PRECIOUS METALS MINING (0.1%)
Battle Mountain Gold Co.
6.00%, due 1/4/05 (e)........ 2,270,000 1,861,400
TVX Gold, Inc.
5.00%, due 3/28/02........... 3,750,000 2,662,500
--------------
4,523,900
--------------
HOTEL/MOTEL (0.1%)
Hilton Hotels Corp.
5.00%, due 5/15/06........... 2,515,000 1,989,994
MeriStar Hospitality Corp.
4.75%, due 10/15/04.......... 3,663,000 2,834,246
--------------
4,824,240
--------------
-----------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
INTERNET SOFTWARE & SERVICES (0.7%)
Digital Island, Inc.
6.00%, due 2/15/05........... $ 17,640,000 $ 12,678,750
Internet Capital Group, Inc.
5.50%, due 12/21/04.......... 17,315,000 11,319,681
--------------
23,998,431
--------------
PAPER & FOREST PRODUCTS (0.3%)
Sappi BVI Finance Ltd.
7.50%, due 8/1/02 (e)........ 9,880,000 9,383,886
--------------
TELECOMMUNICATIONS (0.7%)
Efficient Networks, Inc.
5.00%, due 3/15/05 (c)....... 7,195,000 5,396,250
Premiere Technologies, Inc.
5.75%, due 7/1/04............ 19,850,000 12,431,063
Technology Resources
Industries Berhad
(zero coupon), due 10/31/04
(f).......................... 5,685,000 5,969,250
2.75%, due 11/28/04 (e)(f)... 2,495,000 2,519,950
--------------
26,316,513
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.7%)
Metro Pacific Capital Ltd.
2.50%, due 4/11/03 (e)....... 22,314,000 23,623,876
2.50%, due 4/11/03 (c)(e).... 3,100,000 3,281,970
--------------
26,905,846
--------------
Total Convertible Bonds
(Cost $112,128,579).......... 120,584,641
--------------
CORPORATE BONDS (56.6%)
AEROSPACE/DEFENSE (0.2%)
Pacific Aerospace &
Electronics, Inc.
11.25%, due 8/1/05........... 10,120,000 5,667,200
--------------
AIRLINES (0.3%)
Valujet, Inc.
10.25%, due 4/15/01 ......... 10,660,000 9,594,000
--------------
AUTO PARTS & EQUIPMENT (0.7%)
Genetek, Inc.
11.00%, due 8/1/09........... 25,610,000 25,930,125
--------------
BANKS (0.9%)
B.F. Saul Real Estate
Investment Trust
Series B
9.75%, due 4/1/08............ 37,695,000 32,511,938
RB Asset, Inc.
Series A
8.00%, due 1/15/06
8.50%, beginning 1/15/02
(g).......................... 778,200 606,996
--------------
33,118,934
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 150
Portfolio of Investments June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
BROADCAST/MEDIA (2.2%)
CD Radio, Inc.
(zero coupon), due 12/1/07
15.00%, beginning 12/1/02.... $ 34,040,000 $ 19,402,800
14.50%, due 5/15/09.......... 46,715,000 42,977,800
Maxwell Communications Corp.,
PLC
Facility A (f)(h)(j)......... 9,973,585 299,208
Pratama Datakom Asia B.V.
12.75%, due 7/15/05 (c)...... 22,550,000 3,833,500
Radio Unica Corp.
(zero coupon), due 8/1/06
11.75%, beginning 8/1/02..... 12,470,000 8,043,150
Young America Corp.
Series B
11.625%, due 2/15/06......... 12,965,000 8,184,156
--------------
82,740,614
--------------
CABLE TV (7.8%)
@Entertainment, Inc.
Series B
(zero coupon), due 7/15/08
14.50%, beginning 7/15/03.... 43,290,000 27,272,700
Adelphia Communications Corp.
Series B
8.375%, due 2/1/08........... 10,535,000 9,310,306
9.375%, due 11/15/09......... 2,960,000 2,738,000
Series B
9.875%, due 3/1/07........... 11,450,000 10,963,375
Cablevision S.A.
13.75%, due 4/30/07 (c)...... 24,000,000 22,320,000
Charter Communications
Holdings, L.L.C.
(zero coupon), due 4/1/11
9.92%, beginning 4/1/04...... 1,440,000 817,200
(zero coupon), due 1/15/10
11.75%, beginning 1/15/05.... 81,475,000 46,338,906
10.00%, due 4/1/09........... 14,615,000 14,103,475
Diamond Cable Communications,
PLC
13.25%, due 9/30/04.......... 11,200,000 11,774,000
Supercanal Holdings S.A.
11.50%, due 5/15/05 (c)(f)... 3,845,000 1,653,350
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01.... 135,325,000 124,499,000
Series D
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01.... 16,330,000 15,023,600
--------------
286,813,912
--------------
CHEMICALS (0.4%)
Agriculture Minerals & Chemicals, Inc.
10.75%, due 9/30/03.......... 23,690,000 14,154,775
--------------
CHEMICALS--SPECIALTY (0.5%)
General Chemical Industrial Products, Inc.
10.625%, due 5/1/09.......... 6,160,000 5,359,200
Sovereign Specialty Chemicals,
Inc.
11.875%, due 3/15/10......... 11,130,000 11,449,987
--------------
16,809,187
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS--EQUIPMENT (0.1%)
CellNet Data Systems, Inc.
(zero coupon), due 10/1/07
14.00%, beginning 10/1/02
(f)(h)....................... $ 8,390,000 $ 618,762
Metromedia Fiber Network, Inc.
10.00%, due 12/15/09......... 2,330,000 2,295,050
--------------
2,913,812
--------------
COMMERCIAL SERVICES SPECIALIZED (0.4%)
APCOA, Inc.
9.25%, due 3/15/08........... 11,050,000 3,881,313
Building One Services Corp.
10.50%, due 5/1/09........... 15,270,000 12,979,500
--------------
16,860,813
--------------
COMPUTER SYSTEMS (0.2%)
Unisys Corp.
11.75%, due 10/15/04......... 5,500,000 5,857,500
--------------
CONSTRUCTION & HOUSING (0.1%)
Iron Age Corp.
9.875%, due 5/1/08........... 3,110,000 2,052,600
--------------
CONSUMER PRODUCTS (0.7%)
Selmer Co., Inc.
11.00%, due 5/15/05.......... 22,680,000 23,360,400
11.00%, due 5/15/05 (c)...... 1,500,000 1,545,000
--------------
24,905,400
--------------
COSMETICS/PERSONAL CARE (0.7%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08........... 26,275,000 25,224,000
--------------
ELECTRIC POWER COMPANIES (3.0%)
CMS Energy Corp.
8.00%, due 7/1/01............ 27,780,000 27,355,466
8.375%, due 7/1/03........... 17,000,000 16,434,631
ESI Tractebel Acquisition
Corp.
Series B
7.99%, due 12/30/11.......... 15,800,000 13,988,214
PSEG Energy Holdings, Inc.
10.00%, due 10/1/09 (c)...... 33,280,000 34,923,666
Western Resources, Inc.
6.25%, due 8/15/18 (k)....... 9,450,000 8,196,817
6.875%, due 8/1/04........... 12,180,000 10,682,347
--------------
111,581,141
--------------
ELECTRONICS--COMPONENTS (0.1%)
Aavid Thermal Technologies,
Inc.
12.75%, due 2/1/07........... 2,000,000 1,880,000
--------------
ELECTRONICS--SEMICONDUCTORS (0.3%)
Micron Technology, Inc.
6.50%, due 9/30/05 (c)....... 12,000,000 9,960,000
--------------
ENERGY SOURCES (0.3%)
Caithness Coso Funding Corp.
Series B
9.05%, due 12/15/09.......... 11,390,000 11,247,625
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 151
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
ENGINEERING & CONSTRUCTION (0.6%)
Cathay International Ltd.
13.50%, due 4/15/08 (c)...... $ 30,000,000 $ 15,000,000
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(f).... 13,438,000 6,181,480
--------------
21,181,480
--------------
ENTERTAINMENT (2.0%)
Affinity Group Holding, Inc.
11.00%, due 4/1/07........... 2,935,000 2,612,150
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (f)(h)... 42,087,000 4,209
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04......... 41,250,000 35,371,875
Marvel Enterprises, Inc.
12.00%, due 6/15/09.......... 33,747,000 26,997,600
Town Sports International,
Inc.
Series B
9.75%, due 10/15/04.......... 7,870,000 7,476,500
--------------
72,462,334
--------------
FINANCE (0.6%)
ASAT Finance L.L.C.
12.50%, due 11/1/06
(c)(n1)...................... 8,680 11,110,400
ContiFinancial Corp.
7.50%, due 3/15/02 (f)....... 800,000 96,000
8.375%, due 8/15/03 (f)...... 6,000,000 720,000
Windsor Woodmont Black Hawk
13.00%, due 3/15/05
(c)(n2)...................... 8,500 8,521,250
--------------
20,447,650
--------------
FINANCIAL--MISCELLANEOUS (0.3%)
Pacific & Atlantic (Holdings)
Inc.
10.50%, due 12/31/07
(c)(g)....................... 19,335,938 11,988,282
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.5%)
Bergen Brunswig Corp.
7.375%, due 1/15/03.......... 20,805,000 17,995,347
--------------
FOOD & HOUSEHOLD PRODUCTS (0.1%)
Colorado Prime Corp.
12.50%, due 5/1/04........... 33,325,000 4,790,469
--------------
GAMING, LOTTERY & PARI-MUTUELS (2.3%)
Capital Gaming International,
Inc.
12.00%, due 5/28/01 (f)...... 907,800 272,340
El Comandante Capital Corp.
11.75%, due 12/15/03......... 17,186,051 15,123,725
Hollywood Park, Inc.
Series B
9.25%, due 2/15/07........... 10,030,000 9,979,850
9.50%, due 8/1/07............ 3,800,000 3,781,000
Las Vegas Sands, Inc. &
Venetian Casino Resorts,
L.L.C.
12.25%, due 11/15/04......... 10,926,000 11,035,260
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
GAMING, LOTTERY & PARI-MUTUELS (CONTINUED)
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 12,981,900
President Casinos, Inc.
12.00%, due 9/15/01
(c)(d)(f).................... 10,097,000 8,077,600
13.00%, due 9/15/01 (f)...... 21,698,000 10,415,040
Station Casinos, Inc.
9.875%, due 7/1/10 (c)....... 3,800,000 3,854,720
Treasure Bay Gaming & Resorts
10.00%, due 11/1/03.......... 1,565,195 1,220,852
Trump Castle Funding, Inc.
13.875%, due 11/15/05 (m).... 341 261
--------------
85,997,098
--------------
HEALTH CARE--DRUGS (0.6%)
MedPartners, Inc.
7.375%, due 10/1/06.......... 26,586,000 22,199,310
--------------
HEALTH CARE--HOSPITAL MANAGEMENT (1.5%)
HCA--The Healthcare Corp.
7.50%, due 11/15/95.......... 54,125,000 40,727,547
Magellan Health Services, Inc.
9.00%, due 2/15/08........... 30,490,000 15,397,450
--------------
56,124,997
--------------
HEALTH CARE--MANAGED CARE (1.2%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02........... 25,335,000 24,701,625
Team Health, Inc.
Series B
12.00%, due 3/15/09.......... 25,350,000 21,294,000
--------------
45,995,625
--------------
HEALTH CARE--MEDICAL PRODUCTS (0.7%)
Alaris Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03.... 32,790,000 5,000,475
DJ Orthopedics L.L.C.
12.625%, due 6/15/09......... 20,910,000 19,864,500
--------------
24,864,975
--------------
HEALTH CARE--SERVICES (2.5%)
Medaphis Corp.
Series B
9.50%, due 2/15/05........... 56,421,000 45,136,800
Quest Diagnostics, Inc.
10.75%, due 12/15/06......... 46,174,000 47,790,090
--------------
92,926,890
--------------
HOMEBUILDING (0.2%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (e)(g)... 9,324,382 8,811,541
14.50%, due 2/15/09
(c)(e)(g).................... 353 334
--------------
8,811,875
--------------
HOSPITALS/NURSING HOMES/HEALTH CARE (0.6%)
Fountain View, Inc.
Series B
11.25%, due 4/15/08.......... 18,595,000 4,648,750
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 152
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOSPITALS/NURSING HOMES/HEALTH CARE
(CONTINUED)
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03..... $ 88,175,000 $ 15,871,500
MultiCare Companies, Inc.
(The)
9.00%, due 8/1/07 (f)........ 35,130,000 2,107,800
--------------
22,628,050
--------------
HOTEL/MOTEL (1.0%)
Florida Panthers Holdings,
Inc.
9.875%, due 4/15/09.......... 24,830,000 23,278,125
Starwood Hotels & Resorts
Worldwide, Inc.
7.375%, due 11/15/15......... 15,400,000 12,975,809
--------------
36,253,934
--------------
HOUSING (0.0%) (b)
UDC Homes, Inc.
Series C
(zero coupon), due 11/1/00
(h)(i)....................... 108,500 11
--------------
INDUSTRIAL COMPONENTS (0.3%)
Cellco Finance N.V.
12.75%, due 8/1/05 (c)....... 3,700,000 3,857,250
Morris Materials Handling,
Inc.
9.50%, due 4/1/08 (f)(h)..... 18,470,000 2,401,100
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03..... 2,585,000 930,600
9.875%, due 6/1/08........... 650,000 499,687
Woods Equipment Co.
Series B
12.00%, due 7/15/09.......... 4,305,000 3,836,831
--------------
11,525,468
--------------
INSURANCE--MULTI-LINE (0.3%)
Willis Corroon Group, PLC
9.00%, due 2/1/09............ 11,955,000 10,042,200
--------------
INTERNET SOFTWARE & SERVICES (1.3%)
Exodus Communications, Inc.
11.25%, due 7/1/08........... 10,575,000 10,469,250
11.625%, due 7/15/10 (c)..... 19,925,000 20,099,344
PSINet, Inc.
11.00%, due 8/1/09........... 5,715,000 5,286,375
11.50%, due 11/1/08.......... 13,715,000 12,892,100
--------------
48,747,069
--------------
INVESTMENT BANK/BROKERAGE (0.0%) (b)
LaBranche & Co., Inc.
9.50%, due 8/15/04........... 250,000 240,000
--------------
LEISURE TIME (0.9%)
Bally Total Fitness Holding
Corp.
Series D
9.875%, due 10/15/07......... 26,118,000 23,636,790
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
LEISURE TIME (CONTINUED)
International Game Technology
7.875%, due 5/15/04.......... $ 5,250,000 $ 5,040,000
8.375%, due 5/15/09.......... 3,635,000 3,435,075
--------------
32,111,865
--------------
MACHINERY--DIVERSIFIED (0.2%)
Generac Portable Products
L.L.C.
11.25%, due 7/1/06........... 2,105,000 1,789,250
Harnischfeger Industries, Inc.
7.25%, due 12/15/25 (f)(h)... 8,790,000 3,340,200
8.70%, due 6/15/22 (f)(h).... 10,000,000 3,800,000
--------------
8,929,450
--------------
MANUFACTURING--SPECIALIZED (0.2%)
Desa International, Inc.
9.875%, due 12/15/07......... 10,505,000 8,404,000
--------------
OIL--INTEGRATED DOMESTIC (0.3%)
Queen Sand Resources, Inc.
12.50%, due 7/1/08........... 26,560,000 10,126,000
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.2%)
Petro Stopping Centers
Holdings L.P.
Series B
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04..... 24,460,000 9,294,800
--------------
OIL & GAS--WELL EQUIPMENT & SERVICES (0.5%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (f)(h).... 5,210,000 2,605,000
R&B Falcon Corp.
Series B
6.95%, due 4/15/08........... 2,700,000 2,308,500
9.50%, due 12/15/08.......... 3,685,000 3,703,425
RBF Finance Co.
11.375%, due 3/15/09......... 10,300,000 11,175,500
--------------
19,792,425
--------------
PAPER & FOREST PRODUCTS (0.1%)
Pope & Talbot, Inc.
8.375%, due 6/1/13........... 3,850,000 3,503,500
--------------
PUBLISHING (0.6%)
General Media, Inc.
10.625%, due 12/31/00........ 27,091,000 21,672,800
--------------
REAL ESTATE (1.3%)
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07........... 61,475,000 49,833,971
--------------
REAL ESTATE--INVESTMENT/MANAGEMENT (1.3%)
CB Richard Ellis Services,
Inc.
8.875%, due 6/1/06........... 18,405,000 15,644,250
LNR Property Corp.
Series B
9.375%, due 3/15/08.......... 19,830,000 17,152,950
10.50%, due 1/15/09.......... 8,005,000 7,324,575
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 153
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
REAL ESTATE--INVESTMENT/MANAGEMENT
(CONTINUED)
Pinnacle Holdings, Inc.
(zero coupon), due 3/15/08
10.00%, beginning 3/15/03.... $ 11,000,000 $ 7,590,000
--------------
47,711,775
--------------
RESTAURANTS (3.4%)
Advantica Restaurant Group,
Inc.
11.25%, due 1/15/08.......... 50,484,582 33,824,670
Avado Brands, Inc.
11.75%, due 6/15/09.......... 12,130,000 6,155,975
CKE Restaurants, Inc.
9.125%, due 5/1/09........... 18,485,000 12,384,950
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 53,949,000
--------------
125,029,595
--------------
RETAIL--GENERAL MERCHANDISE (0.1%)
Kmart Corp.
8.375%, due 7/1/22........... 3,779,000 3,150,519
--------------
RETAIL--SPECIALTY (0.1%)
Musicland Group, Inc.
9.00%, due 6/15/03........... 2,695,000 2,438,975
--------------
SHIPPING (0.6%)
Newport News Shipbuilding,
Inc.
8.625%, due 12/1/06.......... 17,175,000 16,917,375
9.25%, due 12/1/06........... 4,300,000 4,300,000
--------------
21,217,375
--------------
SPECIALTY PRINTING (0.4%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05........... 14,260,000 14,473,900
--------------
TECHNOLOGY (0.7%)
Electronic Retailing Systems
International, Inc.
13.25%, due 2/1/04 (f)....... 17,585,000 3,692,850
Knowles Electronics Holdings,
Inc.
13.125%, due 10/15/09 (c).... 25,175,000 21,650,500
--------------
25,343,350
--------------
TELECOMMUNICATIONS (7.8%)
Colo.com
13.875%, due 3/15/10
(c)(n3)...................... 15,895 17,087,125
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05.......... 35,835,000 17,200,800
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03..... 53,990,000 27,534,900
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03.... 44,575,000 23,179,000
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (f)(h).... 21,190,000 12,290,200
15.00%, due 8/1/05
(f)(h)(n4)................... 17,720 10,277,600
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
IMPSAT Fiber Networks, Inc.
13.75%, due 2/15/05 (c)...... $ 12,580,000 $ 11,196,200
NATG Holdings L.L.C. &
Orius Corp.
12.75%, due 2/1/10 (c)....... 8,710,000 8,971,300
NTL Communications, Inc.
Series B
(zero coupon), due 10/1/08
12.375%, beginning 10/1/03... 13,500,000 8,572,500
NTL, Inc.
Series B
(zero coupon), due 4/1/08
9.75%, beginning 4/1/03...... 17,640,000 11,025,000
(zero coupon), due 2/1/06
11.50%, beginning 2/1/01..... 3,209,000 2,960,303
Series A
12.75%, due 4/15/05.......... 19,075,000 19,408,812
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02.... 60,020,000 24,608,200
PageMart Nationwide, Inc.
15.00%, due 2/1/05........... 19,425,000 18,599,437
RCN Corp.
Series B
(zero coupon), due 2/15/08
9.80%, beginning 2/15/03..... 15,415,000 8,786,550
(zero coupon), due 7/1/08
11.00%, beginning 7/1/03..... 3,420,000 1,881,000
(zero coupon), due 10/15/07
11.125%, beginning
10/15/02..................... 25,040,000 15,650,000
10.125%, due 1/15/10......... 19,445,000 16,187,963
T/SF Communications Corp.
Series B
10.375%, due 11/1/07......... 12,955,000 12,048,150
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01... 33,715,000 6,743,000
360networks, Inc.
13.00%, due 5/1/08 (c)....... 7,925,000 7,925,000
Williams Communications Group,
Inc.
10.875%, due 10/1/09......... 3,860,000 3,773,150
--------------
285,906,190
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (1.3%)
Celcaribe S.A.
14.50%, due 3/15/04.......... 2,340,000 1,869,075
Centennial Cellular Corp.
10.75%, due 12/15/08......... 4,900,000 4,759,125
Crown Castle International
Corp.
10.75%, due 8/1/11........... 5,455,000 5,530,006
Nextel International, Inc.
(zero coupon), due 4/15/08
12.125%, beginning 4/15/03... 20,410,000 13,266,500
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03..... 30,445,000 13,091,350
Ubiquitel Operating Co.
(zero coupon), due 4/15/10
14.00%, beginning 4/15/05
(c)(n5)...................... 14,230 8,235,612
--------------
46,751,668
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 154
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (0.3%)
Nextel Communications, Inc.
9.375%, due 11/15/09......... $ 12,205,000 $ 11,655,775
--------------
TEXTILES--APPAREL MANUFACTURERS (0.2%)
St. John Knits International,
Inc.
12.50%, due 7/1/09........... 6,350,000 6,048,375
TPE International Finance Co.
B.V.
9.015%, due 5/15/02
(e)(f)(h)(k)................. 4,800,000 1,587,082
--------------
7,635,457
--------------
TOBACCO (0.5%)
Standard Commercial Corp.
8.875%, due 8/1/05........... 21,995,000 17,596,000
--------------
UTILITY--GAS (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)...... 10,425,000 4,170,000
--------------
Total Corporate Bonds
(Cost $2,413,407,944)........ 2,079,284,092
--------------
FOREIGN BONDS (6.3%)
BROADCAST/MEDIA (0.5%)
Central European Media Enterprises Ltd.
Series BR
8.125%, due 8/15/04.......... DM 25,792,000 5,010,478
Diamond Holdings, PLC
10.00%, due 2/1/08........... E 10,000,000 13,560,700
Maxwell Communications Corp.,
PLC
Facility B (f)(h)(j)......... L 1,131,066 51,369
--------------
18,622,547
--------------
CABLE TV (0.3%)
United Pan-Europe Communications N.V.
Series B
10.875%, due 11/1/07......... E 7,345,000 6,310,409
11.25%, due 2/1/10........... 7,180,000 6,065,739
--------------
12,376,148
--------------
GOLD & PRECIOUS METALS MINING (0.0%) (b)
Greenstone Resources Ltd.
9.00%, due 2/28/02 (f)....... C$ 6,000,000 40,494
--------------
PUBLISHING (3.3%)
IPC Magazines Group, PLC
(zero coupon), due 3/15/08
10.75%, beginning 3/15/03.... L 42,825,000 38,743,547
9.625%, due 3/15/08.......... 10,350,000 13,546,318
Regional Independent Media
Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03.... 42,025,000 49,651,342
TDL Infomedia Group Ltd.
12.125%, due 10/15/09........ E 12,250,000 18,962,418
--------------
120,903,625
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (2.2%)
Global TeleSystems Group, Inc.
11.00%, due 12/1/09.......... E 27,710,000 $ 21,613,898
Level 3 Communications, Inc.
10.75%, due 3/15/08 (c)...... 15,880,000 14,537,522
11.25%, due 3/15/10 (c)...... 2,525,000 2,306,214
NTL Communications Corp.
9.875%, due 11/15/09......... 16,670,000 14,135,756
Tele1 Europe B.V.
11.875%, due 12/1/09......... 8,000,000 7,186,402
13.00%, due 5/15/09.......... 2,130,000 2,048,397
Versatel Telecom International
N.V.
11.25%, due 3/30/10 (c)...... 21,250,000 19,072,625
--------------
80,900,814
--------------
Total Foreign Bonds
(Cost $275,329,618).......... 232,843,628
--------------
LOAN ASSIGNMENTS & PARTICIPATIONS (3.1%)
AUTO PARTS & EQUIPMENT (0.1%)
Global Motorsport Group, Inc.
Bank debt, Tranche B
10.125%, due 10/31/05
(d)(j)(k).................... $ 4,925,000 4,900,375
--------------
CABLE TV (0.0%) (b)
Supercanal Holdings, S.A.
Bank debt
6.50%, due 11/12/02
(d)(f)(k).................... 1,433,218 967,422
--------------
ENTERTAINMENT (0.4%)
Affinity Group, Inc.
Bank debt, Tranche B
10.2738%, due 6/30/06
(d)(j)(k).................... 7,800,480 7,722,475
Euro Disneyland S.N.C.
Phase 1, Bank debt
Tranche A
5.4292%, due 11/30/06
(d)(j)(k).................... FF 30,397,927 3,903,231
Tranche D
5.4051%, due 11/30/06
(d)(j)(k).................... 25,169,728 2,511,971
--------------
14,137,677
--------------
HEALTH CARE--DIVERSIFIED (0.2%)
Unilab Corp.
Bank debt, Term Loan B
10.75%, due 11/23/06
(d)(j)(k).................... $ 9,900,000 9,776,250
--------------
HOSPITALS/NURSING HOMES/HEALTH CARE (0.4%)
Genesis Health Ventures, Inc.
Bank debt, Revolver
10.25%, due 9/30/03
(d)(f)(j).................... 2,965,413 1,826,694
Bank debt, Term Loan B
10.25%, due 9/30/04
(d)(f)(j).................... 6,240,907 3,838,158
Bank debt, Term Loan C
10.50%, due 6/1/05
(d)(f)(j).................... 6,210,074 3,819,195
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 155
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
LOAN ASSIGNMENTS & PARTICIPATIONS (CONTINUED)
HOSPITALS/NURSING HOMES/HEALTH CARE
(CONTINUED)
Multicare Companies, Inc.
(The)
Bank debt, Revolver
10.75%, due 9/30/03
(d)(f)(j).................... $ 1,600,879 $ 896,493
Bank debt, Term Loan B
10.75%, due 9/30/04
(d)(f)(j).................... 5,714,301 3,200,009
Bank debt, Term Loan C
11.00%, due 6/1/05
(d)(f)(j).................... 1,894,988 1,061,193
--------------
14,641,742
--------------
MACHINERY--DIVERSIFIED (0.1%)
Harnischfeger Industries, Inc.
Bank debt, Revolver
11.00%, due 10/15/02
(d)(f)(h)(j)................. 5,000,000 1,737,500
--------------
MANUFACTURING--SPECIALIZED (0.3%)
Foamex L.P.
Bank debt, Revolver
10.6875%, due 12/30/06
(d)(j)(k).................... 9,999,135 9,586,671
--------------
PAPER & FOREST PRODUCTS (0.1%)
Stone Container Corp.
Bank debt, Term Loan E
10.0313%, due 10/1/03
(d)(j)(k).................... 3,893,793 3,895,417
--------------
RAILROADS (1.4%)
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12
(d)(j)(k).................... FF216,353,211 24,661,478
7.03%, due 12/31/12
(d)(j)(k).................... L 21,421,644 25,660,248
--------------
50,321,726
--------------
REAL ESTATE (0.1%)
245 Park Ave.
Bank debt
8.41%, due 12/10/02 (d)(j)... $ 4,577,846 4,188,729
--------------
Total Loan Assignments & Participations
(Cost $124,087,695).......... 114,153,509
--------------
U.S. GOVERNMENT (0.3%)
UNITED STATES TREASURY BONDS (0.3%)
5.25%, due 2/15/29 (l)....... 13,170,000 11,688,375
--------------
Total U.S. Government
(Cost $11,564,997)........... 11,688,375
--------------
YANKEE BONDS (12.7%)
AIR FREIGHT (0.3%)
Pegasus Shipping (Hellas) Ltd.
Series A
11.875%, due 11/15/04 (f).... 31,410,000 10,679,400
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
BROADCAST/MEDIA (0.3%)
Central European Media Enterprises Ltd.
9.375%, due 8/15/04.......... $ 7,285,000 $ 2,622,600
TV Azteca S.A. de C.V.
Series B
10.50%, due 2/15/07.......... 8,995,000 8,073,012
--------------
10,695,612
--------------
CABLE TV (3.5%)
Australis Holdings Pty Ltd.
(zero coupon), due 11/1/02
15.00%, beginning 11/1/00
(h).......................... 10,074,000 1,007
Rogers Cablesystems Ltd.
10.00%, due 12/1/07.......... 285,000 291,412
10.125%, due 9/1/12.......... 18,560,000 18,977,600
11.00%, due 12/1/15.......... 7,185,000 7,759,800
United Pan-Europe Communications N.V.
Series B
(zero coupon), due 8/1/09
12.50%, beginning 8/1/04..... 46,170,000 23,200,425
(zero coupon), due 11/1/09
13.375%, beginning 11/1/04... 47,265,000 22,923,525
(zero coupon), due 2/1/10
13.75%, beginning 2/1/05..... 2,400,000 1,128,000
10.875%, due 11/1/07......... 7,650,000 6,885,000
10.875%, due 8/1/09.......... 42,585,000 37,048,950
11.25%, due 2/1/10........... 10,310,000 9,175,900
--------------
127,391,619
--------------
CHEMICALS (0.8%)
Marsulex, Inc.
9.625%, due 7/1/08........... 6,355,000 5,910,150
Octel Developments, PLC
10.00%, due 5/1/06........... 27,485,000 25,148,775
--------------
31,058,925
--------------
CONSUMER PRODUCTS (0.0%) (b)
Semi-Tech Corp.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00
(f)(h)....................... 4,175,000 31,312
--------------
FINANCIAL--DIVERSIFIED (0.3%)
Tembec Finance Corp.
9.875%, due 9/30/05.......... 12,355,000 12,416,775
--------------
GOLD & PRECIOUS METALS MINING (0.9%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27........... 15,020,000 8,974,450
Great Central Mines Ltd.
8.875%, due 4/1/08........... 30,897,000 25,026,570
--------------
34,001,020
--------------
HOMEBUILDING (0.5%)
Amatek Industries Pty Ltd.
12.00%, due 2/15/08.......... 20,000,000 18,300,000
--------------
IRON & STEEL (0.6%)
Ivaco, Inc.
11.50%, due 9/15/05.......... 21,611,000 22,907,660
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 156
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
METALS--MISCELLANEOUS (0.0%) (b)
Glencore Nickel Pty Ltd.
9.00%, due 12/1/14........... $ 910,000 $ 755,300
--------------
OIL--INTEGRATED DOMESTIC (0.2%)
Husky Oil Ltd.
8.90%, due 8/15/28 (k)....... 5,940,000 5,588,863
--------------
PAPER & FOREST PRODUCTS (0.4%)
Doman Industries Ltd.
12.00%, due 7/1/04........... 14,420,000 14,420,000
--------------
REAL ESTATE--INVESTMENT/MANAGEMENT (0.0%) (b)
Intrawest Corp.
10.50%, due 2/1/10........... 410,000 418,200
--------------
SPECIALIZED SERVICES (0.2%)
Intertek Testing Services Ltd.
12.00%, due 11/1/07
(c)(d)(m).................... 6,069,951 5,705,754
--------------
STEEL (0.2%)
Algoma Steel, Inc.
12.375%, due 7/15/05......... 7,700,000 6,699,000
--------------
TELECOMMUNICATIONS (1.2%)
Globenet Communications Group
Ltd.
Series B
13.00%, due 7/15/07.......... 14,500,000 14,626,875
Hermes Europe Railtel B.V.
11.50%, due 8/15/07.......... 7,760,000 6,634,800
NTL, Inc.
(zero coupon), due 11/15/07
11.20%, beginning 11/15/00... 23,220,000 21,652,650
--------------
42,914,325
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (1.9%)
Millicom International
Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01..... 69,575,000 59,138,750
Rogers Cantel, Inc.
9.375%, due 6/1/08........... 10,000,000 10,300,000
--------------
69,438,750
--------------
TELECOMMUNICATIONS--LONG DISTANCE (0.7%)
Call-Net Enterprises, Inc.
(zero coupon), due 8/15/07
9.27%, beginning 8/15/02..... 6,050,000 2,843,500
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04.... 23,255,000 8,371,800
9.375%, due 5/15/09.......... 23,410,000 14,397,150
--------------
25,612,450
--------------
TRANSPORTATION--SHIPPING (0.7%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (f)...... 49,013,600 12,253,400
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION--SHIPPING (CONTINUED)
Sea Containers Ltd.
Series B
7.875%, due 2/15/08.......... $ 9,395,000 $ 5,918,850
10.50%, due 7/1/03........... 2,735,000 2,297,400
10.75%, due 10/15/06......... 7,820,000 5,865,000
--------------
26,334,650
--------------
Total Yankee Bonds
(Cost $521,149,573).......... 465,369,615
--------------
Total Long-Term Bonds
(Cost $3,522,643,348)........ 3,087,161,936
--------------
<CAPTION>
SHARES
-------------
<S> <C> <C>
COMMON STOCKS (3.0%)
BEVERAGES--SOFT DRINKS (0.1%)
Dr. Pepper Bottling Holdings,
Inc.
Class A (a).................. 200,000 5,000,000
--------------
CHEMICALS (0.2%)
Millennium Chemicals Inc. .... 510,620 8,680,540
--------------
ENTERTAINMENT (0.1%)
Alliance Entertainment Corp.
(a).......................... 1,095,385 2,848,000
--------------
FINANCE (0.1%)
AMC Financial, Inc. (a)....... 1,412,162 4,236,486
--------------
FINANCIAL--MISCELLANEOUS (0.0%) (b)
Loehmann's Holdings, Inc.
Series B (a)................. 43,750 43,750
--------------
FOOD & HOUSEHOLD PRODUCTS (0.0%) (b)
TLC Beatrice International
Holdings, Inc. (a)........... 25,000 75,000
--------------
GAMING, LOTTERY & PARI-MUTUELS (0.0%) (b)
Capital Gaming International,
Inc. (a)..................... 66,333 663
Equus Gaming Co., L.P.
Class A (a).................. 114,320 100,030
--------------
100,693
--------------
GOLD & PRECIOUS METALS MINING (0.2%)
Placer Dome Inc. ............. 905,340 8,657,314
--------------
HEALTH & PERSONAL CARE (0.0%) (b)
General Healthcare Group Ltd.
(a)(o)....................... 821 37,287
--------------
HEALTH CARE--SERVICES (0.4%)
Apria Healthcare Group Inc.
(a).......................... 1,182,510 14,485,748
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 157
MainStay High Yield Corporate Bond Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOTEL/MOTEL (0.4%)
Harrah's Entertainment, Inc.
(a).......................... 674,625 $ 14,124,961
--------------
PAPER & FOREST PRODUCTS (0.3%)
Abitibi-Consolidated Inc.
(p).......................... 1,011,265 9,480,609
--------------
PUBLISHING (0.1%)
Medianews Group Inc. (a)...... 28,000 3,500,000
--------------
REAL ESTATE (0.1%)
Metropolis Realty Trust,
Inc. ........................ 365,575 4,021,325
--------------
STEEL (0.1%)
USX-U.S. Steel Group.......... 252,540 4,687,774
--------------
TECHNOLOGY (0.2%)
Metawave Communications Corp.
(a)(c)(d)(q)................. 259,118 6,915,213
--------------
TELECOMMUNICATIONS (0.5%)
ICO Global Communications Holdings, Ltd.
Class A (a)(d)............... 789,474 16,500,007
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.0%)
(b)
Celcaribe, S.A. (a)(c)........ 751,212 563,409
International Wireless
Communications Holdings, Inc.
(a).......................... 483,446 77,351
--------------
640,760
--------------
TELECOMMUNICATIONS--LONG DISTANCE (0.2%)
Call-Net Enterprises, Inc.
Series B (a)(p).............. 2,356,995 5,567,576
--------------
TEXTILES--APPAREL MANUFACTURERS (0.0%) (b)
Hosiery Corp. of America, Inc.
(a).......................... 17,400 696,000
--------------
Total Common Stocks
(Cost $150,301,874).......... 110,299,043
--------------
PREFERRED STOCKS (5.0%)
BROADCAST/MEDIA (1.3%)
Paxson Communications Corp.
12.50% (m)................... 48,945 48,945,190
--------------
CHEMICALS--SPECIALTY (0.2%)
Hercules Trust II
6.50% (n6)................... 15,645 8,506,969
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
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%)
AerFi Group, PLC (a)(d)....... 41,600,000 21,632,000
--------------
FINANCIAL SERVICES (0.1%)
North Atlantic Trading Co.
12.00% (m)................... 128,514 2,698,782
--------------
FINANCIAL--MISCELLANEOUS (0.2%)
Loehmann's Holdings, Inc.
$0.056, Series A (m)......... 2,297 1,148
Pacific & Atlantic (Holdings)
Inc.
7.50%, Class A (m)........... 1,160,157 6,670,904
--------------
6,672,052
--------------
HOSPITALS/NURSING HOMES/HEALTH CARE (0.1%)
Harborside Healthcare Corp.
13.50% (m)................... 38,995 3,119,600
--------------
OIL & GAS--WELL EQUIPMENT & SERVICES (0.5%)
R&B Falcon Corp.
13.875% (m).................. 15,168 17,139,851
--------------
PAPER & FOREST PRODUCTS (0.1%)
Paperboard Industries International, Inc.
5.00%, Class A (c)(d)(p)..... 219,308 3,413,503
--------------
TELECOMMUNICATIONS (0.8%)
ICG Holdings, Inc.
14.25% (m)................... 32,787 28,442,783
--------------
TELECOMMUNICATIONS--LONG DISTANCE (1.1%)
Nextel Communications, Inc.
13.00%, Series D (m)......... 38,814 41,531,012
--------------
Total Preferred Stocks
(Cost $184,532,355).......... 183,051,742
--------------
WARRANTS (0.1%)
CABLE TV (0.0%) (b)
UIH Australia/Pacific, Inc.
expire 5/15/06 (a)........... 24,315 729,450
--------------
ELECTRONICS--COMPONENTS (0.0%) (b)
Aavid Thermal Technologies,
Inc.
expire 2/1/07 (a)(c)......... 2,000 20,000
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 158
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------------
<S> <C> <C>
WARRANTS (CONTINUED)
FINANCIAL SERVICES (0.0%) (b)
North Atlantic Trading Co.
expire 6/15/07 (a)(c)........ 66 $ 1
--------------
FOOD & HOUSEHOLD PRODUCTS (0.0%) (b)
Colorado Prime Corp.
expire 12/31/03 (a)(c)....... 18,825 188
--------------
GAMING, LOTTERY & PARI-MUTUELS (0.0%) (b)
Isle of Capri Casinos, Inc.
expire 5/3/01 (a)............ 36,808 368
--------------
HOMEBUILDING (0.0%) (b)
Amatek Industries Pty Ltd.
Common Rights (a)............ 6,000 300
Preferred Rights (a)......... 1,422,153 711,076
--------------
711,376
--------------
LEISURE TIME (0.0%) (b)
HF Holdings, Inc.
expire 7/15/02 (a)........... 68,380 102,570
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.1%)
Petro Stopping Centers
Holdings L.P. (a)(c)......... 24,460 1,223,000
--------------
PUBLISHING (0.0%) (b)
General Media, Inc.
expire 12/21/03 (a)(c)....... 34,486 345
--------------
SPECIALIZED SERVICES (0.0%) (B)
Intertek Testing Services Ltd.
(a)(d)....................... 691 221,120
--------------
TELECOMMUNICATIONS (0.0%) (b)
Telehub Communications Corp.
expire 7/31/05 (a)(c)........ 34,895 349
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.0%)
(b)
Occidente y Caribe Celular,
S.A.
expire 3/15/04 (a)(c)........ 28,380 425,700
--------------
Total Warrants
(Cost $16,114,366)........... 3,434,467
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.8%)
COMMERCIAL PAPER (7.8%)
Deutsche Bank Financial, Inc.
6.52%, due 7/11/00........... $ 20,000,000 $ 19,963,633
6.54%, due 7/17/00........... 20,000,000 19,941,697
Ford Motor Credit Co.
6.51%, due 7/5/00............ 24,180,000 24,162,427
6.53%, due 7/14/00........... 22,000,000 21,947,981
6.64%, due 7/10/00........... 13,840,000 13,817,021
General Electric Capital Corp.
6.51%, due 7/7/00............ 17,200,000 17,181,257
Goldman Sachs Group L.P.
6.54%, due 7/10/00........... 20,000,000 19,967,193
6.54%, due 7/25/00........... 35,455,000 35,300,079
6.95%, due 7/3/00............ 16,595,000 16,588,591
Morgan Stanley Dean Witter &
Co.
7.175%, due 12/1/00 (k)...... 30,000,000 30,000,000
Prudential Funding Corp.
6.52%, due 7/6/00............ 23,355,000 23,333,754
Salomon Smith Barney Holdings,
Inc.
6.54%, due 7/21/00........... 18,900,000 18,831,130
UBS Finance Delaware L.L.C.
6.54%, due 7/20/00........... 23,965,000 23,882,115
--------------
Total Commercial Paper
(Cost $284,916,878).......... 284,916,878
--------------
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)(r).................... 800,000 40,000
--------------
Total Short-Term Bonds
(Cost $656,350).............. 40,000
--------------
Total Short-Term Investments
(Cost $285,573,228).......... 284,956,878
--------------
Total Investments
(Cost $4,159,165,172) (s).... 99.9% 3,668,904,066(t)
Cash and Other Assets,
Less Liabilities............. 0.1 3,867,138
---- -----------
Net Assets.................... 100.0% $3,672,771,204
==== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 159
MainStay High Yield Corporate Bond Fund
-------
<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) Fair valued security.
(j) Multiple tranche facilities.
(k) Floating rate. Rate shown is the rate in effect at June
30, 2000.
(l) Partially segregated as collateral for loan assignments
and participations.
(m) PIK ("Payment in Kind")--interest or dividend payment is
made with additional securities.
(n1) 8,680 Units--each unit reflects $1,000 principal amount
of 12.50% Senior Notes plus 1 warrant to acquire 2.3944
shares of ASAT Holding Corp. common stock at $18.60 per
share at a future date.
(n2) 8,500 Units--each unit reflects $1,000 principal amount
of 13.00% Notes plus 1 warrant to acquire common stock
at $0.01 per share at a future date.
(n3) 15,895 Units--each unit reflects $1,000 principal amount
of 13.875% Senior Notes plus 1 warrant to acquire
19.9718 shares of common stock at $0.01 per share at a
future date.
(n4) 17,720 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.
(n5) 14,230 Units--each unit reflects $1,000 principal amount
of zero coupon, due 4/15/10 14.00%, beginning 4/15/05
Senior Discounted Notes plus 1 warrant to acquire 5.965
shares of common stock at $22.74 per share at a future
date.
(n6) 15,645 Units--each unit reflects 1 Preferred Share plus
1 warrant to acquire 23.4192 shares of common stock at
$42.70 per share at a future date.
(o) British security.
(p) Canadian security.
(q) Illiquid security.
(r) The company defaulted on the payment of principal to its
creditors on maturity date.
(s) The cost for federal income tax purposes is
$4,163,256,594.
(t) At June 30, 2000, net unrealized depreciation was
$494,352,528, 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 $95,421,552 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $589,774,080.
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.
22
<PAGE> 160
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$4,159,165,172)........................................... $3,668,904,066
Cash........................................................ 2,133
Deposit with broker (identified cost $40,928)............... 23,991
Receivables:
Dividends and interest.................................... 86,243,337
Investment securities sold................................ 32,830,700
Fund shares sold.......................................... 8,339,160
Unrealized appreciation on foreign currency forward
contracts................................................. 35,865
--------------
Total assets........................................ 3,796,379,252
--------------
LIABILITIES:
Payables:
Investment securities purchased........................... 79,387,920
Fund shares redeemed...................................... 4,150,594
NYLIFE Distributors....................................... 2,691,540
MainStay Management....................................... 1,692,596
Transfer agent............................................ 739,317
Custodian................................................. 33,691
Trustees.................................................. 24,461
Accrued expenses............................................ 617,127
Unrealized depreciation on foreign currency forward
contracts................................................. 5,176,471
Dividend payable............................................ 29,094,331
--------------
Total liabilities................................... 123,608,048
--------------
Net assets.................................................. $3,672,771,204
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 688,178
Class B................................................... 4,299,489
Class C................................................... 140,833
Additional paid-in capital.................................. 4,114,059,807
Accumulated distribution in excess of net investment
income.................................................... (519,883)
Accumulated undistributed net realized gain on
investments............................................... 27,218,365
Accumulated undistributed net realized gain on foreign
currency.................................................. 21,773,454
Net unrealized depreciation on investments.................. (490,278,043)
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (4,610,996)
--------------
Net assets.................................................. $3,672,771,204
==============
CLASS A
Net assets applicable to outstanding shares................. $ 493,477,994
==============
Shares of beneficial interest outstanding................... 68,817,827
==============
Net asset value per share outstanding....................... $ 7.17
Maximum sales charge (4.50% of offering price).............. 0.34
--------------
Maximum offering price per share outstanding................ $ 7.51
==============
CLASS B
Net assets applicable to outstanding shares................. $3,078,459,139
==============
Shares of beneficial interest outstanding................... 429,948,903
==============
Net asset value and offering price per share outstanding.... $ 7.16
==============
CLASS C
Net assets applicable to outstanding shares................. $ 100,834,071
==============
Shares of beneficial interest outstanding................... 14,083,304
==============
Net asset value and offering price per share outstanding.... $ 7.16
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 161
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 11,169,638
Interest.................................................. 205,570,822
------------
Total income............................................ 216,740,460
------------
Expenses:
Distribution--Class B..................................... 11,860,441
Distribution--Class C..................................... 312,352
Management................................................ 11,014,653
Service--Class A.......................................... 531,844
Service--Class B.......................................... 3,953,477
Service--Class C.......................................... 104,118
Transfer agent............................................ 2,325,550
Professional.............................................. 347,392
Custodian................................................. 277,963
Shareholder communication................................. 238,042
Recordkeeping............................................. 196,838
Registration.............................................. 74,603
Trustees.................................................. 43,920
Miscellaneous............................................. 320,146
------------
Total expenses before waiver............................ 31,601,339
Fees waived by Manager...................................... (793,571)
------------
Net expenses............................................ 30,807,768
------------
Net investment income....................................... 185,932,692
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 9,500,152
Foreign currency transactions............................. 21,773,454
------------
Net realized gain on investments and foreign currency
transactions.............................................. 31,273,606
------------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (161,473,004)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... (9,292,166)
------------
Net unrealized loss on investments and foreign currency
transactions.............................................. (170,765,170)
------------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (139,491,564)
------------
Net increase in net assets resulting from operations........ $ 46,441,128
============
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $59,490.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 162
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 185,932,692 $ 359,772,792
Net realized gain on investments and foreign currency
transactions............................................ 31,273,606 78,482,350
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (170,765,170) (99,218,365)
-------------- --------------
Net increase in net assets resulting from operations...... 46,441,128 339,036,777
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (21,457,589) (34,495,477)
Class B................................................. (142,680,818) (328,351,161)
Class C................................................. (3,914,900) (4,257,732)
From net realized gain on investments and foreign currency
transactions:
Class A................................................. -- (1,561,674)
Class B................................................. -- (14,116,121)
Class C................................................. -- (277,698)
In excess of net investment income:
Class A................................................. -- (1,965,382)
Class B................................................. -- (18,707,825)
Class C................................................. -- (242,584)
-------------- --------------
Total dividends and distributions to shareholders..... (168,053,307) (403,975,654)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 273,939,461 274,231,217
Class B................................................. 241,243,605 568,260,794
Class C................................................. 48,005,305 70,334,833
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 11,021,167 26,644,022
Class B................................................. 75,503,272 235,753,550
Class C................................................. 1,559,048 2,452,343
-------------- --------------
651,271,858 1,177,676,759
Cost of shares redeemed:
Class A................................................. (146,123,208) (203,043,969)
Class B................................................. (428,665,387) (762,717,121)
Class C................................................. (12,982,659) (13,688,417)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 63,500,604 198,227,252
-------------- --------------
Net increase (decrease) in net assets................. (58,111,575) 133,288,375
NET ASSETS:
Beginning of period......................................... 3,730,882,779 3,597,594,404
-------------- --------------
End of period............................................... $3,672,771,204 $3,730,882,779
============== ==============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (519,883) $ (20,915,791)
============== ==============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
25
<PAGE> 163
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ---------------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................ $ 7.41 $ 7.54 $ 8.16 $ 8.27 $ 7.92 $ 7.44
-------- -------- -------- -------- -------- -------
Net investment income............... 0.39 0.79 0.75 0.74 0.72 0.84
Net realized and unrealized gain
(loss) on investments............. (0.29) (0.06) (0.57) 0.23 0.52 0.61
Net realized and unrealized gain
(loss) on foreign currency
transactions...................... 0.02 0.02 (0.01) (0.00)(b) (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------- -------
Total from investment operations.... 0.12 0.75 0.17 0.97 1.24 1.45
-------- -------- -------- -------- -------- -------
Less dividends and distributions:
From net investment income........ (0.36) (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... (0.36) (0.88) (0.79) (1.08) (0.89) (0.97)
-------- -------- -------- -------- -------- -------
Net asset value at end of period.... $ 7.17 $ 7.41 $ 7.54 $ 8.16 $ 8.27 $ 7.92
======== ======== ======== ======== ======== =======
Total investment return (a)......... 1.63% 10.33% 2.07% 12.20% 16.33% 20.28%
Ratios (to average net assets)/
Supplemental Data:
Net investment income........... 10.79%++ 10.36% 9.40% 8.79% 9.0% 10.2%
Net expenses.................... 1.02%++ 1.00% 1.00% 1.01% 1.0% 1.0%
Expenses (before waiver)........ 1.06%++ 1.04% 1.04% 1.01% 1.0% 1.0%
Portfolio turnover rate............. 30% 83% 128% 128% 118% 137%
Net assets at end of period (in
000's)............................ $493,478 $369,275 $278,181 $238,841 $116,805 $42,850
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
26
<PAGE> 164
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------------------- -----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, -------------------------------------------------------------- June 30, December 31, December 31
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 7.40 $ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.44 $ 7.40 $ 7.53 $ 7.43
---------- ---------- ---------- ---------- ---------- ---------- -------- ------- -------
0.36 0.73 0.69 0.69 0.67 0.81 0.36 0.73 0.27
(0.29) (0.06) (0.57) 0.23 0.52 0.61 (0.29) (0.06) 0.15
0.02 0.02 (0.01) (0.00)(b) (0.00)(b) (0.00)(b) 0.02 0.02 (0.01)
---------- ---------- ---------- ---------- ---------- ---------- -------- ------- -------
0.09 0.69 0.11 0.92 1.19 1.42 0.09 0.69 0.41
---------- ---------- ---------- ---------- ---------- ---------- -------- ------- -------
(0.33) (0.75) (0.68) (0.69) (0.67) (0.81) (0.33) (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)
---------- ---------- ---------- ---------- ---------- ---------- -------- ------- -------
(0.33) (0.82) (0.73) (1.03) (0.85) (0.94) (0.33) (0.82) (0.31)
---------- ---------- ---------- ---------- ---------- ---------- -------- ------- -------
$ 7.16 $ 7.40 $ 7.53 $ 8.15 $ 8.26 $ 7.92 $ 7.16 $ 7.40 $ 7.53
========== ========== ========== ========== ========== ========== ======== ======= =======
1.24% 9.51% 1.31% 11.55% 15.58% 19.71% 1.24% 9.51% 5.58%
10.04%++ 9.61% 8.65% 8.18% 8.4% 9.5% 10.04%++ 9.61% 8.65%++
1.77%++ 1.75% 1.75% 1.62% 1.6% 1.6% 1.77%++ 1.75% 1.75%++
1.81%++ 1.79% 1.79% 1.62% 1.6% 1.6% 1.81%++ 1.79% 1.79%++
30% 83% 128% 128% 118% 137% 30% 83% 128%
$3,078,059 $3,294,427 $3,309,389 $3,380,439 $2,441,180 $1,601,238 $100,834 $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.
27
<PAGE> 165
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 (and certain other qualified purchases) 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 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 of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
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
28
<PAGE> 166
Notes to Financial Statements unaudited
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 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 may 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
29
<PAGE> 167
MainStay High Yield Corporate Bond Fund
interest, exceeds the repurchase price. In the event of the seller's default of
the obligation to repurchase, the Funds have the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the forward
contract is closed, the Fund records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Fund's basis in the contract. The Fund enters into foreign currency forward
contracts in order to hedge its foreign currency denominated investments and
receivables and payables against adverse movements in future foreign exchange
rates.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 2000:
<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 9/7/00...................... E111,715,000 $105,952,740 $(1,603,801)
Pound Sterling vs. U.S. Dollar, expiring 8/31/00........... L93,675,000 $138,407,623 (3,572,670)
</TABLE>
<TABLE>
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
----------- -----------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Pound Sterling vs. U.S. Dollar, expiring 8/31/00............ L10,184,193 $15,400,000 35,865
-----------
Net unrealized depreciation on foreign currency forward
contracts................................................. $(5,140,606)
===========
</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
30
<PAGE> 168
Notes to Financial Statements unaudited (continued)
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 June 30, 2000 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").
The Fund does not have the right to demand that such securities be registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
Restricted securities held at June 30, 2000:
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 6/30/00 of
Security Acquisition Shares Cost Value Net Assets
----------------------------------------- ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
245 Park Ave.
Bank debt
8.41%, due 12/10/02.................... 10/28/99 $ 4,577,846 $ 4,229,500 $ 4,188,729 0.1%
AerFi Group, PLC
Preferred Stock........................ 3/7/96-12/28/97 41,600,000 16,177,800 21,632,000 0.6
Affinity Group, Inc.
Bank debt, Tranche B
10.2738%, due 6/30/06.................. 12/17/98 7,800,480 7,799,480 7,722,475 0.2
Euro Disneyland S.N.C.
Phase 1, Bank debt
Tranche A
5.4292%, due 11/30/06.................. 7/21/99-2/18/00 FF 30,397,927 3,490,822 3,903,231 0.1
Tranche D
5.4051%, due 11/30/06.................. 7/21/99-2/18/00 25,169,728 2,904,105 2,511,971 0.1
Eurotunnel
Bank debt, Tier One
5.28%, due 12/31/12.................... 10/28/98-9/8/99 216,353,211 29,369,197 24,661,478 0.7
7.03%, due 12/31/12.................... 3/23/99-3/27/00 L 21,421,644 28,428,425 25,660,248 0.7
Foamex L.P.
Bank debt, Revolver
10.6875%, due 12/30/06................. 1/6/00-6/30/00 $ 9,999,135 9,447,503 9,586,671 0.3
FRI-MRD Corp.
14.00%, due 1/24/02.................... 10/30/98 19,000,000 19,381,847 18,715,000 0.5
15.00%, due 1/24/02.................... 8/12/97-12/22/99 55,050,000 54,866,147 53,949,000 1.4
Genesis Health Ventures, Inc.
Bank debt, Revolver
10.25%, due 9/30/03.................... 2/15/00-4/19/00 2,965,413 1,723,130 1,826,694 0.1
Bank debt, Term Loan B
10.25%, due 9/30/04.................... 12/20/99-5/24/00 6,240,907 4,266,954 3,838,158 0.1
</TABLE>
31
<PAGE> 169
MainStay High Yield Corporate Bond Fund
RESTRICTED SECURITIES (CONTINUED):
<TABLE>
<CAPTION>
Principal Percent
Date(s) of Amount/ 6/30/00 of
Security Acquisition Shares Cost Value Net Assets
----------------------------------------- ---------------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Genesis Health Ventures, Inc.
Bank debt, Term Loan C
10.50%, due 6/1/05..................... 12/20/99-5/24/00 $ 6,210,074 $ 4,223,154 $ 3,819,195 0.1%
Global Motorsport Group, Inc.
Bank debt, Tranche B
10.125%, due 10/31/05.................. 12/15/98 4,925,000 4,925,000 4,900,375 0.1
Harnischfeger Industries, Inc.
Bank debt, Revolver
11.00%, due 10/15/02................... 5/9/00 5,000,000 2,328,464 1,737,500 0.1
ICO Global Communications
Holdings, Ltd.
Common Stock
Class A................................ 5/15/00 789,474 16,500,007 16,500,007 0.5
Intertek Testing Services Ltd.
12.00%, due 11/1/07 (a)................ 11/8/96-5/1/00 6,069,951 5,889,909 5,705,754 0.2
Warrants............................... 11/8/96 691 223,440 221,120 0.0(b)
Metawave Communications Corp.
Common Stock (c)....................... 4/28/98-5/2/00 259,118 55,074 6,915,213 0.2
Multicare Companies, Inc. (The)
Bank debt, Revolver
10.75%, due 9/30/03.................... 2/15/00-4/19/00 1,600,879 918,713 896,493 0.0(b)
Bank debt, Term Loan B
10.75%, due 9/30/04.................... 12/20/99-5/24/00 5,714,301 3,881,878 3,200,009 0.1
Bank debt, Term Loan C
11.00%, due 6/1/05..................... 12/20/99-5/24/00 1,894,988 1,275,538 1,061,193 0.0(b)
Paperboard Industries
International, Inc.
Preferred Stock
5.00%, Class A......................... 5/5/98 219,308 3,643,057 3,413,503 0.1
President Casinos, Inc.
12.00%, due 9/15/01.................... 12/3/98 10,097,000 10,097,000 8,077,600 0.2
S-C Aircraft
Series 1997-C
11.00%, due 7/1/04..................... 3/20/97 7,377,772 7,377,772 6,998,997 0.2
Stone Container Corp.
Bank debt, Term Loan E
10.0313%, due 10/1/03.................. 7/16/97 3,893,793 3,834,966 3,895,417 0.1
Supercanal Holdings, S.A.
Bank debt
6.50%, due 11/12/02.................... 5/26/00 1,433,218 1,139,864 967,422 0.0(b)
Unilab Corp.
Bank debt, Term Loan B
10.75%, due 11/23/06................... 11/23/99 9,900,000 9,900,000 9,776,250 0.2
------------ ------------ ---
$258,298,746 $256,281,703 7.0%
============ ============ ===
</TABLE>
---------------
(a) PIK ("Payment In Kind")--Interest payment is made with additional shares.
(b) Less than one tenth of a percent.
(c) Illiquid security.
FF--French Franc
L--Pound Sterling
32
<PAGE> 170
Notes to Financial Statements unaudited (continued)
COMMITMENTS AND CONTINGENCIES. As of June 30, 2000, the Fund had unfunded loan
commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
Unfunded
Borrower Commitment
-------- ----------
<S> <C>
Foamex L.P. ................................................ $2,413,584
Genesis Health Ventures, Inc. .............................. 19,128
Multicare Companies, Inc. (The)............................. 21,800
----------
$2,454,512
==========
</TABLE>
FINANCIAL INSTRUMENTS WITH 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.
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.
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
33
<PAGE> 171
MainStay High Yield Corporate Bond Fund
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 plans)
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 period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Gains and losses from certain foreign currency transactions
are treated as ordinary income for federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on foreign currency forward contracts, net currency gains or losses
realized as a result of differences between the amounts of securities sale
proceeds 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 period end exchange
rates are reflected in unrealized foreign exchange gains or losses.
34
<PAGE> 172
Notes to Financial Statements unaudited (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 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 six months ended June 30, 2000 the Manager earned
$11,014,653 and waived $793,571 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. 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The distribution plans provide 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.
35
<PAGE> 173
MainStay High Yield Corporate Bond Fund
The Plans provide 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 $84,609 for the six months ended
June 30, 2000. 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 $9,145, $2,560,568 and $37,022, respectively, for the six months ended
June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $2,325,550.
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 $37,050 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$196,838 for the six months ended June 30, 2000.
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 six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $1,078,613 and $1,012,491, 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
36
<PAGE> 174
Notes to Financial Statements unaudited (continued)
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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
---------------------------- ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................ 37,345 32,988 6,562 35,865 74,195 9,209
Shares issued in reinvestment of
dividends and distributions.......... 1,514 10,392 215 3,528 31,228 327
------- -------- ------ ------- ------- ------
38,859 43,380 6,777 39,393 105,423 9,536
Shares redeemed........................ (19,851) (58,500) (1,770) (26,457) (99,743) (1,791)
------- -------- ------ ------- ------- ------
Net increase (decrease)................ 19,008 (15,120) 5,007 12,936 5,680 7,745
======= ======== ====== ======= ======= ======
</TABLE>
-------
* Unaudited.
37
<PAGE> 175
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
38
<PAGE> 176
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSHY11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R) High Yield
Corporate Bond Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 177
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay International
Bond Fund versus Salomon Smith Barney
Non-U.S. Dollar World Government Bond
Index--Class A, Class B, and Class C Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 20
The MainStay(R) Funds 29
</TABLE>
<PAGE> 178
This page intentionally left blank
2
<PAGE> 179
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
3
<PAGE> 180
$10,000 Invested in MainStay International
Bond Fund versus Salomon Smith Barney
Non-U.S. Dollar World Government Bond Index
CLASS A SHARES Total Returns: 1 Year -6.45%, 5 Years 3.21%, Since Inception
4.67%
[CLASS A SHARES BAR GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY
MAINSTAY INTERNATIONAL NON-U.S. DOLLAR WORLD
BOND FUND GOVERNMENT BOND INDEX*
---------------------- ----------------------
<S> <C> <C> <C>
9/13/94 9550.00 10000.00
12/94 9569.00 10256.00
12/95 11356.00 12261.00
12/96 12935.00 12761.00
12/97 13171.00 12218.00
12/98 14700.00 14392.00
12/99 13492.00 13661.00
6/00 13032.00 13396.00
</TABLE>
CLASS B SHARES Total Returns: 1 Year -7.63%, 5 Years 3.09%, Since Inception
4.68%
[CLASS B SHARES BAR GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
MAINSTAY INTERNATIONAL BOND DOLLAR WORLD GOVERNMENT BOND
FUND INDEX*
--------------------------- -----------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 10020.00 10256.00
12/95 11819.00 12261.00
12/96 13371.00 12761.00
12/97 13525.00 12218.00
12/98 14985.00 14392.00
12/99 13645.00 13661.00
6/00 13037.00 13396.00
</TABLE>
CLASS C SHARES Total Returns: 1 Year -3.74%, 5 Years 3.44%, Since Inception
4.81%
[CLASS C SHARES BAR GRAPH]
<TABLE>
<CAPTION>
SALOMON SMITH BARNEY NON-U.S.
MAINSTAY INTERNATIONAL BOND DOLLAR WORLD GOVERNMENT BOND
FUND INDEX*
--------------------------- -----------------------------
<S> <C> <C>
9/13/94 10000.00 10000.00
12/94 10020.00 10256.00
12/95 11819.00 12261.00
12/96 13371.00 12761.00
12/97 13525.00 12218.00
12/98 14985.00 14392.00
12/99 13645.00 13661.00
6/00 13137.00 13396.00
</TABLE>
4
<PAGE> 181
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge
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 sales charges and expense
structures. Class B share performance reflects a contingent deferred sales
charge (CDSC) of 1%. Class C share performance includes the historical
performance of the Class B shares for periods from 9/13/94 through 8/31/98.
Class C shares would be subject to a CDSC of 1% if redeemed within one year
of purchase.
* 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. Total returns reflect reinvestment of all income and capital gains.
You cannot invest directly in an index.
5
<PAGE> 182
-------
(1) See footnote and table on page 10 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the Salomon Smith Barney
Non-U.S. Dollar World Government Bond Index.
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
Throughout the six months ended June 30, 2000, the pace of the global economic
recovery was a major theme affecting international bond markets. In the second
quarter, many investors anticipated positive fiscal moves in major bond markets,
and credit spreads among investment-grade issues began to widen.
Buoyant global economic activity led central banks in Europe, the U.K., and the
United States to collectively raise rates on nine occasions, in preemptive moves
seeking to curb inflation. In May, the U.S. Federal Reserve raised its targeted
federal funds rate by 50 basis points, and in June, Europe's central bank made a
similar move.
Booming economies resulted in surplus fiscal positions which major nations used
to retire outstanding government debt. Stronger-than-expected tax receipts
allowed the U.S. to initiate a Treasury buyback program, and mobile telecom
license sales in Europe also led to government bond repurchases. While rising
interest rates were flattening yield curves, reduced supply spurred a bond-
market rally.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay International Bond Fund
returned -3.41% for Class A shares and -3.72% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -0.85% return
of the average Lipper(1) international income fund and the -1.95% return of the
Salomon Smith Barney Non-U.S. Dollar World Government Bond Index(2) over the
same period.
Participation in weaker markets and the negative impact of the Fund's foreign
currency exposure contributed to the Fund's underperformance during the
reporting period.
SHIFTING BOND-MARKET DYNAMICS
During the first half of 2000, the Fund benefited from its positions in the
Australian, Canadian, and U.K. markets, which returned 6.72%, 5.20%, and 4.17%,
respectively, in local currency terms. These results compared favorably to the
market's 2.11% return in local currency terms. The Fund's average position in
these markets during the second quarter of 2000 was around 14% of net assets.
During the second quarter of the year, the fiscal situation in Europe triggered
wider spreads on interest-rate swap transactions, especially in the U.K., as
successful corporate bidders for mobile licenses began to hedge future issuance
6
<PAGE> 183
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[CLASS A SHARES BAR GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
12/94 0.2
12/95 18.68
12/96 13.90
12/97 1.83
12/98 11.61
12/99 -8.22
6/00 -3.41
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of Class B shares through 12/31/94. See footnote * on
page 10 for more information on performance.
CLASS B AND CLASS C SHARES
[CLASS B AND CLASS C SHARES BAR GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
12/94 0.2
12/95 17.96
12/96 13.13
12/97 1.15
12/98 10.79
12/99 -8.94
6/00 -3.72
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflect the historical performance of Class B shares through 8/31/98. See
footnote * on page 10 for more information on performance.
through the interest-rate swap market. In anticipation of future bond supply,
the market began to reprice certain sectors and most investors became
increasingly concerned about credit risk. In the second quarter, credit spreads
rose to the levels we last saw during the Russian crisis of 1998 for both
corporate bonds and peripheral government issues. We believed that spreads may
have reached their peak and that in June prices were at reasonable levels. As a
result, we began adding spread product, including corporate issues, to the
Fund's portfolio.
The Fund continued to maintain a conservative risk profile in its bond
positions. As of June 30, 2000, duration and yield curve positions were neutral
to the
7
<PAGE> 184
-------
(3) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
(4) Debt rated A by Standard & Poor's is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong. Debt rated AA
differs from the highest rated issues only in small degree. The obligor's
capacity to meet its financial commitment on the obligation is very strong.
A rating may be modified by the addition of a plus or minus sign to show
relative standing within major rating categories.
market and credit exposure to nonsovereign credits outside of Japan was limited.
The Fund remained underweighted in Japanese bonds relative to the benchmark, as
we saw potential for greater value elsewhere.
During the second quarter of 2000, the Fund established a position in 10-year
Greek government bonds. We anticipate that yield spreads will narrow on these
securities as Greece's participation in European Monetary Union approaches. We
also established a position for the Fund in two-year Norwegian government bonds
which carry a AAA rating.(3) As of June 30, 2000, the securities provided a 200
basis-point yield spread over comparable German government bonds.
At the end of the second quarter, Deutsche Telecom came to market with a $14
billion global bond offering, which saw high demand but caused some disturbances
in secondary markets. The Fund participated in the five-year yen tranche, or
portion, of the deal, as it was priced cheaper than comparable single-A rated
issues, even though Deutsche Telecom's rating is AA-.(4) The bonds carried
"step-up" coupon provisions in the event of a downgrade.
CURRENCY TRENDS
The dollar's strength detracted from the performance of most international
currencies during the reporting period, with a negative impact on the Fund's
performance. After developing record strength against the euro, however, the
U.S. dollar pared back some of its gains as softer economic data in the U.S.
suggested that efforts to slow economic growth were succeeding. These factors,
combined with more appealing data in Europe, helped to boost the euro at the end
of June 2000.
During the second quarter of 2000, fixed-income securities outperformed equities
in many global markets, and particularly in the United States. We believe this
may weaken international investors' infatuation with the U.S. dollar, and the
Fund remains positioned for a rally in foreign currencies. We are particularly
bullish on the euro.
LOOKING AHEAD
We see the possibility of additional rate hikes in both the United States and
Europe, perhaps followed by a period of greater rate stability. Given the recent
widening of yield spreads, we are seeking attractive opportunities among
corporate bonds and other securities that may offer yield opportunities relative
to government bonds. As we move into the second half of 2000, the Fund continues
to underweight Japan, reduce Canadian exposure, and favor core European markets.
8
<PAGE> 185
Past performance is
no guarantee of
future results.
Whatever the global economy may bring, the Fund will continue to seek to provide
competitive overall returns 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
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets.
High-yield securities ("junk bonds") are generally considered speculative
because they present a greater risk of loss than higher-quality debt securities
and may be subject to greater price volatility. The Fund may invest in
derivatives, which may increase the volatility of the Fund's net asset value and
may result in a loss to the Fund.
TARGETED DIVIDEND POLICY
The MainStay International Bond Fund seeks to maintain a fixed dividend,
with changes made only on an infrequent basis. During the first half of
2000, the Fund maintained a stable dividend, which did not materially impact
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 by its
targeted dividend policy.
9
<PAGE> 186
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A -2.04% 4.17% 5.50%
Class B -2.77% 3.44% 4.81%
Class C -2.77% 3.44% 4.81%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A -6.45% 3.21% 4.67%
Class B -7.63% 3.09% 4.68%
Class C -3.74% 3.44% 4.81%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 44 out of 13 out of 10 out of
58 funds 33 funds 30 funds
Class B 47 out of 16 out of 12 out of
58 funds 33 funds 25 funds
Class C 47 out of n/a 48 out of
58 funds 52 funds
Average Lipper
international
income fund 0.45% 3.89% 5.13%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.48 $0.2784 $0.0000
Class B $8.50 $0.2400 $0.0000
Class C $8.50 $0.2400 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions. Performance
figures reflect certain fee waivers and/or expense limitations, without which
total return figures may have been lower. Fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5%.
Performance figures for this class include the historical performance of the
Class B shares for periods from inception (9/13/94) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares are
subject to a CDSC of up to 5% if shares are redeemed within the first six
years of purchase. Class C shares are subject to a CDSC of 1% if redeemed
within one year of purchase. Performance figures for this class include the
historical performance of the Class B shares for periods from inception
(9/13/94) through 8/31/98. Performance figures for the two classes vary after
this date based on differences in their sales charges.
10
<PAGE> 187
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. 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. Since-inception
return for the average Lipper peer fund is for the period from 9/13/94
through 6/30/00.
11
<PAGE> 188
MainStay International Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (93.6%)+
CORPORATE BONDS (14.2%)
AUSTRALIA (0.1%)
International Bank of
Reconstruction &
Development
Series EMTN
5.50%, due 5/14/03......... A$ 21,000 $ 12,316
-----------
AUSTRIA (1.6%)
Oesterreichische
Kontrollbank AG
1.80%, due 3/22/10......... Y 43,000,000 409,428
-----------
FRANCE (2.8%)
Societe Nationale des
Chemins de Fer
10.40%, due 12/10/01....... FF 4,510,000 702,974
-----------
GERMANY (4.8%)
Bayerische VBK New York
4.50%, due 6/24/02......... E 267,000 252,321
Depfa Pfandbriefbank
Series G3
5.00%, due 2/3/05.......... 490,000 460,459
Deutsche Telekom
International Finance
1.50%, due 6/15/05......... Y 52,000,000 491,010
-----------
1,203,790
-----------
JAPAN (3.1%)
Inter-American Development
Bank 1.90%, due 7/8/09..... 79,000,000 762,185
-----------
UNITED STATES (1.8%)
International Business
Machines Corp.
0.90%, due 4/14/03......... 47,000,000 443,130
-----------
Total Corporate Bonds (Cost
$3,603,384)................ 3,533,823
-----------
GOVERNMENTS & FEDERAL AGENCIES (79.4%)
AUSTRALIA (0.7%)
Australian Government
Series 803
9.50%, due 8/15/03......... A$ 259,000 170,884
-----------
AUSTRIA (2.9%)
Republic of Austria
Series 98 2
4.30%, due 7/15/03......... E 778,000 728,263
-----------
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
BELGIUM (4.2%)
Kingdom of Belgium
Series 10
8.75%, due 6/25/02......... E 1,017,000 $ 1,040,797
-----------
CANADA (4.7%)
Canadian Government
Series WH31
6.00%, due 6/1/08.......... C$ 701,000 476,672
Series VR22
7.50%, due 3/1/01.......... 665,000 454,217
Series VW17
8.00%, due 6/1/27.......... 283,000 250,190
-----------
1,181,079
-----------
DENMARK (2.2%)
Kingdom of Denmark
6.00%, due 11/15/09........ DK 1,939,000 254,384
7.00%, due 12/15/04........ 2,144,000 287,615
-----------
541,999
-----------
FINLAND (2.3%)
Finnish Government
5.75%, due 2/23/11......... E 586,000 576,007
-----------
FRANCE (4.9%)
France Obligations
Assimilables du Tresor
4.00%, due 4/25/09......... 693,000 601,199
5.50%, due 4/25/10......... 628,000 608,622
-----------
1,209,821
-----------
GERMANY (13.4%)
Bundesobligation
Series 127
4.50%, due 5/19/03......... 1,519,000 1,437,982
Series 125
5.00%, due 11/12/02........ 799,000 766,303
Republic of Deutschland
Series 98
5.25%, due 1/4/08.......... 430,000 413,063
5.625%, due 1/4/28......... 736,000 714,629
-----------
3,331,977
-----------
GREECE (1.9%)
Hellenic Republic
6.30%, due 1/29/09......... GRD 164,300,000 473,545
-----------
ITALY (3.3%)
Buoni Poliennali del Tesoro
6.00%, due 5/1/31.......... E 208,000 204,134
6.50%, due 11/1/27......... 232,999 240,014
8.50%, due 1/1/04.......... 350,000 369,161
-----------
813,309
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 189
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
JAPAN (20.3%)
Japanese Government
Series 214
1.80%, due 9/21/09......... Y 90,300,000 $ 855,900
Series 45
2.40%, due 3/20/20......... 38,800,000 383,189
Series 182
3.00%, due 9/20/05......... 274,000,000 2,816,939
Series 145
5.50%, due 3/20/02......... 96,000,000 985,414
-----------
5,041,442
-----------
NETHERLANDS (3.2%)
Netherlands Government
3.75%, due 7/15/09......... E 941,000 801,463
-----------
NORWAY (1.5%)
Norwegian Government 9.50%,
due 10/31/02............... NK 3,092,000 379,895
-----------
SOUTH KOREA (0.4%)
Republic of Korea 8.875%,
due 4/15/08................ $ 88,000 91,300
-----------
SPAIN (4.9%)
Bonos Y Obligacion del
Estado
4.50%, due 7/30/04......... E 805,000 751,376
5.15%, due 7/30/09......... 489,000 456,787
-----------
1,208,163
-----------
UNITED KINGDOM (8.6%)
United Kingdom Treasury
Bonds
6.00%, due 12/7/28......... L 309,000 581,232
6.75%, due 11/26/04........ 470,000 742,124
9.00%, due 10/13/08........ 440,000 819,917
-----------
2,143,273
-----------
Total Governments & Federal
Agencies
(Cost $21,034,230)......... 19,733,217
-----------
Total Long-Term Bonds
(Cost $24,637,614)......... 23,267,040
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.8%)
COMMERCIAL PAPER (1.8%)
American Express Credit
Corp.
6.88%, due 7/3/00.......... $ 435,000 $ 434,834
-----------
Total Short-Term Investment
(Cost $434,834)............ 434,834
-----------
Total Investments
(Cost $25,072,448) (a)..... 95.4% 23,701,874(b)
-----------
Cash and Other Assets,
Less Liabilities........... 4.6 1,154,797
----- -----------
Net Assets.................. 100.0% $24,856,671
===== ===========
</TABLE>
-------
(a) The cost for federal income tax purposes is $25,187,421.
(b) At June 30, 2000 net unrealized depreciation for securities was $1,485,547,
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 $218,275, and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $1,703,822.
(c) The following abbreviations are used in the above portfolio:
<TABLE>
<S> <C> <C>
A$-- Australian Dollar
C$-- Canadian Dollar
DK-- Danish Krone
E-- Euro
FF-- French Franc
GRD-- Greek Drachma
Y-- Japanese Yen
NK-- Norwegian Krone
L-- Pound Sterling
$-- 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.
13
<PAGE> 190
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$25,072,448).............................................. $23,701,874
Cash denominated in foreign currencies (identified cost
$690,489)................................................. 700,334
Cash........................................................ 103,907
Receivables:
Investment securities sold................................ 1,357,281
Interest.................................................. 429,902
Fund shares sold.......................................... 93,389
Unrealized appreciation on foreign currency forward
contracts................................................. 176,333
-----------
Total assets........................................ 26,563,020
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,393,698
Transfer agent............................................ 19,671
Fund shares redeemed...................................... 17,156
NYLIFE Distributors....................................... 11,956
Custodian................................................. 11,239
MainStay Management....................................... 9,097
Trustees.................................................. 148
Accrued expenses............................................ 48,712
Unrealized depreciation on foreign currency forward
contracts................................................. 67,232
Dividend payable............................................ 127,440
-----------
Total liabilities................................... 1,706,349
-----------
Net assets.................................................. $24,856,671
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 16,197
Class B................................................... 12,968
Class C................................................... 113
Additional paid-in capital.................................. 28,899,639
Accumulated distribution in excess of net investment
income.................................................... (393,745)
Accumulated net realized loss on investments................ (1,297,281)
Accumulated net realized loss on foreign currency
transactions.............................................. (1,106,144)
Net unrealized depreciation on investments.................. (1,370,574)
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 95,498
-----------
Net assets.................................................. $24,856,671
===========
CLASS A
Net assets applicable to outstanding shares................. $13,739,712
===========
Shares of beneficial interest outstanding................... 1,619,679
===========
Net asset value per share outstanding....................... $ 8.48
Maximum sales charge (4.50% of offering price).............. 0.40
-----------
Maximum offering price per share outstanding................ $ 8.88
===========
CLASS B
Net assets applicable to outstanding shares................. $11,021,034
===========
Shares of beneficial interest outstanding................... 1,296,779
===========
Net asset value and offering price per share outstanding.... $ 8.50
===========
CLASS C
Net assets applicable to outstanding shares................. $ 95,925
===========
Shares of beneficial interest outstanding................... 11,288
===========
Net asset value and offering price per share outstanding.... $ 8.50
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 191
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 653,298
-----------
Expenses:
Management................................................ 86,492
Transfer agent............................................ 59,909
Distribution--Class B..................................... 45,035
Distribution--Class C..................................... 289
Registration.............................................. 18,876
Professional.............................................. 17,062
Service--Class A.......................................... 15,782
Service--Class B.......................................... 15,012
Service--Class C.......................................... 96
Custodian................................................. 10,469
Shareholder communication................................. 8,724
Recordkeeping............................................. 6,023
Trustees.................................................. 269
Miscellaneous............................................. 10,439
-----------
Total expenses before waiver............................ 294,477
Fees waived by Manager...................................... (37,068)
-----------
Net expenses............................................ 257,409
-----------
Net investment income....................................... 395,889
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Security transactions..................................... (630,252)
Option transactions....................................... (108,444)
Foreign currency transactions............................. (1,106,144)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (1,844,840)
-----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... 348,734
Written call option transactions.......................... (1,080)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 161,571
-----------
Net unrealized gain on investments and foreign currency
transactions.............................................. 509,225
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (1,335,615)
-----------
Net decrease in net assets resulting from operations........ $ (939,726)
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 192
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 395,889 $ 1,015,767
Net realized loss on investments and foreign currency
transactions............................................ (1,844,840) (1,414,883)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... 509,225 (2,397,019)
----------- -----------
Net decrease in net assets resulting from operations...... (939,726) (2,796,135)
----------- -----------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Class A................................................. (415,606) (54,546)
Class B................................................. (329,728) (57,078)
Class C................................................. (2,178) (163)
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..... (747,512) (1,840,641)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 3,169,856 1,907,757
Class B................................................. 676,047 2,438,569
Class C................................................. 115,347 128,002
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 144,107 385,784
Class B................................................. 240,166 815,129
Class C................................................. 1,463 1,984
----------- -----------
4,346,986 5,677,225
Cost of shares redeemed:
Class A................................................. (1,071,551) (3,405,421)
Class B................................................. (2,995,421) (5,571,177)
Class C................................................. (64,961) (74,513)
----------- -----------
Net increase (decrease) in net assets derived from
capital share transactions........................... 215,053 (3,373,886)
----------- -----------
Net decrease in net assets............................ (1,472,185) (8,010,662)
NET ASSETS:
Beginning of period......................................... 26,328,856 34,339,518
----------- -----------
End of period............................................... $24,856,671 $26,328,856
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (393,745) $ (42,122)
=========== ===========
</TABLE>
<TABLE>
<C> <S>
-------
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 193
This page intentionally left blank
17
<PAGE> 194
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.... $ 9.07 $ 10.57 $ 10.10 $ 10.95 $ 10.43 $ 9.90
------- ------- ------- ------- ------- -------
Net investment income..................... 0.16 0.36 0.54 0.80 0.72 1.15
Net realized and unrealized gain (loss) on
investments............................. (0.13) (0.89) 0.58 (0.94) 0.27 0.59
Net realized and unrealized gain (loss) on
foreign currency transactions........... (0.34) (0.33) 0.02 0.33 0.41 0.07
------- ------- ------- ------- ------- -------
Total from investment operations.......... (0.31) (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.......................... (0.28) (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......... (0.28) (0.64) (0.67) (1.04) (0.88) (1.28)
------- ------- ------- ------- ------- -------
Net asset value at end of period.......... $ 8.48 $ 9.07 $ 10.57 $ 10.10 $ 10.95 $ 10.43
======= ======= ======= ======= ======= =======
Total investment return (a)............... (3.41%) (8.22%) 11.61% 1.83% 13.90% 18.68%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................. 3.57%++ 3.80% 5.17% 5.35% 5.4% 5.6%
Net expenses.......................... 1.72%++ 1.61% 1.59% 1.56% 1.5% 1.5%
Expenses (before waiver).............. 2.02%++ 1.91% 1.89% 1.86% 1.8% 1.8%
Portfolio turnover rate................... 116% 281% 287% 179% 59% 103%
Net assets at end of period (in 000's).... $13,740 $12,326 $15,542 $12,263 $11,965 $11,494
</TABLE>
<TABLE>
<C> <S>
-------
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
18
<PAGE> 195
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------ ----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ----------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ------- ------- ------- ------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.08 $ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 9.90 $ 9.08 $10.59 $10.13
------- ------- ------- ------- ------- ------- ------- ------ ------
0.11 0.29 0.46 0.74 0.64 1.06 0.11 0.29 0.16
(0.13) (0.90) 0.58 (0.96) 0.27 0.61 (0.13) (0.90) 0.53
(0.32) (0.33) 0.02 0.34 0.42 0.07 (0.32) (0.33) 0.02
------- ------- ------- ------- ------- ------- ------- ------ ------
(0.34) (0.94) 1.06 0.12 1.33 1.74 (0.34) (0.94) 0.71
------- ------- ------- ------- ------- ------- ------- ------ ------
(0.24) (0.03) (0.50) (0.70) (0.65) (0.56) (0.24) (0.03) (0.16)
-- -- (0.09) (0.28) (0.15) (0.28) -- -- (0.09)
-- (0.09) -- -- -- (0.35) -- (0.09) --
-- (0.45) -- -- -- -- -- (0.45) --
------- ------- ------- ------- ------- ------- ------- ------ ------
(0.24) (0.57) (0.59) (0.98) (0.80) (1.19) (0.24) (0.57) (0.25)
------- ------- ------- ------- ------- ------- ------- ------ ------
$ 8.50 $ 9.08 $ 10.59 $ 10.12 $ 10.98 $ 10.45 $ 8.50 $ 9.08 $10.59
======= ======= ======= ======= ======= ======= ======= ====== ======
(3.72%) (8.94%) 10.79% 1.15% 13.13% 17.96% (3.72%) (8.94%) 7.05%
2.82%++ 3.05% 4.42% 4.69% 4.8% 4.9% 2.82%++ 3.05% 4.42%++
2.47%++ 2.36% 2.34% 2.22% 2.1% 2.2% 2.47%++ 2.36% 2.34%++
2.77%++ 2.66% 2.64% 2.52% 2.4% 2.5% 2.77%++ 2.66% 2.64%++
116% 281% 287% 179% 59% 103% 116% 281% 287%
$11,021 $13,955 $18,797 $20,870 $19,020 $13,212 $ 96 $ 48 $ --(b)
</TABLE>
19
<PAGE> 196
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 (and certain other qualified purchases) 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 of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economical instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
The Fund 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.
20
<PAGE> 197
Notes to Financial Statements unaudited
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, 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 may 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 may enter 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 or to try to enhance the Fund's returns.
21
<PAGE> 198
MainStay International Bond 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 period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 2000:
<TABLE>
<CAPTION>
CONTRACT CONTRACT UNREALIZED
AMOUNT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
-------------- ------------- --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
-------------------------------
Canadian Dollar vs. U.S. Dollar, expiring
8/28/00.......................................... C$ 440,000 $ 292,943 $ (4,439)
Danish Krone vs. U.S. Dollar, expiring 8/22/00..... DK 1,425,000 $ 172,101 (11,448)
Euro vs. Pound Sterling, expiring 8/4/00........... E 785,131 L 471,000 (40,832)
Norwegian Krone vs. U.S. Dollar, expiring
9/22/00.......................................... NK 3,463,000 $ 401,321 (3,749)
Pound Sterling vs. Euro, expiring 8/4/00........... L 878,836 E 1,438,460 50,716
Pound Sterling vs. U.S. Dollar, expiring 8/4/00.... L 635,000 $ 991,127 29,122
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
PURCHASED SOLD
-------------- -------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
------------------------------
Euro vs. U.S. Dollar, expiring 8/4/00.............. E 2,022,860 $ 1,880,457 63,181
Japanese Yen vs. U.S. Dollar, expiring 8/31/00..... Y 233,400,000 $ 2,205,215 26,126
Pound Sterling vs. U.S. Dollar, expiring 8/4/00.... L 75,500 $ 115,662 (1,282)
Swedish Krona vs. U.S. Dollar, expiring 7/17/00.... SK 3,849,606 $ 445,000 (5,482)
Swiss Franc vs. U.S. Dollar, expiring 8/4/00....... CF 238,494 $ 140,000 7,188
---------
Net unrealized appreciation on foreign currency
forward contracts................................ $ 109,101
=========
</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
22
<PAGE> 199
Notes to Financial Statements unaudited (continued)
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 six months ended June 30, 2000 was as follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT PREMIUM
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1999.................... (3,700,000) $(26,973)
Options--written............................................ (2,495,000) (4,672)
Options--buybacks........................................... 1,850,000 11,230
Options--expired............................................ 4,345,000 20,415
---------- --------
Options outstanding at June 30, 2000........................ -- $ --
========== ========
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
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
23
<PAGE> 200
MainStay International Bond Fund
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital 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. 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 plans)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the period. Gains and losses from certain foreign currency transactions
are treated as ordinary income for federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net gains
and losses on foreign currency forward contracts, net currency gains or losses
realized as a result of differences between the amounts of securities sale
proceeds, purchase cost, dividends, interest and withholding taxes as recorded
on the Fund's books, and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing foreign currency denominated
assets and liabilities other than investments at year end exchange rates are
reflected in unrealized foreign exchange gains or losses.
24
<PAGE> 201
Notes to Financial Statements unaudited (continued)
Foreign currency held at June 30, 2000:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
---------------------------------- -------- --------
<S> <C> <C> <C> <C>
Australian Dollar A$ 6,924 $ 3,959 $ 4,158
Danish Krone DK 89,157 11,523 11,456
Euro E 708,825 669,478 679,478
Japanese Yen Y 244,714 2,289 2,313
New Zealand Dollar N$ 6,220 3,240 2,929
-------- --------
$690,489 $700,334
======== ========
</TABLE>
CONCENTRATION. At June 30, 2000, 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 June 30, 2000, the Fund invested approximately 23.4% 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.
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
25
<PAGE> 202
MainStay International Bond Fund
agreed to waive a portion of its fee, 0.30% of the Fund's average daily net
assets, until such time as the Fund reaches $50 million in net assets. For the
six months ended June 30, 2000, the Manager earned $86,492 and waived $37,068 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 adopted distribution plans ("the
Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The distribution plans provide 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 Plans provide 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 $40 for the six months ended June
30, 2000. The Fund also advised that the Distributor retained contingent
deferred sales charges on redemptions of Class A, Class B and Class C shares of
$8, $11,335 and $124, respectively, for the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $59,909.
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
26
<PAGE> 203
Notes to Financial Statements unaudited (continued)
Committee meeting attended plus reimbursement for travel and out-of-pocket
expenses. The Trust allocates this expense in proportion to the net assets of
the respective Funds.
CAPITAL. At June 30, 2000, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $6,659,671 which represents 48.5% of the
Class A net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $257 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,023 for the six months ended June 30, 2000.
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 has elected to treat
for federal income tax purposes approximately $128,272 of qualifying realized
capital gains and foreign exchange gains that arose during the period (after
October 31, 1999) as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of U.S.
Government securities were $0 and $1,155, respectively. Purchases and sales of
securities other than U.S. Government securities and short-term securities, were
$27,758 and $28,173, 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 was no outstanding
balance on this line of credit during the six months ended June 30, 2000.
27
<PAGE> 204
MainStay International Bond Fund
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................... 369 78 14 200 248 13
Shares issued in reinvestment of dividends and
distributions................................ 17 17 --(a) 41 85 --(a)
---- ---- -- ---- ---- --
386 95 14 241 333 13
Shares redeemed................................ (124) (334) (8) (354) (572) (8)
---- ---- -- ---- ---- --
Net increase (decrease)........................ 262 (239) 6 (113) (239) 5
==== ==== == ==== ==== ==
</TABLE>
<TABLE>
<C> <S>
-------
* Unaudited.
(a) Less than one thousand shares.
</TABLE>
28
<PAGE> 205
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
29
<PAGE> 206
This page intentionally left blank
<PAGE> 207
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSIB11-08/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS GRAPHIC]
MainStay(R)
International Bond Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 208
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay International
Equity Fund versus Morgan Stanley Capital
International EAFE Index--Class A, Class B,
and Class C Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 17
Notes to Financial Statements 22
The MainStay(R) Funds 30
</TABLE>
<PAGE> 209
This page intentionally left blank
2
<PAGE> 210
This page intentionally left blank
2
<PAGE> 211
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 212
$10,000 Invested in MainStay
International Equity Fund versus
Morgan Stanley Capital International
EAFE Index
CLASS A SHARES Total Returns: 1 Year 5.79%, 5 Years 10.64%, Since Inception
7.58%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY INTERNATIONAL EQUITY MORGAN STANLEY CAPITAL
PERIOD END FUND INTERNATIONAL EAFE INDEX*
---------- ----------------------------- -------------------------
<S> <C> <C>
9/13/94 $ 9,450.00 $ 10,000.00
12/94 9,233.00 9,586.00
12/95 9,718.00 10,661.00
12/96 10,669.00 11,306.00
12/97 11,151.00 11,507.00
12/98 13,400.00 13,808.00
12/99 17,090.00 17,532.00
6/00 15,284.00 16,819.00
</TABLE>
CLASS B SHARES Total Returns: 1 Year 6.22%, 5 Years 10.83%, Since Inception
7.76%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY INTERNATIONAL EQUITY MORGAN STANLEY CAPITAL
PERIOD END FUND INTERNATIONAL EAFE INDEX*
---------- ----------------------------- -------------------------
<S> <C> <C>
9/13/94 $ 9,450.00 $ 10,000.00
12/94 9,233.00 9,586.00
12/95 9,718.00 10,661.00
12/96 10,669.00 11,306.00
12/97 11,151.00 11,507.00
12/98 13,400.00 13,808.00
12/99 17,090.00 17,532.00
6/00 15,284.00 16,819.00
</TABLE>
CLASS C SHARES Total Returns: 1 Year 10.22%, 5 Years 11.09%, Since Inception
7.88%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY INTERNATIONAL EQUITY MORGAN STANLEY CAPITAL
PERIOD END FUND INTERNATIONAL EAFE INDEX*
---------- ----------------------------- -------------------------
<S> <C> <C>
9/13/94 $ 10,000.00 $ 10,000.00
12/94 9,770.00 9,586.00
12/95 10,187.00 10,661.00
12/96 11,109.00 11,306.00
12/97 11,529.00 11,507.00
12/98 13,759.00 13,808.00
12/99 17,418.00 17,532.00
6/00 15,531.00 16,819.00
</TABLE>
4
<PAGE> 213
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price, reinvestment of dividend and capital gain distributions, and maximum
sales charges (see below). The graphs assume an initial investment of $10,000
and reflect deduction of all sales charges that would have applied for the
period of investment. Class A share performance reflects the effect of the
maximum 5.5% initial sales charge 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
sales charges and expense structures. Class B share performance reflects a
contingent deferred sales charge (CDSC) of 1%. Class C share performance
includes the historical performance of the Class B shares for periods from
9/13/94 through 8/31/98. Class C shares would be subject to CDSC of 1% if
redeemed within one year of purchase.
* 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. Total returns reflect reinvestment of all dividends and capital
gains. You cannot invest directly in an index.
5
<PAGE> 214
Portfolio Management Discussion and Analysis
During the six months ended June 30, 2000, international equities were highly
volatile and the U.S. dollar remained strong against most other currencies.
Canada (+25.75%) was the best-performing international market in local currency
terms, followed by Sweden (+12.49%), France (+10.87%), Australia (+9.32%), and
Denmark (+8.81%). Laggards included Singapore (-19.74%), Ireland (-14.04%), Hong
Kong (-12.81%), Belgium (-12.20%), and New Zealand (-7.67%), all in local terms.
Among the larger markets, Japan, Germany, and the U.K. posted negative returns
in both U.S. dollar and local currency terms. Three smaller markets--Norway,
Portugal, and Switzerland--had positive returns in their local currencies, but
negative results in U.S. dollars.
During the first half of the year, European companies and economies continued to
restructure, Japan sought to benefit from a fiscal stimulus package,
telecommunications and information technology companies vied for market
dominance, and oil and natural resources companies pursued ways to profit from
growing world demand.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay International Equity Fund
returned -10.57% for Class A shares and -10.84% for Class B and Class C shares,
excluding all sales charges. All share classes underperformed the -4.56% return
of the average Lipper(1) international fund and the -4.06% return of the Morgan
Stanley Capital International EAFE Index(2) over the same period.
The Fund's absence from the best-performing international market and heavy
weightings in Japan, the U.K., and Ireland contributed to the Fund's
underperformance. Exposure to foreign currencies, especially the euro, also had
a negative impact on the Fund's results.
EUROPEAN HOLDINGS
European markets provided mixed results, with Denmark, Finland, France, Italy,
the Netherlands, and Sweden providing positive returns in U.S. dollar terms.
Other markets provided negative results for U.S. investors, with Germany and
Ireland posting double-digit losses in the second quarter in both U.S. dollar
and local currency terms. Although Norway provided positive returns in local
currency terms in both the first and second quarters, when translated into U.S.
dollars, results for the six-month period were negative.
-------
(1) See footnote and table on page 11 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the Morgan Stanley Capital
International Europe, Australasia, Far East (EAFE) Index.
6
<PAGE> 215
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/94 -2.30
12/95 5.25
12/96 9.78
12/97 4.52
12/98 20.17
12/99 27.54
6/00 -10.57
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares through 12/31/94. See footnote *
on page 11 for more information on performance.
</TABLE>
CLASS B AND CLASS C SHARES
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PERIOD 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 26.6
6/00 -10.84
Past performance is no guarantee of future results. Class C shares returns
reflect the historical performance of the Class B shares through 8/98. See
footnote * on page 11 for more information on performance.
</TABLE>
During the reporting period, signs of improving growth emerged in the euro zone.
Higher oil prices and weakness in the euro have raised inflation concerns,
although actual inflation has remained moderate.
In Europe, the Fund continued to favor Finland, Ireland, and Portugal, where we
believe economic growth prospects remain strong. Finland continued to benefit
from strengths in natural resources and telecommunications and the Fund's
Finnish investments had a positive impact on performance during the semiannual
period. Swedish and French stocks also provided positive returns for U.S.
investors, as French companies continued to benefit from strategic
7
<PAGE> 216
acquisitions and restructurings, seeking to maximize potential opportunities now
that European Monetary Union is underway.
Strong European stocks included Finnish telecommunications giant Nokia Oyj,
which was the Fund's largest holding at the end of June and contributed
positively to performance, returning +18.77% in local terms for the semiannual
period. Schering AG, a German pharmaceutical manufacturer, benefited from its
broad range of products and the market's preference for more defensive names as
technology stocks corrected. The Fund's investment in Schering AG returned
+44.88% in local terms during the reporting period.
Cement and building materials manufacturer CRH PLC should continue to benefit
from the rapidly growing Irish economy and from infrastructure spending in the
12 countries where it operates. While the stock returned a disappointing -11.68%
in local terms over the semiannual period, it outperformed the Irish stock
market as a whole.
Throughout the U.K., rising interest rates reduced profit expectations, causing
equity returns to drop significantly. The Fund's substantial allocation to U.K.
equities detracted from performance during the reporting period, but we believe
that when monetary tightening slows, performance should improve. Among the
Fund's U.K. holdings was Cable & Wireless PLC, a global telecommunications
company with a broad range of products and services. The company's outstanding
earnings growth projections helped it substantially outperform the -10.77%
return of the EAFE telecom sector to provide the Fund with a +6.67% return in
local currency terms during the first half of the year. The Fund's holdings in
BP Amoco PLC also outperformed in a declining market, returning +1.84% in local
currency terms during the reporting period. The company, which has operations in
more than 70 nations, benefited from higher oil prices, strong earnings growth
prospects, and rising demand.
A less successful U.K. holding was Vodafone AirTouch PLC, which provides mobile
telecommunications services and returned -12.96% in local terms for the
semiannual period. Although the company is the world's largest wireless
operator, the company's earnings prospects were hurt by rising interest rates
and questions about financing third-generation (3G) wireless spectrum licenses.
PACIFIC RIM MARKETS
Despite the initial promise of Japan's economic recovery and fiscal stimulus
package, our decision to overweight Japanese equities early in the year had a
negative impact on performance for the semiannual period, and in the second
quarter, we returned the Fund to a neutral Japanese weighting versus the EAFE
Index.
8
<PAGE> 217
Despite disappointing short-term returns, Japan holds much promise if its
companies can work through the restructuring process. The Fund continues to
favor telecommunications companies and major corporations, such as Sony Corp.,
NEC Corp., and TDK, whose technology-related products are exported worldwide.
Unfortunately, the Fund's overweighted position in Sony Corp. detracted from
performance during the semiannual period, when the stock returned -34.65% in
local currency terms, despite ongoing restructuring efforts and new business
policies designed to create value for shareholders.
Concerns over further monetary tightening in major industrialized countries
caused Southeast Asian markets to rank among the world's worst-performing
markets for the six months ended June 30, 2000. Fortunately, the Fund was
underweighted in Hong Kong and neutral in Singapore, which together accounted
for less than two percent of the Fund's assets at the end of the reporting
period.
In Australia, the Fund focused on the natural resources and telecom sectors,
with a positive impact on Fund performance. Australian holdings included Broken
Hill Proprietary Co., a diversified resource company that benefited as global
growth moved commodity prices higher. Cable & Wireless Optus, Ltd. another Fund
holding, is the number two telecom provider and performed well over the
six-month reporting period as investors speculated on consolidation prospects
within the industry.
CURRENCY OUTLOOK
Exposure to foreign currencies detracted from the Fund's performance throughout
most of the reporting period. Although the U.S. dollar pared back some of its
gains against the euro at the end of June, the euro's improvement was too little
and too late to significantly affect Fund results.
The fact that income securities outperformed equities in the second quarter may
help erode some of the fascination international investors have had with the
U.S. dollar. The Fund remains positioned for a rally in foreign currencies
versus the U.S. dollar, and we believe the euro is particularly due for
improvement.
LOOKING AHEAD
We expect the Japanese economic recovery to continue, moving stock prices
higher, despite volatility along the way. We are encouraged by continued GDP
growth, low unemployment, and improving labor market conditions in Europe.
9
<PAGE> 218
Whatever happens with the markets, interest rates, and currencies, the Fund will
continue to seek to provide long-term growth of capital commensurate with an
acceptable level of risk by investing in a portfolio consisting primarily of
non-U.S. equity securities, with current income as a secondary objective.
Joseph Portera
Maureen McFarland
Portfolio Managers
MacKay Shields LLC
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets. The
Fund may invest in derivatives, which may increase the volatility of the Fund's
net asset value and may result in a loss to the Fund.
Past performance is no guarantee of future results.
10
<PAGE> 219
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 11.95% 11.90% 8.64%
Class B 11.22% 11.09% 7.88%
Class C 11.22% 11.09% 7.88%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 5.79% 10.64% 7.58%
Class B 6.22% 10.83% 7.76%
Class C 10.22% 11.09% 7.88%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 536 out of 169 out of 184 out of
655 funds 267 funds 230 funds
Class B 546 out of 183 out of 164 out of
655 funds 267 funds 203 funds
Class C 546 out of n/a 508 out of
655 funds 571 funds
Average Lipper
international
fund 24.46% 13.15% 10.64%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $13.62 $0.0000 $0.0000
Class B $13.33 $0.0000 $0.0000
Class C $13.33 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%.
Performance figures for this class include the historical performance of the
Class B shares for periods from inception (9/13/94) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares are
subject to a CDSC of up to 5% if shares are redeemed within the first six
years of purchase. Class C shares are subject to a CDSC of 1% if redeemed
within one year of purchase. Performance figures for this class include the
historical performance of the Class B shares for periods from inception
(9/13/94) through 8/31/98. Performance figures for the two classes vary after
this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. 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. Since-inception
return for the average Lipper peer fund is for the period from 9/13/94
through 6/30/00.
11
<PAGE> 220
MainStay International Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.2%)+
AUSTRALIA (2.7%)
Broken Hill Proprietary Co.,
Ltd. (energy sources)......... 35,248 $ 417,966
Cable & Wireless Optus, Ltd.
(telecommunications) (a)...... 178,683 534,260
Commonwealth Bank of Australia
(banking)..................... 14,360 238,736
National Australia Bank, Ltd.
(banking)..................... 28,780 482,063
News Corp., Ltd. (The)
(broadcasting & publishing)... 89,963 1,242,315
Securenet, Ltd. (business &
public services) (a).......... 56,140 310,773
------------
3,226,113
------------
BELGIUM (1.2%)
Electrabel, S.A.
(utilities-electrical &
gas).......................... 1,780 441,762
Fortis B (insurance)........... 22,320 652,148
Solvay, S.A. Class A
(chemicals)................... 4,770 322,362
------------
1,416,272
------------
DENMARK (0.2%)
Tele Danmark AS
(telecommunications).......... 3,389 229,057
------------
FINLAND (3.9%)
Comptel Oyj
(telecommunications).......... 3,550 71,804
Nokia Oyj (electrical &
electronics) (c).............. 77,967 3,994,800
Outokumpu Oyj
(metals-nonferrous)........... 33,440 320,555
UPM-Kymmene Oyj (forest
products & paper)............. 14,220 354,413
------------
4,741,572
------------
FRANCE (10.0%)
Air Liquide, S.A.
(chemicals)................... 2,422 317,148
AXA, S.A. (insurance).......... 4,408 697,207
Carrefour, S.A.
(merchandising)............... 12,780 877,163
Compagnie Generale d'Industrie
et de Participations, S.A.
(multi-industry).............. 8,400 359,129
Elf Aquitaine, S.A. (energy
sources)...................... 8 1,645
France Telecom, S.A.
(telecommunications).......... 10,070 1,413,211
Groupe Danone, S.A. (food &
household products)........... 4,186 557,764
Lafarge, S.A. (building
materials & components)....... 2,770 216,143
L'Oreal, S.A. (health &
personal care)................ 1,527 1,327,648
Pernod-Ricard, S.A. (beverages
& tobacco).................... 3,500 191,240
Pinault-Printemps-Redoute, S.A.
(merchandising)............... 1,560 347,983
-------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
FRANCE (CONTINUED)
PSA Peugeot Citroen
(automobiles)................. 3,103 $ 625,246
Renault, S.A. (automobiles).... 5,760 262,825
Rhodia, S.A. (chemicals)....... 18,000 303,684
Schneider, S.A. (electrical &
electronics).................. 3,977 278,301
Scor, S.A. (insurance)......... 8,240 360,266
Societe Generale, S.A. Class A
(banking)..................... 5,680 343,025
Suez Lyonnaise des Eaux, S.A.
(business & public
services)..................... 2,890 508,359
Suez Lyonnaise des Eaux, S.A.
Strip (business & public
services) (d)................. 2,890 28
Thomson CSF, S.A. (aerospace &
military technology) (a)...... 7,061 279,275
Total Fina Elf, S.A. Class B
(energy sources) (c).......... 11,115 1,711,164
Total Fina Elf, S.A. Strip
(energy sources) (d).......... 3,780 36
Vivendi, S.A. (business &
public services) (c).......... 12,435 1,102,019
------------
12,080,509
------------
GERMANY (9.9%)
Allianz AG Registered
(insurance)................... 2,450 892,455
Bayer AG (chemicals)........... 15,516 606,843
Biodata Information Technology
AG (business & public
services) (a)................. 160 52,148
DaimlerChrysler AG
(automobiles)................. 9,372 493,670
Deutsche Bank AG (banking)..... 7,400 612,889
Deutsche Telekom AG
(telecommunications) (c)...... 22,712 1,297,592
Dresdner Bank AG (banking)..... 11,700 486,757
E.on AG (utilities-electrical &
gas).......................... 17,700 872,113
Epcos AG (electronic components
& instruments) (a)............ 5,825 588,536
Infinion Technologies AG
(electronic components &
instruments) (a).............. 2,400 190,953
Karstadt AG (merchandising).... 9,500 254,076
Metro AG (merchandising)....... 6,850 241,643
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance) (a)............... 940 299,610
RWE AG (utilities-electrical &
gas) (a)...................... 11,655 393,270
SAP AG (business & public
services)..................... 4,560 684,094
Schering AG (health &
personal care) (c)............ 25,350 1,409,427
Siemens AG (electrical &
electronics).................. 13,940 2,104,650
T-Online International AG
(business & public services)
(a)........................... 15,690 510,622
------------
11,991,348
------------
GREECE (0.5%)
Hellenic Telecommunications
Organization S.A.
(telecommunications).......... 55,100 671,531
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 221
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HONG KONG (0.6%)
Cheung Kong (Holdings) Ltd.
(real estate)................. 58,000 $ 641,731
China Unicom
(telecommunications) (a)...... 30,000 63,692
Sino-I.com Ltd. (business &
public services) (a).......... 710,000 32,333
------------
737,756
------------
IRELAND (2.5%)
Allied Irish Banks PLC
(banking)..................... 58,323 523,861
CRH PLC (building materials &
components)................... 52,667 954,194
Eircom PLC (telecommunications)
(a)........................... 118,780 318,814
Elan Corp. PLC (health &
personal care) (a)............ 13,748 643,785
Fyffes PLC (food & household
products)..................... 168,741 174,695
Smurfit (Jefferson) Group PLC
(forest products & paper)..... 243,674 420,454
------------
3,035,803
------------
ITALY (3.4%)
Assicurazioni Generali S.p.A.
(insurance)................... 10,095 347,406
Banca Intesa S.p.A.
(banking)..................... 72,646 326,604
ENI S.p.A. (energy sources).... 157,970 916,150
Italcementi S.p.A (building
materials & components)....... 46,750 441,422
Telecom Italia S.p.A.
(telecommunications).......... 39,720 548,287
Telecom Italia Mobile S.p.A.
(telecommunications) (c)...... 111,800 1,146,732
UniCredito Italiano S.p.A.
(banking)..................... 81,000 389,009
------------
4,115,610
------------
JAPAN (27.6%)
Ajinomoto Co., Inc. (food &
household products)........... 48,000 616,961
Bank of Tokyo-Mitsubishi, Ltd.
(banking)..................... 63,000 762,724
Bridgestone Corp. (industrial
components)................... 10,000 212,175
Canon, Inc. (data processing &
reproduction)................. 8,000 399,210
Fuji Bank, Ltd. (The)
(banking)..................... 49,000 373,258
Fujitsu, Ltd. (data processing
& reproduction)............... 34,000 1,179,296
Hitachi, Ltd. (electrical &
electronics).................. 48,000 694,082
Honda Motor Co., Ltd.
(automobiles)................. 19,000 648,244
Industrial Bank of Japan, Ltd.
(The) (banking)............... 93,000 706,670
Ito-Yokado Co., Ltd.
(merchandising)............... 17,000 1,025,056
Japan Airlines Co., Ltd.
(transportation-airlines)..... 154,000 586,548
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Japan Telecommunication Co.,
Ltd. (telecommunications)..... 12 $ 521,695
Matsushita Electric Industrial
Co., Ltd. (appliances &
household durables)........... 15,000 389,854
Mitsubishi Electric Corp.
(electrical & electronics).... 100,000 1,084,975
Mitsubishi Estate Co., Ltd.
(real estate)................. 25,000 294,871
Mitsubishi Heavy Industries,
Ltd. (machinery &
engineering).................. 65,000 288,728
Mitsui Fudosan Co., Ltd. (real
estate)....................... 23,000 249,979
NEC Corp. (electrical &
electronics).................. 43,000 1,353,289
Nikko Securities Co., Ltd.
(financial services).......... 68,000 674,801
Nippon Mitsubishi Oil Corp.
(energy sources).............. 80,000 367,455
Nippon Steel Corp.
(metals-steel)................ 107,000 225,510
Nippon Telegraph & Telephone
Corp. (telecommunications).... 150 1,998,887
NKK Corp. (metals-steel) (a)... 814,000 523,132
NTT Data Corp. (business &
public services).............. 104 1,071,365
NTT DoCoMo, Inc.
(telecommunications).......... 31 840,856
OKI Electric Industries Co.,
Ltd. (electrical &
electronics) (a).............. 87,000 678,346
Olympus Optical Co., Ltd.
(electronic components &
instruments).................. 21,000 377,293
Oracle Corp. Japan (business &
public services).............. 2,000 1,093,953
Pioneer Electronic Corp.
(appliances & household
durables)..................... 11,000 429,359
Rohm Co., Ltd. (electronic
components & instruments)..... 3,400 996,136
Sharp Corp. (appliances &
household durables)........... 14,000 248,089
Softbank Corp. (business &
public services).............. 5,682 773,288
Sony Corp. (appliances &
household durables)........... 22,500 2,105,210
Sumitomo Bank, Ltd.
(banking)..................... 40,000 491,452
Sumitomo Electric Industries,
Ltd. (industrial
components)................... 20,000 343,638
Sumitomo Forestry Co., Ltd.
(building materials &
components)................... 36,000 242,588
Sumitomo Marine & Fire
Insurance Co., Ltd. (The)
(insurance)................... 151,000 880,521
Takeda Chemical Industries,
Ltd. (health & personal
care)......................... 14,000 920,905
TDK Corp. (electronic
components & instruments)..... 3,000 432,100
Tokio Marine & Fire Insurance
Co., Ltd. (The) (insurance)... 89,000 1,029,554
Tokyo Electric Power Co., Inc.
(The) (utilities-electrical &
gas).......................... 8,000 195,447
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 222
MainStay International Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
Tokyo Seimitsu Co., Ltd.
(electronic components &
instruments).................. 7,000 $ 939,429
Toshiba Corp. (electrical &
electronics).................. 82,000 927,653
Tostem Corp. (building
materials & components)....... 13,000 212,553
Toyota Motor Corp.
(automobiles)................. 44,000 2,008,527
Trans Cosmos, Inc. (business &
public services).............. 700 105,322
Yamanouchi Pharmaceutical Co.,
Ltd. (health & personal
care)......................... 17,000 930,262
------------
33,451,246
------------
LUXEMBOURG (0.1%)
Carrier 1 International, S.A.
(telecommunications) (a)...... 1,700 96,147
------------
NETHERLANDS (4.5%)
ABN AMRO Holding N.V.
(banking)..................... 25,000 614,941
Akzo Nobel N.V. (chemicals).... 7,200 307,135
Heineken N.V. (beverages &
tobacco)...................... 7,100 433,885
ING Groep N.V. (financial
services)..................... 13,707 930,277
Koninklijke KPN N.V.
(telecommunications).......... 8,244 370,241
Koninklijke (Royal) Philips
Electronics N.V. (appliance &
household durables)........... 29,220 1,383,705
Royal Dutch Petroleum Co.
(energy sources).............. 16,738 1,044,530
TNT Post Group N.V. (business &
public services).............. 6,665 180,491
Wolters Kluwer CVA N.V.
(broadcasting & publishing)... 4,812 128,696
------------
5,393,901
------------
NEW ZEALAND (0.1%)
Contact Energy Ltd.
(utilities-electrical &
gas).......................... 127,856 171,555
------------
NORWAY (0.0%) (B)
Stepstone ASA (business &
public services) (a).......... 6,600 21,852
------------
PORTUGAL (2.2%)
Banco Comercial Portugues, S.A.
Registered (banking).......... 124,430 650,067
Banco Espirito Santo, S.A.
(banking)..................... 28,452 700,943
Electricidade de Portugal, S.A.
(utilities-electrical &
gas).......................... 16,800 306,306
Portugal Telecom, S.A.
Registered
(telecommunications).......... 41,500 467,834
Sonae SGPS, S.A. (forest
products & paper)............. 281,260 496,092
------------
2,621,242
------------
SINGAPORE (0.9%)
Singapore Press Holdings Ltd.
(broadcasting & publishing)... 68,000 1,061,885
------------
SPAIN (3.8%)
Acciona, S.A. (machinery &
engineering).................. 10,440 399,310
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
SPAIN (CONTINUED)
Acerinox, S.A.
(metals-steel)................ 8,450 $ 245,435
Banco Bilbao Vizcaya
Argentaria, S.A. Registered
(banking)..................... 39,870 598,132
Banco Santander Central
Hispano, S.A. (banking)....... 67,912 719,358
Empresa Nacional de
Electricidad, S.A.
(utilities-electrical &
gas).......................... 20,480 398,335
Gas Natural SDG, S.A.
(utilities- electrical &
gas).......................... 8,790 158,410
Grupo Prisa, S.A. (broadcasting
& publishing) (a)............. 1,700 39,600
Iberdrola, S.A.
(utilities-electrical &
gas).......................... 23,390 302,692
Repsol YPF, S.A. (energy
sources)...................... 21,180 423,320
Telefonica, S.A.
(telecommunications) (a)(c)... 55,050 1,187,343
Terra Networks, S.A. (business
& public services) (a)........ 2,300 83,878
------------
4,555,813
------------
SWEDEN (1.9%)
AstraZeneca Group PLC (health &
personal care)................ 16,295 761,708
ForeningsSparbanken AB
(banking)..................... 14,250 209,583
Hennes & Mauritz AB Series B
(merchandising)............... 8,400 176,217
Nordic Baltic Holding AB
(banking)..................... 52,519 383,626
Skandia Forsakrings AB
(insurance)................... 21,200 563,174
Svenska Handelsbanken Series A
(banking)..................... 16,500 240,793
------------
2,335,101
------------
SWITZERLAND (4.9%)
Credit Suisse Group Registered
(banking)..................... 3,800 758,317
Givaudan S.A. Registered (food
& household products) (a)..... 100 30,533
Nestle S.A. Registered (food &
household products)........... 665 1,335,234
Novartis AG Registered (health
& personal care).............. 514 816,786
Roche Holdings AG Genusscheine
(health & personal care)...... 100 976,569
Swiss RE Registered (insurance)
(a)........................... 320 654,326
UBS AG Registered (banking).... 7,230 1,062,646
Zurich Allied AG Registered
(insurance)................... 700 346,965
------------
5,981,376
------------
UNITED KINGDOM (17.0%)
Abbey National PLC (banking)... 31,580 377,688
Allied Zurich PLC
(insurance)................... 16,206 191,734
Bae Systems PLC (aerospace &
military technology).......... 32,367 201,880
Barclays PLC (banking)......... 37,734 938,566
Bass PLC (leisure & tourism)... 60,561 681,202
BG PLC (utilities-electrical &
gas).......................... 84,471 546,047
Boots Co. PLC
(merchandising)............... 27,343 208,213
BP Amoco PLC (energy
sources)...................... 130,734 1,254,793
British Airways PLC
(transportation- airlines).... 66,702 383,722
British Telecommunications PLC
(telecommunications).......... 41,685 538,930
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 223
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
Cable & Wireless PLC
(telecommunications).......... 80,967 $ 1,371,616
Carlton Communications PLC
(leisure & tourism)........... 70,420 906,169
CGNU PLC (insurance)........... 32,766 545,645
Diageo PLC (beverages &
tobacco)...................... 51,978 466,626
EMI Group PLC (recreation &
other consumer goods)......... 81,100 736,659
Granada Group PLC (leisure &
tourism)...................... 27,120 270,974
Great Universal Stores PLC
(The) (merchandising)......... 33,110 213,031
Imperial Chemical Industries
PLC (chemicals)............... 67,680 537,403
Jazztel PLC
(telecommunications) (a)...... 3,448 90,510
Kingfisher PLC
(merchandising)............... 98,747 899,195
Lloyds TSB Group PLC
(banking)..................... 125,984 1,190,130
Marconi PLC
(telecommunications).......... 75,486 982,787
National Power PLC
(utilities-electrical &
gas).......................... 30,620 195,156
Prudential PLC (insurance)..... 34,700 508,510
Reed International PLC
(broadcasting & publishing)... 32,360 281,690
Rio Tinto PLC Registered
(metals- nonferrous).......... 26,460 432,621
Royal Bank of Scotland Group
PLC (banking)................. 61,213 1,024,927
Sainsbury (J.) PLC
(merchandising)............... 34,475 156,574
Scottish Power PLC
(utilities-electrical &
gas).......................... 23,010 195,074
SmithKline Beecham PLC (health
& personal care).............. 95,610 1,252,027
Tesco PLC (merchandising)...... 118,650 369,125
Unilever PLC (food & household
products)..................... 64,732 391,988
Vodafone AirTouch PLC
(telecommunications).......... 555,294 2,244,546
------------
20,585,758
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
UNITED STATES (0.3%)
Global Telesystems Group, Inc.
(telecommunications) (a)...... 31,000 $ 373,938
------------
Total Common Stocks
(Cost $98,076,473)............ 118,895,385
------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.2%)
UNITED STATES (1.2%)
American Express Credit Corp.
(financial services)
6.88%, due 7/3/00............. $1,410,000 1,409,461
------------
Total Short-Term Investment
(Cost $1,409,461)............. 1,409,461
------------
Total Investments
(Cost $99,485,934) (e)........ 99.4% 120,304,846(f)
Cash and Other Assets,
Less Liabilities.............. 0.6 784,869
----- ------------
Net Assets..................... 100.0% $121,089,715
----- ============
-----
</TABLE>
-------
<TABLE>
<C> <S>
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated or partially segregated as collateral for forward
foreign currency contracts.
(d) Strip securities represent a secondary class of shares
traded in the foreign market.
(e) The cost for federal income tax purposes is $100,222,612.
(f) At June 30, 2000 net unrealized appreciation for securities
was $20,082,234, 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 $30,327,671 and
aggregate gross unrealized depreciation for all investments
on which there was an excess of cost over market value of
$10,245,437.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 224
MainStay International Equity Fund
The table below sets forth the diversification of International Equity Fund
investments by industry.
<TABLE>
<CAPTION>
VALUE PERCENT+
-----------------------
<S> <C> <C>
INDUSTRY DIVERSIFICATION
Aerospace & Military
Technology..................... $ 481,155 0.4%
Appliances & Household
Durables....................... 4,556,217 3.8
Automobiles..................... 4,038,511 3.3
Banking......................... 15,206,764 12.6
Beverages & Tobacco............. 1,091,751 0.9
Broadcasting & Publishing....... 2,754,186 2.3
Building Materials &
Components..................... 2,066,901 1.7
Business & Public Services...... 6,530,525 5.4
Chemicals....................... 2,394,575 2.0
Data Processing &
Reproduction................... 1,578,506 1.3
Electrical & Electronics........ 11,116,095 9.2
Electronic Components &
Instruments.................... 3,524,447 2.9
Energy Sources.................. 6,137,059 5.1
Financial Services.............. 3,014,539 2.4
Food & Household Products....... 3,107,176 2.6
Forest Products & Paper......... 774,867 0.6
Health & Personal Care.......... 9,039,117 7.5
Industrial Components........... 555,813 0.5
Insurance....................... 7,969,520 6.6
Leisure & Tourism............... 1,858,346 1.5
Machinery & Engineering......... 688,038 0.6
Merchandising................... 5,264,368 4.3
Metals-Nonferrous............... 753,177 0.6
Metals-Steel.................... 994,077 0.8
Multi-Industry.................. 359,129 0.3
Real Estate..................... 1,186,581 1.0
Recreation & Other Consumer
Goods.......................... 736,659 0.6
Telecommunications.............. 17,380,309 14.4
Transportation-Airlines......... 970,270 0.8
Utilities-Electrical & Gas...... 4,176,168 3.4
------------ -----
120,304,846 99.4
Cash and Other Assets,
Less Liabilities............... 784,869 0.6
------------ -----
Net Assets...................... $121,089,715 100.0%
============ =====
</TABLE>
-------
+ Percentages indicated are based upon Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 225
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$99,485,934).............................................. $120,304,846
Cash denominated in foreign currencies (identified cost
$388,004)................................................. 445,960
Cash........................................................ 104,990
Receivables:
Investment securities sold................................ 2,066,120
Fund shares sold.......................................... 443,960
Dividends and interest.................................... 383,961
Unrealized appreciation on foreign currency forward
contracts................................................. 713,509
------------
Total assets.............................................. 124,463,346
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 2,270,788
Fund shares redeemed...................................... 662,203
MainStay Management....................................... 104,047
Transfer agent............................................ 84,433
NYLIFE Distributors....................................... 79,436
Custodian................................................. 48,474
Trustees.................................................. 829
Accrued expenses............................................ 64,891
Unrealized depreciation on foreign currency forward
contracts................................................. 58,530
------------
Total liabilities......................................... 3,373,631
------------
Net assets.................................................. $121,089,715
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 24,634
Class B................................................... 65,248
Class C................................................... 421
Additional paid-in capital.................................. 93,686,615
Accumulated distribution in excess of net investment
income.................................................... (1,565,073)
Accumulated net realized gain on investments................ 8,614,560
Accumulated net realized loss on foreign currency
transactions.............................................. (1,238,700)
Net unrealized appreciation on investments.................. 20,818,912
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 683,098
------------
Net assets.................................................. $121,089,715
============
CLASS A
Net assets applicable to outstanding shares................. $ 33,557,474
============
Shares of beneficial interest outstanding................... 2,463,446
============
Net asset value per share outstanding....................... $ 13.62
Maximum sales charge (5.50% of offering price).............. 0.79
------------
Maximum offering price per share outstanding................ $ 14.41
============
CLASS B
Net assets applicable to outstanding shares................. $ 86,971,650
============
Shares of beneficial interest outstanding................... 6,524,786
============
Net asset value and offering price per share outstanding.... $ 13.33
============
CLASS C
Net assets applicable to outstanding shares................. $ 560,591
============
Shares of beneficial interest outstanding................... 42,056
============
Net asset value and offering price per share outstanding.... $ 13.33
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 226
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 1,046,123
Interest.................................................. 37,449
------------
Total income............................................ 1,083,572
------------
Expenses:
Management................................................ 616,808
Distribution--Class B..................................... 334,844
Distribution--Class C..................................... 1,749
Transfer agent............................................ 248,356
Service--Class A.......................................... 42,004
Service--Class B.......................................... 111,615
Service--Class C.......................................... 583
Custodian................................................. 45,782
Registration.............................................. 23,249
Professional.............................................. 23,156
Shareholder communication................................. 20,510
Recordkeeping............................................. 19,429
Trustees.................................................. 1,601
Miscellaneous............................................. 29,300
------------
Total expenses.......................................... 1,518,986
------------
Net investment loss......................................... (435,414)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 6,664,640
Option transactions....................................... (476,759)
Foreign currency transactions............................. (1,238,700)
------------
Net realized gain on investments and foreign currency
transactions.............................................. 4,949,181
------------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (18,907,306)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 900,649
------------
Net unrealized loss on investments and foreign currency
transactions.............................................. (18,006,657)
------------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (13,057,476)
------------
Net decrease in net assets resulting from operations........ $(13,492,890)
============
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $152,502.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 227
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss....................................... $ (435,414) $ (747,623)
Net realized gain on investments and foreign currency
transactions............................................ 4,949,181 7,554,766
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (18,006,657) 21,120,421
------------ ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (13,492,890) 27,927,564
------------ ------------
Dividends and distributions to shareholders:
From net realized gain on investments and foreign currency
transactions:
Class A................................................. -- (626,133)
Class B................................................. -- (1,793,049)
Class C................................................. -- (6,487)
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)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 74,149,070 75,589,357
Class B................................................. 24,049,882 24,360,411
Class C................................................. 283,658 14,937,027
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. -- 636,292
Class B................................................. -- 1,933,262
Class C................................................. -- 6,714
------------ ------------
98,482,610 117,463,063
Cost of shares redeemed:
Class A................................................. (72,006,758) (72,954,978)
Class B................................................. (21,326,354) (25,128,000)
Class C................................................. (15,487) (14,798,611)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 5,134,011 4,581,474
------------ ------------
Net increase (decrease) in net assets................. (8,358,879) 29,806,266
NET ASSETS:
Beginning of period......................................... 129,448,594 99,642,328
------------ ------------
End of period............................................... $121,089,715 $129,448,594
============ ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (1,565,073) $ (1,129,659)
============ ============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 228
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period...... $ 15.23 $ 12.21 $ 10.33 $ 10.48 $ 10.05 $ 9.77
------- ------- ------- ------- ------- -------
Net investment income (loss)................ (0.01) (0.07) 0.01 0.80 0.29 0.27
Net realized and unrealized gain (loss) on
investments............................... (1.56) 3.54 2.13 0.03 0.07 0.10
Net realized and unrealized gain (loss) on
foreign currency transactions............. (0.04) (0.13) (0.06) (0.36) 0.62 0.14
------- ------- ------- ------- ------- -------
Total from investment operations............ (1.61) 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............ $ 13.62 $ 15.23 $ 12.21 $ 10.33 $ 10.48 $ 10.05
======= ======= ======= ======= ======= =======
Total investment return (a)................. (10.57%) 27.54% 20.17% 4.52% 9.78% 5.25%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)............ (0.16%)++ (0.14%) 0.08% 0.19% (0.1%) (0.2%)
Expenses................................ 1.91%++ 1.94% 2.01% 2.01% 2.0% 2.2%
Portfolio turnover rate..................... 15% 38% 54% 43% 19% 25%
Net assets at end of period (in 000's)...... $33,557 $34,407 $24,115 $17,452 $17,475 $12,856
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 229
<TABLE>
<CAPTION>
Class B Class C
--------------------------------------------------------------------------- -----------------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ----------------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ------- ------- ------- ------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 14.95 $ 12.08 $ 10.22 $ 10.38 $ 9.97 $ 9.77 $14.95 $12.08 $10.60
------- ------- ------- ------- ------- ------- ------ ------ ------
(0.05) (0.09) (0.08) 0.72 0.24 0.26 (0.05) (0.09) (0.09)
(1.53) 3.41 2.10 0.03 0.07 0.07 (1.53) 3.41 1.72
(0.04) (0.13) (0.05) (0.37) 0.59 0.09 (0.04) (0.13) (0.04)
------- ------- ------- ------- ------- ------- ------ ------ ------
(1.62) 3.19 1.97 0.38 0.90 0.42 (1.62) 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)
------- ------- ------- ------- ------- ------- ------ ------ ------
$ 13.33 $ 14.95 $ 12.08 $ 10.22 $ 10.38 $ 9.97 $13.33 $14.95 $12.08
======= ======= ======= ======= ======= ======= ====== ====== ======
(10.84%) 26.60% 19.34% 3.78% 9.05% 4.27% (10.84%) 26.60% 15.07%
(0.91%)++ (0.89%) (0.67%) (0.49%) (0.8%) (1.0%) (0.91%)++ (0.89%) (0.67%)++
2.66%++ 2.69% 2.76% 2.69% 2.7% 3.0% 2.66%++ 2.69% 2.76% ++
15% 38% 54% 43% 19% 25% 15% 38% 54%
$86,972 $94,698 $75,516 $63,241 $52,709 $25,341 $ 561 $ 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> 230
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 (and certain other qualified purchases) 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 of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
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> 231
Notes to Financial Statements unaudited
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 may 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 may enter 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 or to try to enhance the Fund's returns.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period-end to credit loss in the event of a counterparty's failure
to perform its obligations.
23
<PAGE> 232
MainStay International Equity Fund
Foreign currency forward contracts open at June 30, 2000:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
------------- ----------- --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
Japanese Yen vs. U.S. Dollar, expiring 8/31/00....... Y 25,700,000 $ 242,819 $ (2,877)
Pound Sterling vs. Euro, expiring 8/4/00............. L 1,837,388 E 3,110,000 204,617
Pound Sterling vs. U.S. Dollar, expiring 8/4/00...... L 1,510,000 $ 2,272,399 (15,202)
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
------------- -----------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
Euro vs. U.S. Dollar, expiring 8/4/00................ E 11,643,244 $10,761,157 426,095
Pound Sterling vs. U.S. Dollar, expiring 8/4/00...... L 1,625,000 $ 2,440,639 21,184
Pound Sterling vs. U.S. Dollar, expiring 8/4/00...... L 420,000 $ 655,549 (19,262)
Swedish Krona vs. U.S. Dollar, expiring 7/17/00...... SK 14,879,376 $ 1,720,000 (21,189)
Swiss Franc vs. U.S. Dollar, expiring 8/4/00......... CF 2,044,230 $ 1,200,000 61,613
--------
Net unrealized appreciation on foreign currency
forward contracts.................................. $654,979
========
</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 market for an option. The maximum exposure
to loss for any purchased option is limited to the premium initially paid for
the option.
24
<PAGE> 233
Notes to Financial Statements unaudited (continued)
Written option activity for the six months ended June 30, 2000 was as follows:
<TABLE>
<CAPTION>
Notional
Amount Premium
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1999.................... (16,000,000) $(116,640)
Options-written............................................. (12,640,000) (23,330)
Options-buybacks............................................ 8,000,000 68,080
Options-expired............................................. 20,640,000 71,890
----------- ---------
Options outstanding at June 30, 2000........................ -- $ --
=========== =========
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles. 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.
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
Discounts on securities purchased for the Fund are accreted on the constant
yield method over the life of the respective securities. Premiums on securities
purchased are not amortized for this Fund.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the distribution plans)
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.
25
<PAGE> 234
MainStay International Equity Fund
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 period end exchange rates are
reflected in unrealized foreign exchange gains or losses.
Foreign currency held at June 30, 2000:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
---------------------------------- -------- --------
<S> <C> <C> <C> <C>
Australian Dollar A$ 27,173 $ 15,530 $ 16,314
Euro E 371,832 299,953 356,203
Japanese Yen Y 2,206,285 20,974 20,852
New Zealand Dollar N$ 6,440 3,198 3,032
Norwegian Krone NK 213 25 25
Singapore Dollar S$ 10,132 5,889 5,860
Swedish Krona SK 112,390 12,696 12,814
Swiss Franc CF 50,181 29,739 30,860
-------- --------
$388,004 $445,960
======== ========
</TABLE>
CONCENTRATION. At June 30, 2000, 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 June 30, 2000, the Fund invested approximately 27.6% 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.
26
<PAGE> 235
Notes to Financial Statements unaudited (continued)
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 adviser and indirect wholly owned
subsidiary of New York Life. Under the supervision of the Trust's Board of
Trustees and the Manager, the Subadvisor is responsible for the day-to-day
portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. For the six months ended June 30, 2000, the Manager
earned $616,808.
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% 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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.
27
<PAGE> 236
MainStay International Equity Fund
The Plans provide 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 $1,078 for the six months ended
June 30, 2000. 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 $10,372, $58,655 and $29, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC. ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $248,356.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $8,685,836, which represents 25.9% of the
Class A net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $1,289 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$19,429 for the six months ended June 30, 2000.
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 has elected to treat for
federal income tax purposes approximately $793,449 of qualifying foreign
exchange gains that arose during the prior 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 six months ended June 30, 2000, purchases and sales of securities,
other than U.S. Government securities and short-term securities, were $21,174
and $18,726, respectively.
28
<PAGE> 237
Notes to Financial Statements unaudited (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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 2000* December 31, 1999
--------------------------- ----------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 5,294 1,739 20 5,742 1,922 1,153
Shares issued in reinvestment of dividends
and distributions.......................... -- -- -- 44 137 --(a)
------ ------ ------ ------ ------ ------
5,294 1,739 20 5,786 2,059 1,153
Shares redeemed.............................. (5,090) (1,547) (1) (5,502) (1,977) (1,131)
------ ------ ------ ------ ------ ------
Net increase................................. 204 192 19 284 82 22
====== ====== ====== ====== ====== ======
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand.
</TABLE>
29
<PAGE> 238
THE MAINSTAY FUNDS
GROWTH FUNDS
MainStay Small Cap Growth Fund
MainStay Small Cap Value Fund
MainStay Capital Appreciation Fund
MainStay Blue Chip Growth Fund
MainStay Equity Index Fund
GROWTH AND INCOME FUNDS
MainStay Growth Opportunities Fund
MainStay Equity Income Fund
MainStay MAP Equity Fund
MainStay Research Value Fund
MainStay Value Fund
MainStay Strategic Value Fund
MainStay Convertible Fund
MainStay Total Return Fund
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
30
<PAGE> 239
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSIE11-08/00
[RECYCLE LOGO]
[THE MAINSTAY(R) FUNDS LOGO]
MainStay(R)
International Equity Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 240
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
The MainStay(R) Funds 20
</TABLE>
<PAGE> 241
This page intentionally left blank
2
<PAGE> 242
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 243
Portfolio Management Discussion and Analysis
Like most other Y2K fears, money market liquidity concerns proved to be for
naught, as the new century rolled in without a hitch. During the six months
ended June 30, 2000, two major factors combined to push yields on short-term
money market securities significantly higher--the ongoing strength of the U.S.
economy and three successive tightening moves by the Federal Reserve.
Consumer spending was strong through the first half of 2000, and unemployment
reached its lowest level in almost 30 years. At the same time, productivity
improvements and competitive pressures held prices steady, keeping inflation
benign. Nominal GDP, however, continued to surge, pushing the first-quarter
annualized growth rate to 5.5%, following a 7.3% annualized growth rate in the
fourth quarter of 1999.
The Federal Reserve continued to take a hard stance against inflation and argued
that extremely tight labor markets and enhanced productivity could not
indefinitely support the pace of the economy. Following its cumulative 0.75%
rate increase in 1999, the Fed raised the targeted federal funds rate by 0.25%
on February 2 and again on March 21. Stronger economic numbers in April led
policymakers to believe that inflation was accelerating and the economy was not
slowing. Abandoning its gradualist approach, the Fed tightened more aggressively
with a 0.50% move on May 16, boosting the targeted federal funds rate to 6.50%.
In response to a more aggressive Federal Reserve, the Treasury yield curve
became significantly inverted for the first time since 1990. This means that
longer-term maturities were yielding less than shorter-term maturities. With
increased budget surpluses projected over the next 10 years, the government
reduced new Treasury issuance and began buying back outstanding U.S. Treasury
securities. These factors also contributed to the inversion of the Treasury
yield curve.
At its June meeting, the Fed refrained from raising interest rates, as a number
of economic reports suggested the economy was slowing from its torrid pace. The
debate now centers on whether the slowdown signals will be transient or
sustainable. In June, the two-year Treasury note rallied, with yields falling by
0.30% on expectations that the Fed had accomplished its task.
STRONG RELATIVE PERFORMANCE
For the seven-day period ended June 30, 2000, MainStay Money Market Fund
provided an effective yield of 6.15% and a current yield of 5.97% for Class A,
Class B, and Class C shares. For the six months ended June 30, 2000, the Fund
returned 2.74% for Class A, Class B, and Class C shares, exceeding the 2.66%
return of the average Lipper(1) money market fund over the same period.
-------
(1) See footnote and table on page 7 for more information about Lipper Inc.
4
<PAGE> 244
STRATEGIC MATURITY AND SECTOR POSITIONING
During the first half of the year, we maintained the average maturity of the
portfolio at a substantially shorter position than the average money-market
fund. This strategy proved effective in a rising interest-rate environment. As
of June 30, 2000, the Fund's average maturity stood at 43 days.
Fund performance also benefited from our investment in higher-yielding asset-
backed commercial paper and one-year maturity floating-rate securities. While
past performance is no guarantee of future results, in times of economic
uncertainty, floating-rate notes have historically outperformed other money-
market securities, as their coupon rates tend to correspond to market levels
much sooner than fixed-rate investments.
HIGH CREDIT QUALITY
The Fund's investments throughout the semiannual period centered on floating-
rate notes, bank certificates of deposit (CDs), commercial paper, and asset-
backed commercial paper. By industry, the Fund mainly invested in securities of
banks and bank holding companies, as well as finance, insurance, brokerage,
telecommunications, and industrial companies. We closely followed the Fund's
disciplined investment process by purchasing only high-quality instruments
throughout the reporting period. All of the securities purchased for the
portfolio were rated A-1/P-1 or higher. These are 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 AHEAD
Economic indicators announced late in the semiannual period were a little weaker
than those reported in prior months. We believe the market is responding to a
weaker National Purchasing Manager's report and a cooler labor market, as
reported in weekly jobless claims. We believe, however, that the current
slowdown in U.S. economic growth is only temporary. Since labor is still in
short supply, we believe that inflation risks remain. Thus, while softer
economic numbers may allow the Federal Reserve to stay on hold for a couple of
months, we are not convinced that it has completed its cycle of interest rate
increases. In our view, the Fed will likely resume tightening later in the
summer.
To prepare for this possibility, we intend to maintain the Fund's shorter-than-
benchmark average-maturity position for the near term. We also intend to
5
<PAGE> 245
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.
MacKay Shields LLC
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.
6
<PAGE> 246
Yields and Lipper Rankings as of 6/30/00
FUND SEC YIELDS*
<TABLE>
<CAPTION>
7-DAY EFFECTIVE YIELD 7-DAY CURRENT YIELD
<S> <C> <C>
Class A 6.15% 5.97%
Class B 6.15% 5.97%
Class C 6.15% 5.97%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 147 out of 108 out of n/a 98 out of
364 funds 244 funds 217 funds
Class B 147 out of 108 out of 56 out of 43 out of
364 funds 244 funds 137 funds 94 funds
Class C 147 out of n/a n/a 129 out of
364 funds 319 funds
Average Lipper
money market
fund 5.06% 4.91% 4.69% 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 5.91%. The current yield is based on the
7-day period ending 6/30/00. 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. 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.
Since-inception return for the average Lipper peer fund is for the period
from 5/1/86 through 12/31/99.
7
<PAGE> 247
MainStay Money Market Fund
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (100.4%)+
ASSET-BACKED SECURITIES (2.5%)
Chevy Chase Auto
Receivables Trust
Series 2000-1 Class A1
6.87%, due 7/12/01 (c)..... $5,000,000 $ 5,000,000
CNH Equipment Trust
Series 2000-A Class A1
6.178%, due 4/9/01 (c)..... 4,412,995 4,412,995
Ford Credit Auto Owner Trust
Series 2000-C Class A1
6.621%, due 10/15/00 (c)... 4,000,000 4,000,000
------------
13,412,995
------------
BANK NOTES (2.2%)
First Union National Bank
6.70%, due 5/4/01 (b)(c)... 6,000,000 6,003,845
6.96%, due 11/13/00
(b)(c)................... 6,000,000 6,004,900
------------
12,008,745
------------
CERTIFICATES OF DEPOSIT (6.6%)
Bayerische Landesbank New
York 6.58%, due 12/15/00
(b)(c)..................... 6,000,000 5,999,061
British Telecommunications
PLC
6.62%, due 2/27/01
(b)(c)................... 6,000,000 6,000,097
Commerzbank AG New York
6.60%, due 4/26/01
(b)(c)..................... 6,000,000 5,998,564
Lloyds Bank PLC New York
5.65%, due 7/17/00 (c)..... 6,000,000 5,999,912
UBS AG Stamford Connecticut
6.24%, due 12/6/00 (c)..... 6,000,000 5,987,537
Westdeutsche Landesbank New
York
6.57%, due 3/23/01
(b)(c)..................... 6,000,000 5,997,838
------------
35,983,009
------------
COMMERCIAL PAPER (74.6%)
Alliance & Leicester PLC
6.58%, due 8/22/00 (a)..... 5,000,000 4,954,306
Allianz of America Inc.
6.57%, due 7/6/00 (a)...... 5,000,000 4,997,262
6.62%, due 9/11/00 (a)..... 5,000,000 4,935,639
American Express Credit
Corp.
6.53%, due 7/20/00-7/27/00. 8,540,000 8,509,171
6.54%, due 8/9/00.......... 4,000,000 3,973,113
6.56%, due 7/28/00......... 4,300,000 4,280,411
American General Finance
Corp.
6.58%, due 7/13/00......... 5,000,000 4,990,861
Associates Corp. of North
America
6.53%, due 7/19/00......... 4,000,000 3,988,391
6.55%, due 8/8/00.......... 5,500,000 5,463,975
Associates First Capital
Corp.
6.55%, due 7/17/00......... 5,000,000 4,987,264
6.57%, due 7/19/00......... 6,700,000 6,680,436
Atlantis One Funding Corp.
6.57%, due 8/18/00......... 5,000,000 4,958,025
6.58%, due 8/4/00.......... 5,000,000 4,970,755
</TABLE>
-----------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
AT&T Corp.
6.53%, due 8/21/00......... $5,000,000 $ 4,955,560
BCI Funding Corp.
6.55%, due 8/7/00.......... 5,000,000 4,968,160
6.58%, due 9/5/00.......... 5,000,000 4,941,511
Bell Atlantic Financial
Services Inc.
6.56%, due
7/24/00-8/16/00.......... 9,500,000 9,442,691
6.57%, due 8/30/00......... 5,000,000 4,947,075
BellSouth Telecommunications
Inc.
6.52%, due 8/2/00.......... 5,000,000 4,972,833
6.55%, due
7/27/00-8/14/00.......... 10,000,000 9,939,959
British Telecommunications
PLC
6.10%, due 9/6/00.......... 6,000,000 5,933,917
6.57%, due 8/31/00......... 2,300,000 2,275,235
Chevron USA Inc.
6.55%, due
7/5/00-7/24/00........... 11,000,000 10,978,713
Cregem North America Inc.
6.53%, due 8/14/00......... 5,000,000 4,961,908
6.54%, due 7/3/00.......... 5,000,000 5,000,000
6.59%, due 9/11/00......... 5,000,000 4,935,931
Deutsche Bank Financial Inc.
6.54%, due 7/7/00.......... 5,000,000 4,996,367
6.55%, due 8/25/00......... 3,800,000 3,763,356
6.57%, due 8/17/00......... 4,000,000 3,967,150
Edison International
6.57%, due 8/11/00 (a)..... 5,000,000 4,964,412
Ford Motor Credit Co.
6.55%, due
7/7/00-8/18/00........... 9,000,000 8,955,242
Formosa Plastic Corp. U.S.A.
6.22%, due 8/14/00......... 6,000,000 5,956,460
Franklin Resources Inc.
6.62%, due 9/6/00 (a)...... 5,000,000 4,940,236
General Electric Capital
Corp.
6.24%, due 7/14/00......... 6,000,000 5,988,560
6.55%, due
7/26/00-8/11/00.......... 11,000,000 10,939,413
6.60%, due 9/13/00......... 3,200,000 3,157,760
6.62%, due 7/25/00......... 5,000,000 4,979,772
Goldman Sachs Group Inc.
(The) 6.23%, due 7/10/00... 6,000,000 5,992,732
6.58%, due
7/6/00-7/27/00........... 10,000,000 9,975,325
Halifax PLC
6.15%, due 7/11/00......... 4,320,000 4,314,096
6.54%, due 8/29/00......... 6,000,000 5,937,870
6.60%, due 9/6/00.......... 5,000,000 4,940,417
KFW International Finance
Inc.
6.51%, due 7/31/00......... 5,000,000 4,974,683
Lloyds TSB Bank PLC
6.58%, due 9/8/00.......... 5,000,000 4,938,769
Merrill Lynch & Co. Inc.
6.55%, due 8/11/00......... 5,000,000 4,964,521
6.57%, due 7/12/00......... 5,000,000 4,991,787
Morgan Stanley Dean Witter &
Co.
6.58%, due 7/26/00 (b)(c).. 5,000,000 4,978,981
National Rural Utilities
Cooperative Finance Corp.
6.10%, due 9/12/00......... 6,000,000 5,927,817
Petrobras International
Finance Co.
6.60%, due 7/21/00......... 4,800,000 4,784,160
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE> 248
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
Portland General Electric
Co.
6.65%, due 8/3/00.......... $4,000,000 $ 3,977,094
Prudential Funding Corp.
6.55%, due 8/29/00......... 4,000,000 3,958,517
6.56%, due 7/18/00......... 5,000,000 4,986,333
6.62%, due 7/21/00......... 3,200,000 3,189,408
Quebec (Province of)
6.57%, due 9/8/00.......... 3,500,000 3,457,203
6.58%, due 9/8/00.......... 2,200,000 2,173,059
Rabobank Nederland N.V
6.55%, due 7/5/00.......... 5,000,000 4,998,181
Receivables Capital Corp.
6.59%, due 7/11/00 (a)..... 6,000,000 5,991,213
Rio Tinto America Inc.
6.55%, due 8/18/00 (a)..... 5,000,000 4,958,153
6.60%, due 9/14/00 (a)..... 5,000,000 4,933,083
Salomon Smith Barney
Holdings Inc.
6.55%, due 8/24/00......... 5,100,000 5,051,748
6.56%, due
7/31/00-8/2/00........... 10,300,000 10,245,516
San Paolo IMI U.S. Financial
Co.
6.55%, due 8/1/00.......... 5,000,000 4,973,618
6.56%, due 7/18/00......... 6,000,000 5,983,600
SBC Communications Inc.
6.53%, due 8/4/00 (a)...... 1,750,000 1,739,842
6.56%, due 8/23/00-8/28/00
(a)...................... 9,100,000 9,010,875
6.58%, due 7/24/00 (a)..... 4,000,000 3,984,647
Societe Generale N.A. Inc.
6.57%, due 7/5/00.......... 3,800,000 3,798,613
Svenska Handelsbanken Inc.
6.60%, due 9/7/00.......... 5,700,000 5,631,030
Transamerica Finance Corp.
6.59%, due 7/10/00......... 6,550,000 6,541,607
UBS Finance (Delaware) LLC
6.60%, due 9/5/00.......... 5,000,000 4,941,333
Unifunding Inc.
6.59%, due 9/18/00......... 5,000,000 4,929,524
Wells Fargo & Co.
6.56%, due 8/23/00......... 5,000,000 4,953,533
6.60%, due 7/3/00.......... 5,000,000 5,000,000
Wood Street Funding Corp.
6.55%, due 7/21/00 (a)..... 4,600,000 4,584,935
6.60%, due 7/14/00-7/25/00
(a)...................... 8,690,000 8,665,034
------------
407,930,687
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (3.3%)
American General Finance
Corp.
6.13%, due 9/15/00 (c)..... $6,200,000 $ 6,197,772
AT&T Corp.
6.24%, due 7/13/00
(a)(b)(c)................ 6,000,000 5,999,935
6.68%, due 8/7/00
(a)(b)(c)................ 6,000,000 5,999,951
------------
18,197,658
------------
MEDIUM-TERM NOTES (11.2%)
Abbey National Treasury
Services PLC
6.55%, due 6/15/01
(b)(c)................... 5,000,000 4,996,744
Bank of America Corp.,
Series D
6.96%, due 2/9/01 (b)(c)... 7,000,000 7,009,653
IBM Credit Corp.
5.898%, due 8/7/00 (c)..... 6,000,000 5,999,823
Merrill Lynch & Co. Inc.
6.85%, due 6/18/01
(b)(c)................... 5,475,000 5,479,143
Morgan (J.P.) & Co. Inc.
6.61%, due 7/6/00 (b)(c)... 6,000,000 5,999,959
Morgan Stanley Dean Witter &
Co.
6.36%, due 4/16/01
(b)(c)................... 5,000,000 5,002,035
6.90%, due 3/13/01
(b)(c)................... 6,000,000 6,005,646
Prudential Funding Corp.
6.85%, due 12/21/00
(b)(c)................... 6,000,000 6,000,879
Salomon Smith Barney
Holdings Inc.
6.63%, due 11/30/00 (c).... 4,842,000 4,846,939
Wells Fargo & Co.
6.72%, due 7/16/01 (b)(c).. 5,000,000 4,998,939
Xerox Corp., Series F
5.64%, due 7/14/00 (c)..... 5,000,000 4,999,934
------------
61,339,694
------------
Total Short-Term Investments
(Amortized Cost
$548,872,788) (d).......... 100.4% 548,872,788
Liabilities in Excess of
Cash and Other Assets...... (0.4) (2,311,774)
------ ----------
Net Assets.................. 100.0% $546,561,014
====== ===========
</TABLE>
-------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at June 30, 2000.
(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> 249
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 Leases................ $17,955,242 3.3%
Banks #.................... 153,032,212 28.0
Computer & Office
Equipment................. 5,999,823 1.1
Chemicals - Specialty...... 5,956,460 1.1
Diversified Financial
Services.................. 46,185,571 8.4
Electric Power Companies... 8,941,507 1.6
Finance.................... 43,760,715 8.0
Financial - Miscellaneous... 6,541,607 1.2
Governments - Foreign...... 5,630,262 1.0
Insurance.................. 28,068,039 5.1
Investment
Bank/Brokerage............ 67,534,372 12.4
Metal - Miscellaneous...... 9,891,236 1.8
Office Equipment &
Supplies.................. 4,999,934 0.9
Oil - Integrated
Domestic.................. 10,978,712 2.0
Oil - Integrated
International............. 4,784,160 0.9
Special Purpose Finance.... 58,357,395 10.7
Telecommunication
Services.................. 25,966,321 4.8
Telephone.................. 44,289,220 8.1
------------ -----
548,872,788 100.4
Liabilities in Excess of
Cash and Other Assets..... (2,311,774) (0.4)
------------ -----
Net Assets................. $546,561,014 100.0%
============ =====
</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> 250
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (amortized cost
$548,872,788)............................................. $548,872,788
Cash........................................................ 105,594
Receivables:
Investment securities sold................................ 17,000,000
Fund shares sold.......................................... 5,993,355
Interest.................................................. 1,930,403
------------
Total assets........................................ 573,902,140
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 18,839,474
Fund shares redeemed...................................... 4,884,747
Transfer agent............................................ 298,013
MainStay Management....................................... 145,190
Custodian................................................. 23,825
Trustees.................................................. 4,536
Accrued expenses............................................ 103,011
Dividend payable............................................ 3,042,330
------------
Total liabilities................................... 27,341,126
------------
Net assets.................................................. $546,561,014
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 1,417,141
Class B................................................... 3,993,710
Class C................................................... 54,846
Additional paid-in capital.................................. 541,104,012
Accumulated net realized loss on investments................ (8,695)
------------
Net assets.................................................. $546,561,014
============
CLASS A
Net assets applicable to outstanding shares................. $141,714,045
============
Shares of beneficial interest outstanding................... 141,714,074
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS B
Net assets applicable to outstanding shares................. $399,362,366
============
Shares of beneficial interest outstanding................... 399,371,031
============
Net asset value and offering price per share outstanding.... $ 1.00
============
CLASS C
Net assets applicable to outstanding shares................. $ 5,484,603
============
Shares of beneficial interest outstanding................... 5,484,604
============
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> 251
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $18,391,088
-----------
Expenses:
Management................................................ 1,419,751
Transfer agent............................................ 910,889
Shareholder communication................................. 90,485
Registration.............................................. 68,858
Recordkeeping............................................. 43,281
Professional.............................................. 28,906
Custodian................................................. 11,948
Trustees.................................................. 7,877
Miscellaneous............................................. 9,916
-----------
Total expenses before reimbursement..................... 2,591,911
Expense reimbursement from Manager.......................... (500,812)
-----------
Net expenses............................................ 2,091,099
-----------
Net investment income....................................... 16,299,989
-----------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments............................ (114)
-----------
Net increase in net assets resulting from operations........ $16,299,875
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 252
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
--------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 16,299,989 $ 27,413,918
Net realized gain (loss) on investments................... (114) 332
-------------- --------------
Net increase in net assets resulting from operations...... 16,299,875 27,414,250
-------------- --------------
Dividends to shareholders:
From net investment income:
Class A................................................. (4,555,287) (6,865,359)
Class B................................................. (11,620,940) (20,443,075)
Class C................................................. (123,762) (105,484)
-------------- --------------
Total dividends to shareholders....................... (16,299,989) (27,413,918)
-------------- --------------
Capital share transactions:
Net proceeds from sales of shares:
Class A................................................. 559,757,449 1,460,864,924
Class B................................................. 339,367,315 695,572,243
Class C................................................. 17,159,661 14,076,657
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 3,154,876 6,404,081
Class B................................................. 8,862,558 20,720,097
Class C................................................. 78,566 64,831
-------------- --------------
928,380,425 2,197,702,833
Cost of shares redeemed:
Class A................................................. (610,533,813) (1,427,683,763)
Class B................................................. (407,258,886) (682,075,401)
Class C................................................. (13,907,637) (12,005,827)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (103,319,911) 75,937,842
-------------- --------------
Net increase (decrease) in net assets................. (103,320,025) 75,938,174
NET ASSETS:
Beginning of period......................................... 649,881,039 573,942,865
-------------- --------------
End of period............................................... $ 546,561,014 $ 649,881,039
============== ==============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 253
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -------------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
Net investment income................... 0.03 0.05 0.05 0.05 0.05 0.05
-------- -------- -------- ------- ------- -------
Less dividends from net investment
income................................ (0.03) (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 $ 1.00
======== ======== ======== ======= ======= =======
Total investment return (a)............. 2.74% 4.65% 5.01% 5.08% 4.91% 5.51%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............... 5.46%++ 4.56% 4.90% 4.97% 4.8% 5.4%
Net expenses........................ 0.70%++ 0.70% 0.70% 0.70% 0.7% 0.7%
Expenses (before reimbursement)..... 0.87%++ 0.85% 0.93% 0.95% 1.0% 0.9%
Net assets at end of period (in
000's)................................ $141,714 $189,336 $149,751 $80,925 $53,890 $34,880
</TABLE>
-------
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is not annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 254
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------------------- ----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ---------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- -------- -------- -------- -------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------ ------ ------
0.03 0.05 0.05 0.05 0.05 0.05 0.03 0.05 0.02
-------- -------- -------- -------- -------- -------- ------ ------ ------
(0.03) (0.05) (0.05) (0.05) (0.05) (0.05) (0.03) (0.05) (0.02)
-------- -------- -------- -------- -------- -------- ------ ------ ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ====== ====== ======
2.74% 4.65% 5.01% 5.08% 4.91% 5.51% 2.74% 4.65% 1.60%
5.46%++ 4.56% 4.90% 4.97% 4.8% 5.4% 5.46%++ 4.56% 4.90%++
0.70%++ 0.70% 0.70% 0.70% 0.7% 0.7% 0.70%++ 0.70% 0.70%++
0.87%++ 0.85% 0.93% 0.95% 1.0% 0.9% 0.87%++ 0.85% 0.93%++
$399,362 $458,391 $424,174 $336,622 $317,483 $279,843 $5,485 $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> 255
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> 256
Notes to Financial Statements unaudited
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 six months
ended June 30, 2000, the Manager earned $1,419,751 and reimbursed the Fund
$500,812.
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> 257
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 six months ended June 30, 2000, in the
amount of $732,868.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $910,889.
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 $6,383 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$43,281 for the six months ended June 30, 2000.
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 prior year.
18
<PAGE> 258
Notes to Financial Statements unaudited (continued)
NOTE 5--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
------------------------------ -------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
-------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 559,757 339,367 17,160 1,460,865 695,572 14,077
Shares issued in reinvestment of
dividends...................... 3,155 8,863 79 6,404 20,720 65
-------- -------- ------- ---------- -------- -------
562,912 348,230 17,239 1,467,269 716,292 14,142
Shares redeemed.................. (610,534) (407,259) (13,908) (1,427,684) (682,075) (12,006)
-------- -------- ------- ---------- -------- -------
Net increase (decrease).......... (47,622) (59,029) 3,331 39,585 34,217 2,136
======== ======== ======= ========== ======== =======
</TABLE>
-------
* Unaudited.
19
<PAGE> 259
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
20
<PAGE> 260
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<PAGE> 261
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<PAGE> 262
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GRAY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSMM11-08/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS LOGO]
MainStay(R)
Money Market Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 263
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 20
The MainStay(R) Funds 26
</TABLE>
<PAGE> 264
This page intentionally left blank
2
<PAGE> 265
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 266
$10,000 Invested in MainStay New York
Tax Free Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES Total Returns: 1 Year -2.95%, 5 Years 3.90%, Since Inception
5.11%
<TABLE>
<CAPTION>
[PERFORMANCE GRAPH]
MAINSTAY NEW YORK TAX LEHMAN BROTHERS
PERIOD END FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
----------- --------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 $ 9,550 $ 10,000 $ 10,000
12/91 9,723 10,335 10,051
12/92 10,628 11,247 10,349
12/93 11,916 12,628 10,632
12/94 11,353 11,975 10,908
12/95 13,167 14,066 11,192
12/96 13,569 14,689 11,563
12/97 14,708 16,038 11,758
12/98 15,499 17,077 11,947
12/99 14,690 16,513 12,267
6/00 15,474 17,251 12,521
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year -3.53%, 5 Years 4.27%, Since Inception 5.50%
Class C Total Returns: 1 Year 0.47%, 5 Years 4.61%, Since Inception 5.50%
<TABLE>
<CAPTION>
[PERFORMANCE GRAPH]
MAINSTAY NEW YORK TAX LEHMAN BROTHERS
PERIOD END FREE FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
----------- --------------------- --------------------- ----------------
<S> <C> <C> <C>
10/1/91 $ 10,000 $ 10,000 $ 10,000
12/91 10,181 10,335 10,051
12/92 11,128 11,247 10,349
12/93 12,477 12,628 10,632
12/94 11,888 11,975 10,908
12/95 13,751 14,066 11,192
12/96 14,145 14,689 11,563
12/97 15,297 16,038 11,758
12/98 16,062 17,077 11,947
12/99 15,177 16,513 12,267
6/00 15,986 17,251 12,521
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment
of dividend and capital gain distributions, and maximum sales charges (see
below). Performance figures reflect certain fee waivers and/or expense
limitations, without which total return figures may have been lower. Fee
waivers and/or expense limitations are voluntary and may be discontinued at
any time. The graphs assume an initial investment of $10,000 and reflect
deduction of all sales charges that would have applied for the period of
investment. Class A share performance reflects the effect of the maximum
4.5% initial sales charge. Class B share performance 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 sales charges and expense structures.
Class C share performance includes the historical performance of the Class
B shares for periods from 10/1/91 through 8/31/98. Class B shares would be
subject to a contingent deferred sales charge (CDSC) of up to 5% if
redeemed within the first six years of purchase and Class C shares would be
subject to a CDSC of 1% if redeemed within one year of purchase.
* The Lehman Brothers Municipal Bond Index 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
4
<PAGE> 267
coupons are excluded. The Index is unmanaged and results assume the
reinvestment of all income and capital gain distributions. You cannot
invest directly in 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> 268
Portfolio Management Discussion and Analysis
The U.S. economy powered into the new millennium without a hitch. Optimism for
the economy's long-term potential was reflected in strong business and consumer
spending, sizeable foreign capital flows, and a federal budget surplus. Even so,
the Federal Reserve questioned whether the U.S. could continue to maintain a
combination of low inflation, low unemployment, and strong economic growth.
Higher labor costs and rising asset values posed realistic obstacles to such a
scenario.
In response to 5.5% annualized GDP growth in the first quarter of 2000, the
Federal Reserve raised the targeted federal funds rate by 0.25% on both February
2 and March 21. As economic growth continued unabated into the second quarter,
the Fed tightened interest rates by another 0.50% on May 16. After that,
economic data began showing signs of a broad-based slowdown--with shrinking
private-sector payrolls, declining retail sales, and a one-year low in housing
starts. Choosing to wait and see whether the slowdown is temporary or
sustainable, the Federal Reserve voted to hold interest rates steady at its June
meeting.
During the semiannual period, municipal market yields, like those of their
taxable counterparts, were volatile and generally tracked the economic data and
moves by the Federal Reserve. As in the Treasury market, the long end of the
municipal yield curve outperformed. Municipal yields reached their highest
levels in more than five years at the end of May, but over the six months,
5-year municipal yields fell 0.06%, 10-year yields rose 0.07%, and 30-year
yields declined 0.21%. In June, intermediate maturities started to perform
particularly well, as individual investors considered yields on these
intermediate-term securities attractive, without the risk of longer-duration
bonds.
Higher interest rates continued to dampen refunding volume in the municipal
market. New issuance fell to $92 billion in the first six months of the year, a
22% decrease versus the same period in 1999. On the other hand, demand from
individuals seemed to vary in tandem with volatility in the equity markets. As
the U.S. economy continued to advance at a rapid pace and tax coffers remained
healthy, credit quality was solid in the municipal market. The sustained
national expansion has resulted in greater economic diversity and increased
financial flexibility in many states, including New York.
According to numbers released during the first of half of 2000, the year 1999
marked a turning point in the New York State economy. For the first time in a
decade, New York outpaced the national average with a 2.6% growth rate in
nonfarm jobs and a 5.9% growth rate in personal income. The state's economy
continued to benefit from a strong stock market and the general economic growth
of the nation. Upstate industries, however, continued to lag the vitality of New
York City's booming real-estate market and advanced technology and
6
<PAGE> 269
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
<TABLE>
<CAPTION>
PERIOD END [BAR CHART] TOTAL RETURN %
----------- ---------------
<S> <C>
12/91 2.08
12/92 9.01
12/93 12.11
12/94 -4.71
12/95 15.97
12/96 3.06
12/97 8.39
12/98 5.38
12/99 -5.22
6/00 5.33
</TABLE>
CLASS B AND CLASS C SHARES
Past performance is no guarantee of future results. See footnore * on page 10
for more information on performance.
<TABLE>
<CAPTION>
PERIOD END [BAR CHART] TOTAL RETURN %
----------- ---------------
<S> <C>
12/91 2.08
12/92 9.01
12/93 12.11
12/94 -4.71
12/95 15.67
12/96 2.86
12/97 8.14
12/98 5.00
12/99 -5.51
6/00 5.33
</TABLE>
Past performance is no guarantee of future results. CLass B share returns
reflect the historical performance of the Class A shares through 12/94. Class C
share returns reflect the historical performance of the Class A shares through
12/94 and Class B shares through 8/98. See footnote * on page 10 for more
information on performance.
service sectors. It is worth noting that in conjunction with the passage of the
Debt Reform Act of 2000 in June, Moody's upgraded the state's rating outlook to
positive. The upgrade was in recognition of the state placing constraints on its
issuance of debt and of its plans to reduce the terms of its outstanding debt
from 40 years to 30 years.
7
<PAGE> 270
-------
(1) See footnote and table on page 10 for more information about Lipper Inc.
(2) See footnote on page 4 for more information about the Lehman Brothers
Municipal Bond Index.
STRONG RELATIVE PERFORMANCE
For the six months ended June 30, 2000, MainStay New York Tax Free Fund returned
5.33% for Class A shares, Class B shares, and Class C shares, excluding all
sales charges. All share classes outperformed the 4.31% return of the average
Lipper(1) New York municipal debt fund and the 4.48% return of the Lehman
Brothers Municipal Bond Index(2) during the semiannual period.
STRATEGIC MANAGEMENT DECISIONS
The Fund's strong relative performance was achieved primarily by maintaining a
high-quality portfolio, by keeping a shorter-than-average duration as interest
rates rose through the early part of the second quarter, and by later
emphasizing the longer end of the yield curve when we expected the curve to
flatten. Per- formance was also enhanced by holdings in bonds backed by revenues
that municipalities expect to receive from the national tobacco settlement.
Credit spreads on these bonds tightened as investors became comfortable with
their structure, and we reduced the portfolio's position after spreads
tightened, with a positive impact on performance. The Fund also benefited from
staying under- weighted in the lower-rated health care and resource-recovery
sectors, which underperformed.
LOOKING AHEAD
Economic indicators announced late in the semiannual period were a little weaker
than earlier reports, including a weaker National Purchasing Manager's report
and a cooler labor market, as measured by weekly jobless claims. We believe that
the current slowdown in U.S. economic growth is only temporary. Given tight
labor markets, we believe that inflation risks have not abated. Thus, while
recent weaker economic numbers may allow the Federal Reserve to stay on hold for
a couple of months, we are not convinced that it has completed its cycle of
interest-rate increases. In our view, the Federal Reserve will likely resume
tightening later in the summer.
Given this view, we plan to reduce some of the Fund's exposure to the long end
of the yield curve in favor of intermediate maturities. We believe intermediate
yields will continue to be attractive, given the government's focus on both
short- and long-term securities in its Treasury buyback program. We also believe
intermediate-term bonds may benefit as political proposals to use the budget
surplus to reduce taxes and increase spending start to emerge--and as retail
8
<PAGE> 271
(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.
Past performance is no guarantee of future results.
investors and insurance companies focus their purchases on that portion of the
yield curve.
We intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the yield differences between securities rated AAA
and those rated BBB(3) are adequate to justify taking on the additional credit
risk. We also intend to continue avoiding the risks associated with downgrades
in the health care sector and the prepayment risk of housing bonds. Rather, we
anticipate an emphasis on essential-service revenue bonds, such as those issued
to finance transportation, sewers, electric utilities, and education projects.
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.
John Fitzgerald
Laurie Walters
Portfolio Managers
MacKay Shields LLC
TARGETED DIVIDEND POLICY
The MainStay New York Tax Free Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. During the first half of 2000, the
Fund maintained a stable dividend, which did not materially impact 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 by its targeted
dividend policy.
9
<PAGE> 272
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 1.62% 4.86% 5.67%
Class B 1.47% 4.61% 5.50%
Class C 1.47% 4.61% 5.50%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A -2.95% 3.90% 5.11%
Class B -3.53% 4.27% 5.50%
Class C 0.47% 4.61% 5.50%
</TABLE>
FUND LIPPER + RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS THROUGH 6/30/00
<S> <C> <C> <C>
Class A 40 out of 47 out of 30 out of
105 funds 82 funds 40 funds
Class B 46 out of 60 out of 58 out of
105 funds 82 funds 75 funds
Class C 46 out of n/a 50 out of
105 funds 100 funds
Average Lipper
NY municipal
debt fund 1.06% 4.77% 5.74%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.37 $0.2202 $0.0000
Class B $9.31 $0.2070 $0.0000
Class C $9.31 $0.2070 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Performance figures for this class include
the historical performance of the Class A shares for periods from inception
(10/1/91) through 12/31/94. Performance figures for the two classes vary
after this date based on differences in their sales charges and expense
structures. Class C shares are subject to a CDSC of 1% if redeemed within
one year of purchase. Performance figures for this class include the
historical performance of the Class B shares for periods from inception
(10/1/91) through 8/31/98. Performance figures for the two classes vary
after this date based on differences in their sales charges.
10
<PAGE> 273
+ 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. 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.
Since-inception return for the average Lipper peer fund is for the period
from 10/1/91 through 6/30/00.
11
<PAGE> 274
MainStay New York Tax Free Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (97.1%)+
NEW YORK (97.1%)
Metropolitan Transportation
Authority
Series A
5.875%, due 4/1/25............. $ 500,000 $ 503,265
New York City General Obligation
Series A
6.00%, due 5/15/30 (b)......... 1,000,000 1,006,080
Series D
6.00%, due 2/15/25 (c)......... 25,000 26,414
Series D
7.625%, due 2/1/13 (b)(c)...... 1,000,000 1,060,690
Series F
8.20%, due 11/15/04 (c)........ 20,000 21,280
New York City Industrial
Development
Agency Civic Facility Revenue
Lighthouse International
Project
4.50%, due 7/1/33.............. 1,390,000 1,091,067
New York City Municipal Water
Finance Authority, Water &
Sewer Systems Revenue
Series B
6.00%, due 6/15/33............. 250,000 254,107
Series A
7.00%, due 6/15/09............. 1,000,000 1,031,720
New York City Transitional
Finance Authority Revenue
Series B
6.00%, due 11/15/24............ 600,000 614,028
New York City Trust
Cultural Resource Revenue
Series A
5.75%, due 7/1/29.............. 500,000 498,950
New York State Dormitory
Authority Lease Revenue
Court Facilities
5.75%, due 5/15/30............. 250,000 248,040
State University Dormitory
Facilities
Series C
5.50%, due 7/1/19.............. 1,000,000 980,950
New York State Dormitory
Authority Revenue
Mental Health
Services Facilities Improvement
Series F
4.50% due 8/15/28.............. 600,000 479,712
Series B
6.00%, due 2/15/25............. 500,000 508,915
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
NEW YORK (CONTINUED)
New York State Dormitory Authority Revenue (Continued)
New York University
Series A
5.75%, due 7/1/27.............. $ 500,000 $ 505,495
Park Ridge Housing Income
Project
7.85%, due 2/1/29 (b).......... 800,000 809,696
Rockefeller University
4.75%, due 7/1/37.............. 900,000 752,805
New York State Energy Research &
Development Authority
Electric Facilities Revenue
Con Edison Co. New York Inc.
Project A
7.125%, due 12/1/29 (a)........ 500,000 539,370
7.50% due 1/1/26 (a)........... 500,000 506,005
New York State Environmental
Facilities Corp.
Pollution Control Revenue
Series B
7.50%, due 3/15/11............. 600,000 607,362
New York State Local Government
Assistance Corp.
Series C
(zero coupon), due 4/1/14...... 1,500,000 710,775
New York State Medical Care
Facilities
Finance Agency Revenue
7.35%, due 2/15/29............. 600,000 613,188
7.375%, due 8/15/19............ 390,000 398,564
7.50%, due 2/15/21............. 315,000 326,104
7.625% due 8/15/17............. 595,000 623,382
7.875%, due 8/15/20............ 55,000 56,313
8.875%, due 8/15/07............ 430,000 438,428
New York State Urban Development
Corporate Revenue
Correctional Facilities Service
Contract, Series C
5.75%, due 1/1/16.............. 450,000 458,073
Niagara New York
Frontier Transportation
Authority
Airport Revenue, Series B
5.50%, due 4/1/16.............. 1,000,000 995,220
Triborough Bridge & Tunnel
Authority of New York, General Purpose
Revenue, Series Y
6.125%, due 1/1/21............. 750,000 797,175
-----------
Total Long-Term Municipal Bonds
(Cost $17,914,068)............. 17,463,173
-----------
</TABLE>
12
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE> 275
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM MUNICIPAL BOND (0.6%)
New York City General Obligation
Series B5
4.75%, due 8/15/09 (d)........ $ 100,000 $ 100,000
-----------
Total Short-Term Municipal Bond
(Cost $100,000)................ 100,000
-----------
Total Investments
(Cost $18,014,068) (e)......... 97.7% 17,563,173(f)
Cash and Other Assets,
Less Liabilities............... 2.3 413,015
----- ---------
Net Assets...................... 100.0% $17,976,188
===== =========
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION (g)
------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%) (h)
Municipal Bond
September 2000 (30
Year).............. 13 $10,219
-------
Total Futures
Contracts
(Settlement Value
$1,234,125)......... $10,219
=======
</TABLE>
-------
(a) Interest on this security is subject to alternative minimum tax.
(b) 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 issuer's call date.
(d) Variable rate security that may be tendered back to the issuer at any time
prior to maturity at par.
(e) The cost stated also represents the aggregate cost for federal income tax
purposes.
(f) At June 30, 2000, net unrealized depreciation was $450,895, 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 $191,301 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $642,196.
(g) Represents the difference between the value of the contracts at the time
they were opened and the value at June 30, 2000.
(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> 276
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$18,014,068).............................................. $17,563,173
Cash........................................................ 199,451
Receivables:
Investment securities sold................................ 971,303
Interest.................................................. 342,928
Variation margin on futures contracts..................... 10,718
Fund shares sold.......................................... 700
-----------
Total assets............................................ 19,088,273
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 975,516
Shareholder communication................................. 27,536
Transfer agent............................................ 8,803
Custodian................................................. 5,500
NYLIFE Distributors....................................... 4,997
MainStay Management....................................... 3,590
Trustees.................................................. 123
Accrued expenses............................................ 16,994
Dividend payable............................................ 69,026
-----------
Total liabilities....................................... 1,112,085
-----------
Net assets.................................................. $17,976,188
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 12,157
Class B................................................... 6,956
Class C................................................... 119
Additional paid-in capital.................................. 19,230,792
Accumulated undistributed net investment income............. 26,508
Accumulated net realized loss on investments................ (859,668)
Net unrealized depreciation on investments and futures
contracts................................................. (440,676)
-----------
Net assets.................................................. $17,976,188
===========
CLASS A
Net assets applicable to outstanding shares................. $11,391,245
===========
Shares of beneficial interest outstanding................... 1,215,739
===========
Net asset value per share outstanding....................... $ 9.37
Maximum sales charge (4.50% of offering price).............. 0.44
-----------
Maximum offering price per share outstanding................ $ 9.81
===========
CLASS B
Net assets applicable to outstanding shares................. $ 6,473,962
===========
Shares of beneficial interest outstanding................... 695,568
===========
Net asset value and offering price per share outstanding.... $ 9.31
===========
CLASS C
Net assets applicable to outstanding shares................. $ 110,981
===========
Shares of beneficial interest outstanding................... 11,924
===========
Net asset value and offering price per share outstanding.... $ 9.31
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 277
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 580,076
---------
Expenses:
Management................................................ 46,426
Transfer agent............................................ 26,509
Service--Class A.......................................... 15,150
Service--Class B.......................................... 8,005
Service--Class C.......................................... 58
Professional.............................................. 10,299
Custodian................................................. 8,092
Distribution--Class B..................................... 8,004
Distribution--Class C..................................... 58
Recordkeeping............................................. 6,001
Shareholder communication................................. 2,091
Registration.............................................. 322
Trustees.................................................. 212
Miscellaneous............................................. 9,221
---------
Total expenses before reimbursement..................... 140,448
Expense reimbursement from Manager.......................... (17,245)
---------
Net expenses............................................ 123,203
---------
Net investment income....................................... 456,873
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions..................................... (160,160)
Futures transactions...................................... 6,848
---------
Net realized loss on investments............................ (153,312)
---------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... 680,192
Futures transactions...................................... (1,625)
---------
Net unrealized gain on investment........................... 678,567
---------
Net realized and unrealized gain on investments............. 525,255
---------
Net increase in net assets resulting from operations........ $ 982,128
=========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 278
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 456,873 $ 1,015,436
Net realized loss on investments.......................... (153,312) (706,356)
Net change in unrealized appreciation (depreciation) on
investments............................................. 678,567 (1,508,974)
----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 982,128 (1,199,894)
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (284,897) (665,626)
Class B................................................. (144,282) (351,328)
Class C................................................. (1,186) (483)
From net realized gain on investments:
Class A................................................. -- (12,761)
Class B................................................. -- (6,961)
Class C................................................. -- (37)
----------- -----------
Total dividends and distributions to shareholders..... (430,365) (1,037,196)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 279,483 513,102
Class B................................................. 309,901 1,697,158
Class C................................................. 70,503 38,507
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 109,661 336,060
Class B................................................. 66,076 210,506
Class C................................................. 772 516
----------- -----------
836,396 2,795,849
Cost of shares redeemed:
Class A................................................. (2,314,652) (1,917,421)
Class B................................................. (1,068,012) (2,336,657)
Class C................................................. (3) (6)
----------- -----------
Decrease in net assets derived from capital share
transactions......................................... (2,546,271) (1,458,235)
----------- -----------
Net decrease in net assets............................ (1,994,508) (3,695,325)
NET ASSETS:
Beginning of period......................................... 19,970,696 23,666,021
----------- -----------
End of period............................................... $17,976,188 $19,970,696
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 26,508 $ --
=========== ===========
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 279
This page intentionally left blank
17
<PAGE> 280
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, -----------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 9.11 $ 10.08 $ 10.09 $ 9.91 $ 10.12 $ 9.20
------- ------- ------- ------- ------- -------
Net investment income.............................. 0.22 0.45 0.45 0.49 0.50 0.52
Net realized and unrealized gain (loss) on
investments...................................... 0.26 (0.96) 0.08 0.32 (0.21) 0.91
------- ------- ------- ------- ------- -------
Total from investment operations................... 0.48 (0.51) 0.53 0.81 0.29 1.43
------- ------- ------- ------- ------- -------
Less dividends and distributions:
From net investment income....................... (0.22) (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.................. (0.22) (0.46) (0.54) (0.63) (0.50) (0.51)
------- ------- ------- ------- ------- -------
Net asset value at end of period................... $ 9.37 $ 9.11 $ 10.08 $ 10.09 $ 9.91 $ 10.12
======= ======= ======= ======= ======= =======
Total investment return (a)........................ 5.33% (5.22%) 5.38% 8.39% 3.06% 15.97%
Ratios (to average net assets)/
Supplemental Data:
Net investment income.......................... 5.01%++ 4.63% 4.43% 4.88% 5.0% 5.4%
Net expenses................................... 1.24%++ 1.24% 1.24% 1.24% 1.24% 1.24%
Expenses (before reimbursement)................ 1.43%++ 1.47% 1.57% 1.41% 1.4% 1.4%
Portfolio turnover rate............................ 42% 77% 157% 212% 114% 114%
Net assets at end of period (in 000's)............. $11,391 $12,952 $15,499 $13,814 $15,572 $18,248
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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> 281
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------- ------------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ------------------------------------------ June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ------ ------ ------ ------ ------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.04 $10.01 $10.03 $ 9.84 $10.02 $ 9.20 $ 9.04 $10.01 $10.11
------ ------ ------ ------ ------ ------ ------ ------ ------
0.21 0.42 0.43 0.45 0.45 0.59 0.21 0.42 0.13
0.27 (0.96) 0.06 0.33 (0.18) 0.82 0.27 (0.96) (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------
0.48 (0.54) 0.49 0.78 0.27 1.41 0.48 (0.54) 0.12
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.21) (0.42) (0.43) (0.45) (0.45) (0.59) (0.21) (0.42) (0.14)
-- (0.01) (0.08) (0.14) -- -- -- (0.01) (0.08)
------ ------ ------ ------ ------ ------ ------ ------ ------
(0.21) (0.43) (0.51) (0.59) (0.45) (0.59) (0.21) (0.43) (0.22)
------ ------ ------ ------ ------ ------ ------ ------ ------
$ 9.31 $ 9.04 $10.01 $10.03 $ 9.84 $10.02 $ 9.31 $ 9.04 $10.01
====== ====== ====== ====== ====== ====== ====== ====== ======
5.33% (5.51%) 5.00% 8.14% 2.86% 15.67% 5.33% (5.51%) 1.18%
4.76%++ 4.38% 4.18% 4.63% 4.7% 5.1% 4.76%++ 4.38% 4.18%++
1.49%++ 1.49% 1.49% 1.49% 1.49% 1.49% 1.49%++ 1.49% 1.49%++
1.68%++ 1.72% 1.82% 1.66% 1.6% 1.6% 1.68%++ 1.72% 1.82%++
42% 77% 157% 212% 114% 114% 42% 77% 157%
$6,474 $6,980 $8,217 $5,585 $4,100 $1,588 $ 111 $ 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> 282
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 (and certain other qualified purchases) 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
20
<PAGE> 283
Notes to Financial Statements unaudited
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 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 may 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 may enter into contracts for the
future delivery of debt securities in order to attempt to protect against the
effects of adverse changes in interest rates, to lengthen or shorten the average
maturity or duration of the Fund's portfolio or to try to enhance the Fund's
returns.
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
21
<PAGE> 284
MainStay New York Tax Free Fund
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.
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 plans)
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> 285
Notes to Financial Statements unaudited (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 six months ended June 30, 2000, the Manager earned $46,426
and reimbursed the Fund $17,245.
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 distribution plans (the
"Plans") 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 plans provide 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 Plans provide 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 $335 for the six months ended
June 30, 2000. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B shares of $6,189 for
the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $26,509.
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> 286
MainStay New York Tax Free Fund
CAPITAL. At June 30, 2000, the Distributor beneficially held shares of Class A
of the Fund with a net asset value of $4,680,216, which represents 41.1% of the
Class A net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $193 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,001 for the six months ended June 30, 2000.
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 has
elected to treat for federal income tax purposes approximately $409,684 of
qualifying realized capital losses that arose during the prior 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 six months ended June 30, 2000, purchases and sales of securities,
other than U.S. Government securities and short-term securities, were $7,702 and
$8,698, 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 six months ended June 30, 2000.
24
<PAGE> 287
Notes to Financial Statements unaudited (continued)
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
----------------------------------- -----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold......................... 31 34 8 53 176 4
Shares issued in reinvestment of
dividends and distributions....... 12 7 --(a) 35 22 --(a)
---- ---- -- ---- ---- --
43 41 8 88 198 4
Shares redeemed..................... (249) (117) --(a) (199) (247) --(a)
---- ---- -- ---- ---- --
Net increase (decrease)............. (206) (76) 8 (111) (49) 4
==== ==== == ==== ==== ==
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand.
</TABLE>
25
<PAGE> 288
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
26
<PAGE> 289
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSNT11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
New York Tax Free Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 290
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in 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 and Six Month Performance 5
Returns and Lipper Rankings 8
Portfolio of Investments 10
Financial Statements 15
Notes to Financial Statements 20
The MainStay(R) Funds 25
</TABLE>
<PAGE> 291
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
2
<PAGE> 292
$10,000 Invested in MainStay
Tax Free Bond Fund versus Lehman Brothers
Municipal Bond Index and Inflation
CLASS A SHARES Total Returns: 1 Year -4.05%, 5 Years 3.39%, 10 Years 5.08%
[PERFORMANCE LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS
PERIOD END FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
---------- ---------------------- --------------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,550 $ 10,000 $ 10,000
12/90 9,997 10,729 10,625
12/91 11,085 12,032 10,942
12/92 12,018 13,093 11,265
12/93 13,268 14,700 11,574
12/94 12,469 13,940 11,875
12/95 14,339 16,374 12,184
12/96 14,860 17,100 12,587
12/97 16,200 18,671 12,801
12/98 17,007 19,881 13,007
12/99 15,860 19,472 13,356
6/00 16,609 20,344 13,632
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year -4.87%, 5 Years 3.75%, 10 Years 5.43%
Class C Total Returns: 1 Year -0.87%, 5 Years 4.09%, 10 Years 5.43%
[PERFORMANCE LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY TAX FREE BOND LEHMAN BROTHERS
PERIOD END FUND MUNICIPAL BOND INDEX* INFLATION (CPI)+
---------- ---------------------- --------------------- ----------------
<S> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 10,000
12/90 10,468 10,729 10,625
12/91 11,608 12,032 10,942
12/92 12,585 13,093 11,265
12/93 13,893 14,700 11,574
12/94 13,056 13,940 11,875
12/95 14,997 16,374 12,184
12/96 15,997 17,100 12,587
12/97 16,860 18,671 12,801
12/98 17,673 19,881 13,007
12/99 16,443 19,472 13,356
6/00 17,179 20,344 13,632
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge and
includes the historical performance of the Class B shares for periods from
inception (5/1/86) through 12/31/94. Performance figures for the two classes
vary after this date based on differences in their sales charges and expense
structures. Class C share performance includes the historical performance of
the Class B shares for periods from inception (5/1/86) through 8/31/98.
Class B shares would be subject to a contingent deferred sales charge (CDSC)
of up to 5% if redeemed within the first six years of purchase and Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* The Lehman Brothers Municipal Bond Index 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. You cannot invest
directly in 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> 293
Portfolio Management Discussion and Analysis
The U.S. economy powered into the new millennium without a hitch. Optimism for
the economy's long-term potential was reflected in strong business and consumer
spending, sizeable foreign capital flows, and a federal budget surplus. Even so,
the Federal Reserve questioned whether the U.S. could continue to maintain a
combination of low inflation, low unemployment, and strong economic growth.
Higher labor costs and rising asset values posed realistic obstacles to such a
scenario.
In response to 5.5% annualized GDP growth in the first quarter of 2000, the
Federal Reserve raised the targeted federal funds rate by 0.25% on both February
2 and March 21. As economic growth continued unabated into the second quarter,
the Fed tightened interest rates by another 0.50% on May 16. After that,
economic data began showing signs of a broad-based slowdown--with shrinking
private-sector payrolls, declining retail sales, and a one-year low in housing
starts. Choosing to wait and see whether the slowdown was temporary or
sustainable, the Federal Reserve voted to hold interest rates steady at its June
meeting.
During the semiannual period, municipal market yields, like those of their
taxable counterparts, were volatile and generally tracked the economic data and
moves by the Federal Reserve. As in the Treasury market, the long end of the
municipal yield curve outperformed. Municipal yields reached their highest
levels in more than five years at the end of May, but over the six months,
5-year municipal yields fell 0.06%, 10-year yields rose 0.07%, and 30-year
yields declined 0.21%. In June, intermediate maturities started to perform
particularly well, as individual investors considered yields on these
intermediate-term securities attractive, without the risk of longer-duration
bonds.
Higher interest rates continued to dampen refunding volume in the municipal
market. New issuance fell to $92 billion in the first six months of the year, a
22% decrease versus the same period in 1999. On the other hand, demand from
individuals seemed to vary in tandem with volatility in the equity markets. As
the U.S. economy continued to advance at a rapid pace and tax coffers remained
healthy, credit quality was solid in the municipal market. The sustained
national expansion has resulted in greater economic diversity and increased
financial flexibility in many areas of the country.
4
<PAGE> 294
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
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
6/00 4.72
Past performance is no guarantee of future results. Class C share returns reflect the historical
performance of the Class B shares through 8/98. See footnote * on page 8 for more information on
performance.
</TABLE>
CLASS B AND CLASS C SHARES
[BAR GRAPH]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
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
6/00 4.48
Past performance is no guarantee of future results. Class C share returns reflect the historical
performance of the Class B shares through 8/9. See footnote * on page 8 for more information on
performance.
</TABLE>
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Tax Free Bond Fund returned
4.72% for Class A shares and 4.48% for Class B and Class C shares, excluding all
sales charges. All share classes outperformed the 3.95% return of the average
Lipper(1) general municipal debt fund and either outperformed or precisely
tracked the 4.48% return of the Lehman Brothers Municipal Bond Index(2) during
the semiannual period.
(1) See footnote and table on page 8 for more information about Lipper Inc.
(2) See footnote on page 3 for more information about the Lehman Brothers
Municipal Bond Index.
5
<PAGE> 295
STRATEGIC MATURITY AND SECTOR POSITIONING
The Fund's strong relative performance was achieved primarily by maintaining a
high-quality portfolio, by maintaining a shorter-than-average duration as
interest rates rose through the early part of the second quarter, and by later
emphasizing the longer end of the yield curve when we expected the curve to
flatten. The portfolio also benefited from staying underweighted in the lower-
rated health care and resource-recovery sectors, which underperformed, and
staying overweighted in specialty states such as New York and California, where
the bid from retail investors was especially strong.
LOOKING AHEAD
Economic indicators announced late in the semiannual period were a little weaker
than earlier reports, including a weaker National Purchasing Manager's report
and a cooler labor market, as measured by weekly jobless claims. We believe that
the current slowdown in U.S. economic growth is only temporary. Given tight
labor markets, we believe that inflation risks have not abated. Thus, while
recent weaker economic numbers may allow the Federal Reserve to stay on hold for
a couple of months, we are not convinced that it has completed its cycle of
interest-rate increases. In our view, the Federal Reserve will likely resume
tightening later in the summer.
Given this view, we plan to reduce some of the Fund's exposure to the long end
of the yield curve in favor of intermediate maturities. We believe intermediate
yields will continue to be attractive, given the government's focus on both
short- and long-term securities in its Treasury buyback program. We also believe
intermediate-term bonds may benefit as political proposals to use the budget
surplus to reduce taxes and increase spending start to emerge--and as retail
investors and insurance companies focus their purchases on that portion of the
yield curve.
We intend to maintain the high quality of the securities in the Fund's
portfolio, as we do not feel the yield differences between securities rated AAA
and those rated BBB(3) are adequate to justify taking on the additional credit
risk. We also intend to continue avoiding the risks associated with downgrades
in the health care sector and the prepayment risk of housing bonds. Rather, we
anticipate an emphasis on essential-service revenue bonds, such as those issued
to finance transportation, sewers, electric utilities, and education projects.
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.
John Fitzgerald
Laurie Walters
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. 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.
Past performance is no guarantee of future results.
6
<PAGE> 296
TARGETED DIVIDEND POLICY
The MainStay Tax Free Bond Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. In January 2000, the Fund
increased its dividend to more accurately reflect the level of current
earnings within the Fund. The increase did not materially impact 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 by its targeted
dividend policy.
7
<PAGE> 297
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 0.48% 4.34% 5.56% 5.60%
Class B 0.13% 4.09% 5.43% 5.51%
Class C 0.13% 4.09% 5.43% 5.51%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A -4.05% 3.39% 5.08% 5.26%
Class B -4.87% 3.75% 5.43% 5.51%
Class C -0.87% 4.09% 5.43% 5.51%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 182 out of 140 out of n/a 139 out of
268 funds 183 funds 169 funds
Class B 204 out of 158 out of 82 out of 54 out of
268 funds 183 funds 83 funds 55 funds
Class C 204 out of n/a n/a 216 out of
268 funds 250 funds
Average Lipper
general municipal
debt fund 0.98% 4.76% 6.40% 6.83%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $9.28 $0.2232 $0.0000
Class B $9.28 $0.2118 $0.0000
Class C $9.28 $0.2118 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions.
Class A shares are sold with a maximum initial sales charge of 4.5%.
Performance figures for this class include the historical performance of the
Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares are
subject to a CDSC of up to 5% if shares are redeemed within the first six
years of purchase. Class C shares are subject to a CDSC of 1% if redeemed
within one year of purchase. Performance figures for this class include the
historical performance of the Class B shares for periods from inception
(5/1/86) through 8/31/98. Performance figures for the two classes vary after
this date based on differences in their sales charges.
8
<PAGE> 298
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. 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. Since-inception
return for the average Lipper peer fund is for the period from 5/1/86
through 6/30/00.
9
<PAGE> 299
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
LONG-TERM MUNICIPAL BONDS (100.5%)+
ALABAMA (1.8%)
University of
Alabama-Birmingham
University Revenues
6.00%, due 10/1/16-10/1/17.... $ 5,995,000 $ 6,220,116
------------
CALIFORNIA (13.1%)
California Educational
Facilities
Authority Revenue
Stanford University
Series N
5.20%, due 12/1/27 (b)........ 14,920,000 13,959,301
California Housing Finance
Agency Single Family Mortgage
Series D-2
(zero coupon), due 2/1/29
(a)........................... 2,000,000 320,400
California Statewide Community
Catholic Healthcare West
6.50%, due 7/1/20............. 2,000,000 1,986,740
Escondido California
Union High School District
(zero coupon), due 11/1/16
(c)........................... 3,500,000 1,429,995
Foothill-Eastern Transportation
Corridor Agency, Toll Road
Revenue, Series A
(zero coupon), due 1/1/28..... 24,540,000 4,912,417
Los Angeles California
Department of Water & Power
Electric Plant Revenue
6.375%, due 2/1/20............ 7,000,000 7,289,940
San Francisco California City &
County Airports Commission
International Airport Revenue
Second Series, Issue 6
6.50%, due 5/1/18 (a)......... 3,240,000 3,449,952
6.60%, due 5/1/20 (a)......... 500,000 532,265
San Joaquin Hills California
Transportation Corridor Agency
Toll Road Revenue
(zero coupon), due
1/1/16-1/1/22................. 33,165,000 10,550,652
------------
44,431,662
------------
COLORADO (3.1%)
Denver Colorado City &
County Special Facilities
Airport Revenue
United Airlines Project
Series A
8.50%, due 11/15/23 (a)....... 10,000,000 10,314,600
------------
</TABLE>
----------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
FLORIDA (3.0%)
Gulf Breeze Florida Revenue
Capital
Funding, Series B
4.50%, due 10/1/27............ $ 2,500,000 $ 2,030,500
Orange County School Board
5.50%, due 8/1/25............. 5,000,000 4,870,350
Seminole County Water & Sewer
5.375%, due 10/1/22........... 3,400,000 3,246,898
------------
10,147,748
------------
GEORGIA (2.1%)
Cherokee County Georgia
Water & Sewer Authority
Revenue
5.20%, due 8/1/25............. 5,320,000 5,001,438
Georgia Municipal Electric
Authority
Power Revenue, Series Y
6.50%, due 1/1/17............. 2,000,000 2,223,180
------------
7,224,618
------------
HAWAII (3.1%)
Hawaii State Airports System
Revenue, Second Series
7.50%, due 7/1/20 (a)......... 10,395,000 10,603,732
------------
ILLINOIS (7.5%)
Chicago Illinois Board of
Education 5.875%, due
12/1/14....................... 3,130,000 3,240,833
Chicago Illinois Water Revenue
6.50%, due 11/1/15............ 3,005,000 3,334,829
Illinois Health Facilities
Authority Revenue
6.25%, due 11/15/29........... 4,000,000 3,781,960
Glenoaks Hospital
Series E
9.50%, due 11/15/19........... 765,000 795,095
Hinsdale Hospital
Series B
9.00%, due 11/15/15........... 1,735,000 1,800,062
Series C
9.50%, due 11/15/19........... 4,960,000 5,155,126
Illinois Regional
Transportation Authority
Series C
7.10%, due 6/1/25 (c)......... 1,500,000 1,647,615
Kankakee Illinois Sewer Revenue
7.00%, due 5/1/16 (c)......... 2,000,000 2,152,660
State of Illinois
First Series
7.00%, due 5/1/16............. 3,450,000 3,550,982
------------
25,459,162
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 300
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS (CONTINUED)
<S> <C> <C>
INDIANA (2.0%)
Indiana Bond Bank
Common School Fund
Series A
5.00%, due 2/1/14............. $ 500,000 $ 476,960
Indianapolis Indiana Local
Public Improvement Bond Bank
Series D
6.75%, due 2/1/20............. 6,000,000 6,324,840
------------
6,801,800
------------
KANSAS (2.6%)
Burlington Pollution Control
Revenue
Kansas Gas & Electric Co.
Project
7.00%, due 6/1/31............. 8,300,000 8,614,736
------------
LOUISIANA (4.8%)
Lake Charles Louisiana Harbor &
Terminal District Port
Facilities Revenue, Truckline
Long Co.
7.75%, due 8/15/22............ 13,000,000 13,920,010
Louisiana State Offshore
Terminal Authority, Deepwater
Port Revenue
Series E
7.60%, due 9/1/10............. 2,135,000 2,186,133
------------
16,106,143
------------
MASSACHUSETTS (1.5%)
New England Education Loan
Marketing Corp. Student Loan
Series A
5.70%, due 7/1/05 (a)......... 4,800,000 4,931,088
------------
MINNESOTA (2.8%)
Rochester Minnesota Health Care
Facilities, Mayo Foundation
Series A
5.50%, due 11/15/27 (c)....... 9,750,000 9,288,825
------------
MONTANA (0.7%)
Forsyth Montana Pollution
Control
Revenue, Puget Sound Power &
Light
6.80%, due 3/1/22............. 2,200,000 2,297,284
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
NEBRASKA (0.6%)
Nebraska Investment Finance
Authority, Single Family
Housing Revenue
Series C
6.30%, due 9/1/28 (a)......... $ 1,990,000 $ 1,997,801
------------
NEVADA (2.7%)
Clark County Nevada Pollution
Control Revenue
Nevada Power Co. Project
Series B
6.60%, due 6/1/19............. 1,925,000 2,019,056
Nevada State Colorado River
Community Power Delivery
Series A
5.625%, due 9/15/29........... 7,345,000 7,119,214
------------
9,138,270
------------
NEW HAMPSHIRE (4.6%)
New Hampshire Higher
Educational &
Health Facilities Authority
Dartmouth College
5.125%, due 6/1/28 (b)........ 10,750,000 9,601,040
5.70%, due 6/1/27............. 5,900,000 5,812,680
------------
15,413,720
------------
NEW JERSEY (4.6%)
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 3,265,170
New Jersey Economic Development
Authority Revenue
Transportation Project
Series A
5.875%, due 5/1/14............ 8,000,000 8,340,640
New Jersey State Turnpike
Authority Revenue
5.75%, due 1/1/16............. 4,000,000 4,104,480
------------
15,710,290
------------
NEW YORK (19.8%)
Metropolitan Transportation
Authority New York Commuter
Facilities Revenue, Series A
5.625%, due 7/1/27............ 9,500,000 9,249,295
5.75%, due 7/1/21............. 1,000,000 1,000,350
Metropolitan Transportation
New York Tax Free, Series A
4.50%, due 4/1/18............. 5,000,000 4,228,450
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 301
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS (CONTINUED)
<S> <C> <C>
NEW YORK (CONTINUED)
New York City General
Obligation
Series E
5.875%, due 8/1/13............ $10,000,000 $ 10,277,700
Series D
6.00%, due 2/15/25 (c)........ 95,000 100,374
Series B
7.00%, due 6/1/15............. 15,000 15,511
7.00%, due 6/1/15 (c)......... 75,000 77,876
Series A
7.75%, due 8/15/07-8/15/16
(c)......................... 165,000 173,191
Series D
8.00%, due 8/1/04 (c)......... 25,000 26,316
8.00%, due 8/1/04............. 30,000 31,464
Series F
8.20%, due 11/15/04 (c)....... 105,000 111,722
New York City Industrial
Development Agency Civic
Facility Revenue Lighthouse
International Project 4.50%,
due 7/1/33.................... 3,750,000 2,943,525
New York City Metropolitan
Transportation Authority
Control Series 7
(zero coupon), due 7/1/14..... 3,930,000 1,780,487
New York State Dormitory
Authority Lease Revenue
Court Facilities
5.75%, due 5/15/30............ 2,750,000 2,728,440
New York State Dormitory
Authority Revenue
Cornell University
Series C
7.375%, due 5/15/10........... 6,000,000 6,758,640
Series A
7.375%, due 7/1/30............ 2,880,000 2,937,830
Series B
7.50%, due 5/15/11............ 4,250,000 4,875,983
New York University
Series A
5.75%, due 7/1/27............. 2,500,000 2,527,475
6.00%, due 7/1/18-7/1/19...... 7,000,000 7,381,308
Park Ridge Housing Income
Project
7.85%, due 2/1/29............. 1,400,000 1,416,968
Rockefeller University
4.75%, due 7/1/37............. 850,000 710,983
New York State Environmental
Facilities Corp. Pollution
Control Revenue, State Water
Series A
7.25%, due 6/15/10............ 400,000 417,828
7.50%, due 6/15/12............ 3,050,000 3,118,656
Series B
7.50%, due 3/15/11............ 700,000 708,589
</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 $ 535,451
New York State Medical Care
Facilities Finance
Agency Revenue
7.375%, due 8/15/19........... 1,580,000 1,614,697
7.875%, due 8/15/20........... 450,000 460,742
New York State Thruway
Authority Service Contract
Revenue
Local Highway & Bridge
5.75%, due 4/1/16............. 100,000 100,393
Tobacco Settlement Asset
Securitization Corp.
Series 1, Plan Principal 2019
6.25%, due 7/15/27............ 250,000 251,750
Triborough Bridge & Tunnel
Authority of New York
General Purpose Revenue
Series Y
6.125%, due 1/1/21............ 750,000 797,175
------------
67,359,169
------------
NORTH CAROLINA (2.7%)
North Carolina East Municipal
Power Agency, Power System
Revenue Series D
6.75%, due 1/1/26............. 2,000,000 2,031,540
North Carolina Municipal Power
Agency, Catawba Electric
Revenue Series B
6.50%, due 1/1/20............. 7,000,000 7,015,820
------------
9,047,360
------------
OHIO (0.6%)
Ohio State Air Quality
Development Authority Revenue,
Pollution Control, Cleveland
Co. Project
8.00%, due 12/1/13............ 2,000,000 2,162,580
------------
PENNSYLVANIA (2.2%)
Allegheny County Port Authority
Special Revenue Transportation
6.25%, due 3/1/16............. 3,750,000 3,985,875
6.375%, due 3/1/15............ 3,120,000 3,365,731
------------
7,351,606
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 302
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS (CONTINUED)
<S> <C> <C>
SOUTH CAROLINA (0.8%)
Charleston County South
Carolina Public Improvement
6.125%, due 9/1/11............ $ 2,425,000 $ 2,630,519
------------
TEXAS (9.1%)
Austin Texas Water & Wastewater
System Revenue
5.75%, due 5/15/15............ 2,900,000 2,980,040
Dallas Fort Worth Texas
International
Airport Facility Improvement
Revenue
Series A
6.00%, due 11/1/28............ 4,000,000 4,004,440
American Airlines Inc.
7.50%, due 11/1/25 (a)........ 7,700,000 7,811,958
Frisco Texas Independent School
District Capital Appreciation
(zero coupon), due 8/15/27.... 3,000,000 583,380
Goose Creek Texas Independent
School District
5.25%, due 8/15/18............ 3,000,000 2,879,550
Houston Texas Water & Sewer
Systems Revenue Participation
Series C
6.375%, due 12/1/17........... 1,150,000 1,197,875
6.375%, due 12/1/17 (c)....... 75,000 78,347
Matagorda County Navigation
District 1, Pollution Control
Revenue
Central Power & Light Co.
Project
5.95%, due 5/1/30 (a)......... 4,000,000 3,565,240
Pflugerville Texas
General Obligation
4.75%, due 8/1/24............. 5,625,000 4,788,956
Spring Texas Independent School
District, Series A
4.50%, due 8/15/21-8/15/22.... 3,600,000 2,973,924
------------
30,863,710
------------
WASHINGTON (2.0%)
Seattle Washington Municipal
Light & Power Revenue
6.00%, due 10/1/15............ 6,500,000 6,790,355
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
WISCONSIN (2.4%)
Wisconsin State Health &
Educational Facility Revenue,
Kenosha Hospital Medical
Center
5.625%, due 5/15/29........... $ 2,590,000 $ 2,220,148
Wisconsin State, Series C
5.75%, due 5/1/11............. 1,045,000 1,092,422
6.00%, due 5/1/12............. 4,590,000 4,878,665
------------
8,191,235
------------
WEST VIRGINIA (0.3%)
Kanawha Mercer Nicholas County
West Virginia Single Family
Mortgage Revenue
(zero coupon), due 2/1/15
(c)........................... 2,230,000 916,552
------------
Total Long-Term Municipal Bonds
(Cost $350,549,103)........... 340,014,681
------------
SHORT-TERM MUNICIPAL BONDS (0.3%)
INDIANA (0.3%)
Jasper County Indiana Pollution
Control
Series B
4.50%, due 6/1/13............. 500,000 500,000
Series C
4.50%, due 4/1/19............. 600,000 600,000
------------
Total Short Term Municipal
Bonds
(Cost $1,100,000)............. 1,100,000
------------
Total Investments
(Cost $351,649,103) (d)....... 100.8% 341,114,681(e)
Liabilities in Excess of
Cash and Other Assets......... (0.8) (2,761,778)
----- ------------
Net Assets..................... 100.0% $338,352,903
===== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 303
MainStay Tax Free Bond Fund
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT DEPRECIATION (f)
---------------------------------
<S> <C> <C>
FUTURES CONTRACTS (0.0%)(g)
Municipal Bond
September 2000
(30 Year).......... (104) $ (163,218)
------------
Total Futures
Contracts
(Settlement Value
$9,954,750)......... $ (163,218)
============
</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 June 30, 2000, net unrealized depreciation was $10,534,422, 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 $3,223,584 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $13,758,006.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at June 30, 2000.
(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> 304
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$351,649,103)............................................. $341,114,681
Cash........................................................ 327,208
Receivables:
Investment securities sold................................ 7,862,379
Interest.................................................. 5,400,052
Fund shares sold.......................................... 617,814
------------
Total assets........................................ 355,322,134
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 14,926,650
MainStay Management....................................... 172,113
Fund shares redeemed...................................... 157,199
Variation margin on futures contracts..................... 138,170
NYLIFE Distributors....................................... 136,343
Transfer agent............................................ 62,627
Custodian................................................. 3,104
Trustees.................................................. 2,102
Accrued expenses............................................ 81,383
Dividend payable............................................ 1,289,540
------------
Total liabilities................................... 16,969,231
------------
Net assets.................................................. $338,352,903
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 14,128
Class B................................................... 349,786
Class C................................................... 635
Additional paid-in capital.................................. 374,212,490
Accumulated undistributed net investment income............. 517,394
Accumulated net realized loss on investments................ (26,043,890)
Net unrealized depreciation on investments and futures
contracts................................................. (10,697,640)
------------
Net assets.................................................. $338,352,903
============
CLASS A
Net assets applicable to outstanding shares................. $ 13,109,138
============
Shares of beneficial interest outstanding................... 1,412,773
============
Net asset value per share outstanding....................... $ 9.28
Maximum sales charge (4.50% of offering price).............. 0.44
------------
Maximum offering price per share outstanding................ $ 9.72
============
CLASS B
Net assets applicable to outstanding shares................. $324,654,284
============
Shares of beneficial interest outstanding................... 34,978,599
============
Net asset value and offering price per share outstanding.... $ 9.28
============
CLASS C
Net assets applicable to outstanding shares................. $ 589,481
============
Shares of beneficial interest outstanding................... 63,512
============
Net asset value and offering price per share outstanding.... $ 9.28
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 305
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 10,810,140
------------
Expenses:
Management................................................ 1,049,567
Distribution--Class B..................................... 418,187
Distribution--Class C..................................... 640
Service--Class A.......................................... 18,525
Service--Class B.......................................... 418,187
Service--Class C.......................................... 640
Transfer agent............................................ 180,633
Recordkeeping............................................. 30,755
Professional.............................................. 25,818
Shareholder communication................................. 25,627
Registration.............................................. 22,313
Custodian................................................. 16,144
Trustees.................................................. 3,799
Miscellaneous............................................. 17,142
------------
Total expenses.......................................... 2,227,977
------------
Net investment income....................................... 8,582,163
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions..................................... (4,127,054)
Futures transactions...................................... 157,406
------------
Net realized loss on investments............................ (3,969,648)
------------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions..................................... 11,242,362
Futures transactions...................................... (504,374)
------------
Net unrealized gain on investments.......................... 10,737,988
------------
Net realized and unrealized gain on investments............. 6,768,340
------------
Net increase in net assets resulting from operations........ $ 15,350,503
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 306
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- -------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 8,582,163 $ 19,419,682
Net realized loss on investments.......................... (3,969,648) (18,327,409)
Net change in unrealized appreciation (depreciation) on
investments............................................. 10,737,988 (32,668,330)
------------ -------------
Net increase (decrease) in net assets resulting from
operations.............................................. 15,350,503 (31,576,057)
------------ -------------
Dividends to shareholders:
From net investment income:
Class A................................................. (356,306) (892,182)
Class B................................................. (7,697,513) (18,519,426)
Class C................................................. (12,064) (6,960)
------------ -------------
Total dividends to shareholders....................... (8,065,883) (19,418,568)
------------ -------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 10,666,055 10,385,583
Class B................................................. 5,727,559 24,705,772
Class C................................................. 97,810 558,295
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 210,737 629,466
Class B................................................. 4,176,809 11,863,292
Class C................................................. 6,154 6,955
------------ -------------
20,885,124 48,149,363
Cost of shares redeemed:
Class A................................................. (11,751,538) (12,858,688)
Class B................................................. (50,632,186) (90,948,427)
Class C................................................. (15,771) (57,995)
------------ -------------
Decrease in net assets derived from capital share
transactions......................................... (41,514,371) (55,715,747)
------------ -------------
Net decrease in net assets............................ (34,229,751) (106,710,372)
NET ASSETS:
Beginning of period......................................... 372,582,654 479,293,026
------------ -------------
End of period............................................... $338,352,903 $ 372,582,654
============ =============
Accumulated undistributed net investment income at end of
period.................................................... $ 517,394 $ 1,114
============ =============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 307
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ----------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period................ $ 9.08 $ 10.20 $ 10.19 $ 9.84 $ 10.02 $ 9.20
------- ------- ------- ------- ------- ------
Net investment income................................. 0.24 0.45 0.47 0.51 0.54 0.52
Net realized and unrealized gain (loss) on
investments......................................... 0.18 (1.12) 0.03 0.35 (0.19) 0.83
------- ------- ------- ------- ------- ------
Total from investment operations...................... 0.42 (0.67) 0.50 0.86 0.35 1.35
------- ------- ------- ------- ------- ------
Less dividends:
From net investment income.......................... (0.22) (0.45) (0.48) (0.51) (0.53) (0.53)
In excess of net investment income.................. -- -- (0.01) -- -- --
------- ------- ------- ------- ------- ------
Total dividends....................................... (0.22) (0.45) (0.49) (0.51) (0.53) (0.53)
------- ------- ------- ------- ------- ------
Net asset value at end of period...................... $ 9.28 $ 9.08 $ 10.20 $ 10.19 $ 9.84 $10.02
======= ======= ======= ======= ======= ======
Total investment return (a)........................... 4.72% (6.75%) 4.98% 9.02% 3.63% 15.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment income............................. 5.15%++ 4.62% 4.61% 5.14% 5.4% 5.5%
Expenses.......................................... 1.03%++ 1.02% 1.02% 1.01% 1.0% 1.0%
Portfolio turnover rate............................... 9% 101% 116% 119% 95% 110%
Net assets at end of period (in 000's)................ $13,109 $13,676 $17,868 $13,017 $16,486 $9,752
</TABLE>
-------
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
18
<PAGE> 308
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------- -----------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ---------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- -------- -------- -------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.09 $ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.20 $ 9.09 $10.21 $10.25
-------- -------- -------- -------- -------- -------- ------ ------ ------
0.22 0.43 0.45 0.49 0.51 0.51 0.22 0.43 0.15
0.18 (1.12) 0.03 0.35 (0.19) 0.83 0.18 (1.12) (0.04)
-------- -------- -------- -------- -------- -------- ------ ------ ------
0.40 (0.69) 0.48 0.84 0.32 1.34 0.40 (0.69) 0.11
-------- -------- -------- -------- -------- -------- ------ ------ ------
(0.21) (0.43) (0.45) (0.49) (0.51) (0.51) (0.21) (0.43) (0.15)
-- -- (0.01) -- -- -- -- -- (0.00)(b)
-------- -------- -------- -------- -------- -------- ------ ------ ------
(0.21) (0.43) (0.46) (0.49) (0.51) (0.51) (0.21) (0.43) (0.15)
-------- -------- -------- -------- -------- -------- ------ ------ ------
$ 9.28 $ 9.09 $ 10.21 $ 10.19 $ 9.84 $ 10.03 $ 9.28 $ 9.09 $10.21
======== ======== ======== ======== ======== ======== ====== ====== ======
4.48% (6.96%) 4.83% 8.80% 3.33% 14.86% 4.48% (6.96%) 1.09%
4.90%++ 4.37% 4.36% 4.93% 5.2% 5.2% 4.90%++ 4.37% 4.36%++
1.28%++ 1.27% 1.27% 1.22% 1.2% 1.2% 1.28%++ 1.27% 1.27%++
9% 101% 116% 119% 95% 110% 9% 101% 116%
$324,654 $358,417 $461,420 $482,209 $496,231 $543,314 $ 589 $ 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> 309
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 (and certain other qualified purchases) 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
20
<PAGE> 310
Notes to Financial Statements unaudited
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 may 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 may enter into contracts for the
future delivery of debt securities in order to attempt to protect against the
effects of adverse changes in interest rates, to lengthen or shorten the average
maturity or duration of the Fund's portfolio or to try to enhance the Fund's
returns.
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
21
<PAGE> 311
MainStay Tax Free Bond Fund
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.
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 plans)
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 six months ended June 30, 2000, the Manager
earned $1,049,567.
22
<PAGE> 312
Notes to Financial Statements unaudited (continued)
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.30% 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 distribution plans (the
"Plans") 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 plans provide 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 Plans provide 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 $222 for the six months ended
June 30, 2000. The Fund was also advised that the Distributor retained
contingent deferred sales charges on redemptions of Class B and Class C shares
of $158,600 and $124, respectively, for the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $180,633.
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 $3,649 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$30,755 for the six months ended June 30, 2000.
23
<PAGE> 313
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 has elected, to the extent provided by the regulations, to
treat $5,976,080 of qualifying capital losses that arose during the prior year
as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $31,952 and $66,293, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
----------------------------------- -----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 1,167 624 11 1,058 2,492 59
Shares issued in reinvestment of
dividends..................... 23 458 --(a) 65 1,224 --(a)
------ ------ -- ------ ------ --
1,190 1,082 11 1,123 3,716 59
Shares redeemed................. (1,284) (5,543) (2) (1,369) (9,486) (6)
------ ------ -- ------ ------ --
Net increase (decrease)......... (94) (4,461) 9 (246) (5,770) 53
====== ====== == ====== ====== ==
</TABLE>
-------
* Unaudited.
(a) Less than one thousand.
24
<PAGE> 314
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
25
<PAGE> 315
This page intentionally left blank
<PAGE> 316
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS 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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000. NYLIFE Distributors Inc. All rights reserved. MST11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Tax Free Bond Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 317
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in MainStay Total Return
Fund versus S&P 500 Index and Inflation--
Class A, Class B, and Class C Shares 3
Portfolio Management Discussion and Analysis 4
Year-by-Year and Six-Month Performance 5
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 17
Notes to Financial Statements 22
The MainStay(R) Funds 31
</TABLE>
<PAGE> 318
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
2
<PAGE> 319
$10,000 Invested in MainStay
Total Return Fund versus S&P 500
Index and Inflation
CLASS A SHARES Total Returns: 1 Year 7.50%, 5 Years 16.24%, 10 Years 13.95%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN
FUND S&P 500 INDEX* INFLATION (CPI)+
--------------------- -------------- ----------------
<S> <C> <C> <C>
12/89 $ 9,450 $10,000 $10,000
12/90 9,928 9,690 10,625
12/91 13,595 12,636 10,942
12/92 14,077 13,597 11,265
12/93 15,555 14,963 11,574
12/94 15,180 15,160 11,875
12/95 19,531 20,851 12,184
12/96 22,114 25,634 12,587
12/97 26,147 34,186 12,801
12/98 33,189 43,956 13,007
12/99 38,651 53,205 13,356
6/00 39,587 52,981 13,632
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year 8.05%, 5 Years 16.65%, 10 Years 14.23%
Class C Total Returns: 1 Year 12.05%, 5 Years 16.87%, 10 Years 14.23%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY TOTAL RETURN
FUND S&P 500 INDEX* INFLATION (CPI)+
--------------------- -------------- ----------------
<S> <C> <C> <C>
12/89 $10,000 $10,000 $10,000
12/90 10,506 9,690 10,625
12/91 14,376 12,636 10,942
12/92 14,896 13,597 11,265
12/93 16,460 14,963 11,574
12/94 16,064 15,160 11,875
12/95 20,555 20,851 12,184
12/96 23,173 25,634 12,587
12/97 27,262 34,186 12,801
12/98 34,338 43,956 13,007
12/99 39,695 53,205 13,356
6/00 40,551 52,981 13,632
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price, reinvestment of dividend and capital gain distributions, and maximum
sales charges (see below). Performance figures reflect certain fee waivers
and/or expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time. The graphs assume an initial investment of $10,000
and reflect deduction of all sales charges that would have applied for the
period of investment. Class A share performance reflects the effect of the
maximum 5.5% initial sales charge and includes the historical performance
of the Class B shares for periods from inception (12/29/87) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class C share
performance includes the historical performance of the Class B shares for
periods from inception (12/29/87) through 8/31/98. Class B shares would be
subject to a contingent deferred sales charge (CDSC) of up to 5% if redeemed
within the first six years of purchase and Class C shares would be subject to
a CDSC of 1% if redeemed within one year of purchase.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500 is
an unmanaged index and is considered generally representative of the large-
cap U.S. stock market. Total returns assume the reinvestment of all dividends
and capital gains. You cannot invest directly in 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> 320
Portfolio Management Discussion and Analysis
The stock market's modest declines over the first half of 2000 masked the
volatility most investors experienced along the way. Most technology and
telecommunications stocks advanced rapidly in the first quarter, peaking in
mid-March, only to drop precipitously in April and May before recovering
strongly in June.
Early in the year, many investors feared that an aggressive Federal Reserve
would derail the U.S. economy's extended growth, but by the end of the reporting
period many observers believed that Fed tightening was starting to wind down.
The six interest-rate hikes we've seen since late June 1999 have made definite
impressions on the economy--with slower sales, weaker employment growth, and
moderating consumer confidence.
While bond prices generally decline when interest rates rise, the government's
decision to use a portion of its surplus to repurchase Treasury securities
helped stabilize long-term bond prices during the first half of 2000.
The increases in short-term rates took their toll on the short end of the yield
curve, but the Federal Reserve's decision to leave rates unchanged in June 2000
caused the prices of short-term debt securities to rise. Longer-term securities,
on the other hand, reacted in the opposite manner, as many investors' appetite
for risk increased. As corporate bonds and agency securities reached nearly
record-wide yield spreads relative to Treasuries, many investors moved out of
long-term Treasuries, seeking to profit as yield spreads narrowed.
PERFORMANCE REVIEW
For the six-month period ended June 30, 2000, MainStay Total Return Fund
returned 2.42% for Class A shares and 2.16% for Class B and Class C shares,
excluding all sales charges. All share classes outperformed the 1.34% return of
the average Lipper(1) balanced fund. All share classes also outperformed the
-0.42% return of the S&P 500 Index(2) for the first six months of 2000.
Better-than-market equity results and outstanding performance in the bond
portion of the Fund's portfolio helped account for the Fund's outperforming its
peers.
EQUITY RESULTS
In the equity portion of the Fund's portfolio, several technology stocks were
among the Fund's best- and worst-performing holdings. Corning benefited from
fiber optic demand, climbing more than 100% through the end of June. Other
strong performers included EMC Corp., Intel, and Oracle. Weaker technology
-------
(1) See footnote and table on page 9 for more information about Lipper Inc.
(2) See footnote on page 3 for more information about the S&P 500 Index.
4
<PAGE> 321
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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
6/00 2.42
</TABLE>
Past performance is no guarantee of future results. Return reflects the
historical performance of the Class B shares through 12/94. See footnote * on
page 9 for more information on performance.
CLASS B AND CLASS C SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
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
6/00 2.16
</TABLE>
Past performance is no guarantee of future results. Class C share returns
reflects the historical performance of the Class B shares through 8/98. See
footnote * on page 9 for more information on performance.
holdings included Motorola, Microsoft, and Compuware, all of which declined
during the six-month period. A timely Compuware sale was positive for the Fund,
as it produced a gain and the company has since missed earnings projections. The
Fund remains overweighted in technology, given the sector's robust earnings
outlook.
Health care stocks performed well during the six-month reporting period, with
pharmaceuticals staging a strong comeback as the completion of the human genome
project drew attention to the biotech sector. Schering-Plough, Merck, Genentech,
and Amgen began the year largely overshadowed by technology
5
<PAGE> 322
stock advances, but were among the Fund's best-performing holdings during the
second quarter.
We increased the Fund's exposure to this group with new purchases of Allergan,
Baxter, Bristol Meyers, and IVAX, all of which contributed positively to the
Fund's performance. Underweighting traditional pharmaceutical stocks detracted
from the Fund's performance as the drug sector advanced from early March through
the end of June.
Among financial stocks, AIG, Providian, and Citigroup recorded market-beating
gains in the second quarter and were positive contributors to the Fund's
performance. Year-to-date, however, the group has had a neutral impact on
performance.
The Fund's overweighted position in consumer cyclical stocks hurt performance as
the sector's fundamentals weakened. Circuit City and Home Depot were among the
worst performers, but Kohl's advanced on a successful entry into the New York
market. The Fund took some profits in each of these names and eliminated its
holdings in Cendant, IMS Health, and Carnival Corp.
Among media stocks, Viacom gained 20% in the second-quarter, following its
merger with CBS, and Time Warner outpaced the market on a pending merger with
AOL. As "dot.com fever" waned and concerns over sustainable advertising revenues
rose, Clear Channel and AMFM declined. We took some profits in this sector and
eliminated the Fund's position in Comcast at a loss.
New equity purchases for the Fund included Cypress Semiconductor, Nokia,
Tellabs, Enron, Applied Materials, Analog Devices, and Household International,
among others. Significant equity sales included Global Crossing, Honeywell,
Dollar General, Interpublic Group, Johnson & Johnson, America Online, and
Cardinal Health.
BOND RESULTS
The bond portion of the Fund's portfolio benefited by shortening duration
through April then starting to increase duration in May. During the first
quarter of 2000, the Fund had little exposure to high-coupon, long-dated
Treasuries, which tended to perform well as the government continued to
repurchase bonds. Recognizing the potential in these securities, we increased
the Fund's exposure to them in the second quarter of 2000, with a positive
impact on performance.
The Fund's yield curve positioning did not materially impact performance during
the reporting period. During the second quarter, we positioned the Fund with a
bias for steepening, which hurt performance in April and May, but helped in
June.
6
<PAGE> 323
With Treasury securities outperforming in the early months of 2000, the Fund
held practically no agency securities. This was consistent with general market
sentiment until June, when the Federal Reserve's inaction triggered a sudden
surge of activity in agency securities, which pushed prices higher and caused
yield spreads to contract in the agency market. Unfortunately, the Fund was
not positioned to take advantage of this market shift.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
For most of the first half of 2000, the Fund remained largely neutral in its
weightings of collateralized securities. We did, however, decide to overweight
the Fund in securities issued by the Government National Mortgage Association,
which are backed by the full faith and credit of the U.S. government,(3) versus
those issued by the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. This positioning proved positive during the first
five months of 2000, but detracted from performance in June when the market
became less risk averse. Even so, the net impact for the six-month period was
positive for the Fund. The Fund also purchased FNMA 8.5% coupon bonds, seeking
to take advantage of what we perceived to be attractive pricing opportunities.
The securities had a positive impact on the Fund's performance.
At the short end of the yield curve, the Fund is now overweighted in high-
quality asset-backed securities and collateralized mortgage-backed securities,
which are providing incremental yields of 75 to 100 basis points while helping
to maintain the overall credit quality of the portfolio. The Fund's short-term
securities also include floating-rate notes, which we purchased seeking to
capture attractive yield spreads and rising interest rates while protecting
principal.
CORPORATE BOND RESULTS
The first five months of 2000 were difficult for corporate bond investors.
Corporate bonds faced an active Federal Reserve that was trying to quell
inflation and, in the process, curb growth. Concurrently, the U.S. Treasury was
buying back government bonds and curtailing new issuance, making the Treasury
market more appealing to investors than corporate bonds. In reaction, we quickly
turned defensive in the corporate bond portion of the Fund's portfolio. We
reduced the Fund's position in longer-maturity bonds, added floating-rate notes,
and looked for pockets of value. BP Amoco's acquisition of Vastar Resources, a
company involved in the exploration and production of oil and gas, exemplified
how an acquisition added value to the portfolio. In mid-May, when the price of
corporate bonds fell to unprecedented levels, we began to reenter this sector,
especially in longer maturities. This change added value as buyers of corporate
debt reemerged in June and the market tone rapidly improved on the expectation
that the Federal Reserve was finished with its tightening cycle.
-------
(3) While some securities in the Fund's portfolio may carry government backing
or guaranteed payment of interest and principal, shares of the Fund are not
guaranteed and prices will fluctuate so that when shares are sold, they may
be worth more or less than their original cost.
7
<PAGE> 324
LOOKING AHEAD
The fundamental question facing both the stock and bond markets will be whether
an economic slowdown can be sustained. If economic activity accelerates, we may
see another Federal Reserve tightening move, which would most likely be negative
for both stocks and long-term bonds. But even if the economy continues to slow,
we don't anticipate Federal Reserve easing over the near term.
Whatever the markets or the economy 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
Gary Goodenough
Joseph Portera
Portfolio Managers
MacKay Shields LLC
Past performance is no guarantee of future results.
8
<PAGE> 325
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 13.76% 17.56% 14.60% 14.10%
Class B 13.05% 16.87% 14.23% 13.81%
Class C 13.05% 16.87% 14.23% 13.81%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 06/30/00
<S> <C> <C> <C> <C>
Class A 7.50% 16.24% 13.95% 13.59%
Class B 8.05% 16.65% 14.23% 13.81%
Class C 12.05% 16.87% 14.23% 13.81%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 49 out of 22 out of n/a 21 out of
461 funds 237 funds 215 funds
Class B 52 out of 31 out of 3 out of 5 out of
461 funds 237 funds 64 funds 48 funds
Class C 52 out of n/a n/a 41 out of
461 funds 411 funds
Average Lipper
balanced fund 4.43% 13.40% 11.79% 12.04%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $27.71 $0.1803 $0.0000
Class B $27.74 $0.0777 $0.0000
Class C $27.74 $0.0777 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (12/29/87) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (12/29/87) through 8/31/98. Performance figures for the two
classes vary after this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. 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.
Since-inception return for the average Lipper peer fund is for the period
from 12/29/87 through 6/30/00.
9
<PAGE> 326
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (30.7%)+
ASSET-BACKED SECURITIES (3.7%)
AIRLINES (0.4%)
America West Airlines, Inc.
Pass-Through Certificates
Series 1996-1 Class C
6.86%, due 7/2/04............ $ 2,843,285 $ 2,775,728
Atlas Air, Inc.
Pass-Through Certificates
Series 1999-1C
8.77%, due 1/2/11............ 722,531 713,673
Series 2000-1 Class C
9.702%, due 1/2/10 (c)....... 4,365,000 4,378,051
Northwest Airlines Inc.
Series 1999-3 Class B
9.485%, due 4/1/15........... 420,000 415,057
--------------
8,282,509
--------------
AIRPLANE LEASES (0.6%)
AerCo Ltd.
Series 1X Class A1
6.8413%, 7/15/23 (f)......... 3,520,000 3,519,296
Morgan Stanley Aircraft
Finance
Series 1 Class A3
7.1713%, due 3/15/02
(c)(f)....................... 6,850,000 6,856,850
--------------
10,376,146
--------------
AUTO LEASES (0.7%)
Capital Auto Receivables Asset
Trust
Series 2000-1 Class A2
6.81%, due 4/15/01........... 4,520,000 4,510,146
Ford Credit Auto Owner Trust
Series 2000-B Class A3
6.97%, due 4/15/03........... 4,260,000 4,250,585
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02........... 4,860,000 4,799,736
--------------
13,560,467
--------------
AUTOMOBILES (0.3%)
DaimlerChrysler Auto Trust
Series 2000-B Class A3
7.53%, due 5/10/04........... 5,705,000 5,738,431
--------------
CONSUMER SERVICES (0.3%)
Arran One Ltd.
Series 2000-A Class B
7.15%, due 3/15/03 (f)....... 4,650,000 4,649,070
--------------
---------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
ELECTRIC POWER COMPANIES (0.7%)
Boston Edison Corp.
Series 1999-1 Class A2
6.45%, due 9/15/05........... $ 4,520,000 $ 4,442,618
PECO Energy Transition Trust
Series 2000-A Class A2
7.30%, due 9/1/02............ 3,395,000 3,396,052
West Penn Funding L.L.C.
Series 1999-A Class A4
6.98%, due 6/25/08........... 5,220,000 5,083,497
--------------
12,922,167
--------------
EQUIPMENT LOANS (0.5%)
Case Equipment Loan Trust
Series 1999-A Class A4
5.77%, due 8/15/05........... 4,705,000 4,572,648
Series 2000-A Class B
7.32%, due 2/15/07........... 4,579,296 4,559,376
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02.......... 1,142,282 1,127,923
--------------
10,259,947
--------------
LEISURE TIME (0.2%)
Harley Davidson Eaglemark
Motorcycle Trust
Series 1999-1
Class A2
5.52%, due 2/15/05........... 3,600,000 3,502,044
--------------
Total Asset-Backed Securities
(Cost $66,437,976)........... 69,290,781
--------------
CORPORATE BONDS (6.8%)
BANKS--MAJOR REGIONAL (0.2%)
Wells Fargo Co.
7.20%, due 5/1/03............ 3,135,000 3,124,247
--------------
BANKS--MONEY CENTER (0.3%)
Chase Manhattan Corp.
7.875%, due 6/15/10.......... 1,890,000 1,890,888
First Union National Bank
7.875%, due 2/15/10.......... 2,820,000 2,778,377
--------------
4,669,265
--------------
BEVERAGES--ALCOHOLIC (0.0%) (b)
Canandaigua Brands, Inc.
8.625%, due 8/1/06........... 695,000 686,313
--------------
BROADCAST/MEDIA (0.3%)
Turner Broadcasting Systems
Inc.
8.375%, due 7/1/13........... 5,614,000 5,742,392
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 327
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CABLE TV (0.0%) (b)
CSC Holdings, Inc.
7.625%, due 7/15/18.......... $ 530,000 $ 475,358
--------------
CHEMICALS (0.0%) (b)
Georgia Gulf Corp.
10.375%, due 11/1/07......... 265,000 275,600
Sterling Chemicals Inc.
Series B
12.375%, due 7/15/06......... 260,000 263,900
--------------
539,500
--------------
COMMERCIAL SERVICE SPECIALIZED (0.1%)
Hertz Corp.
8.25%, due 6/1/05............ 2,145,000 2,185,798
--------------
COMPUTER SYSTEMS (0.0%) (b)
Unisys Corp.
11.75%, due 10/15/04......... 760,000 809,400
--------------
CONSUMER FINANCE (0.4%)
Ford Motor Credit Corp.
7.375%, due 10/28/09......... 5,470,000 5,297,257
General Motors Acceptance
Corp.
6.85%, due 6/17/04........... 2,635,000 2,576,977
--------------
7,874,234
--------------
ELECTRIC POWER COMPANIES (0.4%)
AES Eastern Energy Corp.
9.00%, due 1/2/17............ 855,000 832,360
CMS Energy & Atlantic Methanol
Capital Co.
10.875%, due 12/15/04 (c).... 700,000 691,250
ESI Tractebel Acquisition
Corp.
7.99%, due 12/30/11.......... 800,000 708,264
National Rural Utilities
Cooperative Finance Corp.
7.375%, due 2/10/03.......... 4,785,000 4,800,982
PSEG Energy Holdings, Inc.
10.00%, due 10/1/09 (c)...... 580,000 608,646
Western Resources, Inc.
6.875%, due 8/1/04........... 320,000 280,653
--------------
7,922,155
--------------
ELECTRICAL EQUIPMENT (0.3%)
Emerson Electric Co.
7.875%, due 6/1/05........... 5,400,000 5,551,578
--------------
ELECTRONICS COMPONENTS (0.0%) (b)
Flextronics International Ltd.
9.875%, due 7/1/10 (c)....... 400,000 403,000
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
ENERGY SOURCES (0.0%) (b)
Caithness Coso Funding Corp.
Series B
9.05%, due 12/15/09.......... $ 700,000 $ 691,250
--------------
FINANCE (0.3%)
General Electric Capital Corp.
7.00%, due 2/3/03............ 5,505,000 5,475,658
--------------
FINANCIAL--MISCELLANEOUS (0.4%)
Morgan Stanley Dean Witter &
Co
7.375%, due 4/15/03.......... 6,560,000 6,556,982
--------------
FINANCIAL SERVICES (0.2%)
Sears Roebuck Acceptance Corp.
Medium-Term Note
Series IV
6.36%, due 12/4/01........... 3,500,000 3,445,785
--------------
FOOD (0.0%) (b)
Smithfield Foods Inc.
7.625%, due 2/15/08.......... 305,000 272,975
--------------
FOREIGN GOVERNMENTS (0.4%)
United Mexican States
9.875%, due 2/1/10........... 6,950,000 7,245,375
--------------
HEALTHCARE--HOSPITAL MANAGEMENT (0.1%)
Columbia/HCA Healthcare Corp.
7.50%, due 11/15/95.......... 935,000 703,561
Tenet Health Care Corp.
8.00%, due 1/15/05........... 595,000 571,200
--------------
1,274,761
--------------
HOMEBUILDING (0.0%) (b)
Standard Pacific Corp.
8.50%, due 4/1/09............ 425,000 382,500
--------------
HOTEL/MOTEL (0.1%)
Felcor Suites L.P.
7.625%, due 10/1/07.......... 600,000 521,379
Starwood Hotels & Resorts
Worldwide, Inc.
7.375%, due 11/15/15......... 495,000 417,080
--------------
938,459
--------------
INDUSTRIAL COMPONENTS (0.3%)
Tenaska Georgia Partners L.P.
9.50%, due 2/1/30 (c)........ 4,505,000 4,566,133
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 328
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
INSURANCE--MULTI-LINE (0.0%) (b)
Willis Corroon Group PLC
9.00%, due 2/1/09............ $ 590,000 $ 495,600
--------------
INVESTMENT BANK/BROKERAGE (0.5%)
Donaldson, Lufkin & Jenrette
Inc.
6.50%, due 6/1/08............ 4,110,000 3,714,084
Labranche & Co. Inc.
9.50%, due 8/15/04........... 555,000 532,800
Lehman Brothers Holding Inc.
8.25%, due 6/15/07........... 5,365,000 5,365,644
--------------
9,612,528
--------------
LEISURE TIME (0.0%) (b)
Park Place Entertainment Corp.
9.375%, due 2/15/07.......... 500,000 500,000
--------------
MACHINERY--DIVERSIFIED (0.1%)
Deere & Co.
8.10%, due 5/15/30........... 2,590,000 2,613,543
--------------
MANUFACTURING--DIVERSIFIED (0.0%) (b)
Mark IV Industries, Inc.
7.50%, due 9/1/07............ 465,000 355,807
--------------
OIL & GAS--EXPLORATION & PRODUCTION (0.0%) (b)
Ocean Energy Inc.
8.375%, due 7/1/08........... 590,000 572,300
--------------
OIL & GAS--WELL EQUIPMENT SERVICES (0.1%)
R & B Falcon Corp.
Series B
6.95%, due 4/15/08........... 1,025,000 876,375
RBF Finance Co.
11.375%, due 3/15/09......... 150,000 162,750
--------------
1,039,125
--------------
PAPER & FOREST PRODUCTS (0.1%)
Pope & Talbot Inc.
8.375%, due 6/1/13........... 1,300,000 1,183,000
--------------
PUBLISHING--NEWSPAPERS (0.0%) (b)
Hollinger International
Publishing Inc.
9.25%, due 3/15/07........... 705,000 694,425
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
REAL ESTATE (0.3%)
Crescent Real Estate Equities
Co.
7.50%, due 9/15/07........... $ 850,000 $ 689,042
United Dominion Realty Trust
8.625%, due 3/15/03.......... 4,930,000 4,938,036
--------------
5,627,078
--------------
REAL ESTATE INVESTMENT TRUST (0.5%)
American Health Properties,
Inc.
7.05%, due 1/15/02........... 8,590,000 8,376,367
GS Escrow Corp.
7.125%, due 8/1/05........... 300,000 267,747
Hospitality Properties Trust
7.00%, due 3/1/08............ 475,000 411,194
--------------
9,055,308
--------------
RESIDENTIAL MORTGAGE LOAN (0.3%)
Abbey National PLC
7.95%, due 10/26/29.......... 5,935,000 5,868,765
--------------
RETAIL STORES--DEPARTMENT (0.1%)
May Department Stores Co.
8.75%, due 5/15/29........... 1,470,000 1,577,854
--------------
RETAIL STORES--GENERAL MERCHANDISE (0.2%)
Kmart Corp.
7.95%, due 2/1/03............ 165,000 130,384
8.375%, due 7/1/22........... 500,000 416,846
Wal-Mart Stores, Inc.
6.875%, due 8/10/09.......... 2,150,000 2,101,389
--------------
2,648,619
--------------
SHIPPING (0.1%)
Newport News Shipbuilding,
Inc.
8.625%, due 12/1/06.......... 1,455,000 1,433,175
--------------
TELECOMMUNICATIONS (0.1%)
Price Communications Wireless
Inc.
Series B
9.125%, due 12/15/06......... 855,000 863,550
Williams Communications Group
Inc.
10.875%, due 10/1/09......... 420,000 410,550
--------------
1,274,100
--------------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.0%)
Mastec Inc.
7.75%, due 2/1/08............ 145,000 133,400
--------------
TELECOMMUNICATIONS--LONG DISTANCE (0.3%)
WorldCom, Inc.
8.25%, due 5/15/10........... 5,400,000 5,535,432
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 329
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELEPHONE (0.3%)
Deutsche Telekom International
Finance BV
8.25%, due 6/15/30........... $ 4,920,000 $ 4,996,654
--------------
TOBACCO (0.0%) (b)
Standard Commercial Tobacco
Corp.
8.875%, due 8/1/05........... 525,000 420,000
--------------
Total Corporate Bonds
(Cost $130,888,460).......... 126,469,831
--------------
MORTGAGE-BACKED SECURITIES (1.0%)
COMMERCIAL MORTGAGE LOANS
(COLLATERIZED MORTGAGE OBLIGATIONS) (1.0%)
GMAC Commercial Mortgage
Securities Inc.
Series 1998-C2 Class A2
6.42%, due 5/15/35........... 2,345,000 2,194,686
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C2 Class A1
6.985%, due 6/15/21 (f)...... 2,906,124 2,863,752
Salomon Brothers Mortgage
Securities VII
Series 2000-C1 Class A
6.9413% due 4/5/01 (c)(f).... 5,006,873 5,008,375
Series 2000-C1 Class A
7.46%, due 11/18/08.......... 4,510,000 4,515,367
Starwood Asset Receivables
Trust
Series 2000-1 Class A
6.9513%, due 9/25/22
(c)(f)....................... 3,715,422 3,718,395
--------------
Total Mortgage-Backed
Securities
(Cost $18,336,080)........... 18,300,575
--------------
U.S. GOVERNMENT & FEDERAL AGENCIES (17.9%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.1%)
5.125%, due 2/13/04 (g)...... 22,420,000 21,070,764
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (4.9%)
6.50%, due 12/1/27-4/1/29
(e).......................... 26,848,559 25,345,937
7.50%, due 10/1/29 (e)....... 27,605,399 27,208,709
7.50%, due 7/17/30 TBA (d)... 33,860,000 33,373,432
8.50%, due 7/17/30 TBA (d)... 4,960,000 5,053,000
--------------
90,981,078
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (4.8%)
6.50%, due 7/15/28-5/15/29
(e).......................... $54,459,589 $ 51,736,609
6.50%, due 8/23/30 TBA (d)... 5,995,000 5,687,756
7.00%, due 7/24/30 TBA (d)... 19,730,000 19,175,192
7.50%, due
12/15/23-11/15/28............ 11,864,660 11,789,659
--------------
88,389,216
--------------
UNITED STATES TREASURY BONDS (5.0%)
6.00%, due 2/15/26 (g)....... 475,000 465,130
6.25%, due 8/15/23-5/15/30
(g).......................... 39,640,000 40,489,471
8.75%, due 8/15/20 (g)....... 7,935,000 10,201,395
8.875%, due 8/15/17 (g)...... 3,450,000 4,397,681
10.375%, due 11/15/09........ 3,380,000 3,870,641
11.25%, due 2/15/15 (g)...... 13,995,000 20,598,821
11.625%, due 11/15/02 (g).... 4,100,000 4,551,000
12.00%, due 8/15/13 (g)...... 6,110,000 8,248,500
--------------
92,822,639
--------------
UNITED STATES TREASURY NOTES (2.1%)
4.75%, due 11/15/08.......... 2,385,000 2,165,866
5.25%, due 8/15/03 (g)....... 4,135,000 4,008,345
5.875%, due 11/30/01 (g)..... 17,265,000 17,124,636
6.25%, due 2/28/02........... 45,000 44,845
7.00%, due 7/15/06 (g)....... 14,550,000 15,072,782
--------------
38,416,474
--------------
Total U.S. Government &
Federal Agencies
(Cost $331,957,497).......... 331,680,171
--------------
YANKEE BONDS (1.3%)
BANKS--MONEY CENTER (0.1%)
Barclays Bank PLC
7.40%, due 12/15/09.......... 2,360,000 2,299,560
--------------
BROADCAST/MEDIA (0.0%) (b)
Rogers Communications, Inc.
8.875%, due 7/15/07.......... 545,000 534,100
--------------
CABLE TV (0.0%) (b)
Rogers Cablesystem, Ltd.
10.125%, due 9/1/12.......... 240,000 245,400
--------------
ENTERTAINMENT (0.0%) (b)
Imax Corp.
7.875%, due 12/1/05.......... 450,000 407,250
--------------
FINANCIAL--DIVERSIFIED (0.0%) (b)
Tembec Finance Corp.
9.875%, due 9/30/05.......... 335,000 336,675
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 330
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
GOLD & PRECIOUS METAL MINING (0.1%)
Great Central Mines, Ltd.
8.875%, due 4/1/08........... $ 910,000 $ 737,100
--------------
MANUFACTURING--DIVERSIFIED (0.3%)
Tyco International Ltd.
6.25%, due 6/15/03........... 6,185,000 5,901,047
--------------
METALS--MISCELLANEOUS (0.0%) (b)
Glencore Nickel Property Ltd.
9.00%, due 12/1/14........... 505,000 419,150
--------------
OIL--INTEGRATED DOMESTIC (0.0%) (b)
Husky Oil, Ltd.
8.90%, due 8/15/28 (f)....... 85,000 79,975
--------------
OIL & GAS--WELL EQUIPMENT SERVICES (0.4%)
Petroleum Geo-Services ASA
7.245%, due 3/20/02 (f)...... 6,350,000 6,343,015
--------------
TELECOMMUNICATIONS (0.3%)
British Telecommunications PLC
6.6238%, due 2/27/01 (f)..... 5,425,000 5,424,458
--------------
TRANSPORTATION--SHIPPING (0.1%)
Sea Containers Ltd.
7.875%, due 2/15/08.......... 210,000 132,300
10.75%, due 10/15/06......... 650,000 487,500
Stena AB
10.50%, due 12/15/05......... 550,000 539,000
--------------
1,158,800
--------------
Total Yankee Bonds
(Cost $24,302,090)........... 23,886,530
--------------
Total Long-Term Bonds
(Cost $571,922,103).......... 569,627,888
--------------
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCKS (68.5%)
BIOTECHNOLOGY (1.0%)
Genentech, Inc. (a)(g)........ 105,000 18,060,000
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
BROADCAST/MEDIA (2.7%)
AMFM Inc. (a)................. 252,000 $ 17,388,000
Clear Channel
Communications, Inc. (a)..... 176,400 13,230,000
USA Networks, Inc. (a)........ 477,600 10,328,100
Univision Communications Inc.
Class A (a).................. 80,000 8,280,000
--------------
49,226,100
--------------
COMMUNICATIONS--EQUIPMENT (9.3%)
Cisco Systems, Inc. (a)....... 751,500 47,767,219
Corning Inc. ................. 231,100 62,368,112
JDS Uniphase Corp. (a)(g)..... 106,000 12,706,750
Lucent Technologies Inc. ..... 249,500 14,782,875
Nokia Corp. .................. 235,600 11,765,275
Tellabs, Inc (a).............. 322,900 22,098,469
--------------
171,488,700
--------------
COMPUTER SOFTWARE & SERVICES (4.4%)
First Data Corp. ............. 110,600 5,488,525
Microsoft Corp. (a)........... 405,000 32,400,000
Oracle Corp. (a).............. 528,850 44,456,453
--------------
82,344,978
--------------
COMPUTER SYSTEMS (5.2%)
EMC Corp. (a)................. 666,400 51,271,150
Sun Microsystems, Inc. (a).... 501,500 45,605,156
--------------
96,876,306
--------------
ELECTRICAL EQUIPMENT (1.3%)
General Electric Co. ......... 433,800 22,991,400
--------------
ELECTRONICS--COMPONENTS (0.5%)
Cypress Semiconductor Corp.
(a).......................... 198,800 8,399,300
--------------
ELECTRONICS--SEMICONDUCTORS (7.5%)
Analog Devices, Inc. (a)...... 152,800 11,612,800
Applied Materials Inc. (a).... 135,000 12,234,375
Intel Corp. .................. 378,200 50,560,613
Motorola, Inc. ............... 682,200 19,826,438
Texas Instruments Inc. ....... 657,200 45,141,425
--------------
139,375,651
--------------
ENTERTAINMENT (3.0%)
Time Warner Inc. (g).......... 309,800 23,544,800
Viacom Inc.
Class B (a)(g)............... 477,399 32,552,644
--------------
56,097,444
--------------
FINANCIAL--MISCELLANEOUS (1.9%)
Citigroup Inc. ............... 593,095 35,733,974
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 331
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE--DIVERSIFIED (0.9%)
Allergan, Inc. ............... 47,300 $ 3,523,850
Bristol-Myers Squibb Co. ..... 217,200 12,651,900
--------------
16,175,750
--------------
HEALTH CARE--DRUGS (3.4%)
Andrx Corp. (a)............... 70,000 4,474,533
Ivax Corp. (a)................ 159,100 6,602,650
Merck & Co., Inc. ............ 352,600 27,017,975
Schering-Plough Corp. ........ 495,300 25,012,650
--------------
63,107,808
--------------
HEALTH CARE--MEDICAL PRODUCTS (3.0%)
Baxter International Inc.
(a).......................... 185,000 13,007,812
Guidant Corp. (a)(g).......... 316,500 15,666,750
Medtronic, Inc. .............. 557,200 27,755,525
--------------
56,430,087
--------------
HEALTH CARE--MISCELLANEOUS (1.8%)
Amgen Inc. (a)................ 338,700 23,793,675
Medimmune, Inc. (a)........... 129,000 9,546,000
--------------
33,339,675
--------------
HOUSEHOLD PRODUCTS (1.5%)
Colgate-Palmolive Co. ........ 476,800 28,548,400
--------------
INSURANCE BROKERS (0.8%)
Marsh & Mclennan Cos.,
Inc. ........................ 134,500 14,046,844
--------------
INSURANCE--MULTI-LINE (1.4%)
American International Group,
Inc. ........................ 228,020 26,792,350
--------------
INVESTMENT BANK/BROKERAGE (0.7%)
Goldman Sachs Group Inc. ..... 128,800 12,219,900
--------------
LEISURE TIME (1.8%)
Harley-Davidson, Inc. ........ 869,700 33,483,450
--------------
MANUFACTURING--DIVERSIFIED (2.1%)
Tyco International Ltd. ...... 814,349 38,579,788
--------------
MISCELLANEOUS (1.9%)
AES Corp. (a)................. 761,400 34,738,875
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
NATURAL GAS DISTRIBUTORS & PIPELINES (1.0%)
Enron Corp. .................. 295,500 $ 19,059,750
--------------
PERSONAL LOANS (1.5%)
Household International,
Inc. ........................ 190,900 7,934,281
Providian Financial Corp. .... 217,850 19,606,500
--------------
27,540,781
--------------
RETAIL STORES--DEPARTMENT (2.1%)
Kohl's Corp. (a).............. 716,900 39,877,562
--------------
RETAIL STORES--SPECIALTY (3.9%)
Bed Bath & Beyond, Inc. (a)... 396,000 14,355,000
Circuit City Stores--Circuit
City Group................... 475,900 15,793,931
CVS Corp. .................... 252,700 10,108,000
Home Depot, Inc. (The)........ 465,350 23,238,416
Staples, Inc. (a)............. 609,000 9,363,375
--------------
72,858,722
--------------
SPECIALIZED SERVICES (0.8%)
Omnicom Group, Inc. .......... 174,800 15,568,125
--------------
TELECOMMUNICATIONS--LONG DISTANCE (1.6%)
WorldCom, Inc. (a) ........... 667,092 30,602,846
--------------
TELECOMMUNICATIONS SERVICES (0.5%)
Nextel Communications, Inc.
Class A (a)(g)............... 144,000 8,811,000
--------------
TELEPHONE (1.0%)
Alltel Corp. ................. 301,100 18,649,381
--------------
Total Common Stocks
(Cost $681,098,660).......... 1,271,024,947
--------------
PREFERRED STOCK (0.0%) (b)
PAPER & FOREST PRODUCTS (0.0%) (b)
Paperboard Industries
International, Inc.
5.00%, Series A (c)(h)(i).... 40,000 622,595
--------------
Total Preferred Stock
(Cost $665,691).............. 622,595
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 332
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.8%)
COMMERCIAL PAPER (3.8%)
Associates Corp. of North
America
6.53% due 7/19/20 (e)........ $10,000,000 $ 9,967,278
Chevron USA Inc.
6.75% due 7/6/00............. 12,000,000 11,988,746
Ford Motor Credit Corp.
6.64% due 7/10/00............ 5,870,000 5,860,254
Goldman Sachs Group L.P.
6.54% due 7/25/00 (e)........ 9,285,000 9,244,429
6.95% due 7/3/00............. 7,165,000 7,162,233
Lloyds TSB Bank PLC
6.51% due 7/12/00............ 5,000,000 4,990,020
Prudential Funding Corp.
6.54% due 7/6/00............. 8,375,000 8,367,372
Salomon Smith Barney Inc. (e)
6.54% due 7/21/00............ 7,200,000 7,173,764
Societe Generale N.A. Inc.
6.48% due 7/5/00............. 6,000,000 5,995,627
--------------
Total Short-Term Investments
(Cost $70,749,723)........... 70,749,723
--------------
Total Investments
(Cost $1,324,436,177) (j).... 103.0% 1,912,025,153(k)
Liabilities in Excess of
Cash and Other Assets........ (3.0) (56,035,823)
---- -----------
Net Assets.................... 100.0% $1,855,989,330
==== ===========
</TABLE>
-------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) TBA: Securities purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and maturity
date will be determined upon settlement.
(e) Segregated as collateral for TBA.
(f) Floating rate. Rate shown is the rate in effect at June 30, 2000.
(g) Represent securities out on loan or a portion which is out on loan. (See
Note 2)
(h) Restricted Security.
(i) Canadian Security.
(j) The cost for federal income tax purposes is $1,324,583,814.
(k) At June 30, 2000 net unrealized appreciation was $587,441,339 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 $608,413,224 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $20,971,885.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 333
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$1,324,436,177)........................................... $1,912,025,153
Collateral held for securities loaned, at value (Note 2).... 187,057,506
Cash........................................................ 8,336
Receivables:
Investment securities sold................................ 22,456,871
Dividends and interest.................................... 7,874,012
Fund shares sold.......................................... 950,054
--------------
Total assets.......................................... 2,130,371,932
--------------
LIABILITIES:
Securities lending collateral (Note 2)...................... 187,057,506
Payables:
Investment securities purchased........................... 79,880,194
NYLIFE Distributors....................................... 1,384,160
Fund shares redeemed...................................... 1,296,873
MainStay Management....................................... 938,738
Transfer agent............................................ 618,041
Custodian................................................. 18,141
Trustees.................................................. 12,775
Accrued expenses............................................ 234,283
Dividend payable............................................ 2,941,891
--------------
Total liabilities..................................... 274,382,602
--------------
Net assets.................................................. $1,855,989,330
==============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 74,225
Class B................................................... 591,653
Class C................................................... 3,209
Additional paid-in capital.................................. 1,090,690,994
Accumulated undistributed net investment income............. 186,928
Accumulated undistributed net realized gain on
investments............................................... 176,853,345
Net unrealized appreciation on investments.................. 587,588,976
--------------
Net assets.................................................. $1,855,989,330
==============
CLASS A
Net assets applicable to outstanding shares................. $ 205,712,443
==============
Shares of beneficial interest outstanding................... 7,422,475
==============
Net asset value per share outstanding....................... $ 27.71
Maximum sales charge (5.50% of offering price).............. 1.61
--------------
Maximum offering price per share outstanding................ $ 29.32
==============
CLASS B
Net assets applicable to outstanding shares................. $1,641,374,039
==============
Shares of beneficial interest outstanding................... 59,165,276
==============
Net asset value and offering price per share outstanding.... $ 27.74
==============
CLASS C
Net assets applicable to outstanding shares................. $ 8,902,848
==============
Shares of beneficial interest outstanding................... 320,939
==============
Net asset value and offering price per share outstanding.... $ 27.74
==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 334
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends(a).............................................. $ 2,275,274
Interest.................................................. 20,125,925
------------
Total income............................................ 22,401,199
------------
Expenses:
Distribution--Class B..................................... 6,096,908
Distribution--Class C..................................... 27,006
Management................................................ 5,850,484
Service--Class A.......................................... 244,259
Service--Class B.......................................... 2,032,082
Service--Class C.......................................... 9,004
Transfer agent............................................ 1,908,919
Shareholder communication................................. 126,446
Recordkeeping............................................. 104,675
Custodian................................................. 96,991
Professional.............................................. 61,731
Registration.............................................. 37,653
Trustees.................................................. 23,556
Miscellaneous............................................. 42,337
------------
Total expenses before waiver............................ 16,662,051
Fees waived by Manager...................................... (266,202)
------------
Net expenses............................................ 16,395,849
------------
Net investment income....................................... 6,005,350
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................ 63,384,102
Net change in unrealized appreciation on investments........ (29,383,979)
------------
Net realized and unrealized gain on investments............. 34,000,123
------------
Net increase in net assets resulting from operations........ $ 40,005,473
============
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $8,224.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 335
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 6,005,350 $ 11,215,815
Net realized gain on investments.......................... 63,384,102 198,124,218
Net change in unrealized appreciation on investments...... (29,383,979) 49,685,919
-------------- --------------
Net increase in net assets resulting from operations...... 40,005,473 259,025,952
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (1,318,556) (2,404,941)
Class B................................................. (4,633,584) (9,024,586)
Class C................................................. (23,000) (19,421)
From net realized gain on investments:
Class A................................................. -- (9,937,902)
Class B................................................. -- (83,382,941)
Class C................................................. -- (272,715)
-------------- --------------
Total dividends and distributions to shareholders..... (5,975,140) (105,042,506)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 38,242,848 98,922,959
Class B................................................. 84,656,234 213,637,189
Class C................................................. 3,553,371 5,073,946
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 653,755 11,519,078
Class B................................................. 2,303,693 90,140,205
Class C................................................. 10,143 282,440
-------------- --------------
129,420,044 419,575,817
Cost of shares redeemed:
Class A................................................. (41,238,465) (75,111,077)
Class B................................................. (153,990,919) (245,152,405)
Class C................................................. (430,591) (465,342)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (66,239,931) 98,846,993
-------------- --------------
Net increase (decrease) in net assets................. (32,209,598) 252,830,439
NET ASSETS:
Beginning of period......................................... 1,888,198,928 1,635,368,489
-------------- --------------
End of period............................................... $1,855,989,330 $1,888,198,928
============== ==============
Accumulated undistributed net investment income at end of
period.................................................... $ 186,928 $ 156,718
============== ==============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 336
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, ------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $ 27.23 $ 24.96 $ 21.44 $ 20.09 $ 18.53 $ 14.76
-------- -------- -------- -------- ------- -------
Net investment income............................. 0.15 0.34 0.39 0.40 0.37 0.42
Net realized and unrealized gain on investments... 0.51 3.69 5.29 3.19 2.07 3.77
-------- -------- -------- -------- ------- -------
Total from investment operations.................. 0.66 4.03 5.68 3.59 2.44 4.19
-------- -------- -------- -------- ------- -------
Less dividends and distributions:
From net investment income...................... (0.18) (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................. (0.18) (1.76) (2.16) (2.24) (0.88) (0.42)
-------- -------- -------- -------- ------- -------
Net asset value at end of period.................. $ 27.71 $ 27.23 $ 24.96 $ 21.44 $ 20.09 $ 18.53
======== ======== ======== ======== ======= =======
Total investment return (a)....................... 2.42% 16.46% 26.93% 18.24% 13.22% 28.66%
Ratios (to average net assets)/
Supplemental Data:
Net investment income......................... 1.33%++ 1.32% 1.66% 1.86% 1.9% 2.5%
Net expenses.................................. 1.13%++ 1.13% 1.16% 1.15% 1.1% 1.1%
Expenses (before waiver)...................... 1.16%++ 1.16% 1.18% 1.15% 1.1% 1.1%
Portfolio turnover rate........................... 78% 125% 169% 182% 173% 228%
Net assets at end of period (in 000's)............ $205,712 $203,924 $152,598 $108,329 $68,975 $19,206
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 337
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------------ -------------------------------------------
Six months Six months September 1*
ended Year ended December 31, ended Year ended through
June 30, ---------------------------------------------------------------- June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ---------- ---------- ---------- ---------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 27.23 $ 24.96 $ 21.45 $ 20.10 $ 18.53 $ 14.76 $27.23 $24.96 $21.70
---------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
0.08 0.15 0.21 0.29 0.27 0.33 0.08 0.15 0.11
0.51 3.69 5.28 3.19 2.08 3.77 0.51 3.69 5.03
---------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
0.59 3.84 5.49 3.48 2.35 4.10 0.59 3.84 5.14
---------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
(0.08) (0.15) (0.21) (0.29) (0.27) (0.33) (0.08) (0.15) (0.11)
-- (1.42) (1.77) (1.84) (0.51) -- -- (1.42) (1.77)
---------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
(0.08) (1.57) (1.98) (2.13) (0.78) (0.33) (0.08) (1.57) (1.88)
---------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
$ 27.74 $ 27.23 $ 24.96 $ 21.45 $ 20.10 $ 18.53 $27.74 $27.23 $24.96
========== ========== ========== ========== ========== ======== ====== ====== ======
2.16% 15.60% 25.96% 17.65% 12.73% 27.96% 2.16% 15.60% 23.94%
0.58%++ 0.57% 0.91% 1.36% 1.4% 2.0% 0.58%++ 0.57% 0.91%++
1.88%++ 1.88% 1.91% 1.65% 1.6% 1.7% 1.88%++ 1.88% 1.91%++
1.91%++ 1.91% 1.93% 1.65% 1.6% 1.7% 1.91%++ 1.91% 1.93%++
78% 125% 169% 182% 173% 228% 78% 125% 169%
$1,641,374 $1,678,696 $1,482,411 $1,198,206 $1,029,878 $860,881 $8,903 $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> 338
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 (and certain other qualified purchases) 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
22
<PAGE> 339
Notes to Financial Statements unaudited
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 may 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. The Fund does not
have the right to demand that such securities be registered. Disposal of these
securities may involve time-consuming negotiations and expenses, and prompt sale
at an acceptable price may be difficult.
Restricted security held at June 30, 2000:
<TABLE>
<CAPTION>
PERCENT
ACQUISITION 6/30/00 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 $622,595 0.0%(a)
======== ======== =======
</TABLE>
-------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
</TABLE>
23
<PAGE> 340
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 June 30, 2000, the Fund had portfolio securities on loan with a market value
of $185,363,000 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
$224,961, net of broker fees and rebates, for the six months ended June 30,
2000, which is included as interest income on the Statement of Operations.
24
<PAGE> 341
Notes to Financial Statements unaudited (continued)
Investments made with cash collateral at June 30, 2000:
<TABLE>
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group
6.73%, due 7/3/00......................................... 5,434,305 $ 5,434,305
Cash with Security Lending Agent............................ 34,049
------------
5,468,354
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Autobahn Funding Corp.
6.65%, due 7/5/00......................................... $ 8,120,000 8,114,018
Bavaria Universal Funding Corp.
6.65%, due 7/24/00........................................ 10,000,000 9,957,769
Black Forest Corp.
6.67%, due 7/5/00......................................... 4,640,000 4,636,572
6.77%, due 7/10/00........................................ 6,490,000 6,479,048
Checkpoint Charlie Inc.
6.87%, due 7/12/00........................................ 15,000,000 14,968,604
First Express Funding Corp.
6.96%, due 7/6/00......................................... 2,885,000 2,882,215
Washington Gas Light Co.
7.10%, due 7/3/00......................................... 5,310,000 5,307,906
------------
52,346,132
------------
REPURCHASE AGREEMENTS
Credit Suisse First Boston Corp.
7.17%, due 7/3/00
(Collateralized by
$69,656 Commonwealth Edison Co.
7.375%, due 9/15/02 Market Value $69,656
$7,068,110 K N Energy Inc.
6.65%, due 3/1/05 Market Value $7,068,110
$4,567,472 Millenium America Inc.
7.375%, due 9/15/02 Market Value $4,567,472
$13,450,278 PSEG Capital Corp.
6.25%, due 5/15/03 Market Value $13,450,278)............ 24,512,500 24,512,500
Morgan (J.P.) Securities Inc.
6.95%, due 7/3/00
(Collateralized by
$20,359,557 AT&T Capital Corp.
6.875%, due 1/16/01 Market Value $21,000,100
$5,702,221 J.P. Morgan & Co.
6.64%, due 3/16/01 Market Value $5,702,221
$24,984,850 Transamerica Finance Corp.
6.90%, due 2/5/01 Market Value $25,186,054)............. 49,417,500 49,417,500
</TABLE>
25
<PAGE> 342
MainStay Total Return Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (Continued)
Prudential Securities Inc.
7.25%, due 7/3/00
(Collateralized by
$142,526 Advanta Mortgage Loan Trust Series 1997-1
6.8875%, due 5/25/27 Market Value $142,526
$1,038,224 Bank of America Corp.
5.75%, due 3/1/04 Market Value $1,059,021
$1,498,980 Bank One Corp.
6.4881%, due 1/28/02 Market Value $1,512,822
$2,924,250 Bank One Milwaukee NA.
6.625%, due 4/15/03 Market Value $2,965,520
$4,356,840 Burlington Resources Inc.
6.875%, due 2/15/26 Market Value $4,485,274
$1,249,999 Captec Franchise Trust Series 2000-1
8.15%, due 6/15/14 Market Value $1,249,999
$1,968,820 CitiFinancial Credit Co.
6.45%, due 7/1/02 Market Value $2,032,966
$3,268,068 CSX Corp.
5.85%, due 12/1/03 Market Value $3,284,199
$2,500,680 Discover Card Master Trust I Series 1998-6
6.05%, due 1/17/06 Market Value $2,500,680
$887,493 Federal Home Loan Bank Discount Note
6.5577%, due 7/21/00 Market Value $887,493
$3,698,890 MBNA America Bank NA.
6.875%, due 7/15/04 Market Value $3,698,890
$2,802,662 Paine Webber Group Inc.
6.45%, due 12/1/03 Market Value $2,817,739
$961,695 Residential Asset Securities Corp. Series
1999-KS1
6.28%, due 8/25/25 Market Value $961,695
$1,898,340 USA Networks Inc.
6.75%, due 11/15/05 Market Value $1,915,215
$876,003 U.S. Treasury Bond
5.50%, due 8/15/28 Market Value $895,607
$4,069,024 WMC Mortgage Loan Pass-Through Certificates
Series 1997-2
7.8013%, due 3/20/29 Market Value $4,069,024)........... $33,000,000 $ 33,000,000
</TABLE>
26
<PAGE> 343
Notes to Financial Statements unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (Continued)
Salomon Smith Barney Inc.
6.55%, due 7/3/00
(Collateralized by
$1,408,315 Comcast Corp.
7.625%, due 2/15/08 Market Value $1,449,283
$6,385,042 Cox Communications Inc.
6.85%, due 1/15/18 Market Value $6,614,649
$3,338,153 Federated Department Stores, Inc.
8.50%, due 6/1/10 Market Value $3,338,153
$1,630,895 Keycorp Institutional Capital-A
7.826%, due 12/1/26 Market Value $1,642,677
$5,815,185 Noram Energy Corp.
6.50%, due 2/1/08 Market Value $5,985,194
$2,651,362 Provident Financing Trust I
7.405%, due 3/15/38 Market Value $2,728,119
$2,360,640 Sakura Capital Funding C.I.
7.7775%, due 2/27/02 Market Value $2,360,640
$3,171,423 Sprint Spectrum L.P.
11.00%, due 8/15/06 Market Value $3,291,596)............ $22,313,000 $ 22,313,020
------------
129,243,020
------------
Total investments made with cash collateral................. $187,057,506
============
</TABLE>
Non-cash collateral received and held by the Fund at June 30, 2000:
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
United States Treasury Bonds
6.00%, due 2/15/26........................................ 320,000 $ 320,100
6.375%, due 8/15/27....................................... 497,000 523,248
6.625%, due 2/15/27....................................... 240,000 260,400
6.75%, due 8/15/26........................................ 225,000 247,500
------------
Total non-cash collateral................................... $ 1,351,248
============
Total collateral............................................ $188,408,754
============
</TABLE>
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital
27
<PAGE> 344
MainStay Total Return Fund
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.
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 plans)
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 0.64% of the Fund's
average daily net assets. The Manager has voluntarily established a fee
breakpoint, which may be discontinued at any time, of 0.60% on assets in excess
of $500 million. For the six months ended June 30, 2000 the Manager earned
$5,850,484 and waived $266,202 of its fees.
28
<PAGE> 345
Notes to Financial Statements unaudited (continued)
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay Shields, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.32% of the average daily net assets of the Fund. 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The distribution plans provide 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 Plans provide 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 $5,122 for the six months ended
June 30, 2000. 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 $948, $631,846 and $1,149, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $1,908,919.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $18,905 for the six months ended
June 30, 2000.
29
<PAGE> 346
MainStay Total Return Fund
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$104,675 for the six months ended June 30, 2000.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of U.S.
Government securities, other than short-term securities, were $882,411 and
$903,591, respectively. Purchases and sales of securities, other than U.S.
Government securities and short-term securities, were $536,590 and $559,561,
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 six months ended June 30, 2000.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 1,411 3,121 133 3,840 8,324 198
Shares issued in reinvestment of dividends
and distributions....................... 23 82 1 438 3,418 11
------ ------ ---- ------ ------ ---
1,434 3,203 134 4,278 11,742 209
Shares redeemed........................... (1,501) (5,675) (18) (2,902) (9,492) (18)
------ ------ ---- ------ ------ ---
Net increase (decrease)................... (67) (2,472) 116 1,376 2,250 191
====== ====== ==== ====== ====== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
30
<PAGE> 347
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
31
<PAGE> 348
Officers and Trustees* [THE MAINSTAY(R) FUNDS LOGO]
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSTR11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Total Return Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 349
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay Value Fund
versus Russell 1000 Value Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 14
Notes to Financial Statements 20
The MainStay(R) Funds 25
</TABLE>
<PAGE> 350
This page intentionally left blank
2
<PAGE> 351
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
3
<PAGE> 352
$10,000 Invested in MainStay Value Fund versus Russell 1000 Value Index and
Inflation
CLASS A SHARES Total Returns: 1 Year -16.38%, 5 Years 8.19%, 10 Years 11.74%
[LINE GRAPH]
<TABLE>
<CAPTION>
PERIOD END MAINSTAY VALUE FUND INFLATION (CPI)+ RUSSELL 1000 VALUE INDEX*
---------- ------------------- ---------------- -------------------------
<S> <C> <C> <C>
12/89 $ 9,450 $ 10,000 $ 10,000
12/90 8,879 10,625 9,191
12/91 12,541 10,942 11,452
12/92 14,990 11,265 13,033
12/93 17,020 11,574 15,396
12/94 16,983 11,875 15,089
12/95 21,864 12,184 20,877
12/96 26,639 12,587 25,395
12/97 32,468 12,801 34,330
12/98 30,063 13,007 39,698
12/99 32,566 13,356 42,611
6/00 30,721 13,632 40,808
</TABLE>
CLASS B AND CLASS C SHARES
Class B Total Returns: 1 Year -16.58%, 5 Years 8.42%, 10 Years 11.98%
Class C Total Returns: 1 Year -13.07%, 5 Years 8.71%, 10 Years 11.98%
[LINE GRAPH]
<TABLE>
<CAPTION>
PERIOD END MAINSTAY VALUE FUND INFLATION (CPI)+ RUSSELL 1000 VALUE INDEX*
---------- ------------------- ---------------- -------------------------
<S> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 10,000
12/90 9,395 10,625 9,191
12/91 13,271 10,942 11,452
12/92 15,862 11,265 13,033
12/93 18,011 11,574 15,396
12/94 17,972 11,875 15,089
12/95 23,006 12,184 20,877
12/96 27,863 12,587 25,395
12/97 33,794 12,801 34,330
12/98 31,059 13,007 39,698
12/99 33,390 13,356 42,611
6/00 31,378 13,632 40,808
</TABLE>
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge
and includes the historical performance of the Class B shares for periods
from inception (5/1/86) through 12/31/94. Performance figures for the two
classes vary after this date based on differences in their sales charges
and expense structures. Class C share performance includes the historical
performance of the Class B shares for periods from inception (5/1/86)
through 8/31/98. Class B shares would be subject to a contingent deferred
sales charge (CDSC) of up to 5% if redeemed within the first six years of
purchase and Class C shares would be subject to a CDSC of 1% if redeemed
within one year of purchase.
(*) 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. You cannot invest directly in 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> 353
-------
(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. You cannot invest directly in an index.
(2) See footnote and table on page 10 for more information about Lipper Inc.
(3) See footnote on page 4 for more information about the Russell 1000(R) Value
Index.
(4) Returns reflect performance for the six-month period ended 6/30/00.
Portfolio Management Discussion and Analysis
The equity markets began 2000 in much the same way they ended 1999, with a
narrow group of growth stocks and technology issues rising sharply. By the
middle of March, however, there was a clear shift in leadership, with the
technology-laden NASDAQ Composite Index(1) undergoing a dramatic correction, as
Microsoft faced a widely-publicized antitrust decision.
At its worst point on May 24, the NASDAQ Index was down 41% from its March 10
high. During this period, the IPO calendar for new technology, media, and
telecommunications issues all but dried up and real cash earnings became an
increasingly important concern for investors who had formerly been more
interested in emerging technologies or Internet-related plays. In April and May,
value stocks outperformed most other investment styles. June brought a rotation
back into many technology issues, with value-oriented stocks lagging during the
month.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Value Fund returned -5.67% for
Class A shares and -6.03% for Class B and Class C shares, excluding all sales
charges. All share classes underperformed the -0.47% return of the average
Lipper(2) multi-cap value fund and the -4.23% return of the Russell 1000 Value
Index(3) over the same period.
Setbacks in the Fund's basic materials, consumer cyclicals, and capital goods
holdings were among the reasons the Fund underperformed during first six months
of 2000.
SECTOR HIGHLIGHTS
The Fund's best-performing sectors for the first half were energy and utilities,
both of which were overweighted. The Fund's energy holdings far outpaced those
of the Russell 1000 Value Index. Four major contributors included Coastal Corp.
(+72%), Noble Affiliates (+74%), Union Pacific Resources (+74%), and Valero
Energy (+61%).(4) All four were major beneficiaries of rising oil and natural
gas prices, while Union Pacific Resources agreed to an acquisition by a
competitor, Anadarko Petroleum. The Fund's overweighted position in the utility
sector also proved timely and contributed positively to results. The Fund's
position in Dynegy, a Houston-based energy concern, was up 96%. Another positive
contributor to Fund performance was El Paso Energy (+32%), a natural gas company
that continued to rise after the announcement of its acquisition of Coastal
Corp. We took advantage of the rise in El Paso Energy's share price and sold the
entire position. But we elected to maintain the Fund's position in
5
<PAGE> 354
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS A SHARES
[CLASS A BAR CHART]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
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
6/00 -5.67
</TABLE>
Past performance is no guarantee of future results. Returns reflect the
historical performance of the Class B shares through 12/94. See footnote * on
page 10 for more information on performance.
CLASS B AND CLASS C SHARES
[CLASS B AND CLASS C BAR CHART]
<TABLE>
<CAPTION>
Period end Total Return %
---------- --------------
<S> <C>
12/89 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
6/00 -6.03
</TABLE>
Past performance is no guarantee of future results. Class C shares returns
reflect the historical performance of the Class B shares through 8/98. See
footnote * on page 10 for more information on performance.
Coastal Corp., which will convert to El Paso Energy shares when the deal closes.
The merged company should benefit from higher natural gas prices and merger-
related cost savings.
The Fund's holdings in basic materials, consumer cyclicals, and capital goods
generally had negative results. The Fund's market weighting in the consumer
cyclical group was further hurt by unfortunate stock selection. One of the
Fund's worst-performing securities was Office Depot (-43%), which suffered after
announcing lower-than-expected results. We believe that the reaction has been
exaggerated and that the share price following the announcement made the stock
an attractive opportunity.
6
<PAGE> 355
We reorganized a number of the Fund's consumer cyclical holdings during the
first half of the year to reduce portfolio impact from higher interest rates or
slowing retail sales. We sold the Fund's position in Dana Corp. at a loss to
remove exposure to the slowing automotive, replacement parts, and heavy-duty
truck industries. The Fund also sold its position in Federated Department
Stores, anticipating slower retail sales and difficulties integrating a recent
acquisition. Both sales proved prudent, as the stocks have since moved lower. We
also sold the Fund's position in Shaw Industries, a carpet manufacturer, since
we expect the housing market to soften. We used the proceeds from these sales to
initiate positions in companies that we believe have better prospects and may be
attractively priced. Eastman Kodak is an example. The global film manufacturer
is a leading participant in the burgeoning digital camera and processing
markets. From the Fund's purchase through the end of June, the position rose 4%.
The Fund also overweighted basic materials during the reporting period, but its
holdings were hurt early in the year when the market fixated on technology
stocks and the negative implications of rising interest rates. The Fund's paper
stocks, which had solid returns in the fourth quarter of 1999, gave a lot back
in the first half due to deteriorating industry fundamentals. We sold the Fund's
position in Smurfit-Stone Container in February through June and its Georgia-
Pacific holdings in March through June. While both stocks were sold at a loss
for the year, their later declines showed that the sales were good decisions for
the Fund. The Fund's position in USX-U.S. Steel Group was hurt by deteriorating
steel industry fundamentals and we sold the stock in the midst of an extended
decline. Proceeds from these sales were used to initiate positions in a variety
of companies including Pitney Bowes, a major manufacturer of mailing equipment,
and Fort James Corp., a manufacturer of paper-based consumer products. We
believe the inherent value of these companies is considerably higher than the
prices we paid.
Capital goods stocks also hurt the Fund's returns during the first half of 2000,
and being overweighted in the sector did not help matters. The biggest negative
impact came from Honeywell (-41%), which announced delays in the integration of
its merger with Allied Signal. Since we expect a quick resolution to the
difficulties, we maintained the Fund's position. On a positive note, in February
and March, the Fund made timely purchases of General Dynamics, a large defense
contractor, and shares have since appreciated approximately 34%.
OTHER MAJOR PURCHASES AND SALES
During the first half of 2000, we made several other changes to the Fund's
holdings. In telecommunications, we sold the Fund's position in Nippon Telephone
and Telegraph when it hit our price target. We used the proceeds to
7
<PAGE> 356
initiate a position in CenturyTel, a Louisiana-based local, data, and wireless
phone company, at prices we believe were attractive.
In the consumer sector, we sold the Fund's entire position in Newell Rubbermaid
on a negative announcement regarding fourth-quarter 1999 results. The proceeds
were used to purchase a new position in Ralston Purina Group at what we believe
were attractive prices. In addition to pet foods, Ralston Purina is well known
for its Energizer batteries. The position has since appreciated in value and
helped the Fund's performance.
We sold the Fund's position in United Healthcare after the HMO hit our price
target. The proceeds were used to initiate positions in Tenet Healthcare, which
is a hospital company, and Abbott Labs, a medical products and pharmaceutical
manufacturer. From purchase through the end of the first half, Tenet has
appreciated 13% and Abbott Labs has increased 35%.
In technology, we sold the Fund's remaining position in Adaptec and
significantly reduced its position in Seagate Technology after both stocks
reached our price targets. Following the Adaptec sale, the share price dropped
dramatically, underscoring the timeliness of our decision. We initiated a Fund
position in Compuware, a software and services concern, at what we took to be an
attractive price, only to have the company report less-than-expected results.
The shares declined approximately 40% from our purchase price, and we
subsequently sold the Fund's entire position. Another disappointing purchase for
the Fund was Unisys, a global information services and hardware provider. Unisys
also reported less-than-expected results due to soft post-Y2K computer spending,
and the shares dropped roughly 40%. We believe that the market has overreacted
to this announcement and that as of June 30, 2000, the shares represented
exceptional value for a company with a solid core business and good end-market
growth prospects. We continued to hold Unisys in the Fund's portfolio. We used a
similar negative announcement by Electronic Data Systems to initiate a position
in this global information technology company at what we believe was an
attractive price.
LOOKING AHEAD
We remain committed to value investing and confident in our investment process.
With market enthusiasm for many technology and emerging-growth companies
somewhat shaken in recent months, we believe that our disciplined value approach
may result in higher long-term returns with lower volatility. Continued global
economic strength, powered by reemerging Asian and Latin American economies and
stable growth in Europe and the U.S., should have positive effects on the
revenue and earnings prospects of many of the Fund's holdings. We anticipate
strong gains for many energy stocks in 2000. At the same time, low valuations in
many consumer staples and health care companies have created opportunities not
seen in more than 10 years.
8
<PAGE> 357
Past performance is
no guarantee of
future results.
For these reasons, we anticipate increasing the Fund's positions in these
groups. We will also continue to seek opportunities in the technology sector
when the fundamentals and valuations meet our strict investment criteria. Given
our belief that interest rates may yet rise further, the Fund may remain
underweighted in consumer-related and financial sectors relative to its
benchmark.
Whatever the markets or the economy 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
9
<PAGE> 358
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A -11.52% 9.42% 12.38% 10.35%
Class B -12.19% 8.71% 11.98% 10.07%
Class C -12.19% 8.71% 11.98% 10.07%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A -16.38% 8.19% 11.74% 9.91%
Class B -16.58% 8.42% 11.98% 10.07%
Class C -13.07% 8.71% 11.98% 10.07%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 359 out of 188 out of n/a 171 out of
485 funds 206 funds 186 funds
Class B 372 out of 195 out of 61 out of 49 out of
485 funds 206 funds 88 funds 58 funds
Class C 372 out of n/a n/a 367 out of
485 funds 436 funds
Average Lipper
multi-cap value
fund -3.99% 14.20% 12.90% 12.02%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE YEAR ENDED 6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $17.15 $0.0000 $0.0000
Class B $17.00 $0.0000 $0.0000
Class C $17.00 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%.
Performance figures for this class include the historical performance of
the Class B shares for periods from inception (5/1/86) through 12/31/94.
Performance figures for the two classes vary after this date based on
differences in their sales charges and expense structures. Class B shares
are subject to a CDSC of up to 5% if shares are redeemed within the first
six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (5/1/86) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
10
<PAGE> 359
(+) 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. Since-inception
rankings reflect the performance of each share class from its initial
offering date through 6/30/00. 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. Since-inception return for the average Lipper peer fund is for
the period from 5/1/86 through 6/30/00.
11
<PAGE> 360
MainStay Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.3%)+
AEROSPACE/DEFENSE (1.7%)
General Dynamics Corp. ......... 167,100 $ 8,730,975
Raytheon Co. Class A............ 100,200 1,947,637
Raytheon Co. Class B............ 227,700 4,383,225
------------
15,061,837
------------
ALUMINUM (1.6%)
Alcoa Inc. ..................... 464,756 13,477,924
------------
BANKS (8.1%)
Chase Manhattan Corp. (The)..... 431,850 19,892,091
FleetBoston Financial Corp. .... 676,110 22,987,740
Washington Mutual, Inc. ........ 923,300 26,660,287
------------
69,540,118
------------
CHEMICALS (2.4%)
Air Products and Chemicals,
Inc. .......................... 545,700 16,814,381
IMC Global Inc. ................ 271,520 3,529,760
------------
20,344,141
------------
COMPUTER SOFTWARE & SERVICES (0.6%)
Electronic Data Systems
Corp. ......................... 125,100 5,160,375
------------
COMPUTER SYSTEMS (2.5%)
Seagate Technology, Inc. (a).... 156,900 8,629,500
Unisys Corp. (a)................ 903,600 13,158,675
------------
21,788,175
------------
CONSUMER PRODUCTS (1.6%)
Dial Corp. (The)................ 407,400 4,226,775
Energizer Holdings, Inc. (a).... 501,033 9,143,852
------------
13,370,627
------------
CONTAINERS (1.0%)
Temple-Inland Inc. ............. 215,000 9,030,000
------------
ELECTRIC POWER COMPANIES (4.5%)
DTE Energy Co. ................. 376,900 11,519,006
Energy East Corp. .............. 554,800 10,575,875
Niagara Mohawk Holdings, Inc.
(a)............................ 1,222,400 17,037,200
------------
39,132,081
------------
ENGINEERING & CONSTRUCTION
(1.0%)
Fluor Corp. .................... 272,200 8,608,325
------------
FINANCE (8.0%)
American General Corp. ......... 534,100 32,580,100
AXA Financial, Inc. ............ 463,600 15,762,400
Citigroup Inc. ................. 342,950 20,662,738
------------
69,005,238
------------
FOOD (3.9%)
ConAgra, Inc. .................. 143,800 2,741,187
---------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
FOOD (CONTINUED)
Heinz (H.J.) Co. ............... 376,000 $ 16,450,000
Ralston-Ralston Purina Group.... 724,900 14,452,694
------------
33,643,881
------------
HEALTH CARE--MEDICAL PRODUCTS (1.4%)
Becton, Dickinson & Co. ........ 433,200 12,427,425
------------
HEALTH CARE--MISCELLANEOUS
(5.0%)
Abbott Laboratories............. 338,600 15,088,862
Health Management Associates,
Inc. Class A (a)............... 798,000 10,423,875
Manor Care, Inc. (a)............ 283,300 1,983,100
Tenet Healthcare Corp. (a)...... 589,100 15,905,700
------------
43,401,537
------------
HOTEL/MOTEL (1.3%)
Harrah's Entertainment, Inc.
(a)............................ 552,500 11,567,969
------------
HOUSEHOLD PRODUCTS (5.1%)
Clorox Co. (The)................ 348,200 15,603,712
Fort James Corp. ............... 387,100 8,951,687
Kimberly-Clark Corp. ........... 333,700 19,146,038
------------
43,701,437
------------
INSURANCE (4.3%)
Allstate Corp. (The)............ 441,300 9,818,925
Lincoln National Corp. ......... 237,000 8,561,625
MGIC Investment Corp. .......... 408,300 18,577,650
------------
36,958,200
------------
INVESTMENT BANK/BROKERAGE (1.1%)
Goldman Sachs Group, Inc.
(The).......................... 103,200 9,791,100
------------
MACHINERY (1.6%)
Ingersoll-Rand Co. ............. 352,300 14,180,075
------------
MANUFACTURING (5.3%)
American Standard Cos. Inc.
(a)............................ 729,100 29,893,100
Honeywell International Inc. ... 478,100 16,105,994
------------
45,999,094
------------
NATURAL GAS DISTRIBUTORS & PIPELINES
(4.6%)
Coastal Corp. (The)............. 486,600 29,621,775
Dynegy Inc. Class A............. 153,400 10,479,138
------------
40,100,913
------------
OFFICE EQUIPMENT & SUPPLIES
(1.5%)
Pitney Bowes Inc. .............. 317,900 12,716,000
------------
OIL & GAS SERVICES (9.1%)
Burlington Resources Inc. ...... 425,200 16,263,900
Noble Affiliates, Inc. ......... 240,000 8,940,000
Union Pacific Resources Group
Inc. .......................... 675,000 14,850,000
Unocal Corp. ................... 720,150 23,854,969
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 361
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS SERVICES (CONTINUED)
Valero Energy Corp. ............ 452,400 $ 14,363,700
------------
78,272,569
------------
OIL--INTEGRATED DOMESTIC (4.3%)
Sunoco, Inc. ................... 478,600 14,088,787
Tosco Corp. .................... 813,800 23,040,713
------------
37,129,500
------------
OIL--INTEGRATED INTERNATIONAL
(2.3%)
Texaco Inc. .................... 376,300 20,037,975
------------
PAPER & FOREST PRODUCTS (1.0%)
International Paper Co. ........ 299,500 8,928,844
------------
PHOTOGRAPHY/IMAGING (1.4%)
Eastman Kodak Co. .............. 196,300 11,679,850
------------
RETAIL (1.8%)
Office Depot, Inc. (a).......... 2,452,300 15,326,875
------------
TELECOMMUNICATIONS (3.1%)
AT&T Corp. ..................... 529,050 16,731,206
WorldCom, Inc. (a).............. 220,700 10,124,613
------------
26,855,819
------------
TELEPHONE (3.6%)
Bell Atlantic Corp. ............ 270,000 13,719,375
CenturyTel, Inc. ............... 614,300 17,661,125
------------
31,380,500
------------
TOYS (1.6%)
Hasbro, Inc. ................... 894,200 13,468,888
------------
Total Common Stocks
(Cost $841,548,625)............ 832,087,292
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.4%)
COMMERCIAL PAPER (3.4%)
American Express Credit Corp.
6.88%, due 7/3/00.............. $ 2,835,000 $ 2,833,916
Associates Corp. of North
America
6.53%, due 7/19/00............. 10,845,000 10,809,514
Ford Motor Credit Co.
6.53%, due 7/14/00............. 7,970,000 7,951,155
Prudential Funding Corp.
6.54%, due 7/6/00.............. 840,000 839,235
UBS Finance Delaware LLC
6.54%, due 7/20/00............. 6,560,000 6,537,312
------------
Total Short-Term Investments
(Cost $28,971,132)............. 28,971,132
------------
Total Investments
(Cost $870,519,757) (b)........ 99.7% 861,058,424(c)
Cash and Other Assets,
Less Liabilities............... 0.3 2,860,998
---- ---------
Net Assets...................... 100.0% $863,919,422
=========== ============
</TABLE>
-------
(a) Non-income producing security.
(b) The cost for federal income tax purposes is $875,029,177.
(c) At June 30, 2000, net unrealized depreciation was $13,970,753, 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 $75,508,185 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $89,478,938.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 362
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$870,519,757)............................................. $861,058,424
Cash........................................................ 2,024
Receivables:
Investment securities sold................................ 13,992,787
Dividends................................................. 1,416,308
Fund shares sold.......................................... 244,910
------------
Total assets........................................ 876,714,453
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 9,633,351
Fund shares redeemed...................................... 1,344,160
NYLIFE Distributors....................................... 699,488
Transfer agent............................................ 480,483
MainStay Management....................................... 462,855
Custodian................................................. 12,353
Trustees.................................................. 6,228
Accrued expenses............................................ 156,113
------------
Total liabilities................................... 12,795,031
------------
Net assets.................................................. $863,919,422
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 53,414
Class B................................................... 453,948
Class C................................................... 332
Additional paid-in capital.................................. 876,350,140
Accumulated net investment loss............................. (78,837)
Accumulated distributions in excess of net realized gain on
investments............................................... (4,160,439)
Accumulated undistributed net realized gain on foreign
currency transactions..................................... 762,197
Net unrealized depreciation on investments.................. (9,461,333)
------------
Net assets.................................................. $863,919,422
============
CLASS A
Net assets applicable to outstanding shares................. $ 91,594,107
============
Shares of beneficial interest outstanding................... 5,341,362
============
Net asset value per share outstanding....................... $ 17.15
Maximum sales charge (5.50% of offering price).............. 1.00
------------
Maximum offering price per share outstanding................ $ 18.15
============
CLASS B
Net assets applicable to outstanding shares................. $771,761,190
============
Shares of beneficial interest outstanding................... 45,394,793
============
Net asset value and offering price per share outstanding.... $ 17.00
============
CLASS C
Net assets applicable to outstanding shares................. $ 564,125
============
Shares of beneficial interest outstanding................... 33,182
============
Net asset value and offering price per share outstanding.... $ 17.00
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 363
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 8,129,983
Interest.................................................. 712,789
------------
Total income............................................ 8,842,772
------------
Expenses:
Distribution--Class B..................................... 3,199,952
Distribution--Class C..................................... 2,286
Management................................................ 2,822,727
Transfer agent............................................ 1,425,488
Service--Class A.......................................... 122,666
Service--Class B.......................................... 1,066,651
Service--Class C.......................................... 762
Shareholder communication................................. 77,047
Recordkeeping............................................. 60,863
Custodian................................................. 51,038
Professional.............................................. 38,351
Registration.............................................. 22,099
Trustees.................................................. 11,058
Miscellaneous............................................. 21,002
------------
Total expenses.......................................... 8,921,990
------------
Net investment loss......................................... (79,218)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY FORWARD CONTRACT TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 4,111,816
Foreign currency forward contract transactions............ 762,197
------------
Net realized gain on investments and foreign currency
forward contract transactions............................. 4,874,013
------------
Net change in unrealized appreciation/depreciation on
investments:
Security transactions..................................... (73,337,547)
Foreign currency forward contracts........................ 160,302
------------
Net unrealized loss on investments and foreign currency
forward contracts......................................... (73,177,245)
------------
Net realized and unrealized loss on investments and foreign
currency forward contracts................................ (68,303,232)
------------
Net decrease in net assets resulting from operations........ $(68,382,450)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 364
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- --------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income (loss).............................. $ (79,218) $ 226,461
Net realized gain on investments and foreign currency
forward contracts....................................... 4,874,013 4,611,907
Net change in unrealized appreciation/depreciation on
investments and foreign currency forward contracts...... (73,177,245) 83,690,086
-------------- --------------
Net increase (decrease) in net assets resulting from
operations.............................................. (68,382,450) 88,528,454
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. -- (17,096)
Class B................................................. -- (26,773)
Class C................................................. -- (2)
From net realized gain on investments:
Class A................................................. -- (1,060,369)
Class B................................................. -- (10,508,898)
Class C................................................. -- (6,553)
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)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 32,690,187 115,026,854
Class B................................................. 35,980,579 123,084,616
Class C................................................. 182,855 815,133
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. -- 2,173,729
Class B................................................. -- 18,287,568
Class C................................................. -- 10,103
-------------- --------------
68,853,621 259,398,003
Cost of shares redeemed:
Class A................................................. (51,183,228) (122,384,486)
Class B................................................. (215,593,575) (363,451,080)
Class C................................................. (208,998) (234,302)
-------------- --------------
Decrease in net assets derived from capital share
transactions......................................... (198,132,180) (226,671,865)
-------------- --------------
Net decrease in net assets............................ (266,514,630) (159,125,115)
NET ASSETS:
Beginning of period......................................... 1,130,434,052 1,289,559,167
-------------- --------------
End of period............................................... $ 863,919,422 $1,130,434,052
============== ==============
Accumulated net investment income (loss) at end of period... $ (78,837) $ 381
============== ==============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 365
This page intentionally left blank
17
<PAGE> 366
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------------------
Six months
ended Year ended December 31,
June 30, --------------------------------------------------------------
2000+ 1999 1998 1997 1996 1995
---------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................... $ 18.18 $ 17.16 $ 21.76 $ 20.34 $ 18.25 $ 14.66
------- -------- -------- -------- ------- -------
Net investment income (loss)........... 0.06(a) 0.12(a) 0.23 0.27 0.30 0.29
Net realized and unrealized gain (loss)
on investments....................... (1.09) 1.29 (1.92) 4.10 3.66 3.91
------- -------- -------- -------- ------- -------
Total from investment operations....... (1.03) 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....... $ 17.15 $ 18.18 $ 17.16 $ 21.76 $ 20.34 $ 18.25
======= ======== ======== ======== ======= =======
Total investment return (c)............ (5.67%) 8.33% (7.41%) 21.88% 21.84% 28.74%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss)....... 0.66%++ 0.70% 1.03% 1.22% 1.6% 1.5%
Expenses........................... 1.20%++ 1.13% 1.09% 1.11% 1.1% 1.2%
Portfolio turnover rate................ 45% 61% 83% 61% 47% 48%
Net assets at end of period (in
000's)............................... $91,594 $117,036 $114,925 $124,011 $73,259 $25,258
</TABLE>
-------
<TABLE>
<C> <S>
* Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Less than one cent per share.
(c) 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> 367
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------------------------- ------------------------------------------
Six months Six months September 1,*
ended Year ended December 31, ended Year ended through
June 30, ------------------------------------------------------------ June 30, December 31, December 31,
2000+ 1999 1998 1997 1996 1995 2000+ 1999 1998
---------- ---------- ---------- ---------- ---------- -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 18.09 $ 17.15 $ 21.74 $ 20.32 $ 18.25 $ 14.66 $18.09 $17.15 $18.16
-------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
(0.01)(a) (0.01)(a) 0.06 0.15 0.20 0.19 (0.01)(a) (0.01)(a) 0.03
(1.08) 1.28 (1.91) 4.10 3.64 3.91 (1.08) 1.28 1.67
-------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
(1.09) 1.27 (1.85) 4.25 3.84 4.10 (1.09) 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)
-------- ---------- ---------- ---------- ---------- -------- ------ ------ ------
$ 17.00 $ 18.09 $ 17.15 $ 21.74 $ 20.32 $ 18.25 $17.00 $18.09 $17.15
======== ========== ========== ========== ========== ======== ====== ====== ======
(6.03%) 7.51% (8.09%) 21.29% 21.11% 28.01% (6.03%) 7.51% 9.88%
(0.09%)++ (0.05%) 0.28% 0.70% 1.1% 0.9% (0.09%)++ (0.05%) 0.28%++
1.95%++ 1.88% 1.84% 1.63% 1.6% 1.8% 1.95%++ 1.88% 1.84%++
45% 61% 83% 61% 47% 48% 45% 61% 83%
$771,761 $1,012,767 $1,174,554 $1,399,589 $1,019,307 $708,840 $ 564 $ 631 $ 80
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 368
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 (and certain other qualified purchases) 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
20
<PAGE> 369
Notes to Financial Statements unaudited
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 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 may be made.
FOREIGN CURRENCY FORWARD CONTRACTS. A foreign currency forward contract is an
agreement to buy or sell currencies of different countries on a specified future
date at a specified rate. During the period the forward contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" such contract on a daily basis to reflect the
market value of the contract at the end of each day's trading. When the foreign
currency forward contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract. The Fund enters into foreign
currency forward contracts in order to hedge its foreign currency denominated
investments.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
At June 30, 2000, there were no open foreign currency forward contracts.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
21
<PAGE> 370
MainStay Value Fund
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. The Fund intends to declare and pay dividends
quarterly. Income dividends and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles. 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.
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 plans)
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 on assets up to
22
<PAGE> 371
Notes to Financial Statements unaudited (continued)
$200 million, 0.65% on assets from $200 million to $500 million and 0.50% on
assets in excess of $500 million. For the six months ended June 30, 2000 the
Manager earned $2,822,727.
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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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 $2,826 for the six months ended
June 30, 2000. 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 $999, $765,747 and $177, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $1,425,488.
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> 372
MainStay Value 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 $10,668 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$60,863 for the six months ended June 30, 2000.
NOTE 4--FEDERAL INCOME TAX:
The Fund has elected, to the extent provided by the regulations, to treat
$3,922,756 of qualifying capital losses and foreign exchange losses that arose
during the prior year as if they arose on January 1, 2000.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $417,919 and $625,646, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................ 1,892 2,089 10 6,437 6,641 43
Shares issued in reinvestment of dividends
and distributions........................ -- -- -- 124 1,058 --
------ ------- --- ------ ------- ---
1,892 2,089 10 6,561 7,699 43
Shares redeemed............................ (2,989) (12,685) (12) (6,821) (20,185) (13)
------ ------- --- ------ ------- ---
Net increase (decrease).................... (1,097) (10,596) (2) (260) (12,486) 30
====== ======= === ====== ======= ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited
</TABLE>
24
<PAGE> 373
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
25
<PAGE> 374
This page intentionally left blank
<PAGE> 375
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSV11-08/00
RECYCLE.LOGO
[MAINSTAY FUNDS LOGO]
MainStay(R)
Value Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 376
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 22
Notes to Financial Statements 28
The MainStay(R) Funds 38
</TABLE>
<PAGE> 377
This page intentionally left blank
2
<PAGE> 378
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
3
<PAGE> 379
$10,000 Invested in MainStay Strategic
Income Fund versus Lehman Brothers
Aggregate Bond Index, a Three-Index
Composite, and Inflation
CLASS A SHARES Total Returns: 1 Year -2.10%, Since Inception 3.02%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
PERIOD MAINSTAY STRATEGIC AGGREGATE BOND THREE-INDEX
END INCOME FUND INDEX* INFLATION (CPI)++ COMPOSITE+
------ ------------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C>
2/28/97 $ 9,550 $ 10,000 $ 10,000 $ 10,000
12/97 10,183 10,907 10,131 10,656
12/98 10,709 11,854 10,294 11,619
12/99 10,955 11,756 10,569 11,525
6/00 11,044 12,225 10,788 11,584
</TABLE>
CLASS B SHARES Class B Total Returns: 1 Year -3.27%, Since Inception 3.11%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
PERIOD MAINSTAY STRATEGIC AGGREGATE BOND THREE-INDEX
END INCOME FUND INDEX* INFLATION (CPI)++ COMPOSITE+
------ ------------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C>
2/28/97 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/97 10,602 10,907 10,131 10,656
12/98 11,062 11,854 10,294 11,619
12/99 11,233 11,756 10,569 11,525
6/00 11,078 12,225 10,788 11,584
</TABLE>
CLASS C SHARES Class C Total Returns: 1 Year 0.73%, Since Inception 3.67%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
PERIOD MAINSTAY STRATEGIC AGGREGATE BOND THREE-INDEX
END INCOME FUND INDEX* COMPOSITE+ INFLATION (CPI)++
------ ------------------ --------------- ----------- -----------------
<S> <C> <C> <C> <C>
2/28/97 $ 10,000 $ 10,000 $ 10,000 $ 10,000
12/97 10,602 10,907 10,656 10,131
12/98 11,062 11,854 11,619 10,294
12/99 11,233 11,756 11,525 10,569
6/00 11,278 12,225 11,584 10,788
</TABLE>
4
<PAGE> 380
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price, reinvestment of dividend and capital gain distributions, and maximum
sales charges (see below). Performance figures reflect certain historical fee
waivers and/or expense limitations, without which total return figures may
have been lower. The graphs assume an initial investment of $10,000 and
reflect deduction of all sales charges that would have applied for the period
of investment. Class A share performance reflects the effect of the maximum
4.5% initial sales charge. Class B share performance reflects a contingent
deferred sales charge (CDSC) of 2%. Class C share performance includes the
historical performance of the Class B shares for periods from 2/28/97 through
8/31/98. Class C shares would be subject to a CDSC of 1% if redeemed within
one year of purchase.
* 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 Index is comprised of the Lehman Brothers
Government/Corporate, the Mortgage-Backed Securities, and the Asset-Backed
Securities Indices. You cannot invest directly in an index.
+ The Three-Index Composite assumes equal investments, with all interest and
capital gains reinvested, in the Lehman Brothers Aggregate Bond Index, the
First Boston High Yield Index, and the Salomon Smith Barney Non-U.S. Dollar
World Government Bond Index. The indices represent the U.S. government and
domestic investment-grade sector, the U.S. high-yield sector, and the
international-bond sector, respectively. Total returns assume reinvestment of
all income and capital gains. All indices are unmanaged. You cannot invest
directly in 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> 381
Portfolio Management Discussion and Analysis
During the six months ended June 30, 2000, the Federal Reserve raised the
targeted federal funds rate by 25 basis points in both February and March and
another 50 basis points in May. With monetary tightening already at work, the
rapid pace of economic expansion in the first quarter of 2000 appeared to give
way as signs of a slowing economy emerged in the second quarter. Consumer
spending finally slowed to below the rate of personal income growth.
While bond prices generally decline when interest rates rise, the government's
decision to use a portion of its surplus to repurchase Treasury securities
helped to stabilize high-grade bond prices during the first half of 2000.
Ongoing increases in short-term rates took their toll on the short end of the
yield curve, but the Federal Reserve's decision to leave rates unchanged in June
2000 caused the prices of short-term securities to rise. Longer-term securities,
on the other hand, reacted in the opposite manner. As high-grade corporate bonds
and agency securities reached nearly record-wide yield spreads relative to
Treasuries, many investors moved out of long-term Treasuries, seeking to profit
as yield spreads narrowed.
Overall, high-yield securities were negatively impacted by rising interest
rates--and default rates rose above historical levels, reaching 5% of the market
on an annualized basis. International bonds also suffered as central banks in
Europe, the U.K., and the United States all tightened interest rates. Booming
economies and profits from mobile telecom license sales in Europe led to
government bond repurchases abroad, which reduced bond supplies. A strong U.S.
dollar meant that most international bond returns were higher in local currency
terms than they were for U.S. investors.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Strategic Income Fund returned
0.81% for Class A shares and 0.40% for Class B and Class C shares, excluding all
sales charges. Class A shares outperformed and Class B and Class C shares
underperformed the 0.43% return of the average Lipper(1) multi-sector income
fund over the same period. All share classes underperformed the 3.99% return of
Lehman Brothers Aggregate Bond Index(2) for the six months ended June 30, 2000.
The high-grade portion of the Fund's portfolio benefited from shortening
duration through April then increasing duration in May to take advantage of
shifting market preferences and the Federal Reserve's evolving interest-rate
policy. Holding a minimal position in agency securities detracted from
performance during the second quarter, when these issues outperformed. Rising
interest rates hurt performance in the high-yield portion of the Fund's
portfolio, and participation in weaker markets and currency exposure, especially
to the euro, had a negative impact on international bond results.
-------
(1) See footnote and table on page 11 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the Lehman Brothers
Aggregate Bond Index.
6
<PAGE> 382
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- ------------------------
<S> <C>
12/97 6.62 Class A
12/98 5.17 Class A
12/99 2.30 Class A
6/00 0.81 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
6/00 0.40 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 through 8/98. See
footnote * on page 11 for more information performance.
DOMESTIC HIGH-GRADE BOND RESULTS
During the first quarter of 2000, the domestic high-grade bond portion of the
Fund's portfolio had little exposure to high-coupon, long-dated Treasuries,
which tended to perform well as the government continued to repurchase Treasury
securities. Recognizing the potential in these securities, we increased the
Fund's exposure to them in the second quarter of 2000, with a positive impact on
performance.
The Fund's yield-curve positioning did not materially impact performance during
the reporting period. During the second quarter, we positioned the Fund with a
bias for steepening, which helped performance in June, but hurt performance in
April and May.
With Treasury securities outperforming in the early months of 2000, the Fund
held practically no agency securities. This was helpful until June, but it
detracted from performance when the Federal Reserve decided to leave rates
unchanged and activity in agency securities surged.
During the first half of 2000, we overweighted the Fund in mortgage-backed bonds
issued by the Government National Mortgage Association, which are backed by the
full faith and credit of the U.S. government,(3) relative to those issued by the
Federal National Mortgage Association. This positioning proved positive during
the first five months of 2000. Despite a negative impact in June, the net effect
was positive for the Fund. The Fund also purchased FNMA 8.5% coupon bonds to
take advantage of what we perceived to be pricing opportunities, with a positive
impact on Fund performance.
-------
(3) While some securities in the Fund's portfolio may carry government backing
or guaranteed payment of interest and principal, shares of the Fund are not
guaranteed and prices will fluctuate so that when shares are sold, they may
be worth more or less than their original cost.
7
<PAGE> 383
At the short end of the yield curve, the Fund is now overweighted in high-
quality asset-backed securities and collateralized mortgage-backed securities,
which are providing incremental yields of 75 to 100 basis points while helping
to maintain the overall credit quality of the portfolio. The Fund's short-term
securities also include floating-rate notes, which we purchased seeking to
capture attractive yield spreads and rising interest rates while protecting
principal.
CORPORATE BOND RESULTS
The first five months of 2000 were difficult for corporate bond investors.
Corporate bonds faced an active Federal Reserve that was trying to quell
inflation and, in the process, curb growth. Concurrently, the U.S. Treasury was
buying back government bonds and curtailing new issuance, making the Treasury
market more appealing to investors than corporate bonds. In reaction, we quickly
turned defensive in the corporate bond portion of the Fund's portfolio. We
reduced the Fund's position in longer-maturity bonds, added floating-rate notes,
and looked for pockets of value. In mid-May, when the price of corporate bonds
fell to unprecedented levels, we began to reenter this sector, especially in
longer maturities. This change added value as buyers of corporate debt reemerged
in June and the market tone rapidly improved on the expectation that the Federal
Reserve was finished with its tightening cycle.
INTERNATIONAL BONDS
During the first half of 2000, the international bond portion of the Fund's
portfolio benefited from investments in Australia (+6.72%), Canada (+5.20%), and
the U.K. (+4.17%), all in local currency terms. These returns were ahead of the
market as a whole.
Yield spreads widened in European bond markets during the second quarter,
reaching levels we believed were attractive in June, and the Fund added more
"spread product" to the Fund's portfolio to take advantage of anticipated spread
contractions in the months ahead. New positions included 10-year Greek
government bonds, which we believe will benefit as spreads narrow. The Fund also
added two-year Norwegian government bonds, which carry a AAA rating.(4) During
the reporting period, the Fund also participated in the five-year yen tranche,
or portion, of a $14 billion Deutsche Telekom offering, which we believe was
priced cheaply and offered appropriate risk-management features.
-------
(4) Debt rated AAA has the highest rating assigned by Standard & Poor's. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
8
<PAGE> 384
The U.S. dollar's strength detracted from the performance of most international
currencies during the reporting period, with a negative impact on Fund
performance. Although the Fund lost money on euro exposure, the currency made a
slight comeback in June. The Fund remains positioned for a rally in foreign
currencies, particularly the euro.
HIGH-YIELD SECURITIES
The high-yield portion of the Fund's portfolio benefited from strong credit
analysis and security selection, which allowed it to avoid defaults in a
challenging market. Emphasis on securities rated single-B,(5) however, hurt
performance as higher-rated high-yield bonds tended to outperform during the
reporting period. UIH Australia, the Fund's largest position in this sector at
the end of the reporting period, advanced on speculation that the bonds will be
called in 2001. Cirrus Logic convertibles also performed well as both the stock
and bonds rallied.
The Fund increased cable exposure with Charter Communications, Adelphia
Communications, and Cablevision SA. It also moved to a market-weighted position
in telecom by purchasing Exodus Communications, Crown Castle, PSINet, and Nextel
Communications bonds. The Fund benefited from the NASDAQ decline, purchasing
convertible securities whose convertible feature had become virtually worthless,
then selling the securities as the NASDAQ rebounded. The Fund continues to hold
Internet Capital Group and Digital Island bonds, both of which have strong asset
coverage and provide yields over 15%.
Negative performers included Loews Cineplex and United Artist bonds and G&G
Retail bonds, all of which were sold at a loss, then continued to decline,
suggesting that the sales were timely and beneficial.
Aside from increasing telecommunications holdings to a market-weighted position,
the sector weightings and foreign exposure in the high-yield portion of the
Fund's portfolio remained relatively similar to the beginning of the year. The
Fund's high-yield holdings continue to be overweighted in health care,
utilities, real estate, and financials, which we believe offer attractive risk-
adjusted spreads. The high-yield portion of the Fund's portfolio was
underweighted in economically sensitive industries and we believed that
valuations in the energy sector did not justify a market weighting during the
reporting period.
LOOKING AHEAD
Central bank activity will continue to be a focus in international markets,
while at home, the big question is whether an economic slowdown can be
sustained.
-------
(5) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
9
<PAGE> 385
If economic activity accelerates, we may see another Federal Reserve tightening
move. But no matter what happens, we don't expect the Federal Reserve to ease
interest rates over the near term. Since the Treasury may continue to buy back
debt regardless of economic activity, we expect the domestic yield curve to
remain inverted for the foreseeable future. We are likely to reduce our
underweighted position in high-grade agency paper, and we will look for
opportunities to add exposure to mortgage-backed and asset-backed bonds. Among
high-yield and international securities, we will continue to seek opportunities
that we believe offer attractive returns for the level of risk they involve.
Whatever the markets or the economy may bring, the Fund will continue to seek to
provide current income and competitive overall return by investing primarily in
domestic and foreign debt securities.
Joseph Portera
Portfolio Manager
MacKay Shields LLC
High-yield securities (sometimes called "junk bonds") are generally considered
speculative because they present a greater risk of loss than higher-quality debt
securities; these securities may also be subject to greater price volatility.
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets.
TARGETED DIVIDEND POLICY
The MainStay Strategic Income Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. During the first half of 2000, the
Fund maintained a stable dividend, which did not materially impact 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 by its targeted
dividend policy.
Past performance is no guarantee of future results.
10
<PAGE> 386
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 2.52% 4.45%
Class B 1.73% 3.67%
Class C 1.73% 3.67%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A -2.10% 3.02%
Class B -3.27% 3.11%
Class C 0.73% 3.67%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 61 out of 121 funds 21 out of 78 funds
Class B 78 out of 121 funds 39 out of 78 funds
Class C 78 out of 121 funds 62 out of 106 funds
Average Lipper
multisector
income fund 2.09% 3.32%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.92 $0.3498 $0.0000
Class B $8.91 $0.3126 $0.0000
Class C $8.91 $0.3126 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain historical fee waivers
and/or expense limitations, without which total return figures may have
been lower.
Class A shares are sold with a maximum initial sales charge of 4.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (2/28/97) through 8/31/98. Performance figures for the two
classes vary after this date based on differences in their sales charges.
+ 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. Since-inception rankings reflect the
performance of each share class from its initial offering date through
6/30/00. Class A and Class B shares were first offered to the public on
2/28/97, and Class C shares on 9/1/98. Since-inception return for the average
Lipper peer fund is for the period from 2/28/97 through 6/30/00.
11
<PAGE> 387
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (92.1%)+
ASSET-BACKED SECURITIES (4.1%)
AIRLINES (0.5%)
America West Airlines, Inc.
Pass-Through Certificates
Series C
6.86%, due 7/2/04.............. $ 164,421 $ 160,515
Atlas Air, Inc.
Pass-Through Certificates
Series 2000-1 Class C
9.702%, due 1/2/10 (c)......... 185,000 185,553
-----------
346,068
-----------
AIRPLANE LEASES (0.6%)
AerCo Ltd.
Series 1X Class A1
6.8413%, due 7/15/23 (d)....... 150,000 149,970
Morgan Stanley Aircraft Finance
Series 2 Class A3
7.1713%, due 3/15/25 (c)(d).... 275,000 275,275
-----------
425,245
-----------
AUTO LEASES (0.3%)
Premier Auto Trust
Series 1999-1 Class A3
5.69%, due 11/8/02............. 255,000 251,838
-----------
AUTOMOBILES (0.3%)
DaimlerChrysler Auto Trust
Series 2000-B Class A3
7.53%, due 5/10/04............. 215,000 216,260
-----------
CONSUMER SERVICES (0.2%)
Arran One Ltd.
Series 2000-A Class B
7.15%, due 3/15/03 (d)......... 175,000 174,965
-----------
ELECTRIC POWER COMPANIES (1.3%)
AES Eastern Energy, L.P.
Pass-Through Certificates
Series 1999-A
9.00%, due 1/2/17.............. 470,000 457,555
Boston Edison Co.
Series 1999-1 Class A2
6.45%, due 9/15/05............. 230,000 226,062
West Penn Funding, L.L.C.
Series 1999-A Class A4
6.98%, due 12/26/08............ 220,000 214,247
-----------
897,864
-----------
----------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
ENERGY SOURCES (0.2%)
PECO Energy Transition Trust
Series 2000-A Class A2
7.30%, due 9/1/04.............. $ 130,000 $ 130,040
-----------
ENTERTAINMENT (0.1%)
United Artists Theatre Co.
Pass-Through Certificates
Series 1995-A
9.30%, due 7/1/15.............. 106,069 70,709
-----------
EQUIPMENT LOANS (0.4%)
CNH Equipment Trust
Series 2000-A Class B
7.32%, due 2/15/07............. 192,812 191,974
Newcourt Equipment Trust
Securities
Series 1998-1 Class A3
5.24%, due 12/20/02............ 62,081 61,300
-----------
253,274
-----------
LEISURE TIME (0.2%)
Harley-Davidson Eaglemark
Motorcycle Trust
Series 1999-1 Class A2
5.52%, due 2/15/05............. 160,000 155,646
-----------
Total Asset-Backed Securities
(Cost $2,950,287).............. 2,921,909
-----------
CONVERTIBLE BONDS (2.2%)
BEVERAGES--SOFT DRINKS (0.4%)
Triarc Companies, Inc.
(zero coupon), due 2/9/18...... 1,100,000 273,625
-----------
ELECTRONICS--COMPONENTS (0.2%)
Cirrus Logic, Inc.
6.00%, due 12/15/03............ 150,000 133,125
-----------
GOLD & PRECIOUS METALS MINING (0.7%)
Agnico-Eagle Mines Ltd.
3.50%, due 1/27/04 (e)......... 350,000 234,062
Battle Mountain Gold Co.
6.00%, due 1/4/05 (f).......... 285,000 233,700
-----------
467,762
-----------
HOTEL/MOTEL (0.2%)
Hilton Hotels Corp.
5.00%, due 5/15/06............. 225,000 178,031
-----------
INTERNET SOFTWARE & SERVICES (0.3%)
Digital Island, Inc.
6.00%, due 2/15/05............. 165,000 118,594
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 388
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE BONDS (CONTINUED)
INTERNET SOFTWARE & SERVICES (CONTINUED)
Internet Capital Group, Inc.
5.50%, due 12/21/04............ $ 185,000 $ 120,944
-----------
239,538
-----------
TELECOMMUNICATIONS (0.4%)
Efficient Networks, Inc.
5.00%, due 3/15/05 (c)......... 75,000 56,250
Premiere Technologies, Inc.
5.75%, due 7/1/04.............. 380,000 237,975
-----------
294,225
-----------
Total Convertible Bonds
(Cost $1,574,748).............. 1,586,306
-----------
CORPORATE BONDS (39.3%)
AIRLINES (0.2%)
Valujet, Inc.
10.25%, due 4/15/01............ 190,000 171,000
-----------
ALUMINUM (0.2%)
Commonwealth Aluminum Corp.
10.75%, due 10/1/06............ 180,000 172,800
-----------
AUTO PARTS & EQUIPMENT (0.2%)
Genetek, Inc.
11.00%, due 8/1/09............. 165,000 167,063
-----------
BANKS (0.6%)
B.F. Saul Real Estate
Investment Trust
Series B
9.75%, due 4/1/08.............. 380,000 327,750
Chase Manhattan Corp.
7.875%, due 6/15/10............ 70,000 70,033
-----------
397,783
-----------
BANKS--MAJOR REGIONAL (0.3%)
First Union National Bank
7.875%, due 2/15/10............ 125,000 123,155
Wells Fargo & Co.
7.20%, due 5/1/03.............. 120,000 119,588
-----------
242,743
-----------
BEVERAGES--ALCOHOLIC (0.2%)
Joseph E. Seagram & Sons, Inc.
5.79%, due 4/15/01............. 125,000 123,285
-----------
BEVERAGES--NON-ALCOHOLIC (0.0%) (b)
Triarc Consumer Products Group,
L.L.C.
10.25%, due 2/15/09............ 30,000 29,025
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
BROADCAST/MEDIA (1.3%)
CD Radio, Inc.
14.50%, due 5/15/09............ $ 490,000 $ 450,800
Radio Unica Corp.
(zero coupon), due 8/1/06
11.75%, beginning 8/1/02....... 140,000 90,300
Turner Broadcasting System, Inc.
8.375%, due 7/1/13............. 242,000 247,535
Young America Corp.
Series B
11.625%, due 2/15/06........... 260,000 164,125
-----------
952,760
-----------
CABLE TV (3.8%)
Adelphia Communications Corp.
Series B
9.875%, due 3/1/07............. 440,000 421,300
Cablevision S.A.
13.75%, due 4/30/07 (c)........ 175,000 162,750
Charter Communications Holdings,
L.L.C.
(zero coupon), due 4/1/11
9.92%, beginning 4/1/04........ 150,000 85,125
(zero coupon), due 1/15/10
11.75%, beginning 1/15/05...... 460,000 261,625
8.625%, due 4/1/09............. 405,000 355,894
Telewest Communications, PLC
9.875%, due 2/1/10 (c)......... 350,000 325,500
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, due 5/15/01............ 1,230,000 1,131,600
-----------
2,743,794
-----------
CHEMICALS (0.2%)
Agriculture Minerals &
Chemicals, Inc.
10.75%, due 9/30/03............ 175,000 104,563
-----------
CHEMICALS--SPECIALTY (0.4%)
General Chemical Industrial
Products, Inc.
10.625%, due 5/1/09............ 160,000 139,200
Sovereign Specialty Chemicals,
Inc.
11.875%, due 3/15/10........... 100,000 102,875
Terra Industries, Inc.
Series B
10.50%, due 6/15/05............ 50,000 30,000
-----------
272,075
-----------
COMMERCIAL SERVICES SPECIALIZED (0.4%)
Building One Services Corp.
10.50%, due 5/1/09............. 360,000 306,000
-----------
CONSTRUCTION & HOUSING (0.2%)
Iron Age Corp.
9.875%, due 5/1/08............. 160,000 105,600
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 389
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
COSMETICS/PERSONAL CARE (0.2%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08............. $ 175,000 $ 168,000
-----------
ELECTRIC POWER COMPANIES (0.9%)
CMS Energy Corp. &
Atlantic Methanol Capital Co.
Series A-1
10.875%, due 12/15/04 (c)...... 500,000 493,750
Western Resources, Inc.
6.875%, due 8/1/04............. 210,000 184,178
-----------
677,928
-----------
ELECTRICAL EQUIPMENT (0.3%)
Emerson Electric Co.
7.875%, due 6/1/05............. 200,000 205,614
-----------
ENGINEERING & CONSTRUCTION (0.1%)
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(g)...... 205,000 94,300
-----------
ENTERTAINMENT (0.9%)
Alliance Entertainment Corp.
Series B
11.25%, due 7/15/05 (g)(h)..... 160,000 16
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04........... 415,000 355,863
Marvel Enterprises, Inc.
12.00%, due 6/15/09............ 380,000 304,000
-----------
659,879
-----------
FINANCE (0.6%)
ASAT Finance L.L.C.
12.50%, due 11/1/06 (c)(l1).... 175 224,000
General Electric Capital Corp.
Series A
7.00%, due 2/3/03.............. 230,000 228,774
-----------
452,774
-----------
FINANCIAL--MISCELLANEOUS (0.3%)
Pacific & Atlantic (Holdings)
Inc.
10.50%, due 12/31/07 (c)(i).... 322,265 199,804
-----------
FOOD & HEALTH CARE DISTRIBUTORS (0.2%)
Bergen Brunswig Corp.
7.375%, due 1/15/03............ 190,000 164,341
-----------
GAMING, LOTTERY & PARI-MUTUELS (2.3%)
Hollywood Park, Inc.
Series B
9.25%, due 2/15/07............. 260,000 258,700
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
GAMING, LOTTERY & PARI-MUTUELS (CONTINUED)
Las Vegas Sands, Inc. &
Venetian Casino Resorts, L.L.C.
12.25%, due 11/15/04........... $ 270,000 $ 272,700
Mandalay Resort Group
7.625%, due 7/15/03............ 165,000 135,300
Penn National Gaming, Inc.
10.625%, due 12/15/04.......... 625,000 681,250
President Casinos, Inc.
12.00%, due 9/15/01
(c)(h)(j)...................... 47,000 37,600
13.00%, due 9/15/01 (h)........ 94,000 45,120
Station Casinos. Inc.
9.875%, due 7/1/10 (c)......... 180,000 182,592
-----------
1,613,262
-----------
HEALTH CARE--DRUGS (0.2%)
MedPartners, Inc.
7.375%, due 10/1/06............ 160,000 133,600
-----------
HEALTH CARE--HOSPITAL MANAGEMENT (0.7%)
HCA--The Healthcare Corp.
7.50%, due 11/15/95............ 455,000 342,375
Magellan Health Services, Inc.
9.00%, due 2/15/08............. 265,000 133,825
-----------
476,200
-----------
HEALTH CARE--MANAGED CARE (1.0%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02............. 445,000 433,875
Team Health, Inc.
Series B
12.00%, due 3/15/09............ 370,000 310,800
-----------
744,675
-----------
HEALTH CARE--MEDICAL PRODUCTS (0.3%)
Alaris Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03...... 385,000 58,712
DJ Orthopedics L.L.C.
12.625%, due 6/15/09........... 160,000 152,000
-----------
210,712
-----------
HEALTH CARE--SERVICES (1.1%)
Medaphis Corp.
Series B
9.50%, due 2/15/05............. 545,000 436,000
Quest Diagnostics, Inc.
10.75%, due 12/15/06........... 355,000 367,425
-----------
803,425
-----------
HOMEBUILDING (0.3%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (f)(i)..... 237,179 224,134
14.50%, due 2/15/09
(c)(f)(i).................... 103 97
-----------
224,231
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 390
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HOSPITALS/NURSING HOMES/HEALTH CARE (0.3%)
Fountain View, Inc.
Series B
11.25%, due 4/15/08............ $ 250,000 $ 62,500
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03....... 560,000 100,800
MultiCare Companies, Inc. (The)
9.00%, due 8/1/07 (g).......... 280,000 16,800
-----------
180,100
-----------
HOTEL/MOTEL (0.4%)
Florida Partners Holdings, Inc.
9.875%, due 4/15/09............ 275,000 257,812
-----------
INDUSTRIAL COMPONENTS (1.1%)
Cellco Finance N.V.
12.75%, due 8/1/05 (c)......... 350,000 364,875
Morris Materials Handling, Inc.
9.50%, due 4/1/08 (g)(h)....... 260,000 33,800
Tanaska Georgia Partners L.P.
9.50%, due 2/1/30 (c).......... 200,000 202,714
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03....... 500,000 180,000
-----------
781,389
-----------
INSURANCE--MULTI-LINE (0.3%)
Willis Corroon Group, PLC
9.00%, due 2/1/09.............. 230,000 193,200
-----------
INTERNET SOFTWARE & SERVICES (1.0%)
Exodus Communications, Inc.
11.25%, due 7/1/08............. 170,000 168,300
11.625%, due 7/15/10 (c)....... 265,000 267,319
PSINet, Inc.
11.00%, due 8/1/09............. 40,000 37,000
11.50%, due 11/1/08............ 240,000 225,600
-----------
698,219
-----------
INVESTMENT BANK/BROKERAGE (1.4%)
Donaldson, Lufkin & Jenrette,
Inc.
6.50%, due 6/1/08.............. 175,000 158,142
LaBranche & Co., Inc.
9.50%, due 8/15/04............. 360,000 345,600
Lehman Brothers Holdings, Inc.
8.25%, due 6/15/07............. 195,000 195,024
Morgan Stanley Dean Witter & Co.
Series C
7.375%, due 4/15/03............ 295,000 294,864
-----------
993,630
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
LEISURE TIME (0.5%)
Bally Total Fitness Holding
Corp.
Series D
9.875%, due 10/15/07........... $ 370,000 $ 334,850
-----------
MACHINERY-DIVERSIFIED (0.1%)
Deere & Co.
8.10%, due 5/15/30............. 80,000 80,727
-----------
MANUFACTURING--SPECIALIZED (0.6%)
Desa International, Inc.
9.875%, due 12/15/07........... 495,000 396,000
-----------
OIL--INTEGRATED DOMESTIC (0.3%)
Queens Sand Resources, Inc.
12.50%, due 7/1/08............. 590,000 224,937
-----------
OIL & GAS--EXPLORATION & PRODUCTION (0.2%)
Petro Stopping Centers Holdings
L.P.
Series B
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04....... 335,000 127,300
-----------
OIL & GAS--WELL EQUIPMENT & SERVICES (0.2%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (g)(h)...... 335,000 167,500
-----------
PAPER & FOREST PRODUCTS (0.2%)
Pope & Talbot, Inc.
8.375%, due 6/1/13............. 185,000 168,350
-----------
PUBLISHING (0.6%)
General Media, Inc.
10.625%, due 12/31/00.......... 65,000 52,000
Regional Independent Media Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03...... L 330,000 389,886
-----------
441,886
-----------
REAL ESTATE (1.0%)
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07............. $ 630,000 510,702
United Dominion Realty Trust,
Inc.
8.625%, due 3/15/03............ 200,000 200,326
-----------
711,028
-----------
REAL ESTATE--INVESTMENT/MANAGEMENT (1.8%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06............. 200,000 170,000
Garden State Holdings, Inc.
7.125%, due 8/1/05............. 200,000 178,498
Health Care Property Investors,
Inc.
7.05%, due 1/15/02............. 355,000 346,171
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 391
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
REAL ESTATE--INVESTMENT/MANAGEMENT (CONTINUED)
Hospitality Properties Trust
7.00%, due 3/1/08.............. $ 225,000 $ 194,776
LNR Property Corp.
Series B
9.375%, due 3/15/08............ 230,000 198,950
Pinnacle Holdings, Inc.
(zero coupon), due 3/15/08
10.00%, beginning 3/15/03...... 260,000 179,400
-----------
1,267,795
-----------
RESTAURANTS (1.2%)
Advantica Restaurant Group, Inc.
11.25%, due 1/15/08............ 640,000 428,800
CKE Restaurants, Inc.
9.125%, due 5/1/09............. 195,000 130,650
FRI-MRD Corp.
15.00%, due 1/24/02 (c)(i)..... 320,000 313,600
-----------
873,050
-----------
RETAIL--DEPARTMENT (0.1%)
May Department Stores Co.
8.75%, due 5/15/29............. 55,000 59,035
-----------
RETAIL--GENERAL MERCHANDISE (0.1%)
Wal-Mart Stores, Inc.
6.875%, due 8/10/09............ 110,000 107,513
-----------
RETAIL--SPECIALTY (0.1%)
Musicland Group, Inc.
9.00%, due 6/15/03............. 100,000 90,500
-----------
SPECIALTY PRINTING (0.3%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05............. 230,000 233,450
-----------
TECHNOLOGY (0.4%)
Electronic Retailing Systems
International, Inc.
13.25%, due 2/1/04 (g)......... 235,000 49,350
Knowles Electronics Holdings,
Inc.
13.125%, due 10/15/09 (c)...... 240,000 206,400
-----------
255,750
-----------
TELECOMMUNICATIONS (7.0%)
Colo.com
13.875%, due 3/15/10 (l2)...... 115 123,625
Global Telesystems Group, Inc.
11.00%, due 12/1/09............ E 325,000 253,501
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05............ $ 525,000 252,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03....... $ 870,000 $ 443,700
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03...... 540,000 280,800
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (g)(h)...... 275,000 159,500
15.00%, due 8/1/05
(g)(h)(l3)................... 100 58,000
IMPSAT Fiber Networks, Inc.
13.75%, due 2/15/05 (c)........ 350,000 311,500
Level 3 Communications, Inc.
10.75%, due 3/15/08 (c)........ E 150,000 137,319
NATG Holdings L.L.C. & Orius
Corp.
12.75%, due 2/1/10 (c)......... $ 355,000 365,650
NTL Communications Corp.
9.875%, due 11/15/09........... E 245,000 207,754
NTL, Inc.
Series A
12.75%, due 4/15/05............ $ 830,000 844,525
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02...... 580,000 237,800
PageMart Nationwide, Inc.
15.00%, due 2/1/05............. 180,000 172,350
RCN Corp.
Series B
(zero coupon), due 10/15/07
11.125%, beginning 10/15/02.... 470,000 293,750
10.00%, due 10/15/07........... 105,000 88,987
10.125%, due 1/15/10........... 90,000 74,925
T/SF Communications Corp.
Series B
10.375%, due 11/1/07........... 180,000 167,400
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01..... 310,000 62,000
360networks, Inc.
13.00%, due 5/1/08 (c)......... 90,000 90,000
Versatel Telecom International
N.V.
11.25%, due 3/30/10 (c)........ E 275,000 246,822
Williams Communications Group,
Inc.
10.875%, due 10/1/09........... $ 175,000 171,063
-----------
5,042,971
-----------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (1.0%)
Centennial Cellular Corp.
10.75%, due 12/15/08........... 175,000 169,969
Crown Castle International Corp.
9.00%, due 5/15/11............. 200,000 184,500
Nextel International, Inc.
(zero coupon), due 4/15/08
12.125%, beginning 4/15/03..... 180,000 117,000
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03....... 195,000 83,850
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 392
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS--CELLULAR/WIRELESS (CONTINUED)
Ubiquitel Operating Co.
(zero coupon), due 4/15/10
14.00%, beginning 4/15/05
(c)(l4)........................ $ 225 $ 130,219
-----------
685,538
-----------
TELECOMMUNICATIONS--LONG DISTANCE (0.4%)
Nextel Communications, Inc.
9.375%, due 11/15/09........... 280,000 267,400
-----------
TELEPHONE (0.5%)
Deutsche Telekom International
Finance B.V.
8.25%, due 6/15/30............. 175,000 177,726
WorldCom, Inc.
8.25%, due 5/15/10............. 195,000 199,891
-----------
377,617
-----------
TOBACCO (0.3%)
Standard Commercial Corp.
8.875%, due 8/1/05............. 225,000 180,000
-----------
UTILITIES--ELECTRIC & GAS (0.3%)
National Rural Utilities
Cooperative Finance Corp.
7.375%, due 2/10/03............ 200,000 200,668
-----------
UTILITY--GAS (0.2%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)........ 400,000 160,000
-----------
Total Corporate Bonds
(Cost $30,913,729)............. 28,175,451
-----------
FOREIGN BONDS (22.5%)
ARGENTINA (0.6%)
Republic Of Argentina
7.30%, due 5/14/01............. E 463,000 439,259
-----------
DENMARK (0.6%)
Kingdom of Denmark
6.00%, due 11/15/09............ DK 1,645,000 215,813
7.00%, due 12/15/04............ 1,544,000 207,126
-----------
422,939
-----------
FINLAND (0.6%)
Finnish Government
5.75%, due 2/23/11............. E 432,000 $ 424,633
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
FRANCE (1.0%)
France Obligations Assimilables
du Tresor
4.00%, due 4/25/09............. E 210,000 $ 182,182
5.50%, due 4/25/10............. 570,000 552,411
-----------
734,593
-----------
GERMANY (3.8%)
Bundesobligation
Series 123
4.50%, due 5/17/02 (k)......... 500,000 475,273
Series 127
4.50%, due 5/19/03 (k)......... 1,200,000 1,135,996
Series 125
5.00%, due 11/12/02............ 500,000 479,537
Republic of Deutschland
Series 98
5.25%, due 1/4/08.............. 163,000 156,580
5.625%, due 1/4/28............. 492,000 477,714
-----------
2,725,100
-----------
GREECE (0.5%)
Hellenic Republic
6.30%, due 1/29/09............. GRD 123,300,000 355,375
-----------
ITALY (1.1%)
Buoni Poliennali del Tesoro
6.50%, due 11/1/27............. E 411,000 423,375
8.50%, due 1/1/04.............. 322,000 339,628
-----------
763,003
-----------
JAPAN (6.9%)
Deutsche Telekom International
Finance B.V.
1.50%, due 6/15/05............. Y 35,000,000 330,487
International Business Machines
Corp.
0.90%, due 4/14/03............. 34,000,000 320,562
Japanese Government
Series 214
1.80%, due 9/21/09............. 160,200,000 1,518,441
Series 45
2.40%, due 3/20/20............. 35,000,000 345,660
Series 182
3.00%, due 9/20/05............. 163,500,000 1,680,911
Series 145
5.50%, due 3/20/02............. 73,400,000 753,431
-----------
4,949,492
-----------
NETHERLANDS (0.8%)
Netherlands Government
3.75%, due 7/15/09............. E 700,000 596,200
-----------
NORWAY (0.2%)
Norwegian Government
9.50%, due 10/31/02............ NK 1,381,000 169,675
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 393
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS (CONTINUED)
SPAIN (1.4%)
Bonos Y Obligacion del Estado
4.50%, due 7/30/04............. E 684,000 $ 638,437
5.15%, due 7/30/09............. 415,000 387,661
-----------
1,026,098
-----------
UNITED KINGDOM (1.8%)
United Kingdom Treasure Bonds
6.00%, due 12/7/28............. L 222,000 417,584
6.75%, due 11/26/04............ 135,000 213,163
9.00%, due 10/13/08............ 360,000 670,841
-----------
1,301,588
-----------
UNITED STATES (3.2%)
British Telecommunications PLC
6.615%, due 2/27/01 (e)........ $ 200,000 199,980
Innova S de R.L.
12.875%, due 4/1/07 (e)........ 130,000 119,925
Republic Of Argentina
12.00%, due 2/1/20............. 100,000 93,000
Republic of Brazil
10.125%, due 5/15/27........... 275,000 216,563
11.625%, due 4/15/04........... 615,000 621,919
Republic of Venezuela
9.25%, due 9/15/27............. 293,000 193,014
State Of Qatar (The)
9.75%, due 6/15/30 (c)......... 125,000 122,812
United Mexican States
9.875%, due 2/1/10............. 375,000 390,938
11.50%, due 5/15/26............ 250,000 300,000
-----------
2,258,151
-----------
Total Foreign Bonds
(Cost $16,909,863)............. 16,166,106
-----------
LOAN ASSIGNMENTS & PARTICIPATIONS (0.0%) (b)
HOSPITALS/NURSING HOME/HEALTH CARE (0.0%) (b)
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
10.25%, due 9/30/04
(d)(j)(g)...................... 26,054 16,024
Bank debt, Term Loan C
10.50%, due 6/1/05 (d)(j)(g)... 25,740 15,830
Multicare Companies, Inc. (The)
Bank debt, Term Loan B
10.75%, due 9/30/04
(d)(j)(g).................... 23,351 13,077
Bank debt, Term Loan C
11.00%, due 6/1/05 (d)(j)(g)... 7,684 4,303
-----------
49,234
-----------
Total Loan Assignments &
Participations
(Cost $49,689)................. 49,234
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (1.3%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (1.3%)
GMAC Commercial Mortgage
Securities, Inc.
Series 1998-C2 Class A2
6.42%, due 8/15/08............. $ 65,000 $ 60,834
Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C2 Class A1
6.803%, due 6/15/21 (d)........ 465,786 458,995
Salomon Brothers
Mortgage Securities VII, Inc.
Series 2000-FL1 Class A
6.945%, due 4/5/01 (d)......... 225,535 225,602
Series 2000-C1 Class A1
7.46%, due 11/18/08............ 165,000 165,196
-----------
910,627
-----------
Total Mortgage-Backed Securities
(Cost $923,190)................ 910,627
-----------
U.S. GOVERNMENT & FEDERAL AGENCIES (15.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (1.4%)
5.125%, due 2/13/04............ 1,090,000 1,024,404
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE PASS-
THROUGH SECURITIES) (4.1%)
6.50%, due 12/1/27-4/1/29...... 1,114,217 1,052,233
7.50%, due 10/1/29............. 1,331,435 1,312,302
7.50%, due 7/17/30 TBA (m)..... 355,000 349,899
8.50%, due 7/17/30 TBA (m)..... 240,000 244,500
-----------
2,958,934
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (MORTGAGE PASS-
THROUGH SECURITIES) (4.6%)
6.50%, due 7/15/28-5/15/29..... 2,026,610 1,925,279
6.50%, due 8/23/30 TBA (m)..... 265,000 251,419
7.00%, due 7/24/30 TBA (m)..... 390,000 379,033
7.50%, due 12/15/23-11/25/28... 695,667 691,372
-----------
3,247,103
-----------
UNITED STATES TREASURY BONDS (4.5%)
6.00%, due 2/15/26............. 25,000 24,481
6.25%, due 8/15/23-5/15/30..... 1,375,000 1,406,394
8.75%, due 8/15/20............. 385,000 494,964
10.375%, due 11/15/09.......... 135,000 154,597
11.25%, due 2/15/15............ 595,000 875,763
12.00%, due 8/15/13............ 200,000 270,000
-----------
3,226,199
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 394
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & FEDERAL AGENCIES (CONTINUED)
UNITED STATES TREASURY NOTES
(0.9%)
4.75%, due 11/15/08............ $ 190,000 $ 172,543
5.25%, due 8/15/03............. 200,000 193,874
7.00%, due 7/15/06............. 255,000 264,162
-----------
630,579
-----------
Total U.S. Government & Federal
Agencies
(Cost $11,157,910)............. 11,087,219
-----------
YANKEE BONDS (7.2%)
BANKS--MONEY CENTER (0.1%)
Barclays Bank, PLC
7.40%, due 12/15/09............ 105,000 102,311
-----------
BROADCAST/MEDIA (0.1%)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04............ 150,000 54,000
-----------
CABLE TV (1.6%)
Rogers Cablesystem Ltd.
10.00%, due 12/1/07............ 305,000 311,863
10.125%, due 9/1/12............ 165,000 168,712
United Pan-Europe Communications
N.V.
Series B
(zero coupon), due 8/1/09
12.50%, beginning 8/1/04....... 50,000 25,125
10.875%, due 8/1/09............ 775,000 674,250
-----------
1,179,950
-----------
CHEMICALS (0.6%)
Octel Developments, PLC
10.00%, due 5/1/06............. 490,000 448,350
-----------
CONSUMER PRODUCTS (0.0%) (b)
Semi-Tech Corp.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00
(g)(h)....................... 415,000 3,112
-----------
FINANCIAL--DIVERSIFIED (0.2%)
Tembec Finance Corp.
9.875%, due 9/30/05............ 170,000 170,850
-----------
GOLD & PRECIOUS METALS MINING (0.3%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27............. 115,000 68,713
Great Central Mines Ltd.
8.875%, due 4/1/08............. 210,000 170,100
-----------
238,813
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
HOTEL/MOTEL (0.3%)
Sun International Hotels Ltd.
9.00%, due 3/15/07............. $ 230,000 $ 214,188
-----------
MANUFACTURING--DIVERSIFIED (0.4%)
Tyco International Group S.A.
6.25%, due 6/15/03............. 260,000 248,063
-----------
OIL & GAS--WELL EQUIPMENT & SERVICES (0.4%)
Petroleum Geo-Services ASA
7.425%, due 3/20/02 (d)........ 255,000 254,719
-----------
REAL ESTATE--INVESTMENT/MANAGEMENT (0.3%)
Intrawest Corp.
10.50%, due 2/1/10............. 235,000 239,700
-----------
RESIDENTIAL MORTGAGE LOANS (0.4%)
Abbey National, PLC
7.95%, due 10/26/29............ 275,000 271,931
-----------
STEEL (0.2%)
Algoma Steel, Inc.
12.375%, due 7/15/05........... 165,000 143,550
-----------
TELECOMMUNICATIONS (0.5%)
Flag Telecom Holding Ltd.
11.625%, due 3/30/10........... 185,000 179,450
Hermes Europe Railtel B.V.
11.50%, due 8/15/07............ 200,000 171,000
-----------
350,450
-----------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.5%)
Millicom International Cellular, S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01....... 415,000 352,750
-----------
TELECOMMUNICATIONS--LONG DISTANCE (0.5%)
Call-Net Enterprises, Inc.
(zero coupon), due 5/15/09
10.80%, beginning 5/15/04...... 535,000 192,600
9.375%, due 5/15/09............ 220,000 135,300
-----------
327,900
-----------
TRANSPORTATION--MISCELLANEOUS (0.2%)
Stena Line AB
10.50%, due 12/15/05........... 120,000 117,600
-----------
TRANSPORTATION--SHIPPING (0.6%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (g)........ 411,800 102,950
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 395
MainStay Strategic Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
TRANSPORTATION--SHIPPING (CONTINUED)
Sea Containers Ltd.
Series B
7.875%, due 2/15/08............ $ 55,000 $ 34,650
10.50%, due 7/1/03............. 90,000 75,600
10.75%, due 10/15/06........... 270,000 202,500
-----------
415,700
-----------
Total Yankee Bonds
(Cost $5,751,905).............. 5,133,937
-----------
Total Long-Term Bonds
(Cost $70,231,321)............. 66,030,789
-----------
<CAPTION>
SHARES
----------------
<S> <C> <C>
COMMON STOCKS (0.2%)
FINANCE (0.1%)
AMC Financial, Inc. (a)......... 22,040 66,120
-----------
HEALTH & PERSONAL CARE (0.0%)
(B)
General Healthcare Group Ltd.
(a)(n)......................... 25 1,135
-----------
TECHNOLOGY (0.1%)
Metawave Communications Corp.
(a)(c)(j)(o)................... 3,187 85,053
-----------
TELECOMMUNICATIONS--CELLULAR/WIRELESS (0.0%) (b)
International Wireless
Communications
Holdings, Inc. (a)............. 22,964 3,674
-----------
Total Common Stock
(Cost $477,445)................ 155,982
-----------
PREFERRED STOCKS (2.5%)
BROADCAST/MEDIA (0.5%)
Paxson Communications Corp.
12.50% (p)..................... 350 350,000
-----------
CHEMICALS--SPECIALTY (0.1%)
Hercules Trust II
6.50% (l5)..................... 180 97,875
-----------
FINANCIAL SERVICES (0.6%)
North Atlantic Trading Co.
12.00% (p)..................... 20,991 440,815
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------------------------------------------
<S> <C> <C>
FINANCIAL--MISCELLANEOUS (0.2%)
Pacific & Atlantic (Holdings), Inc.
7.50%, Class A (p)............. 19,336 $ 111,182
-----------
OIL & GAS--WELL EQUIPMENT & SERVICES (0.5%)
R & B Falcon Corp.
13.875% (p).................... 334 376,866
-----------
TELECOMMUNICATIONS (0.3%)
ICG Holdings, Inc.
14.25% (p)..................... 237 205,858
-----------
TELECOMMUNICATIONS--LONG DISTANCE (0.3%)
Nextel Communications, Inc.
13.00%, Series D (p)........... 178 190,460
-----------
Total Preferred Stocks
(Cost $1,696,848).............. 1,773,056
-----------
WARRANTS (0.0%) (b)
FINANCIAL SERVICES (0.0%) (b)
North Atlantic Trading Co.
expire 6/15/07 (a)(c).......... 16 0(q)
-----------
FOOD & HOUSEHOLD PRODUCTS (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 8
Preferred Rights (a)........... 36,189 18,094
-----------
18,102
-----------
OIL & GAS--EXPLORATION & PRODUCTION (0.0%) (b)
Petro Stopping Centers
Holding L.P. (a)(c)............ 335 16,750
-----------
TELECOMMUNICATIONS (0.0%) (b)
Telehub Communications Corp.
expire 7/31/05 (a)(c).......... 310 3
-----------
Total Warrants
(Cost $25,961)................. 34,857
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
<PAGE> 396
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.8%)
COMMERCIAL PAPER (5.3%)
American Express Credit Corp.
6.88%, due 7/3/00.............. $ 1,415,000 $ 1,414,459
Deutsche Bank Financial, Inc.
6.54%, due 7/17/00............. 1,400,000 1,395,919
Prudential Funding Corp.
6.54% due 7/6/00............... 1,000,000 999,089
-----------
Total Commercial Paper
(Cost $3,809,467).............. 3,809,467
-----------
SHORT-TERM LOAN ASSIGNMENT (0.5%)
TEXTILES--HOME FURNISHINGS (0.5%)
Synthetic Industries, Inc.
Bridge Loan
14.00%, due 12/14/00 (d)(j).... 355,000 340,800
-----------
Total Short-Term Loan Assignment
(Cost $352,306)................ 340,800
-----------
Total Short-Term Investments
(Cost $4,161,773).............. 4,150,267
-----------
Total Investments
(Cost $76,593,348) (r)......... 100.6% 72,144,951(s)
Liabilities in Excess of
Cash and Other Assets.......... (0.6) (460,801)
---- -----------
Net Assets...................... 100.0% $71,684,150
==== ===========
</TABLE>
----------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Floating rate. Rate shown is the rate in effect at June 30,
2000.
(e) Yankee bond.
(f) Eurobond--bond denominated in U.S. dollars or other
currencies and sold to investors outside the country whose
currency is used.
(g) Issue in default.
(h) Issuer in bankruptcy.
(i) CIK ('Cash in Kind')--interest payment is made with cash or
additional securities.
(j) Restricted security.
(k) Segregated as collateral for forward contracts.
(l1) 175 Units--each unit reflects $1,000 principal amount of
12.50% Senior Notes plus 1 warrant to acquire 2.3944 shares
of ASAT Holding Corp. common stock at $18.60 per share at a
future date.
(l2) 115 Units--each unit reflects $1,000 principal amount of
13.875% Senior Notes plus 1 warrant to acquire 19.9718
shares of common stock at $0.01 per share at a future date.
(l3) 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.
(l4) 225 Units--each unit reflects $1,000 principal amount of
zero coupon, due 4/15/10 14.00% beginning 4/15/05 Senior
Discounted Notes plus 1 warrant to acquire 5.965 shares of
common stock at $22.74 per share at a future date.
(l5) 180 Units--each unit reflects 1 Preferred Share plus 1
warrant to acquire 23.4192 shares of common stock at $42.70
per share at a future date.
(m) TBA: Securities purchased on a forward commitment basis with
an approximate principal amount and maturity date. The
actual amount and the maturity date will be determined upon
settlement.
(n) British security.
(o) Illiquid security.
(p) PIK ("Payment in Kind")--dividend payment is made with
additional securities.
(q) Security has a market value of less than one dollar.
(r) The cost for federal income tax purposes is $76,618,557.
(s) At June 30, 2000, net unrealized depreciation was
$4,473,606, 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 $1,261,644 and aggregate gross unrealized
depreciation for all investments on which there was an
excess of cost over market value of $5,735,250.
DK --Security denominated in Danish Krone.
E --Security denominated in Euro.
GRD --Security denominated in Greek Rand.
Y --Security denominated in Japanese Yen.
NK --Security denominated in Norwegian Krone.
L --Security denominated in Pound Sterling.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 397
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$76,593,348).............................................. $72,144,951
Cash........................................................ 241,373
Cash denominated in foreign currencies (identified cost
$285,397)................................................. 288,856
Receivables:
Investment securities sold................................ 1,971,525
Dividends and interest.................................... 1,504,875
Fund shares sold.......................................... 102,520
Unrealized appreciation on foreign currency forward
contracts................................................. 178,680
Unamortized organization expense............................ 69,301
-----------
Total assets........................................ 76,502,081
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 4,070,269
Fund shares redeemed...................................... 93,033
NYLIFE Distributors....................................... 47,024
MainStay Management....................................... 37,414
Transfer agent............................................ 27,049
Custodian................................................. 16,918
Trustees.................................................. 517
Accrued expenses............................................ 45,588
Unrealized depreciation on foreign currency forward
contracts................................................. 47,668
Dividend payable............................................ 432,451
-----------
Total liabilities................................... 4,817,931
-----------
Net assets.................................................. $71,684,150
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 21,456
Class B................................................... 57,873
Class C................................................... 1,122
Additional paid-in capital.................................. 80,833,030
Accumulated distribution in excess of net investment
income.................................................... (203,404)
Accumulated net realized loss on investments................ (3,677,635)
Accumulated net realized loss on foreign currency
transactions.............................................. (1,057,161)
Net unrealized depreciation on investments.................. (4,448,397)
Net unrealized appreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... 157,266
-----------
Net assets.................................................. $71,684,150
===========
CLASS A
Net assets applicable to outstanding shares................. $19,129,393
===========
Shares of beneficial interest outstanding................... 2,145,571
===========
Net asset value per share outstanding....................... $ 8.92
Maximum sales charge (4.50% of offering price).............. 0.42
-----------
Maximum offering price per share outstanding................ $ 9.34
===========
CLASS B
Net assets applicable to outstanding shares................. $51,555,410
===========
Shares of beneficial interest outstanding................... 5,787,330
===========
Net asset value and offering price per share outstanding.... $ 8.91
===========
CLASS C
Net assets applicable to outstanding shares................. $ 999,347
===========
Shares of beneficial interest outstanding................... 112,180
===========
Net asset value and offering price per share outstanding.... $ 8.91
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE> 398
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 122,787
Interest.................................................. 3,346,686
-----------
Total income............................................ 3,469,473
-----------
Expenses:
Management................................................ 223,725
Distribution--Class B..................................... 203,921
Distribution--Class C..................................... 3,197
Service--Class A.......................................... 24,187
Service--Class B.......................................... 67,966
Service--Class C.......................................... 1,066
Transfer agent............................................ 83,237
Amortization of organization expense...................... 20,781
Custodian................................................. 20,016
Professional.............................................. 15,610
Shareholder communication................................. 15,415
Recordkeeping............................................. 14,087
Registration.............................................. 13,825
Trustees.................................................. 883
Miscellaneous............................................. 15,656
-----------
Total expenses.......................................... 723,572
-----------
Net investment income....................................... 2,745,901
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized loss from:
Security transactions..................................... (1,077,047)
Option transactions....................................... (60,471)
Foreign currency transactions............................. (996,690)
-----------
Net realized loss on investments and foreign currency
transactions.............................................. (2,134,208)
-----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (338,454)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward contracts....... 57,684
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (280,770)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (2,414,978)
-----------
Net increase in net assets resulting from operations........ $ 330,923
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE> 399
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 2,745,901 $ 5,429,598
Net realized loss on investments and foreign currency
transactions............................................ (2,134,208) (2,428,256)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (280,770) (1,600,170)
------------ ------------
Net increase in net assets resulting from operations...... 330,923 1,401,172
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (751,087) (1,474,306)
Class B................................................. (1,879,271) (3,890,931)
Class C................................................. (30,861) (53,613)
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)
Class B................................................. -- (206,856)
Class C................................................. -- (2,850)
Return of capital:
Class A................................................. -- (8,263)
Class B................................................. -- (21,808)
Class C................................................. -- (301)
------------ ------------
Total dividends and distributions to shareholders..... (2,661,219) (5,995,414)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 3,407,302 7,709,221
Class B................................................. 3,065,109 11,871,088
Class C................................................. 332,329 16,212,542
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 494,389 1,238,997
Class B................................................. 1,165,901 3,322,612
Class C................................................. 16,300 49,153
------------ ------------
8,481,330 40,403,613
Cost of shares redeemed:
Class A................................................. (4,094,246) (9,468,036)
Class B................................................. (10,617,015) (18,455,175)
Class C................................................. (90,074) (15,519,130)
------------ ------------
Decrease in net assets derived from capital share
transactions......................................... (6,320,005) (3,038,728)
------------ ------------
Net decrease in net assets............................ (8,650,301) (7,632,970)
NET ASSETS:
Beginning of period......................................... 80,334,451 87,967,421
------------ ------------
End of period............................................... $ 71,684,150 $ 80,334,451
============ ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (203,404) $ (288,086)
============ ============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE> 400
This page intentionally left blank
25
<PAGE> 401
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six months February 28*
ended Year ended Year ended through
June 30, December 31, December 31, December 31,
2000+ 1999 1998 1997
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period........... $ 9.20 $ 9.71 $ 9.91 $ 10.00
------- ------- ------- -------
Net investment income............................ 0.36 0.67 0.60 0.54
Net realized and unrealized gain (loss) on
investments.................................... (0.17) (0.45) (0.09) 0.07
Net realized and unrealized gain (loss) on
foreign currency transactions.................. (0.12) 0.00(b) (0.01) 0.05
------- ------- ------- -------
Total from investment operations................. 0.07 0.22 0.50 0.66
------- ------- ------- -------
Less dividends and distributions:
From net investment income..................... (0.35) (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................ (0.35) (0.73) (0.70) (0.75)
------- ------- ------- -------
Net asset value at end of period................. $ 8.92 $ 9.20 $ 9.71 $ 9.91
======= ======= ======= =======
Total investment return(a)....................... 0.81% 2.30% 5.17% 6.62%
Ratios (to average net assets)/
Supplemental Data:
Net investment income........................ 7.92%++ 6.97% 6.14% 6.46%++
Net expenses................................. 1.39%++ 1.34% 1.38% 1.15%++
Expenses (before reimbursement).............. 1.39%++ 1.34% 1.42% 1.49%++
Portfolio turnover rate.......................... 112% 244% 325% 323%
Net assets at end of period (in 000's)........... $19,129 $19,922 $21,603 $18,922
</TABLE>
-------
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
26
<PAGE> 402
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------------- ------------------------------------------
Six months February 28* Six months September 1**
ended Year ended Year ended through ended Year ended through
June 30, December 31, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 1997 2000+ 1999 1998
---------- ------------ ------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.19 $ 9.70 $ 9.91 $ 10.00 $ 9.19 $ 9.70 $ 9.59
------- ------- ------- ------- ------- ------- -------
0.32 0.60 0.54 0.48 0.32 0.60 0.21
(0.17) (0.45) (0.11) 0.07 (0.17) (0.45) 0.10
(0.12) 0.00(b) (0.01) 0.05 (0.12) 0.00(b) 0.01
------- ------- ------- ------- ------- ------- -------
0.03 0.15 0.42 0.60 0.03 0.15 0.32
------- ------- ------- ------- ------- ------- -------
(0.31) (0.60) (0.62) (0.48) (0.31) (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) --
------- ------- ------- ------- ------- ------- -------
(0.31) (0.66) (0.63) (0.69) (0.31) (0.66) (0.21)
------- ------- ------- ------- ------- ------- -------
$ 8.91 $ 9.19 $ 9.70 $ 9.91 $ 8.91 $ 9.19 $ 9.70
======= ======= ======= ======= ======= ======= =======
0.40% 1.54% 4.35% 6.02% 0.40% 1.54% 3.41%
7.17%++ 6.22% 5.39% 5.71%++ 7.17%++ 6.22% 5.39%++
2.14%++ 2.09% 2.13% 1.90%++ 2.14%++ 2.09% 2.13%++
2.14%++ 2.09% 2.17% 2.24%++ 2.14%++ 2.09% 2.13%++
112% 244% 325% 323% 112% 244% 325%
$51,556 $59,645 $66,273 $43,872 $ 999 $ 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> 403
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 (and certain other qualified purchases) 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 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 a greater price volatility.
There are certain risks involved in investing in foreign securities that are in
addition to the usual risks of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
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
28
<PAGE> 404
Notes to Financial Statements unaudited
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 may 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
29
<PAGE> 405
MainStay Strategic Income Fund
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 may enter 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 or to try to enhance the
Fund's returns.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 2000:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Amount Amount Appreciation/
Sold Purchased (Depreciation)
--------------- ------------ --------------
<S> <C> <C> <C>
Foreign Currency Sale Contracts
-------------------------------
Canadian Dollar vs. U.S. Dollar, expiring
8/28/00......................................... C$ 95,000 $ 63,249 $ (958)
Danish Krone vs. U.S. Dollar, expiring 8/22/00.... DK 1,105,000 $ 133,454 (8,878)
Euro vs. Pound Sterling, expiring 8/4/00.......... E 225,038 L 135,000 (11,704)
Euro vs. U.S. Dollar, expiring 9/7/00............. E 698,000 $ 661,997 (10,021)
Pound Sterling vs. Euro, expiring 8/4/00.......... L 432,855 E 718,333 34,441
Pound Sterling vs. U.S. Dollar, expiring 8/4/00... L 400,000 $ 624,332 18,349
Pound Sterling vs. U.S. Dollar, expiring
8/31/00......................................... L 217,300 $ 321,067 (8,288)
Norwegian Krone vs. U.S. Dollar, expiring
9/22/00......................................... NK 1,547,000 $ 179,279 (1,675)
<CAPTION>
Contract Contract
Amount Amount
Purchased Sold
--------------- ------------
<S> <C> <C> <C>
Foreign Currency Buy Contracts
------------------------------
Australian Dollar vs. U.S. Dollar, expiring
8/18/00......................................... A$ 217,700 $ 125,515 5,299
Canadian Dollar vs. U.S. Dollar, expiring
8/28/00......................................... C$ 990,000 $ 670,278 (1,170)
Euro vs. U.S. Dollar, expiring 8/4/00............. E 2,280,827 $ 2,097,030 94,465
Japanese Yen vs. U.S. Dollar, expiring 8/31/00.... Y 175,000,000 $ 1,653,439 19,589
Pound Sterling vs. U.S. Dollar, expiring 8/4/00... L 49,800 $ 76,291 (847)
Pound Sterling vs. U.S. Dollar, expiring 8/4/00... L 60,000 $ 90,075 823
Pound Sterling vs. U.S. Dollar, expiring
8/31/00......................................... L 28,253 $ 42,500 323
Swedish Krona vs. U.S. Dollar, expiring 7/17/00... SK 2,898,018 $ 335,000 (4,127)
Swiss Franc vs. U.S. Dollar, expiring 8/4/00...... CF 178,870 $ 105,000 5,391
--------
Net unrealized appreciation on foreign currency
forward contracts............................... $131,012
========
</TABLE>
30
<PAGE> 406
Notes to Financial Statements unaudited (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 six months ended June 30, 2000 was as follows:
<TABLE>
<CAPTION>
Notional
Amount Premium
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1999.................... (3,500,000) $(25,515)
Options--written............................................ (1,005,000) (3,166)
Options--buybacks........................................... 1,750,000 10,623
Options--expired............................................ 2,755,000 18,058
---------- --------
Options outstanding at June 30, 2000........................ -- $ --
========== ========
</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").
The Fund does not have the right to demand that such securities be registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
31
<PAGE> 407
MainStay Strategic Income Fund
Restricted securities held at June 30, 2000:
<TABLE>
<CAPTION>
PRINCIPAL
DATE(S) OF AMOUNT/ 6/30/00 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 $318,111 $313,600 0.5%
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
10.25%, due 9/30/04............ 5/24/00 26,054 15,908 16,024 0.0(a)
Bank debt, Term Loan C
10.50%, due 6/1/05............. 5/24/00 25,740 15,459 15,830 0.0(a)
Metawave Communications Corp.
Common Stock(b)................ 4/21/98-5/2/00 3,187 0(c) 85,053 0.1
Multicare Companies, Inc. (The)
Bank debt, Term Loan B
10.75%, due 9/30/04............ 5/24/00 23,351 13,862 13,077 0.0(a)
Bank debt, Term Loan C
11.00%, due 6/1/05............. 5/24/00 7,684 4,459 4,303 0.0(a)
President Casinos, Inc.
12.00%, due 9/15/01............ 12/3/98 47,000 47,000 37,600 0.1
Synthetic Industries, Inc.
Bridge Loan
14.00%, due 12/14/00........... 12/17/99 355,000 352,306 340,800 0.5
-------- -------- ---
$767,105 $826,287 1.2%
======== ======== ===
</TABLE>
-------
(a) Less than one tenth of a percent.
(b) Illiquid security.
(c) This common stock has no cost.
FINANCIAL INSTRUMENTS WITH 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.
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
32
<PAGE> 408
Notes to Financial Statements unaudited (continued)
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.
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.
33
<PAGE> 409
MainStay Strategic Income Fund
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the distribution plans)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of long-term debt securities sold
during the 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 period end exchange rates are
reflected in unrealized foreign exchange gains or losses.
Foreign currency held at June 30, 2000:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
--------------------------------- --------- ---------
<S> <C> <C> <C> <C>
Australian Dollar A$ 7 $ 4 $ 4
Danish Krone DK 85 11 11
Euro E 301,292 285,323 288,784
Japanese Yen Y 3,384 32 32
New Zealand Dollar N$ 52 27 25
-------- --------
$285,397 $288,856
======== ========
</TABLE>
34
<PAGE> 410
Notes to Financial Statements unaudited (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 0.60% of the Fund's
average daily net assets. For the six months ended June 30, 2000, the Manager
earned $223,725.
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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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.
35
<PAGE> 411
MainStay Strategic Income Fund
SALES CHARGES. The Fund was advised by the Distributor that the amount of sales
charge retained on sales of Class A shares was $1,382 for the six months ended
June 30, 2000. 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 $10, $67,763 and $230, respectively, for the six months ended June 30,
2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $83,237.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A with a net
asset value of $6,862,260 which represents 35.9% of the Class A net assets at
period end. The Distributor held shares of Class B with a net asset value of
$5,638,957, which represents 10.9% of the Class B net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $781 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$14,087 for the six months ended June 30, 2000.
NOTE--4 FEDERAL INCOME TAX:
At December 31, 1999, 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 has elected to treat
for federal income tax purposes approximately $521,897 of qualifying realized
capital gains that arose during the prior year as if they arose on January 1,
2000.
36
<PAGE> 412
Notes to Financial Statements unaudited (continued)
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of U.S.
Government securities were $33,708 and $36,830, respectively. Purchases and
sales of securities, other than U.S. Government securities and short-term
securities, were $45,570 and $47,246, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000+ DECEMBER 31, 1999
------------------------------- ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
-------- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................... 379,635 339,586 36,711 805 1,246 1,731
Shares issued in reinvestment of
dividends and distributions......... 55,222 130,372 1,826 131 352 5
-------- ---------- ------ ---- ------ ------
434,857 469,958 38,537 936 1,598 1,736
Shares redeemed....................... (454,906) (1,174,117) (9,950) (994) (1,936) (1,661)
-------- ---------- ------ ---- ------ ------
Net increase (decrease)............... (20,049) (704,159) 28,587 (58) (338) 75
======== ========== ====== ==== ====== ======
</TABLE>
-------
+ Unaudited.
37
<PAGE> 413
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
38
<PAGE> 414
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY G. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSSI11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Strategic Income Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 415
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay Strategic Value
Fund versus S&P 500 Index, Lipper Flexible
Portfolio Fund Average, and Inflation--Class
A, Class B, and Class C Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 11
Portfolio of Investments 12
Financial Statements 22
Notes to Financial Statements 28
The MainStay(R) Funds 36
</TABLE>
<PAGE> 416
This page intentionally left blank
2
<PAGE> 417
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
-
<PAGE> 418
$10,000 Invested in MainStay Strategic Value Fund versus S&P 500 Index, Lipper
Flexible Portfolio Fund Average, and Inflation
CLASS A SHARES Total Returns: 1 Year -8.79%, Since Inception 3.79%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500 INDEX* AVERAGE+ INFLATION (CPI)++
---------- ------------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
10/22/97 $ 9,450.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/97 9,839.00 10,243.00 10,031.00 10,019.00
12/98 9,890.00 13,170.00 11,423.00 10,180.00
12/99 11,234.00 15,943.00 12,793.00 10,453.00
6/00 11,053.00 15,875.00 13,034.00 10,669.00
</TABLE>
CLASS B SHARES Total Returns: 1 Year -9.02%, Since Inception 4.18%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500 INDEX* AVERAGE+ INFLATION (CPI)++
---------- ------------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
10/22/97 $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/97 10,404.00 10,243.00 10,031.00 10,019.00
12/98 10,376.00 13,170.00 11,423.00 10,180.00
12/99 11,688.00 15,943.00 12,793.00 10,453.00
6/00 11,165.00 15,875.00 13,034.00 10,669.00
</TABLE>
CLASS C SHARES Total Returns: 1 Year -5.19%, Since Inception 5.21%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
MAINSTAY STRATEGIC PORTFOLIO FUND
PERIOD END VALUE FUND S&P 500 INDEX* AVERAGE+ INFLATION (CPI)++
---------- ------------------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
10/22/97 $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00
12/97 10,404.00 10,243.00 10,031.00 10,019.00
12/98 10,376.00 13,170.00 11,423.00 10,180.00
12/99 11,688.00 15,943.00 12,793.00 10,453.00
6/00 11,465.00 15,875.00 13,034.00 10,669.00
</TABLE>
4
<PAGE> 419
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 10/22/97 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the large-cap U.S. stock market. Total returns reflect the reinvestment of
all dividends and capital gains. You cannot invest directly in 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> 420
-------
(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. You cannot invest directly in an index.
(2) See footnote and table on page 11 for more information about Lipper Inc.
(3) See footnote on page 5 for more information about the S&P 500 Index.
Portfolio Management Discussion and Analysis
The equity markets began 2000 in much the same way they ended 1999, with a
narrow group of growth stocks and technology issues rising sharply. By the
middle of March, however, there was a clear shift in leadership, with the
technology-laden NASDAQ Composite Index(1) undergoing a dramatic correction, as
Microsoft faced a widely-publicized antitrust decision. At its worst point on
May 24, the NASDAQ Index was down 41% from its March 10 high.
During the NASDAQ downturn, many investors abandoned technology, media, and
telecommunications stocks in favor of "old economy" issues with more reliable
earnings. In April and May, value stocks outperformed most other investment
styles. June brought a rotation back into many technology issues, with
value-oriented stocks lagging during the month.
During the first six months of 2000, the Federal Reserve raised the targeted
federal funds rate by 25 basis points on February 2 and again on March 21, then
by 50 basis points on May 16. Rising interest rates had a negative impact on
high-yield bond returns and default rates rose above historical levels, causing
net redemptions from high-yield bond funds in five of the first six months of
the year.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Strategic Value Fund returned
-1.61% for Class A shares and -1.90% for Class B and Class C shares, excluding
all sales charges. All share classes underperformed the 1.95% return of the
average Lipper(2) flexible portfolio fund and the -0.42% return of the S&P 500
Index(3) over the same period. Setbacks in the Fund's stock holdings,
particularly in basic materials, consumer cyclicals, and capital goods, were
among the reasons why the Fund underperformed during the first six months of
2000.
VALUE EQUITIES
In the equity portion of the Fund's portfolio, the best-performing sectors for
the first half were energy and utilities, both of which were overweighted and
benefited from rising oil and gas prices and strong demand. Major contributors
included Coastal Corp. (+50%), Noble Affiliates (+143%), Union Pacific Resources
(+74%), and Valero Energy (+61%). The Fund also benefited from an overweighted
position in the utility sector. Houston-based energy concern Dynegy (+51%) was a
strong performer, and natural gas company El Paso Energy (+32%) continued to
rise after the announcement of its acquisition of Coastal Corp. We sold the
Fund's position in El Paso Energy, but the Fund retained shares in Coastal
Corp., which will convert to El Paso Energy shares when the deal closes. We
believe the merged company should benefit from higher natural gas prices and
merger-related cost savings.
6
<PAGE> 421
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[PERFORMANCE BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN%
---------- -------------
<S> <C>
12/97 4.11 Class A
12/98 0.52 Class A
12/99 13.59 Class A
6/00 -1.61 Class A
12/97 4.04 Class B and Class C
12/98 -0.27 Class B and Class C
12/99 12.64 Class B and Class C
6/00 -1.90 Class B and Class C
</TABLE>
Past performance is no guarantee of future results. See footnote * on page 11
for more information on performance. Class C share returns reflect the
historical performance of the Class B shares through 8/98.
The Fund's holdings in basic materials, consumer cyclicals, and capital goods
generally had negative results. Among consumer cyclicals, Office Depot (-43%)
announced lower-than-expected results. Given the exaggerated reaction to this
announcement, we continue to hold the position and anticipate a recovery.
Realizing that higher interest rates and slowing consumer spending could hurt
consumer cyclicals, we sold the Fund's position in Federated Departments Stores
and some of its position in Dana Corp. to reduce negative exposure. Both sales
proved prudent, as the stocks have since moved lower. We also sold the Fund's
position in Shaw Industries, a carpet manufacturer, since we expect the housing
market to soften. We used the proceeds from these sales to initiate positions in
companies that we believe have better prospects, including Eastman Kodak, which
rose 5% from the time of the Fund's purchase through the end of June.
Basic materials faced a challenging semiannual period. We sold the Fund's
positions in Smurfit-Stone Container and Georgia-Pacific, both at losses to the
Fund. Even so, later declines in these issues indicated the sales were
beneficial for the Fund. USX-U.S. Steel Group was hurt by deteriorating
fundamentals and we sold the Fund's position in the middle of an extended
decline. During the reporting period, the Fund initiated positions in Pitney
Bowes and Fort James Corp., which we believe represent excellent values.
The Fund's overweighted position in capital goods stocks also hurt returns.
Although Honeywell (-41%) announced delays in its merger with Allied Signal, we
expect a quick resolution and have maintained the Fund's position. In February
and March, the Fund made timely purchases of defense contractor General
Dynamics, and shares have since appreciated approximately 23%.
7
-
<PAGE> 422
-------
(4) Debt rated B by Standard & Poor's is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness
to meet its financial commitment on the obligation.
During the first half of 2000, we sold the Fund's position in Nippon Telephone
and Telegraph when it reached our price target and purchased CenturyTel, a
Louisiana-based local, data, and wireless phone company. We sold the Fund's
entire position in Newell Rubbermaid on a negative announcement, and purchased
Ralston Purina Group, best known for its pet foods and Energizer batteries. When
United Healthcare hit our price target, we sold the HMO stock to initiate
positions in Tenet Healthcare and Abbot Labs. The two new positions were up 17%
and 35%, respectively, since they were purchased.
In technology, we sold the Fund's remaining position in Adaptec and
significantly reduced its position in Seagate Technology after both stocks
reached our price targets. A new Fund position in Compuware failed to deliver on
its promise and we subsequently sold the stock at a loss. Unisys was also a dis-
appointment during the reporting period, but we continue to hold the shares,
believing the market has overreacted to negative news. We used a negative
announcement by Electronic Data Systems to initiate a position in this global
information technology company at what we believe were attractive prices.
HIGH-YIELD SECURITIES
The high-yield portion of the Fund's portfolio benefited from strong credit
analysis and security selection, which allowed it to avoid defaults. Emphasis on
securities rated single-B,(4) however, hurt performance as higher-rated
high-yield bonds tended to outperform during the reporting period. UIH Australia
rebounded on speculation that the bonds will be called in 2001. Cirrus Logic
convertibles also performed well as both the stock and bonds rallied.
The Fund increased cable exposure with Charter Communications, Adelphia
Communications, and Cablevision SA. It also moved to a market-weighted position
in telecom by purchasing Exodus Communications, Crown Castle, PSINet, and Nextel
Communications bonds. The Fund benefited from the NASDAQ decline, purchasing
convertible securities whose convertible feature had become virtually worthless,
then selling the securities as the NASDAQ rebounded. The Fund continues to hold
Internet Capital Group and Digital Island bonds, both of which have strong asset
coverage and provide yields over 15%.
Negative performers included Loews Cineplex and United Artist bonds and G&G
Retail bonds, all of which were sold at a loss, then continued to decline,
suggesting that the sales were timely and beneficial.
8
<PAGE> 423
Aside from increasing telecommunications holdings to a market-weighted position,
the sector weightings and foreign exposure in the high-yield portion of the
Fund's portfolio remained relatively similar to their levels at the beginning of
the year. The Fund continues to be overweighted in health care, utilities, real
estate, and financials, which we believe offer attractive risk-adjusted spreads.
The high-yield portion of the Fund's portfolio is under-
weighted in economically sensitive industries and we believed that valuations in
the energy sector did not justify a market weighting during the reporting
period.
CONVERTIBLE SECURITIES
Convertible securities contributed positively to the Fund's performance during
the reporting period, with Amdocs and Calpine among the leaders. Amdocs (+96%)
provides billing software for telephone companies and benefited from strong
demand in an increasingly complex telephone and Internet service environment.
Calpine (+46%) is an independent power producer that is taking advantage of
electric utility deregulation.
Overweighting the convertible portion of the Fund's portfolio in energy and oil
services helped Fund performance, as oil and natural gas prices rose and supply/
demand dynamics improved. The Fund avoided several new issues early in the year
when the underlying stocks were at speculative highs. Our decision benefited the
Fund when the NASDAQ subsequently declined.
The Fund also benefited from a strategic purchase of Efficient Networks, which
supplies consumer equipment for DSL connections. During the NASDAQ correc-
tion, we purchased the company's bonds for the Fund at $66 with a yield of 15%,
limiting downside risk while seeking to take advantage of the growing DSL
market.
LOOKING AHEAD
We remain committed to value investing and confident in our investment process.
With earlier enthusiasm for technology and emerging-growth companies somewhat
shaken in recent months, we believe that our disciplined value approach may
result in higher long-term returns with lower volatility. We will continue to
seek attractively priced securities with catalysts for positive change in all
markets in which the Fund invests.
9
-
<PAGE> 424
Past performance is no guarantee of future results.
Whatever the markets or the economy 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.
Richard A. Rosen
Thomas Wynn
Portfolio Managers
MacKay Shields LLC
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets.
High-yield securities (sometimes called "junk bonds") are generally considered
speculative because they present a greater risk of loss than higher-quality debt
securities; these securities may also be subject to greater price volatility.
10 -
<PAGE> 425
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A -3.48% 6.00%
Class B -4.23% 5.21%
Class C -4.23% 5.21%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A -8.79% 3.79%
Class B -9.02% 4.18%
Class C -5.19% 5.21%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 212 out of 231 funds 142 out of 179 funds
Class B 215 out of 231 funds 146 out of 179 funds
Class C 215 out of 231 funds 155 out of 206 funds
Average Lipper
flexible portfolio fund 7.57% 10.69%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $10.82 $0.1525 $0.0000
Class B $10.81 $0.1099 $0.0000
Class C $10.81 $0.1099 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (10/22/97) through 8/31/98. Performance figures for the two
classes vary after this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. Class A and Class B shares were first offered to
the public on 10/22/97, and Class C shares on 9/1/98. Since-inception
return for the average Lipper peer fund is for the period from 10/22/97
through 6/30/00.
11
-
<PAGE> 426
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES (0.5%)
ELECTRIC POWER COMPANIES (0.5%)
AES Eastern Energy, L.P.
Pass-Through Certificates Series
1999-A
9.00%, due 1/2/17............... $225,000 $ 219,042
-----------
ENTERTAINMENT (0.0%) (B)
United Artists Theatre Co.
Pass-Through Certificates
Series 95-A
9.30%, due 7/1/15............... 23,058 15,371
-----------
Total Asset-Backed Securities
(Cost $230,695)................. 234,413
-----------
CONVERTIBLE SECURITIES (17.0%)
CONVERTIBLE BONDS (12.0%)
BANKS (0.5%)
European Bank for Reconstruction
& Development
0.75%, due 7/2/01 (d)........... 250,000 263,125
-----------
BROADCAST/MEDIA (1.1%)
Clear Channel Communications,
Inc.
2.625%, due 4/1/03.............. 200,000 259,250
News America Holdings, Inc.
(zero coupon), due 3/11/13
(e)............................. 250,000 277,032
-----------
536,282
-----------
COMMUNICATIONS-EQUIPMENT (0.5%)
Comverse Technology, Inc.
4.50%, due 7/1/05............... 50,000 217,937
-----------
COMPUTER SOFTWARE & SERVICES (0.6%)
Siebel Systems, Inc.
(zero coupon), due 3/22/19...... 80,000 288,800
-----------
ELECTRICAL EQUIPMENT (0.7%)
ASE Test Ltd.
1.00%, due 7/1/04 (c)........... 250,000 317,812
-----------
ELECTRONICS-COMPONENTS (1.3%)
Cirrus Logic, Inc.
6.00%, due 12/15/03............. 295,000 261,813
Cypress Semiconductor Corp.
4.00%, due 2/1/05............... 300,000 348,375
-----------
610,188
-----------
-----------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
ELECTRONICS-SEMICONDUCTORS (2.3%)
Adaptec, Inc.
4.75%, due 2/1/04............... $250,000 $ 210,938
Amkor Technology, Inc.
5.00%, due 3/15/07.............. 200,000 182,250
Kulicke & Soffa Industries, Inc.
4.75%, due 12/15/06............. 150,000 217,687
Photronics, Inc.
6.00%, due 6/1/04............... 250,000 285,000
Semtech Corp.
4.50%, due 2/1/07............... 200,000 218,500
-----------
1,114,375
-----------
GOLD & PRECIOUS METALS MINING (0.2%)
Agnico Eagle Mines Corp.
1.00%, due 7/1/04 (f)........... 70,000 46,813
Battle Mountain Gold Co.
6.00%, due 1/4/05 (d)........... 75,000 61,500
-----------
108,313
-----------
HEALTH CARE-DRUGS (1.1%)
CV Therapeutics, Inc.
4.75%, due 3/7/07 (c)........... 200,000 244,250
Roche Holdings, Inc.
Series DTC
(zero coupon), due 4/20/10
(c)(e).......................... 500,000 263,125
-----------
507,375
-----------
HOTEL/MOTEL (0.1%)
Hilton Hotels Corp.
5.00%, due 5/15/06.............. 65,000 51,431
-----------
INTERNET SOFTWARE & SERVICES (0.1%)
Digital Island, Inc.
6.00%, due 2/15/05.............. 45,000 32,344
Internet Capital Group, Inc.
5.50%, due 12/21/04............. 50,000 32,687
-----------
65,031
-----------
INVESTMENT BANK/BROKERAGE (0.4%)
Merrill Lynch & Co., Inc.
0.25%, due 5/10/06.............. 200,000 210,250
-----------
OIL & GAS-EXPLORATION & PRODUCTION (0.5%)
Devon Energy Corp.
4.90%, due 8/15/08.............. 250,000 239,688
-----------
SPECIALTY PRINTING (0.2%)
World Color Press, Inc.
6.00%, due 10/1/07.............. 75,000 80,250
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
-
<PAGE> 427
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE SECURITIES (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
TELECOMMUNICATIONS (1.5%)
Allied Riser Communications Corp.
7.50%, due 6/15/07 (c).......... $200,000 $ 201,000
Efficient Networks, Inc.
5.00%, due 3/15/05 (c).......... 20,000 15,000
Global TeleSystems, Inc.
5.75% due 7/1/10 (d)............ 325,000 188,500
ITC/DeltaCom, Inc.
4.25% due 5/15/06............... 250,000 253,125
PTEK Holdings, Inc.
5.75% due 7/1/04................ 110,000 68,888
-----------
726,513
-----------
TELECOMMUNICATIONS-LONG DISTANCE (0.4%)
Nextel Communications, Inc.
5.25%, due 1/15/10.............. 200,000 204,750
-----------
TELEPHONE (0.5%)
Bell Atlantic Financial Services,
Inc.
4.25%, due 9/15/05 (c).......... 50,000 64,875
5.75%, due 4/1/03............... 150,000 147,000
-----------
211,875
-----------
Total Convertible Bonds
(Cost $5,885,690)............... 5,753,995
-----------
<CAPTION>
SHARES
---------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS (5.0%)
AEROSPACE/DEFENSE (0.5%)
Titan Capital Trust
5.75% (c)....................... 4,000 220,500
-----------
AUTO PARTS & EQUIPMENT (0.3%)
Tower Automotive Capital Trust
6.75%........................... 5,000 157,500
-----------
BANKS-REGIONAL (0.2%)
National Australia Bank Ltd.
7.875% (g)...................... 4,000 113,250
-----------
CHEMICALS (0.1%)
Hercules Trust II
6.50% (h)....................... 55 29,906
-----------
CONSUMER SERVICES (0.2%)
Carriage Services Capital Trust
7.00%........................... 3,000 72,000
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
CONTAINERS-METAL & GLASS (0.1%)
Owens-Illinois, Inc.
4.75%........................... 2,500 $ 55,625
-----------
INDEPENDENT POWER PRODUCERS (0.7%)
Calpine Capital Trust
5.50% (c)....................... 5,000 358,125
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.8%)
El Paso Energy Capital Trust I
4.75%........................... 6,000 386,250
-----------
PUBLISHING-NEWSPAPERS (0.1%)
Tribune Co.
6.25%........................... 4,000 67,000
-----------
REAL ESTATE-INVESTMENT/MANAGEMENT (0.7%)
General Growth Properties, Inc.
7.25% (i)(j).................... 15,000 326,250
-----------
SPECIALIZED SERVICES (0.5%)
Cendant Corp.
7.50%........................... 10,000 217,500
-----------
TELECOMMUNICATIONS (0.4%)
Amdocs Automatic Common Exchange
Security Trust
6.75%........................... 3,000 189,375
-----------
TELECOMMUNICATIONS-LONG DISTANCE (0.4%)
Global Crossing Ltd.
6.375%.......................... 1,000 77,375
7.00%........................... 750 134,907
-----------
212,282
-----------
Total Convertible Preferred
Stocks
(Cost $2,445,410)............... 2,405,563
-----------
Total Convertible Securities
(Cost $8,331,100)............... 8,159,558
-----------
CORPORATE BONDS (13.1%)
AIRLINES (0.1%)
Valuejet, Inc.
10.25%, due 4/15/01............. $ 60,000 $ 54,000
-----------
AUTO PARTS & EQUIPMENT (0.1%)
Gentek, Inc.
11.00%, due 8/1/09.............. 35,000 35,438
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
-
<PAGE> 428
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
BANKS (0.2%)
B.F. Saul Real Estate Investment
Trust Series B
9.75%, due 4/1/08............... $100,000 $ 86,250
-----------
BEVERAGES-SOFT DRINKS (0.2%)
Triarc Companies, Inc.
(zero coupon), due 2/9/18....... 340,000 84,575
-----------
BROADCAST/MEDIA (0.4%)
CD Radio, Inc.
14.50%, due 5/15/09............. 145,000 133,400
Radio Unica Corp.
(zero coupon), due 8/1/06
11.75%, beginning 8/1/02........ 40,000 25,800
Young America Corp.
Series B
11.625%, due 2/15/06............ 75,000 47,344
-----------
206,544
-----------
CABLE TV (1.3%)
Adelphia Communications Corp.
9.875%, due 3/1/07.............. 130,000 124,475
Cablevision S.A.
Series 10, Tranche 1
13.75%, due 4/30/07 (c)(k)...... 50,000 46,500
Charter Communications Holdings,
L.L.C
(zero coupon), due 4/1/11
9.92%, beginning 4/1/04......... 45,000 25,538
(zero coupon), due 1/15/10
11.75%, beginning 1/15/05....... 185,000 105,219
10.00%, due 4/1/09.............. 100,000 96,500
Telewest Communications, PLC
9.875%, due 2/1/10 (c).......... 105,000 97,650
UIH Australia/Pacific, Inc.
Series B
(zero coupon), due 5/15/06
14.00%, beginning 5/15/01....... 160,000 147,200
-----------
643,082
-----------
CHEMICALS (0.1%)
Agriculture Minerals & Chemical,
Inc.
10.75%, due 9/30/03............. 45,000 26,888
-----------
CHEMICALS-SPECIALTY (0.1%)
General Chemical Industrial
Products, Inc.
10.625%, due 5/1/09............. 35,000 30,450
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMERCIAL SERVICES-SPECIALIZED (0.2%)
Building One Services Corp.
10.50%, due 5/1/09.............. $110,000 $ 93,500
-----------
CONSTRUCTION & HOUSING (0.1%)
Iron Age Corp.
9.875%, due 5/1/08.............. 45,000 29,700
-----------
COSMETICS/PERSONAL CARE (0.2%)
Jafra Cosmetics International,
Inc.
11.75%, due 5/1/08.............. 100,000 96,000
-----------
ELECTRIC POWER COMPANIES (0.3%)
CMS Energy Corp. & Atlantic
Methanol Capital Co.
Series A-1
10.875%, due 12/15/04 (c)....... 70,000 69,125
Western Resources, Inc.
6.875%, due 8/1/04.............. 60,000 52,622
-----------
121,747
-----------
ENGINEERING & CONSTRUCTION (0.1%)
Traffic Stream (BVI)
Infrastructure Ltd.
14.25%, due 5/1/06 (c)(l)....... 80,000 36,800
-----------
ENTERTAINMENT (0.4%)
Hollywood Entertainment Corp.
Series B
10.625%, due 8/15/04............ 90,000 77,175
Marvel Enterprises, Inc.
12.00%, due 6/15/09............. 120,000 96,000
-----------
173,175
-----------
FINANCIAL-MISCELLANEOUS (0.1%)
Pacific & Atlantic (Holdings),
Inc.
10.50%, due 12/31/07 (c)........ 74,218 46,015
-----------
FOOD & HEALTH CARE DISTRIBUTORS (0.1%)
Bergen Brunswig Corp.
7.375%, due 1/15/03............. 55,000 47,572
-----------
GAMING, LOTTERY & PARI-MUTUELS (0.6%)
Las Vegas Sands, Inc. &
Venetian Casino Resorts, L.L.C.
12.25%, due 11/15/04............ 75,000 75,750
Penn National Gaming, Inc.
10.625%, due 12/15/04........... 140,000 152,600
Pinnacle Entertainment, Inc.
9.25%, due 12/15/07............. 45,000 44,775
-----------
273,125
-----------
HEALTH CARE-DRUGS (0.1%)
MedPartners, Inc.
7.375%, due 10/1/06............. 30,000 25,050
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
-
<PAGE> 429
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
HEALTH CARE-HOSPITAL MANAGEMENT (0.4%)
HCA-The Healthcare Corp.
7.50%, due 11/15/95............. $140,000 $ 105,346
Magellan Health Services, Inc.
9.00%, due 2/15/08.............. 70,000 35,350
Tenet Healthcare Corp.
8.00%, due 1/15/05.............. 75,000 72,000
-----------
212,696
-----------
HEALTH CARE-MANAGED CARE (0.5%)
Abbey Healthcare Group, Inc.
9.50%, due 11/1/02.............. 135,000 131,625
Team Health, Inc.
Series B
12.00%, due 3/15/09............. 110,000 92,400
-----------
224,025
-----------
HEALTH CARE-MEDICAL PRODUCTS (0.1%)
Alaris Medical, Inc.
(zero coupon), due 8/1/08
11.125%, beginning 8/1/03....... 75,000 11,437
DJ Othopedics L.L.C.
12.625%, due 6/15/09............ 35,000 33,250
-----------
44,687
-----------
HEALTH CARE-SERVICES (0.4%)
Medaphis Corp.
Series B
9.50%, due 2/15/05.............. 210,000 168,000
Quest Diagnostics, Inc.
10.75%, due 12/15/06............ 40,000 41,400
-----------
209,400
-----------
HOMEBUILDING (0.1%)
Amatek Industries Pty Ltd.
14.50%, due 2/15/09 (m)......... 55,276 52,236
14.50%, due 2/15/09 (c)(m)...... 258 244
-----------
52,480
-----------
HOSPITALS/NURSING HOMES/HEALTH CARE (0.1%)
Fountain View, Inc.
Series B
11.25%, due 4/15/08............. 75,000 18,750
Harborside Healthcare Corp.
(zero coupon), due 8/1/08
11.00%, beginning 8/1/03........ 150,000 27,000
MultiCare Companies, Inc. (The)
9.00%, due 8/1/07 (l)........... 120,000 7,200
-----------
52,950
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
HOTEL/MOTEL (0.2%)
Florida Panthers Holdings, Inc.
9.875%, due 4/15/09............. $ 75,000 $ 70,312
Mandalay Resort Group
7.625%, due 7/15/13............. 45,000 36,900
-----------
107,212
-----------
INDUSTRIAL COMPONENTS (0.3%)
Cellco Finance N.V.
12.75%, due 8/1/05 (c).......... 70,000 72,975
Morris Materials Handling, Inc.
9.50%, due 4/1/08 (l)(n)........ 70,000 9,100
Thermadyne Holdings Corp.
(zero coupon), due 6/1/08
12.50%, beginning 6/1/03........ 165,000 59,400
-----------
141,475
-----------
INSURANCE-MULT-LINE (0.1%)
Willis Corroon Group, PLC
9.00%, due 2/1/09............... 60,000 50,400
-----------
INTERNET SOFTWARE & SERVICES (0.2%)
Exodus Communications, Inc.
11.25%, due 7/1/08.............. 50,000 49,500
PSINet, Inc.
11.00%, due 8/1/09.............. 65,000 60,125
11.50%, due 11/1/08............. 10,000 9,400
-----------
119,025
-----------
LEISURE TIME (0.2%)
Bally Total Fitness Holding Corp.
Series D
9.875%, due 10/15/07............ 110,000 99,550
-----------
OIL-INTEGRATED DOMESTIC (0.1%)
Queens Sand Resources, Inc.
12.50%, due 7/1/08.............. 175,000 66,719
-----------
OIL & GAS-EXPLORATION & PRODUCTION (0.1%)
Petro Stopping Centers Holdings
L.P.
Series B
(zero coupon), due 8/1/08
15.00%, beginning 8/1/04........ 75,000 28,500
-----------
OIL & GAS-WELL EQUIPMENT & SERVICES (0.2%)
Michael Petroleum Corp.
Series B
11.50%, due 4/1/05 (l)(n)....... 85,000 42,500
R&B Falcon Corp.
Series B
6.95%, due 4/15/08.............. 85,000 72,675
-----------
115,175
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
-
<PAGE> 430
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
PAPER & FOREST PRODUCTS (0.1%)
Pope & Talbot, Inc.
8.375%, due 6/1/13.............. $ 80,000 $ 72,800
-----------
PUBLISHING (0.0%) (b)
General Media, Inc.
10.625%, due 12/31/00........... 29,000 23,200
-----------
PUBLISHING-NEWSPAPERS (0.2%)
Garden State Newspapers, Inc.
Series B
8.75%, due 10/1/09.............. 115,000 101,775
-----------
REAL ESTATE (0.4%)
Crescent Real Estate Equities
L.P.
7.50%, due 9/15/07.............. 245,000 198,606
-----------
REAL ESTATE-INVESTMENT/MANAGEMENT (0.6%)
CB Richard Ellis Services, Inc.
8.875%, due 6/1/06.............. 60,000 51,000
GS Escrow Corp.
7.125%, due 8/1/05.............. 55,000 49,087
Hospitality Properties Trust
7.00%, due 3/1/08............... 80,000 69,254
LNR Property Corp.
Series B
9.375%, due 3/15/08............. 95,000 82,175
Pinnacle Holdings, Inc.
(zero coupon), due 3/15/08
10.00%, beginning 3/15/03....... 70,000 48,300
-----------
299,816
-----------
RESTAURANTS (0.9%)
Advantica Restaurant Group, Inc.
11.25%, due 1/15/08............. 215,000 144,050
CKE Restaurants, Inc.
9.125%, due 5/1/09.............. 50,000 33,500
FRI-MRD Corp.
15.00%, due 1/24/02 (c)(o)...... 250,000 245,000
-----------
422,550
-----------
RETAIL STORES-SPECIALTY (0.1%)
Musicland Group, Inc.
9.00%, due 6/15/03.............. 30,000 27,150
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
SHIPPING (0.1%)
Newport News Shipbuilding, Inc.
9.25%, due 12/1/06.............. $ 70,000 $ 70,000
-----------
SPECIALTY PRINTING (0.1%)
Sullivan Graphics, Inc.
12.75%, due 8/1/05.............. 50,000 50,750
-----------
TECHNOLOGY (0.2%)
Electronic Retailing Systems
International, Inc.
13.25%, due 2/1/04.............. 90,000 18,900
Knowles Electronics, Inc.
13.125%, due 10/15/09 (c)....... 65,000 55,900
-----------
74,800
-----------
TELECOMMUNICATIONS (1.8%)
Colo.com
13.875%, due 3/15/10 (c)(p1).... 35 37,625
HighwayMaster Communications,
Inc.
Series B
13.75%, due 9/15/05............. 150,000 72,000
ICG Services, Inc.
(zero coupon), due 5/1/08
9.875%, beginning 5/1/03........ 185,000 94,350
(zero coupon), due 2/15/08
10.00%, beginning 2/15/03....... 200,000 104,000
ICO Global Communications
Holdings Ltd.
15.00%, due 8/1/05 (l)(n)....... 40,000 23,200
15.00%, due 8/1/05 (l)(n)(p2)... 80 46,400
IMPSAT Fiber Networks, Inc.
13.75%, due 2/15/05 (c)......... 105,000 93,450
Orion Network Systems, Inc.
(zero coupon), due 1/15/07
12.50%, beginning 1/15/02....... 140,000 57,400
Orius Capital Corp.
12.75%, due 2/1/10 (c).......... 115,000 118,450
RCN Corp.
Series B
(zero coupon), due 2/15/08
9.80%, beginning 2/15/03........ 120,000 68,400
(zero coupon), due 10/15/07
11.125%, beginning 10/15/02..... 75,000 46,875
T/SF Communications Corp.
Series B
10.375%, due 11/1/07............ 75,000 69,750
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
-
<PAGE> 431
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Telehub Communications Corp.
(zero coupon), due 7/31/05
13.875%, beginning 7/31/01...... $ 80,000 $ 16,000
360networks, Inc.
13.00%, due 5/1/08 (c).......... 25,000 25,000
-----------
872,900
-----------
TELECOMMUNICATIONS-CELLULAR/WIRELESS (0.5%)
Centennial Cellular Corp.
10.75%, due 12/15/08............ 50,000 48,562
Crown Castle International Corp.
10.75%, due 8/1/11.............. 70,000 70,962
Nextel International, Inc.
(zero coupon), due 4/15/08
12.125%, beginning 4/15/03...... 55,000 35,750
PageMart Wireless, Inc.
(zero coupon), due 2/1/08
11.25%, beginning 2/1/03........ 100,000 43,000
Ubiquitel Operating Co.
(zero coupon), due 4/15/10
14.00%, beginning 4/15/05
(c)(p3)......................... 65 37,619
-----------
235,893
-----------
TELECOMMUNICATIONS-LONG DISTANCE (0.2%)
Nextel Communications, Inc.
9.375%, due 11/15/09............ 75,000 71,625
-----------
TOBACCO (0.1%)
Standard Commercial Corp.
8.75%, due 8/1/05............... 75,000 60,000
-----------
UTILITY-GAS (0.1%)
Navigator Gas Transport, PLC
10.50%, due 6/30/07 (c)......... 120,000 48,000
-----------
Total Corporate Bonds
(Cost $7,064,252)............... 6,264,070
-----------
FOREIGN BONDS (0.8%)
PUBLISHING (0.2%)
Regional Independent Media Group
(zero coupon), due 7/1/08
12.875%, beginning 7/1/03....... L 70,000 82,703
-----------
TELECOMMUNICATIONS (0.6%)
Global TeleSystems Group, Inc.
11.00%, due 12/1/09............. E 70,000 54,600
Level 3 Communications, Inc.
10.75%, due 3/15/08 (c)......... 45,000 41,196
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
NTL Communications Corp.
9.875%, due 11/15/09............ E 50,000 $ 42,399
Tele1 Europe B.V.
13.00%, due 5/15/09............. 100,000 96,169
Versatel Telecom International
N.V.
11.25%, due 3/30/10 (c)......... 75,000 67,315
-----------
301,679
-----------
Total Foriegn Bonds
(Cost $423,031)................. 384,382
-----------
LOAN ASSIGNMENTS (0.0%) (b)
HOSPITALS/NURSING HOMES/HEALTH CARE (0.0%)
(b)
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
10.25%, due 9/30/04 (l)(o)(q)... $ 6,325 3,890
Bank debt, Term Loan C
10.50%, due 6/1/05 (l)(o)(q).... 6,129 3,769
Multicare Companies, Inc. (The)
Bank debt, Term Loan B
10.75%, due 9/30/04 (l)(o)(q)... 5,296 2,966
Bank debt, Term Loan C
11.00%, due 6/1/05 (l)(o)(q).... 1,921 1,076
-----------
11,701
-----------
Total Loan Assignments
(Cost $11,691).................. 11,701
-----------
YANKEE BONDS (3.4%)
BROADCAST/MEDIA (0.3%)
Central European Media
Enterprises Ltd.
9.375%, due 8/15/04............. 40,000 14,400
Rogers Cablesystems Ltd.
10.125%, due 9/1/12............. 95,000 97,138
Rogers Communications, Inc.
8.875%, due 7/15/07............. 30,000 29,400
-----------
140,938
-----------
CABLE TV (0.6%)
United Pan-Europe Communications
N.V.
Series B
(zero coupon), due 11/1/09
13.375%, beginning 11/1/04...... 200,000 97,000
10.875%, due 8/1/09............. 220,000 191,400
-----------
288,400
-----------
CHEMICALS (0.2%)
Octel Developments, PLC
10.00%, due 5/1/06.............. 100,000 91,500
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
-
<PAGE> 432
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
YANKEE BONDS (CONTINUED)
CONSUMER PRODUCTS (0.0%) (b)
Semi-Tech Corp.
(zero coupon), due 8/15/03
11.50%, beginning 8/15/00
(l)(n).......................... $150,000 $ 1,125
-----------
FINANCIAL-DIVERSIFIED (0.1%)
Tembec Finance Corp.
9.875%, due 9/30/05............. 50,000 50,250
-----------
GOLD & PRECIOUS METALS MINING (0.1%)
Echo Bay Mines Ltd.
12.00%, due 4/1/27.............. 50,000 29,875
-----------
HOMEBUILDING (0.0%) (b)
Amatek Industries Pty Ltd.
12.00%, due 2/15/08............. 25,000 22,875
-----------
REAL ESTATE-INVESTMENT/MANAGEMENT (0.5%)
Intrawest Corp.
10.50%, due 2/1/10.............. 215,000 219,300
-----------
STEEL (0.1%)
Algoma Steel, Inc.
12.375%, due 7/15/05............ 35,000 30,450
-----------
TELECOMMUNICATIONS (0.8%)
Flag Telecom Holdings Ltd.
11.625%, due 3/30/10............ 50,000 48,500
Hermes Europe Railtel B.V.
11.50%, due 8/15/07............. 65,000 55,575
NTL, Inc.
(zero coupon), due 11/15/07
11.20%, beginning 11/15/00...... 300,000 279,750
-----------
383,825
-----------
TELECOMMUNICATIONS-CELLULAR/WIRELESS (0.2%)
Millicom International Cellular,
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01........ 125,000 106,250
-----------
TELECOMMUNICATIONS-LONG DISTANCE (0.2%)
Call-Net Enterprises, Inc.
(zero coupon), due 8/15/07
9.27% , begining 8/15/02........ 45,000 21,150
(zero coupon), due 5/15/09
10.80% , begining 5/15/04....... 125,000 45,000
9.375%, due 5/15/09............. 45,000 27,675
-----------
93,825
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION-SHIPPING (0.3%)
Ermis Maritime Holdings Ltd.
12.50%, due 3/15/06 (l)......... $140,000 $ 35,000
Sea Containers Ltd.
10.50%, due 7/1/03.............. 125,000 105,000
10.75%, due 10/15/06............ 35,000 26,250
-----------
166,250
-----------
Total Yankee Bonds
(Cost $1,739,304)............... 1,624,863
-----------
<CAPTION>
SHARES
---------
<S> <C> <C>
COMMON STOCKS (61.2%)
AEROSPACE/DEFENSE (1.0%)
General Dynamics Corp. .......... 5,700 297,825
Raytheon Co.
Class A......................... 3,200 62,200
Class B......................... 7,300 140,525
-----------
500,550
-----------
ALUMINUM (1.0%)
Alcoa, Inc. ..................... 16,300 472,700
-----------
BANKS-MAJOR REGIONAL (1.7%)
FleetBoston Financial Corp. ..... 23,278 791,452
-----------
BANKS-MONEY CENTER (1.4%)
Chase Manhattan Corp. (The)...... 15,050 693,241
-----------
BANKS-SAVINGS & LOANS (1.9%)
Washington Mutual, Inc. ......... 31,100 898,012
-----------
CHEMICALS (3.6%)
Air Products and Chemicals,
Inc. ........................... 26,100 804,206
IMC Global, Inc. ................ 34,300 445,900
Solutia, Inc. ................... 35,000 481,250
-----------
1,731,356
-----------
COMPUTER SOFTWARE & SERVICES (0.4%)
Electronic Data Systems Corp. ... 4,400 181,500
-----------
COMPUTER SYSTEMS (1.6%)
Seagate Technology, Inc. (a)..... 5,500 302,500
Unisys Corp. (a)................. 31,900 464,544
-----------
767,044
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
-
<PAGE> 433
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER PRODUCTS (1.0%)
Dial Corp. (The)................. 14,300 $ 148,362
Energizer Holdings, Inc. (a)..... 17,333 316,327
-----------
464,689
-----------
CONTAINERS-PAPER (1.1%)
Temple-Inland, Inc. ............. 12,000 504,000
-----------
ELECTRIC POWER COMPANIES (1.0%)
Niagara Mohawk Holdings, Inc.
(a)............................. 33,000 459,938
-----------
ENGINEERING & CONSTRUCTION (0.6%)
Fluor Corp. ..................... 9,500 300,437
-----------
FINANCE (0.0%) (b)
AMC Financial, Inc. (a).......... 6,857 20,571
-----------
FINANCIAL-MISCELLANEOUS (4.7%)
American General Corp. .......... 18,300 1,116,300
AXA Financial, Inc. ............. 16,200 550,800
Citigroup, Inc. ................. 9,900 596,475
-----------
2,263,575
-----------
FOOD (2.5%)
Heinz (H.J) Co. ................. 16,400 717,500
Ralston-Purina Group............. 25,200 502,425
-----------
1,219,925
-----------
HEALTH CARE-DIVERSIFIED (1.1%)
Abbott Laboratories.............. 11,800 525,838
-----------
HEALTH CARE-HOSPITAL MANAGEMENT (1.1%)
Tenet Healthcare Corp. (a)....... 20,100 542,700
-----------
HEALTH CARE-MEDICAL PRODUCTS (1.1%)
Becton, Dickinson & Co. ......... 18,600 533,587
-----------
HEALTH CARE-SERVICES (0.8%)
Health Management Associates,
Inc.
Class A (a)..................... 27,600 360,525
-----------
HEAVY DUTY TRUCKS AND PARTS (0.4%)
Dana Corp. ...................... 8,900 188,569
-----------
HOTEL/MOTEL (0.8%)
Harrah's Entertainment, Inc.
(a)............................. 18,900 395,719
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
HOUSEHOLD PRODUCTS (3.2%)
Clorox Co. (The)................. 12,200 $ 546,712
Fort James Corp. ................ 13,600 314,500
Kimberly-Clark Corp. ............ 11,700 671,288
-----------
1,532,500
-----------
INSURANCE-LIFE & HEALTH (0.6%)
Lincoln National Corp. .......... 8,200 296,225
-----------
INSURANCE-PROPERTY & CASUALTY (2.1%)
Allstate Corp. (The)............. 15,200 338,200
MGIC Investment Corp. ........... 14,400 655,200
-----------
993,400
-----------
INVESTMENT BANK/BROKERAGE (0.7%)
Goldman Sachs Group, Inc. ....... 3,600 341,550
-----------
MACHINERY-DIVERSIFIED (1.0%)
Ingersoll-Rand Co. .............. 12,200 491,050
-----------
MANUFACTURING-DIVERSIFIED (3.3%)
American Standard Cos., Inc.
(a)............................. 24,700 1,012,700
Honeywell International, Inc. ... 17,012 573,092
-----------
1,585,792
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.2%)
Coastal Corp. (The).............. 17,200 1,047,050
-----------
OFFICE EQUIPMENT & SUPPLY (0.9%)
Pitney Bowes, Inc. .............. 11,200 448,000
-----------
OIL & GAS (2.0%)
Noble Affiliates, Inc. .......... 8,300 309,175
Valero Energy Corp. ............. 20,400 647,700
-----------
956,875
-----------
OIL & GAS-EXPLORATION & PRODUCTION (3.9%)
Burlington Resources, Inc. ...... 13,700 524,025
Union Pacific Resources Group,
Inc. ........................... 23,400 514,800
Unocal Corp. .................... 24,500 811,562
-----------
1,850,387
-----------
OIL-INTERGRATED DOMESTIC (2.5%)
Sunoco, Inc. .................... 16,000 471,000
Tosco Corp. ..................... 25,400 719,138
-----------
1,190,138
-----------
OIL-INTERGRATED INTERNATIONAL (1.4%)
Texaco, Inc. .................... 12,500 665,625
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
-
<PAGE> 434
MainStay Strategic Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER & FOREST PRODUCTS (0.7%)
International Paper Co. ......... 10,500 $ 313,031
-----------
PHOTOGRAPHY/IMAGING (0.8%)
Eastman Kodak Co. ............... 6,800 404,600
-----------
RETAIL STORES-SPECIALTY (1.2%)
Office Depot, Inc. (a)........... 94,700 591,875
-----------
TELECOMMUNICATIONS-CELLULAR/WIRELESS (0.0%)
(b)
International Wireless
Communications Holdings, Inc.
(a)............................. 9,669 1,547
-----------
TELECOMMUNICATIONS-LONG DISTANCE (1.9%)
AT&T Corp. ...................... 18,400 581,900
WorldCom, Inc. (a)............... 7,700 353,237
-----------
935,137
-----------
TELEPHONE (2.3%)
Bell Atlantic Corp. ............. 9,400 477,638
CenturyTel, Inc. ................ 21,400 615,250
-----------
1,092,888
-----------
TOYS (0.9%)
Hasbro, Inc. .................... 30,200 454,887
-----------
UTILITY-GAS (0.8%)
Dynergy, Inc. ................... 5,400 368,888
-----------
Total Common Stocks
(Cost $29,804,138).............. 29,377,373
-----------
PREFERRED STOCKS (0.6%)
BROADCAST/MEDIA (0.2%)
Paxson Communications Corp.
12.50% (r)...................... 95 95,000
-----------
FINANCIAL-MISCELLANEOUS (0.1%)
Pacific & Atlantic (Holdings),
Inc.
7.50%, Class A (r).............. 4,453 25,605
-----------
FINANCIAL SERVICES (0.2%)
North Atlantic Trading Co.
12.00% (r)...................... 4,803 100,857
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS-LONG DISTANCE (0.1%)
Nextel Communications, Inc.
13.00%, Series D (r)............ 48 $ 51,360
-----------
Total Preferred Stocks
(Cost $257,200)................. 272,822
-----------
WARRANTS (0.0%) (b)
CABLE TV (0.0%) (b)
UIH Australia/Pacific, Inc.
expire 5/15/06 (a).............. 30 900
-----------
CONSUMER PRODUCTS (0.0%) (b)
Semi-Tech Corp. (a).............. 150 1
-----------
HOME DECORATION PRODUCTS (0.0%) (b)
Amatek Industries Pty Ltd.
Common Rights (a)............... 36 2
Preferred Rights (a)............ 8,470 4,235
-----------
4,237
-----------
OIL & GAS-EXPLORATION & PRODUCTION (0.0%)
(b)
Petro Stopping Centers
Holdings L.P. (a)............... 75 3,750
-----------
TELECOMMUNICATIONS (0.0%) (b)
Telehub Communications Corp.
expire 7/31/05 (a)(c)........... 80 1
-----------
Total Warrants
(Cost $6,622)................... 8,889
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.6%)
COMMERCIAL PAPER (1.4%)
American Express Credit Corp.
6.88%, due 7/3/00............... $695,000 694,734
-----------
Total Commercial Paper
(Cost $694,734)................. 694,734
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
20
-
<PAGE> 435
Portfolio of Investments June 30, 2000 unaudited (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
SHORT-TERM LOAN ASSIGNMENT (0.2%)
TEXTILES-APPAREL MANUFACTURERS (0.2%)
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00 (o)(q)..... $ 75,000 $ 72,000
-----------
Total Short-Term Loan Assignment
(Cost $74,431).................. 72,000
-----------
Total Short-Term Investments
(Cost $769,165)................. 766,734
-----------
Total Investments
(Cost $48,637,198) (s).......... 98.2% 47,104,805(t)
Cash and Other Assets,
Less Liabilities................ 1.8 870,993
----- ---------
Net Assets....................... 100.0% $47,975,798
===== ==========
</TABLE>
-------
<TABLE>
<C> <S>
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) 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 bond.
(g) Capital Unit--each unit consists of $25 principal amount
of 7.875% Perpetual Capital Securities and a purchase
contract to make Optional Unit Exchanges.
(h) CRESTS Unit--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.
(i) PIERS--Preferred Income Equity Redeemable Stock.
(j) Depository Shares--each share represents 0.025 shares at
7.25% Preferred Income Equity Redeemable Stock, Series
A.
(k) Multiple tranche facilities.
(l) Issue in default.
(m) CIK ("Cash in Kind")--interest payment is made with cash
or additional securities.
(n) Issuer in backruptcy.
(o) Restricted security.
(p1) 35 units--each unit reflects $1,000 principal amount of
13.875% Senior Notes plus 1 warrant to aquire 19.9718
shares of common stock at $0.01 per share at a future
date.
(p2) 80 units--each unit reflects $1,000 principal amount of
15.00% Senior Notes plus 1 warrant to aquire 19.85
shares of common stock at $13.20 per share at a future
date.
(p3) 65 units--each unit reflects $1,000 principal amount of
(zero coupon), due 4/15/10, 14.00%, beginning 4/15/05
Senior Discounted Notes plus 1 warrant to aquire 5.965
shares of common stock at $22.74 per share at a future
date.
(q) Floating rate. Rate shown is the rate in effect at June
30, 2000.
(r) PIK ("Payment in Kind")--dividend payment is made with
additional securities.
(s) The cost for federal income tax purposes is $48,998,554.
(t) At June 30, 2000, net unrealized depreciation was
$1,893,749, 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 $3,298,374 and
aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $5,192,123.
(L) Security denominated in British 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.
21
-
<PAGE> 436
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$48,637,198).............................................. $47,104,805
Cash........................................................ 54,744
Receivables:
Investment securities sold................................ 2,223,285
Dividends and interest.................................... 382,536
Fund shares sold.......................................... 46,465
Unrealized appreciation on foreign currency forward
contracts................................................. 68
Unamortized organization expense............................ 85,511
-----------
Total assets........................................ 49,897,414
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,460,764
MainStay Management....................................... 32,450
NYLIFE Distributors....................................... 29,705
Transfer agent............................................ 27,762
Fund shares redeemed...................................... 17,738
Custodian................................................. 11,730
Trustees.................................................. 322
Accrued expenses............................................ 47,064
Unrealized depreciation on foreign currency forward
contracts................................................. 5,437
Dividend payable............................................ 288,644
-----------
Total liabilities................................... 1,921,616
-----------
Net assets.................................................. $47,975,798
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 16,461
Class B................................................... 27,769
Class C................................................... 152
Additional paid-in capital.................................. 46,802,396
Accumulated distribution in excess of net investment
income.................................................... (30,761)
Accumulated undistributed net realized gain on
investments............................................... 2,649,532
Accumulated undistributed net realized gain on foreign
currency transactions..................................... 47,445
Net unrealized depreciation on investments.................. (1,532,393)
Net unrealized depreciation on translation of other assets
and liabilities in foreign currencies and foreign currency
forward contracts......................................... (4,803)
-----------
Net assets.................................................. $47,975,798
===========
CLASS A
Net assets applicable to outstanding shares................. $17,805,731
===========
Shares of beneficial interest outstanding................... 1,646,066
===========
Net asset value per share outstanding....................... $ 10.82
Maximum sales charge (5.50% of offering price).............. 0.63
-----------
Maximum offering price per share outstanding................ $ 11.45
===========
CLASS B
Net assets applicable to outstanding shares................. $30,006,354
===========
Shares of beneficial interest outstanding................... 2,776,934
===========
Net asset value and offering price per share outstanding.... $ 10.81
===========
CLASS C
Net assets applicable to outstanding shares................. $ 163,713
===========
Shares of beneficial interest outstanding................... 15,153
===========
Net asset value and offering price per share outstanding.... $ 10.81
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
-
<PAGE> 437
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 370,662
Interest.................................................. 744,746
-----------
Total income............................................ 1,115,408
-----------
Expenses:
Management................................................ 188,355
Distribution--Class B..................................... 119,998
Distribution--Class C..................................... 635
Transfer agent............................................ 86,070
Service--Class A.......................................... 22,574
Service--Class B.......................................... 39,999
Service--Class C.......................................... 212
Amortization of organization expense...................... 18,349
Custodian................................................. 14,450
Registration.............................................. 13,773
Professional.............................................. 12,520
Shareholder communication................................. 11,268
Recordkeeping............................................. 10,029
Trustees.................................................. 590
Miscellaneous............................................. 14,110
-----------
Total expenses.......................................... 552,932
-----------
Net investment income....................................... 562,476
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions..................................... 3,008,058
Foreign currency transactions............................. 47,445
-----------
Net realized gain on investments and foreign currency
transactions.............................................. 3,055,503
-----------
Net change in unrealized appreciation (depreciation) on:
Security transactions..................................... (4,696,659)
Translation of other assets and liabilities in foreign
currencies and foreign currency forward transactions.... (3,740)
-----------
Net unrealized loss on investments and foreign currency
transactions.............................................. (4,700,399)
-----------
Net realized and unrealized loss on investments and foreign
currency transactions..................................... (1,644,896)
-----------
Net decrease in net assets resulting from operations........ $(1,082,420)
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
-
<PAGE> 438
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 562,476 $ 823,483
Net realized gain on investments and foreign currency
transactions............................................ 3,055,503 1,582,116
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (4,700,399) 4,185,697
----------- ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (1,082,420) 6,591,296
----------- ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (249,599) (367,948)
Class B................................................. (310,501) (472,300)
Class C................................................. (1,699) (1,667)
From net realized gain on investments:
Class A................................................. -- (150,968)
Class B................................................. -- (288,307)
Class C................................................. -- (1,237)
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..... (561,799) (1,672,391)
----------- ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 984,574 2,556,755
Class B................................................. 2,220,223 6,640,161
Class C................................................. 57,924 195,150
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 117,237 640,350
Class B................................................. 147,186 985,005
Class C................................................. 360 1,461
----------- ------------
3,527,504 11,018,882
Cost of shares redeemed:
Class A................................................. (1,624,636) (3,792,632)
Class B................................................. (6,994,477) (13,814,138)
Class C................................................. (43,461) (133,506)
----------- ------------
Decrease in net assets derived from capital share
transactions......................................... (5,135,070) (6,721,394)
----------- ------------
Net decrease in net assets............................ (6,779,289) (1,802,489)
NET ASSETS:
Beginning of period......................................... 54,755,087 56,557,576
----------- ------------
End of period............................................... $47,975,798 $ 54,755,087
=========== ============
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (30,761) $ (31,438)
=========== ============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
-
<PAGE> 439
This page intentionally left blank
25
-
<PAGE> 440
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six months October 22*
ended Year ended Year ended through
June 30, December 31, December 31, December 31,
2000+ 1999 1998 1997
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period.......... $ 11.15 $ 10.18 $ 10.29 $ 10.00
------- ------- ------- -------
Net investment income........................... 0.15 0.22 0.15 0.03
Net realized and unrealized gain (loss) on
investments................................... (0.33) 1.15 (0.10) 0.38
------- ------- ------- -------
Total from investment operations................ (0.18) 1.37 0.05 0.41
------- ------- ------- -------
Less dividends and distributions:
From net investment income.................... (0.15) (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............... (0.15) (0.40) (0.16) (0.12)
------- ------- ------- -------
Net asset value at end of period................ $ 10.82 $ 11.15 $ 10.18 $ 10.29
======= ======= ======= =======
Total investment return (a)..................... (1.61%) 13.59% 0.52% 4.11%
Ratios (to average net assets)/
Supplemental Data:
Net investment income....................... 2.72%++ 1.97% 1.49% 1.66%++
Expenses.................................... 1.72%++ 1.69% 1.79% 2.73%++
Portfolio turnover rate......................... 63% 122% 203% 29%
Net assets at end of period (in 000's).......... $17,806 $18,899 $17,946 $13,622
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
26
-
<PAGE> 441
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------------------------- ------------------------------------------------
Six months October 22* Six months September 1**
ended Year ended Year ended through ended Year ended through
June 30, December 31, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 1997 2000+ 1999 1998
---------- ------------ ------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 11.13 $ 10.17 $ 10.29 $ 10.00 $11.13 $10.17 $ 9.15
------- ------- ------- ------- ------ ------ ------
0.11 0.14 0.08 0.02 0.11 0.14 0.05
(0.32) 1.14 (0.11) 0.38 (0.32) 1.14 1.03
------- ------- ------- ------- ------ ------ ------
(0.21) 1.28 (0.03) 0.40 (0.21) 1.28 1.08
------- ------- ------- ------- ------ ------ ------
(0.11) (0.14) (0.08) (0.02) (0.11) (0.14) (0.05)
-- (0.09) (0.01) (0.09) -- (0.09) (0.01)
-- (0.01) -- -- -- (0.01) --
-- (0.08) -- -- -- (0.08) --
------- ------- ------- ------- ------ ------ ------
(0.11) (0.32) (0.09) (0.11) (0.11) (0.32) (0.06)
------- ------- ------- ------- ------ ------ ------
$ 10.81 $ 11.13 $ 10.17 $ 10.29 $10.81 $11.13 $10.17
======= ======= ======= ======= ====== ====== ======
(1.90%) 12.64% (0.27%) 4.04% (1.90%) 12.64% 11.77%
1.97%++ 1.22% 0.74% 0.91%++ 1.97%++ 1.22% 0.74%++
2.47%++ 2.44% 2.54% 3.48%++ 2.47%++ 2.44% 2.54%++
63% 122% 203% 29% 63% 122% 203%
$30,006 $35,702 $38,528 $12,325 $ 164 $ 154 $ 84
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
27
-
<PAGE> 442
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 (and certain other qualified purchases) 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 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 of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
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> 443
Notes to Financial Statements unaudited
SECURITIES VALUATION. Portfolio securities of the Fund are stated at value
determined (a) by appraising common and preferred stocks which are traded on the
Exchange at the last sale price on that day or, if no sale occurs, at the mean
between the closing bid and asked prices, (b) by appraising common and preferred
stocks traded on other United States national securities exchanges or foreign
securities exchanges as nearly as possible in the manner described in (a) by
reference to their principal exchange, including the National Association of
Securities Dealers National Market System, (c) by appraising over-the-counter
securities quoted on the National Association of Securities Dealers NASDAQ
system (but not listed on the National Market System) at the bid price supplied
through such system, (d) by appraising over-the-counter securities not quoted on
the NASDAQ system at prices supplied by the pricing agent or brokers selected by
the 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 may 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> 444
MainStay Strategic Value 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 period end to credit loss in the event of a counterparty's failure
to perform its obligations.
Foreign currency forward contracts open at June 30, 2000:
<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 9/7/00....................... E256,000 $242,796 $(3,675)
Pound Sterling vs. U.S. Dollar, expiring 8/31/00............ L 46,200 $ 68,262 (1,762)
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT AMOUNT
FOREIGN CURRENCY BUY CONTRACTS PURCHASED SOLD
------------------------------ --------- ---------
<S> <C> <C> <C>
Pound Sterling vs. U.S. Dollar, expiring 8/31/00............ L 5,983 $ 9,000 68
--------------
Net unrealized depreciation on forward foreign currency
contracts................................................. $(5,369)
=======
</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 Fund does not
have the right to demand that such securities be registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt sale
at an acceptable price may be difficult.
30
-
<PAGE> 445
Notes to Financial Statements unaudited (continued)
Restricted securities held at June 30, 2000:
<TABLE>
<CAPTION>
PRINCIPAL PERCENT
ACQUISITION AMOUNT/ 06/30/00 OF
SECURITY DATE 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 $252,482 $245,000 0.5%
Genesis Health Ventures, Inc.
Bank debt, Term Loan B
10.25%, due 9/30/04....................... 11/10/99 6,325 3,752 3,890 0.0(a)
Bank debt, Term Loan C
10.50% due 6/1/05......................... 11/10/99 6,129 3,681 3,769 0.0(a)
Multicare Companies, Inc. (The)
Bank debt, Term Loan B
10.75%, due 9/30/04....................... 11/10/99 5,296 3,144 2,966 0.0(a)
Bank debt, Term Loan C
11.00%, due 6/1/05........................ 11/10/99 1,921 1,115 1,076 0.0(a)
Synthetic Industries, Inc.
Bridge Loan
13.00%, due 12/14/00...................... 12/14/99 75,000 74,431 72,000 0.2
-------- -------- ---
$338,605 $328,701 0.7%
======== ======== ===
</TABLE>
-------
<TABLE>
<C> <S>
(a) Less than one tenth of a percent.
</TABLE>
FINANCIAL INSTRUMENTS WITH 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.
ORGANIZATIONAL COSTS. Costs incurred in connection with the Fund's initial
organization and registration totalled approximately $173,175 and are being
amortized over a period not to exceed 60 months beginning at the commencement of
operations.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to the shareholders of the Fund within the
allowable time limits. Therefore, no federal income tax provision is required.
Investment income received by the Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
31
-
<PAGE> 446
MainStay Strategic Value 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. 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.
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 plans)
and realized and unrealized gains and losses on Fund investments are allocated
to separate classes of shares based upon their relative net asset value on the
date the income is earned or expenses and realized and unrealized gains and
losses are incurred.
FOREIGN CURRENCY INVESTING. The books and records of the Fund are recorded in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the
mean between the buying and selling rates last quoted by any major U.S. bank at
the following dates:
(i) market value of investment securities, other assets and liabilities--at the
valuation date,
(ii) purchases and sales of investment securities, income and expenses--at the
date of such transactions.
The assets and liabilities of the Fund are presented at the exchange rates and
market values at the close of the period. The changes in net assets arising from
fluctuations in exchange rates and the changes in net assets resulting from
changes in market prices are not separately presented. However, the Fund
isolates the effect of changes in foreign exchange rates from the fluctuations
arising from
32
-
<PAGE> 447
Notes to Financial Statements unaudited (continued)
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 period 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 six months ended June 30, 2000, the Manager
earned $188,355.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and MacKay Shields, the Manager pays the Subadvisor a monthly fee at the annual
rate of 0.375% of the average daily net assets of the Fund.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has adopted distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The distribution plans provide that the Class B
33
-
<PAGE> 448
MainStay Strategic Value Fund
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 Plans provide 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 $122 for the six months ended
June 30, 2000. 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 $24, $44,480 and $103, respectively, for the six months ended June 30,
2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $86,070.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A and Class B
with a net asset value of $1,141,605 and $10,441,729, respectively, which
represents 6.4% and 34.8% of the Class A and Class B net assets at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $531 for the period ended June
30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$10,029 for the period ended June 30, 2000.
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 has elected to
treat for federal income tax purposes approximately $3,287 of qualifying foreign
exchange losses that arose during the prior year (after October 31, 1999) as if
they arose on January 1, 2000.
34
-
<PAGE> 449
Notes to Financial Statements unaudited (continued)
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $30,572 and $33,340, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000+ DECEMBER 31, 1999
--------------------------- ----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C*
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 90 203 5 229 601 18
Shares issued in reinvestment of dividends
and distributions......................... 11 14 --(a) 59 91 --(a)
---- ---- -- ---- ------ ---
101 217 5 288 692 18
Shares redeemed............................. (150) (646) (4) (356) (1,274) (12)
---- ---- -- ---- ------ ---
Net increase (decrease)..................... (49) (429) 1 (68) (582) 6
==== ==== == ==== ====== ===
</TABLE>
-------
+ Unaudited.
(a) Less than one thousand shares.
35
-
<PAGE> 450
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
36
-
<PAGE> 451
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<PAGE> 452
This page intentionally left blank
<PAGE> 453
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSST11-08/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Strategic Value Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 454
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay Blue Chip Growth
Fund versus S&P 500 Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 455
This page intentionally left blank
2
<PAGE> 456
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 457
$10,000 Invested in MainStay
Blue Chip Growth Fund versus
S&P 500 Index and Inflation
CLASS A SHARES Total Returns: 1 Year 25.79%, Since Inception 28.23%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX* INFLATION (CPI)+
---------- ------------------ -------------- ----------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 10,380 10,406 10,006
9/98 9,010 9,371 10,043
12/98 11,600 11,367 10,098
3/99 12,420 11,934 10,135
6/99 13,260 12,776 10,209
9/99 13,110 11,978 10,313
12/99 16,330 13,760 10,368
3/00 17,640 14,075 10,516
6/00 16,793 13,701 10,583
</TABLE>
CLASS B SHARES Total Returns: 1 Year 27.13%, Since Inception 29.78%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX* INFLATION (CPI)+
---------- ------------------ -------------- ----------------
<S> <C> <C> <C>
6/1/98 $ 9,450 $ 10,000 $ 10,000
6/98 9,809 10,406 10,006
9/98 8,524 9,371 10,043
12/98 11,000 11,367 10,098
3/99 11,794 11,934 10,135
6/99 12,616 12,776 10,209
9/99 12,493 11,978 10,313
12/99 15,593 13,760 10,368
3/00 16,878 14,075 10,516
6/00 17,220 13,701 10,583
</TABLE>
CLASS C SHARES Total Returns: 1 Year 31.13%, Since Inception 30.86%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY BLUE CHIP
PERIOD END GROWTH FUND S&P 500 INDEX* INFLATION (CPI) +
---------- ------------------ -------------- -----------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 10,380 10,406 10,006
9/98 9,010 9,371 10,043
12/98 11,600 11,367 10,098
3/99 12,420 11,934 10,135
6/99 13,260 12,776 10,209
9/99 13,110 11,978 10,313
12/99 16,330 13,760 10,368
3/00 17,640 14,075 10,516
6/00 17,520 13,701 10,583
</TABLE>
4
<PAGE> 458
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the large-cap U.S. stock market. Total returns reflect the reinvestment of
all dividends and capital gains. You cannot invest directly in 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> 459
-------
(1) See footnote and table on page 9 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the S&P 500 Index.
Portfolio Management Discussion and Analysis
During the first half of 2000, the U.S. economy was strong, with healthy growth,
low inflation, and the lowest unemployment we have seen since 1970. Corporate
profit growth remained strong, with many blue-chip companies increasing earnings
at double-digit annual rates.
This positive scenario hasn't happened by chance. The Federal Reserve has been
actively seeking to slow economic growth and keep inflation in check. In a
continuation of its tightening policy, the Federal Reserve raised the targeted
federal funds rate three times during the first six months of 2000, for a
combined increase of 1.00%.
Technology stocks also had a major influence on the market during the reporting
period. From the beginning of the year through March 10, technology stocks
continued their strong advance, reaching record highs. Since that time, however,
the technology bubble has burst while other stocks have advanced.
STRONG FUND PERFORMANCE
For the six months ended June 30, 2000, MainStay Blue Chip Growth Fund returned
7.70% for Class A shares and 7.29% for Class B and Class C shares, excluding all
sales charges. All share classes outperformed the average Lipper(1) large-cap
growth fund, which returned 2.98% for the same period. All share classes also
outperformed the S&P 500 Index,(2) which returned -0.42% for the semiannual
period.
The Fund's outperformance was primarily due to strong sector allocation. Most
significant was our decision to help protect some of the Fund's gains by
reducing its technology sector weighting in January and February. We were
concerned that many technology stocks had been bid up to unreasonable and
unsustainable levels. This strategic move helped the Fund continue to outperform
during the difficult stretch that began on March 10. We also slightly reduced
the Fund's weighting in the media sector and increased its allocation to the
financial services and health care sectors. With these changes, the Fund
remained overweighted in technology, media, financial services, and health care
and underweighted in consumer staples and retail.
EFFECTIVE SECURITY SELECTION
Many companies in the Fund's portfolio increased their earnings at strong
double-digit rates. The best performers were companies with vital roles in the
new information-age economy. Corning, which makes optical fiber and cable for
the telecommunications industry, rose 105% for the first six months of 2000.
Intel, the bellwether stock for the technology revolution, gained 62% during the
first half of the year.
6
<PAGE> 460
-------
(3) Returns reflect performance for the six-month period ended 6/30/00.
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN
---------- ------------
<S> <C>
12/98 16.40 Class A
12/99 41.75 Class A
6/00 7.70 Class A
12/98 16.00 Class B and Class C
12/99 40.78 Class B and Class C
6/00 7.29 Class B and Class C
Past performance is no guarantee of future results. Class C
share returns reflect the historical performance of the
Class B shares through 8/98. See footnote * on page 9 for
more information on performance.
</TABLE>
During the reporting period, we made strategic shifts within the Fund's
technology sector holdings. We reduced the Fund's commitments to Texas
Instruments, Cisco Systems, Corning, EMC, and Sun Microsystems, as these stocks
were trading at 70 to 100 times earnings, or more. Proceeds of those sales were
allocated to Apple Computer, Gillette, Bell Atlantic, and US West, among others.
The Fund also purchased shares of Analog Devices, a leader in digital signal
processors.
Health care and financial services stocks were among the Fund's top performers.
Pharmaceuticals Eli Lilly and Pfizer each rose 50% in the first six months.
State Street rose 45%, and Merrill Lynch, Charles Schwab, and Northern Trust
were close behind with gains of 38%, 32%, and 23%, respectively.(3) We purchased
shares of Goldman Sachs for the Fund during the reporting period. During the
first half of 2000, we also bought and sold Disney, and we sold Knight Ridder.
Despite the Fund's strong overall results, not all of its stocks had positive
results. Although QUALCOMM, Motorola, and Microsoft detracted from the Fund's
performance, we believe these companies have solid earnings growth potential and
attractive long-term fundamentals and continue to hold them in the Fund's
portfolio. QUALCOMM, a manufacturer of digital wireless products, had quadrupled
in the fourth quarter of 1999, and we sold the majority of our position. The
stock then declined 66% in the first half of 2000, and we began buying it once
again. Motorola dropped 28% on concerns over handset operating margins.
Microsoft's stock reacted to the Justice Department's break-up proposal with a
decline of 31%. We added to the Fund's positions in Motorola and Microsoft after
their respective declines.
7
<PAGE> 461
Past performance is no guarantee of future results.
LOOKING AHEAD
We intend to continue to position the Fund's portfolio in companies with strong
earnings-per-share growth and the potential for expanding price-to-earnings
ratios. We expect to continue to have overweighted positions in the technology,
media, and health care sectors.
As investor interest widens to include industries beyond technology, several
other sectors should show improvement. Telecommunications stocks, for example,
have held up well to date and are a likely area of further consolidation.
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
8
<PAGE> 462
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 33.11% 31.75%
Class B 32.13% 30.86%
Class C 32.13% 30.86%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 25.79% 28.23%
Class B 27.13% 29.78%
Class C 31.13% 30.86%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 90 out of 86 out of
456 funds 371 funds
Class B 102 out of 92 out of
456 funds 371 funds
Class C 102 out of 87 out of
456 funds 387 funds
Average Lipper
large-cap
growth fund 26.43% 28.95%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $17.77 $0.0000 $0.0000
Class B $17.52 $0.0000 $0.0000
Class C $17.52 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering
date through 6/30/00. Class A and Class B shares were first offered to
the public on 6/1/98, and Class C shares on 9/1/98. Since-inception
return for the average Lipper peer fund is for the period from 6/1/98
through 6/30/00.
9
<PAGE> 463
MainStay Blue Chip Growth Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.9%)+
BANKS (9.8%)
Mellon Financial Corp.......... 582,600 $ 21,228,487
Northern Trust Corp............ 134,600 8,757,413
State Street Corp.............. 197,500 20,947,344
------------
50,933,244
------------
BROADCAST/MEDIA (3.7%)
Clear Channel Communications,
Inc. (a)...................... 183,700 13,777,500
Comcast Corp. Special Class A
(a)........................... 140,000 5,670,000
------------
19,447,500
------------
COMMUNICATIONS--EQUIPMENT (12.8%)
Cisco Systems, Inc. (a)........ 79,600 5,059,575
Corning Inc.................... 25,000 6,746,875
General Motors Corp. Class H
(a)........................... 160,000 14,040,000
Lucent Technologies Inc........ 79,200 4,692,600
Nokia Corp. ADR (b)............ 140,000 6,991,250
QUALCOMM Inc. (a).............. 130,000 7,800,000
Tellabs, Inc. (a).............. 305,000 20,873,437
------------
66,203,737
------------
COMPUTER SOFTWARE & SERVICES (3.9%)
Automatic Data Processing,
Inc........................... 155,400 8,323,612
Microsoft Corp. (a)............ 150,000 12,000,000
------------
20,323,612
------------
COMPUTER SYSTEMS (7.8%)
Apple Computer, Inc. (a)....... 165,000 8,641,875
Dell Computer Corp. (a)........ 131,200 6,469,800
EMC Corp. (a).................. 79,200 6,093,450
Hewlett-Packard Co............. 35,000 4,370,625
International Business Machines
Corp. ........................ 98,600 10,802,863
Sun Microsystems, Inc. (a)..... 44,000 4,001,250
------------
40,379,863
------------
ELECTRONICS--SEMICONDUCTORS (11.9%)
Analog Devices, Inc. (a)....... 160,000 12,160,000
Intel Corp..................... 179,000 23,930,062
Motorola, Inc.................. 552,000 16,042,500
Texas Instruments Inc.......... 140,000 9,616,250
------------
61,748,812
------------
-------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
-------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT (4.0%)
Time Warner Inc................ 73,000 $ 5,548,000
Viacom Inc. Class B (a)........ 198,728 13,550,766
Walt Disney Co. (The).......... 40,000 1,552,500
------------
20,651,266
------------
HEALTH CARE--DRUGS (9.1%)
Lilly (Eli) & Co............... 131,000 13,083,625
Merck & Co., Inc............... 95,600 7,325,350
Pfizer Inc..................... 375,250 18,012,000
Schering-Plough Corp........... 170,000 8,585,000
------------
47,005,975
------------
HEALTH CARE--MEDICAL PRODUCTS (2.0%)
Baxter International Inc....... 147,200 10,350,000
------------
HEALTH CARE--MISCELLANEOUS
(4.2%)
Abbott Laboratories............ 90,000 4,010,625
Amgen Inc. (a)................. 82,500 5,795,625
Johnson & Johnson.............. 118,000 12,021,250
------------
21,827,500
------------
INSURANCE (3.6%)
Marsh & McLennan Cos., Inc..... 177,000 18,485,437
------------
INVESTMENT BANK/BROKERAGE
(4.7%)
Charles Schwab Corp. (The)..... 116,000 3,900,500
Goldman Sachs Group, Inc.
(The)......................... 76,000 7,210,500
Merrill Lynch & Co., Inc....... 60,200 6,923,000
Paine Webber Group Inc......... 140,000 6,370,000
------------
24,404,000
------------
PUBLISHING (5.0%)
Dow Jones & Co., Inc........... 110,000 8,057,500
Gannett Co., Inc............... 78,000 4,665,375
McGraw-Hill Cos., Inc. (The)... 151,900 8,202,600
New York Times Co. (The) Class
A............................. 129,000 5,095,500
------------
26,020,975
------------
RETAIL (2.7%)
Home Depot, Inc. (The)......... 191,250 9,550,547
Tiffany & Co................... 66,000 4,455,000
------------
14,005,547
------------
SPECIALIZED SERVICES (2.0%)
Interpublic Group of Cos., Inc.
(The)......................... 188,600 8,109,800
Omnicom Group Inc.............. 26,000 2,315,625
------------
10,425,425
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 464
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--LONG DISTANCE (2.9%)
Sprint Corp. (FON Group)....... 165,000 $ 8,415,000
Vodafone Airtouch PLC ADR
(b)........................... 155,000 6,422,813
------------
14,837,813
------------
TELEPHONE (8.8%)
Bell Atlantic Corp. ........... 188,000 9,552,750
BellSouth Corp................. 220,000 9,377,500
SBC Communications Inc......... 220,000 9,515,000
U S West, Inc.................. 200,000 17,150,000
------------
45,595,250
------------
Total Common Stocks
(Cost $432,905,774)........... 512,645,956
------------
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT (1.3%)
State Street Bank and Trust
Company, 6.50%, due 7/3/00,
with a maturity value of
$7,046,815
(Collateralized by $5,740,000
U.S. Treasury Note, 8.125%,
due 8/15/21, market
value--$7,189,350)............ $7,043,000 7,043,000
------------
Total Short-Term Investment
(Cost $7,043,000)............. 7,043,000
------------
Total Investments
(Cost $439,948,774) (c)....... 100.2% 519,688,956(d)
Liabilities in Excess of Cash,
and Other Assets.............. (0.2) (1,129,099)
----- ------------
Net Assets..................... 100.0% $518,559,857
===== ============
</TABLE>
-------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for federal income tax purposes is $440,088,592.
(d) At June 30, 2000, net unrealized appreciation was $79,600,364, 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 $96,999,911 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $17,399,547.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 465
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$439,948,774)............................................. $519,688,956
Cash........................................................ 595
Receivables:
Investment securities sold................................ 8,839,922
Fund shares sold.......................................... 2,946,336
Dividends and interest.................................... 202,176
Unamortized organization expense............................ 39,463
------------
Total assets........................................ 531,717,448
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 11,676,206
MainStay Management....................................... 423,064
NYLIFE Distributors....................................... 349,154
Fund shares redeemed...................................... 304,625
Transfer agent............................................ 290,067
Custodian................................................. 16,358
Trustees.................................................. 2,648
Accrued expenses............................................ 95,469
------------
Total liabilities................................... 13,157,591
------------
Net assets.................................................. $518,559,857
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 62,888
Class B................................................... 222,535
Class C................................................... 9,715
Additional paid-in capital.................................. 412,810,989
Accumulated net investment loss............................. (2,897,219)
Accumulated net realized gain on investments................ 28,610,767
Net unrealized appreciation on investments.................. 79,740,182
------------
Net assets.................................................. $518,559,857
============
CLASS A
Net assets applicable to outstanding shares................. $111,733,289
============
Shares of beneficial interest outstanding................... 6,288,758
============
Net asset value per share outstanding....................... $ 17.77
Maximum sales charge (5.50% of offering price).............. 1.03
------------
Maximum offering price per share outstanding................ $ 18.80
============
CLASS B
Net assets applicable to outstanding shares................. $389,809,550
============
Shares of beneficial interest outstanding................... 22,253,500
============
Net asset value and offering price per share outstanding.... $ 17.52
============
CLASS C
Net assets applicable to outstanding shares................. $ 17,017,018
============
Shares of beneficial interest outstanding................... 971,462
============
Net asset value and offering price per share outstanding.... $ 17.52
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 466
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 1,520,498
Interest.................................................. 271,472
-----------
Total income............................................ 1,791,970
-----------
Expenses:
Management................................................ 2,065,531
Distribution--Class B..................................... 1,165,485
Distribution--Class C..................................... 44,706
Transfer agent............................................ 655,313
Service--Class A.......................................... 112,986
Service--Class B.......................................... 388,495
Service--Class C.......................................... 14,902
Registration.............................................. 52,028
Shareholder communication................................. 37,115
Recordkeeping............................................. 33,915
Professional.............................................. 23,299
Custodian................................................. 22,854
Amortization of organization expense...................... 6,738
Trustees.................................................. 5,474
Miscellaneous............................................. 60,348
-----------
Total expenses.......................................... 4,689,189
-----------
Net investment loss......................................... (2,897,219)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 27,887,794
Net change in unrealized appreciation on investments........ 5,553,468
-----------
Net realized and unrealized gain on investments............. 33,441,262
-----------
Net increase in net assets resulting from operations........ $30,544,043
===========
</TABLE>
-------
<TABLE>
<C> <S>
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $7,149.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 467
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (2,897,219) $ (2,426,634)
Net realized gain on investments.......................... 27,887,794 1,764,358
Net change in unrealized appreciation on investments...... 5,553,468 65,187,327
------------ ------------
Net increase in net assets resulting from operations...... 30,544,043 64,525,051
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 51,646,387 37,384,835
Class B................................................. 173,350,697 156,652,762
Class C................................................. 9,904,621 6,104,796
Cost of shares redeemed:
Class A................................................. (13,207,622) (5,530,974)
Class B................................................. (29,164,915) (20,500,753)
Class C................................................. (876,786) (230,860)
------------ ------------
Increase in net assets derived from capital share
transactions........................................ 191,652,382 173,879,806
------------ ------------
Net increase in net assets............................ 222,196,425 238,404,857
NET ASSETS:
Beginning of period......................................... 296,363,432 57,958,575
------------ ------------
End of period............................................... $518,559,857 $296,363,432
============ ============
Accumulated net investment loss at end of period............ $ (2,897,219) $ --
============ ============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 468
This page intentionally left blank
15
<PAGE> 469
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 16.50 $ 11.64 $ 10.00
-------- ------- -------
Net investment loss (a)..................................... (0.07) (0.13) (0.07)
Net realized and unrealized gain on investments............. 1.34 4.99 1.71
-------- ------- -------
Total from investment operations............................ 1.27 4.86 1.64
-------- ------- -------
Net asset value at end of period............................ $ 17.77 $ 16.50 $ 11.64
======== ======= =======
Total investment return (b)................................. 7.70% 41.75% 16.40%
Ratios (to average net assets)/
Supplemental Data:
Net investment loss..................................... (0.82%)++ (1.02%) (1.66%)++
Expenses................................................ 1.68%++ 1.76% 2.34%++
Portfolio turnover rate..................................... 29% 43% 21%
Net assets at end of period (in 000's)...................... $111,733 $66,326 $19,361
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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> 470
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- -----------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 16.33 $ 11.60 $ 10.00 $ 16.33 $11.60 $ 8.60
-------- -------- ------- ------- ------ ------
(0.13) (0.23) (0.10) (0.13) (0.23) (0.06)
1.32 4.96 1.70 1.32 4.96 3.06
-------- -------- ------- ------- ------ ------
1.19 4.73 1.60 1.19 4.73 3.00
-------- -------- ------- ------- ------ ------
$ 17.52 $ 16.33 $ 11.60 $ 17.52 $16.33 $11.60
======== ======== ======= ======= ====== ======
7.29% 40.78% 16.00% 7.29% 40.78% 34.88%
(1.57%)++ (1.77%) (2.41%)++ (1.57%)++ (1.77%) (2.41%)++
2.43%++ 2.51% 3.09%++ 2.43%++ 2.51% 3.09%++
29% 43% 21% 29% 43% 21%
$389,810 $222,904 $38,478 $17,017 $7,133 $ 120
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 471
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 (and certain other qualified purchases) 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
18
<PAGE> 472
Notes to Financial Statements unaudited
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 may 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
19
<PAGE> 473
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.
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 plans)
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 six months ended June 30, 2000, the Manager
earned $2,065,531.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and GAMCO, the Manager pays the Subadvisor a monthly fee at an annual rate of
0.50% on assets up to $500 million, and 0.40% on assets in excess of $500
million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has
20
<PAGE> 474
Notes to Financial Statements unaudited (continued)
adopted distribution plans (the "Plans") in accordance with the provisions of
Rule 12b-1 under the 1940 Act. Pursuant to the Class A Plan, the Distributor
receives a monthly fee from the Fund at an annual rate of 0.25% of the average
daily net assets of the Fund's Class A shares, which is an expense of the Class
A shares of the Fund for distribution or service activities as designated by the
Distributor. Pursuant to the Class B and Class C Plans, the Fund pays the
Distributor a monthly fee, which is an expense of the Class B and Class C shares
of the Fund, at the annual rate of 0.75% of the average daily net assets of the
Fund's Class B and Class C shares. The Distribution Plans provide 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 Plans provide 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 $24,533 for the six months ended
June 30, 2000. 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 $6,890, $175,916 and $4,423, respectively, for the six months ended
June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $655,313.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A with a net
asset value of $15,993,000 which represents 14.3% of the Class A net assets at
period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $3,472 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$33,915 for the six months ended June 30, 2000.
21
<PAGE> 475
MainStay Blue Chip Growth Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $344,621 of capital loss carryforwards during the prior year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were $309,108 and $117,159, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................... 3,049 10,342 587 2,768 11,864 444
----- ------ --- ----- ------ ---
Shares redeemed............................... (780) (1,741) (53) (411) (1,528) (17)
----- ------ --- ----- ------ ---
Net increase.................................. 2,269 8,601 534 2,357 10,336 427
===== ====== === ===== ====== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
22
<PAGE> 476
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 477
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLife Distributors Inc. All rights reserved. MSBC11-08/00.
[MAINSTAY FUNDS LOGO]
MainStay(R)
Blue Chip Growth Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 478
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 479
This page intentionally left blank
2
<PAGE> 480
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 481
$10,000 Invested in MainStay Equity
Income Fund versus Lipper Equity Income
Fund Index, Russell 1000 Value Index,
and Inflation
CLASS A SHARES Total Returns: 1 Year -2.03%, Since Inception 13.33%
[LINE GRAPH]
<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 10000 10000 10000
6/98 9478 10081 10128 10006
9/98 9057 9081 8955 10043
12/98 9829 10282 10442 10098
3/99 10528 10292 10591 10135
6/99 12520 11211 11786 10209
9/99 11844 10295 10631 10313
12/99 12296 10713 11208 10368
3/00 12717 10626 11262 10516
6/00 12980 10474 10734 10583
</TABLE>
CLASS B SHARES Total Returns: 1 Year -2.19%, Since Inception 14.31%
[LINE GRAPH]
<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 10000 10000 10000
6/98 10030 10081 10128 10006
9/98 9558 9081 8955 10043
12/98 10356 10282 10442 10098
3/99 11076 10292 10591 10135
6/99 13146 11211 11786 10209
9/99 12406 10295 10631 10313
12/99 12857 10713 11208 10368
3/00 13266 10626 11262 10516
6/00 13216 10474 10734 10583
</TABLE>
CLASS C SHARES Total Returns: 1 Year 1.81%, Since Inception 15.55%
[LINE GRAPH]
<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 10000 10000 10000
6/98 10030 10081 10128 10006
9/98 9558 9081 8955 10043
12/98 10356 10282 10442 10098
3/99 11076 10292 10591 10135
6/99 13146 11211 11786 10209
9/99 12406 10295 10631 10313
12/99 12857 10713 11208 10368
3/00 13266 10626 11262 10516
6/00 13516 10474 10734 10583
</TABLE>
4
<PAGE> 482
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* 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. You
cannot invest directly in 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. You cannot invest directly in 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> 483
Portfolio Management Discussion and Analysis
During the first half of 2000, the trends driving the United States equity
markets proved transitory and some leading equity indices, including the S&P 500
Index(1) and NASDAQ Composite Index,(2) posted negative total returns. For the
majority of the first quarter, the technology, media, and telecommunications
sectors appeared to be clear leaders. From January through early March, the
NASDAQ continued to climb, but the trend was truncated when investor concerns
over high valuations and Microsoft's antitrust decision sent "new economy"
issues into a relatively steep decline. During this downturn, reasonably valued
"old economy" stocks came to the forefront as market leaders. Generally
speaking, these more stable sectors benefited from positive earnings revisions
in an extremely strong worldwide economy.
June proved more challenging for "old economy" stocks, as a series of Federal
Reserve tightening moves finally showed signs of slowing economic growth. In
June, the NASDAQ rebounded sharply from its earlier lows.
PERFORMANCE REVIEW
During the six months ended June 30, 2000, MainStay Equity Income Fund returned
5.56% for Class A shares and 5.13% for Class B and Class C shares, excluding all
sales charges. All share classes outperformed the -1.91% return of the average
Lipper(3) equity income fund, the -4.23% return of the Russell 1000 Value
Index(4) and the -0.42% return of the S&P 500 Index over the same period.
POSITIVE CONTRIBUTIONS
During the reporting period, the Fund continued to favor companies participating
in the energy business. Ongoing OPEC production restraint, natural depletion in
U.S. natural gas, and strong demand for refined products in an expanding global
economy have created a particularly favorable environment for energy companies.
In choosing stocks to exploit these fundamentals, we have sought companies
enjoying high operating leverage, high dividend yields, and historically low
valuations. Despite the strong performance of energy stocks through the end of
June, we continue to have a favorable outlook for this sector.
The Fund's petroleum refining holdings were the top contributors to performance
in the first half of 2000, as the sector continued to benefit from low
refined-product inventories, a dearth of new capacity, and growing economies
around the world. Valero Energy (+60.8%), Sunoco (+27.6%), and Tosco (+4.6%) all
contributed positively to the Fund's performance during the reporting period.(5)
We continue to project very strong quarterly earnings comparisons, which should
galvanize investors' interest in this previously moribund sector.
-------
(1) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the large-cap U.S. stock market. Total returns reflect the reinvestment of
all dividends and capital gains. You cannot invest directly in an 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. You cannot invest directly in an index.
(3) See footnote and table on page 9 for more information about Lipper Inc.
(4) See footnote on page 5 for more information about the Russell 1000 Value
Index.
(5) Returns reflect performance for the six-month period ended 6/30/00.
6
<PAGE> 484
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
<TABLE>
<CAPTION>
12/98 12/99 6/00
----- ----- ----
<S> <C> <C> <C>
Class A 4.01% 25.11% 5.56%
Class B & Class C 3.56 24.16 5.13
</TABLE>
Past performance is no guarantee of future results. Class C shares returns
reflect the historical performance of the Class B shares through 8/98. See
footnote * on page 9 for more information on performance.
During the first half of 2000, Dynegy, which acquired Fund holding Illinova in
an all-stock transaction last year, continued its excellent performance. Dynegy
benefited from evidence of the earnings power of its unique U.S. energy
marketing assets. The stock, which rose 94.5% during the first half, was the
Fund's largest single contributor to performance during the period. Despite the
company's positive outlook, we have reduced the Fund's position consistent with
our investment disciplines and are pursuing other opportunities.
Oil and natural gas exploration and production companies also made a positive
contribution to Fund performance during the first six months of 2000. In
selecting stocks in this sector, we sought issues with an ability to leverage
improving commodity prices. Union Pacific Resources (+73.7%) accepted an all-
stock offer from industry leader Anadarko Petroleum. We continue to hold the
shares, as we believe the company is well positioned in the dynamic U.S. natural
gas business.
MARKET CHALLENGES
Several basic-industry companies faced a more challenging environment during the
first half of 2000. Copper producer Phelps Dodge was plagued by two consecutive
earnings shortfalls and the stock depreciated by 43.8%, with a negative impact
on Fund performance. Since the company's management appears to be well on the
way to correcting operational issues and we are optimistic about supply/demand
dynamics in the copper market, we have maintained the Fund's position. We
believe the stock has excellent valuation support and that its current 5%
dividend appears secure.
Georgia Pacific, down 48% in the first half, also detracted from the Fund's
returns. The stock was badly hurt in a sell-off response to the slowing economy.
7
<PAGE> 485
While a softer housing market may impact the company's building-products
division and capacity issues may affect the paper market, we view the company as
undervalued, we like its secure dividend, and we have retained a small position
for the Fund.
In the capital goods sector, Caterpillar was down 27% for the first half of the
year. The company has been plagued by a series of earnings misses and negative
sentiment toward economically sensitive issues. We continue to own a modest
position in Caterpillar, based on its depressed valuation, current 3.8%
dividend, and improvements in many of the company's end markets--including
energy, power generation, and infrastructure.
Finally, in the technology sector, Unisys was down 54% during the first six
months of the year. We purchased Unisys during the second quarter of 2000, when
the company's stock had dropped sharply after reporting reduced earnings
guidance. We felt that Unisys was addressing its problems, would show
improvement in its fledgling services business in the second half of 2000, and
would enjoy excellent asset value support. A recent company announcement cast
the first two beliefs into question. While the Fund continues to hold a small
position in Unisys, at the close of the reporting period, we were actively
reevaluating the stock.
LOOKING AHEAD
Going forward, we will continue to seek opportunities in market sectors that we
believe offer a combination of improving fundamentals, high current dividend
yields, strong valuation support, and meaningful discounts to private-market
values. In short, we seek situations where there are "many possible ways to
win." At the same time, we try to identify low-expectation stocks to minimize
downside risk in defensive markets.
Generally, the Fund's sector allocations are similar to those at year-end 1999,
with the exception of certain financial sectors, where we increased exposure
from 2% to approximately 11% as of June 30, 2000. As financial stocks corrected
in tandem with Federal Reserve tightening, we felt that they had reached a level
where they fit our strict value discipline. Many of these stocks have excellent
valuation support, high dividend yields, and may enjoy strong performance as the
Federal Reserve's tightening cycle begins to wind down.
Whatever 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> 486
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 3.67% 16.44%
Class B 2.81% 15.55%
Class C 2.81% 15.55%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A -2.03% 13.33%
Class B -2.19% 14.31%
Class C 1.81% 15.55%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 27 out of 216 funds 5 out of 199 funds
Class B 32 out of 216 funds 7 out of 199 funds
Class C 32 out of 216 funds 7 out of 205 funds
Average Lipper
equity income fund -6.71% 1.63%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $12.36 $0.1056 $0.0000
Class B $12.32 $0.0634 $0.0000
Class C $12.32 $0.0634 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions. Performance
figures reflect certain fee waivers and/or expense limitations, without which
total return figures may have been lower. Fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class B
shares are subject to a CDSC of up to 5% if shares are redeemed within the
first six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
(+) 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. Class A and Class B shares were first offered to the
public on 6/1/98, and Class C shares on 9/1/98. Since-inception return for
the average Lipper peer fund is for the period from 6/1/98 through
6/30/00.
9
<PAGE> 487
MainStay Equity Income Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (88.4%)+
BANKS (5.3%)
Chase Manhattan Corp. (The)...... 31,650 $ 1,457,878
FleetBoston Financial Corp. ..... 27,400 931,600
Washington Mutual, Inc. ......... 27,000 779,625
-----------
3,169,103
-----------
CHEMICALS (11.9%)
Air Products and Chemicals,
Inc. ........................... 91,000 2,803,938
Arch Chemicals, Inc. ............ 22,500 492,187
Crompton Corp. .................. 70,000 857,500
Cytec Industries Inc. (a)........ 34,800 859,125
Eastman Chemical Co. ............ 14,500 692,375
Geon Co. (The)................... 12,000 222,000
Solutia Inc. .................... 85,400 1,174,250
-----------
7,101,375
-----------
COMPUTER SYSTEMS (0.7%)
Unisys Corp. (a)................. 27,000 393,187
-----------
CONSUMER PRODUCTS (0.3%)
Energizer Holdings, Inc. (a)..... 8,333 152,077
-----------
ELECTRIC POWER COMPANIES (11.2%)
Allegheny Energy, Inc. .......... 14,000 383,250
Cinergy Corp. ................... 27,600 702,075
CMS Energy Corp. ................ 27,000 597,375
DTE Energy Co. .................. 29,200 892,425
Energy East Corp. ............... 56,200 1,071,313
Niagara Mohawk Holdings, Inc.
(a)............................. 45,000 627,188
PECO Energy Co. ................. 21,000 846,562
Western Resources, Inc. ......... 100,000 1,550,000
-----------
6,670,188
-----------
ENGINEERING & CONSTRUCTION (1.4%)
Fluor Corp. ..................... 27,300 863,363
-----------
FINANCE (3.3%)
American General Corp. .......... 20,500 1,250,500
ASA Ltd. ........................ 20,000 322,500
Citigroup Inc. .................. 7,100 427,775
-----------
2,000,775
-----------
FOOD (2.4%)
ConAgra, Inc. ................... 25,000 476,562
Heinz (H. J.) Co. ............... 10,000 437,500
Ralston Purina Co. .............. 25,000 498,438
-----------
1,412,500
-----------
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
HEALTH CARE--MEDICAL PRODUCTS (1.1%)
Becton, Dickinson & Co. ......... 23,000 $ 659,812
-----------
HEAVY DUTY TRUCKS (0.5%)
Navistar International Corp.
(a)............................. 10,100 313,731
-----------
INSURANCE (2.5%)
Allstate Corp. (The)............. 9,800 218,050
MCIG Investment Corp. ........... 28,300 1,287,650
-----------
1,505,700
-----------
LEISURE TIME (0.8%)
Callaway Golf Co. ............... 28,500 464,906
-----------
MACHINERY (1.1%)
Caterpillar Inc. ................ 20,100 680,887
-----------
MANUFACTURING (4.4%)
AGCO Corp. ...................... 44,000 539,000
Honeywell International Inc. .... 42,000 1,414,875
Minnesota Mining & Manufacturing
Co. ............................ 8,000 660,000
-----------
2,613,875
-----------
METALS (1.8%)
Phelps Dodge Corp. .............. 29,100 1,082,156
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (3.5%)
Columbia Energy Group............ 10,600 695,625
Dynegy Inc. Class A.............. 20,600 1,407,238
-----------
2,102,863
-----------
OFFICE EQUIPMENT & SUPPLIES (2.5%)
Pitney Bowes Inc. ............... 36,600 1,464,000
-----------
OIL & GAS SERVICES (9.3%)
Burlington Resources Inc. ....... 20,000 765,000
Union Pacific Resources Group
Inc. ........................... 67,100 1,476,200
Unocal Corp. .................... 53,000 1,755,625
Valero Energy Corp. ............. 49,600 1,574,800
-----------
5,571,625
-----------
OIL--INTEGRATED DOMESTIC (12.9%)
Conoco Inc. Class B.............. 51,700 1,269,881
Kerr-McGee Corp. ................ 10,600 624,738
Sunoco, Inc. .................... 89,000 2,619,937
Tosco Corp. ..................... 66,600 1,885,613
USX-Marathon Group............... 51,600 1,293,225
-----------
7,693,394
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 488
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL--INTEGRATED INTERNATIONAL (4.3%)
ENI Spa PLC ADR (b).............. 14,000 $ 814,625
Texaco Inc. ..................... 32,500 1,730,625
-----------
2,545,250
-----------
PAPER & FOREST PRODUCTS (1.1%)
Georgia-Pacific Corp. ........... 24,700 648,375
-----------
PHOTOGRAPHY/IMAGING (2.0%)
Eastman Kodak Co. ............... 20,400 1,213,800
-----------
RAILROADS (0.6%)
Burlington Northern Santa Fe
Corp. .......................... 16,600 380,763
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (3.0%)
Developers Diversified Realty
Corp. .......................... 20,000 298,750
Health Care Property Investors,
Inc. ........................... 15,500 422,375
Healthcare Realty Trust Inc. .... 22,500 383,906
Highwoods Properties, Inc. ...... 13,800 331,200
Nationwide Health Properties,
Inc. ........................... 23,400 326,138
-----------
1,762,369
-----------
RETAIL (0.5%)
Payless ShoeSource, Inc. (a)..... 6,000 313,125
-----------
Total Common Stocks (Cost
$52,063,706).................... 52,779,199
-----------
PREFERRED STOCKS (1.0%)
PAPER & FOREST PRODUCTS (0.4%)
International Paper Co.
5.25%........................... 6,000 225,750
-----------
REAL ESTATE INVESTMENT/MANAGEMENT (0.6%)
General Growth Properties, Inc.
7.25%, 7/15/08 (c).............. 16,000 348,000
-----------
Total Preferred Stocks
(Cost $686,500)................. 573,750
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (11.8%)
COMMERCIAL PAPER (11.8%)
American Express Credit Corp.
6.88%, due 7/3/00............... $1,965,000 $ 1,964,249
General Electric Capital Corp.
6.52%, due 7/12/00.............. 1,125,000 1,122,751
Goldman Sachs Group Inc. (The)
6.92%, due 7/5/00............... 2,000,000 1,998,462
Prudential Funding Corp.
6.54%, due 7/6/00............... 2,000,000 1,998,178
-----------
Total Short-Term Investments
(Cost $7,083,640)............... 7,083,640
-----------
Total Investments
(Cost $59,833,846) (d).......... 101.2% 60,436,589(e)
Liabilities in Excess of Cash,
and Other Assets................ (1.2) (706,192)
----- ----------
Net Assets....................... 100.0% $59,730,397
===== ===========
</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 $59,895,639.
(e) At June 30, 2000, net unrealized appreciation was $540,950, 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 $3,958,547 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,417,597.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 489
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$59,833,846).............................................. $60,436,589
Cash........................................................ 476
Receivables:
Investment securities sold................................ 4,745,000
Fund shares sold.......................................... 300,502
Dividends and interest.................................... 181,327
Unamortized organization expense............................ 39,415
-----------
Total assets........................................ 65,703,309
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 5,566,470
Transfer agent............................................ 42,226
MainStay Management....................................... 37,097
NYLIFE Distributors....................................... 35,210
Fund shares redeemed...................................... 16,706
Custodian................................................. 9,323
Trustees.................................................. 408
Accrued expenses............................................ 32,473
Dividend payable............................................ 232,999
-----------
Total liabilities................................... 5,972,912
-----------
Net assets.................................................. $59,730,397
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 19,132
Class B................................................... 27,781
Class C................................................... 1,519
Additional paid-in capital.................................. 55,887,420
Accumulated distribution in excess of net investment
income.................................................... (21,428)
Accumulated undistributed net realized gain on
investments............................................... 3,213,230
Net unrealized appreciation on investments.................. 602,743
-----------
Net assets.................................................. $59,730,397
===========
CLASS A
Net assets applicable to outstanding shares................. $23,637,977
===========
Shares of beneficial interest outstanding................... 1,913,164
===========
Net asset value per share outstanding....................... $ 12.36
Maximum sales charge (5.50% of offering price).............. 0.72
-----------
Maximum offering price per share outstanding................ $ 13.08
===========
CLASS B
Net assets applicable to outstanding shares................. $34,221,720
===========
Shares of beneficial interest outstanding................... 2,778,111
===========
Net asset value and offering price per share outstanding.... $ 12.32
===========
CLASS C
Net assets applicable to outstanding shares................. $ 1,870,700
===========
Shares of beneficial interest outstanding................... 151,861
===========
Net asset value and offering price per share outstanding.... $ 12.32
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 490
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 754,369
Interest.................................................. 132,614
----------
Total income............................................ 886,983
----------
Expenses:
Management................................................ 181,454
Distribution--Class B..................................... 111,001
Distribution--Class C..................................... 4,662
Transfer agent............................................ 102,592
Service--Class A.......................................... 26,251
Service--Class B.......................................... 37,000
Service--Class C.......................................... 1,554
Registration.............................................. 15,309
Custodian................................................. 11,197
Recordkeeping............................................. 10,299
Professional.............................................. 9,995
Shareholder communication................................. 7,739
Amortization of organization expense...................... 6,727
Trustees.................................................. 710
Miscellaneous............................................. 11,504
----------
Total expenses.......................................... 537,994
----------
Net investment income....................................... 348,989
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................ 2,386,918
Net change in unrealized appreciation on investments........ (187,969)
----------
Net realized and unrealized gain on investments............. 2,198,949
----------
Net increase in net assets resulting from operations........ $2,547,938
==========
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $6,323.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 491
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 348,989 $ 429,842
Net realized gain on investments.......................... 2,386,918 2,946,162
Net change in unrealized appreciation on investments...... (187,969) 795,505
----------- -----------
Net increase in net assets resulting from operations...... 2,547,938 4,171,509
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. (193,865) (269,644)
Class B................................................. (168,067) (171,600)
Class C................................................. (8,485) (3,987)
From net realized gain on investments:
Class A................................................. -- (1,093,105)
Class B................................................. -- (1,397,249)
Class C................................................. -- (50,299)
----------- -----------
Total dividends and distributions to shareholders..... (370,417) (2,985,884)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 5,942,162 7,269,510
Class B................................................. 14,164,169 23,104,511
Class C................................................. 1,071,508 1,014,522
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A................................................. 31,167 1,141,978
Class B................................................. 54,122 1,489,350
Class C................................................. 2,255 49,257
----------- -----------
21,265,383 34,069,128
Cost of shares redeemed:
Class A................................................. (1,945,445) (1,266,462)
Class B................................................. (5,094,321) (4,859,157)
Class C................................................. (64,024) (194,090)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 14,161,593 27,749,419
----------- -----------
Net increase in net assets............................ 16,339,114 28,935,044
NET ASSETS:
Beginning of period......................................... 43,391,283 14,456,239
----------- -----------
End of period............................................... $59,730,397 $43,391,283
=========== ===========
Accumulated distribution in excess of net investment income
at end of period.......................................... $ (21,428) $ --
=========== ===========
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 492
This page intentionally left blank
15
<PAGE> 493
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 11.81 $ 10.25 $ 10.00
------- ------- -------
Net investment income....................................... 0.10 0.22 0.07
Net realized and unrealized gain on investments............. 0.56 2.30 0.32
------- ------- -------
Total from investment operations............................ 0.66 2.52 0.39
------- ------- -------
Less dividends and distributions:
From net investment income.................................. (0.11) (0.22) (0.07)
From net realized gain on investments....................... -- (0.74) (0.07)
------- ------- -------
Total dividends and distributions........................... (0.11) (0.96) (0.14)
------- ------- -------
Net asset value at end of period............................ $ 12.36 $ 11.81 $ 10.25
======= ======= =======
Total investment return (a)................................. 5.56% 25.11% 4.01%
Ratios (to average net assets)
Supplemental Data:
Net investment income................................... 1.79%++ 1.94% 1.20%++
Net expenses............................................ 1.63%++ 1.65% 3.11%++
Expenses (before reimbursement)......................... 1.63%++ 1.82% 3.11%++
Portfolio turnover rate..................................... 58% 193% 270%
Net assets at end of period (in 000's)...................... $23,638 $18,764 $10,290
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is
not annualized.
(b) Less than one thousand.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 494
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- -----------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.78 $ 10.24 $ 10.00 $ 11.78 $ 10.24 $ 9.06
------- ------- ------- ------- ------- -------
0.06 0.15 0.04 0.06 0.15 0.04
0.54 2.28 0.31 0.54 2.28 1.25
------- ------- ------- ------- ------- -------
0.60 2.43 0.35 0.60 2.43 1.29
------- ------- ------- ------- ------- -------
(0.06) (0.15) (0.04) (0.06) (0.15) (0.04)
-- (0.74) (0.07) -- (0.74) (0.07)
------- ------- ------- ------- ------- -------
(0.06) (0.89) (0.11) (0.06) (0.89) (0.11)
------- ------- ------- ------- ------- -------
$ 12.32 $ 11.78 $ 10.24 $ 12.32 $ 11.78 $ 10.24
======= ======= ======= ======= ======= =======
5.13% 24.16% 3.56% 5.13% 24.16% 14.30%
1.04%++ 1.19% 0.45%++ 1.04%++ 1.19% 0.45%++
2.38%++ 2.40% 3.86%++ 2.38%++ 2.40% 3.86%++
2.38%++ 2.57% 3.86%++ 2.38%++ 2.57% 3.86%++
58% 193% 270% 58% 193% 270%
$34,222 $23,803 $ 4,166 $ 1,870 $ 824 $ --(b)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 495
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 (and certain other qualified purchases) 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 exchange, including the National Association of
Securities Dealers National Market System, (c) by
18
<PAGE> 496
Notes to Financial Statements unaudited
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 may 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
19
<PAGE> 497
MainStay Equity Income Fund
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.
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 plans)
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 six months ended June
30, 2000, the Manager earned $181,454. 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.
20
<PAGE> 498
Notes to Financial Statements unaudited (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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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 $3,235 for the six months ended
June 30, 2000. 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 $3,305, $33,781 and $221, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $102,592.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A with a net
asset value of $11,945,619, which represents 50.5% of the Class A net assets at
period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $463 for the six months ended
June 30, 2000.
21
<PAGE> 499
MainStay Equity Income Fund
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$10,299 for the six months ended June 30, 2000.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $38,311 and $27,341, 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 six months ended June 30, 2000.
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 487 1,190 87 598 1,887 82
Shares issued in reinvestment of dividends
and distributions......................... 3 5 --(a) 101 132 4
---- ----- -- ---- ----- ---
490 1,195 87 699 2,019 86
Shares redeemed............................. (165) (437) (5) (115) (406) (16)
---- ----- -- ---- ----- ---
Net increase................................ 325 758 82 584 1,613 70
==== ===== == ==== ===== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand.
</TABLE>
22
<PAGE> 500
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 501
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS 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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSEN11-08/00
[RECYCLE LOGO]
[THE MAINSTAY FUNDS(R) LOGO]
MainStay(R)
Equity Income Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 502
Table of Contents
<TABLE>
<S> <C>
President's Letter 2
$10,000 Invested in MainStay Global High
Yield Fund versus J.P. Morgan Emerging
Markets Bond Index and J.P. Morgan EMBI
Global Constrained Composite--Class A, Class
B, and Class C Shares 3
Portfolio Management Discussion and Analysis 5
Year-by-Year and Six-Month Performance 6
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 26
</TABLE>
<PAGE> 503
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
2
<PAGE> 504
$10,000 Invested in MainStay Global High Yield Fund versus J.P. Morgan Emerging
Markets Bond Index and J.P. Morgan EMBI Global Constrained Composite
CLASS A SHARES Total Returns: 1 Year 13.25%, Since Inception -0.02%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL HIGH J.P. MORGAN EMERGING J.P. MORGAN EMBI GLOBAL
PERIOD END YIELD FUND MARKETS BOND INDEX* CONSTRAINED COMPOSITE+
---------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
6/1/98 $ 9,550 $ 10,000 $ 10,000
6/98 9,273 9,711 9,757
9/98 7,066 7,649 7,930
12/98 7,986 8,408 8,929
3/99 8,250 8,834 9,356
6/99 8,429 9,297 9,660
9/99 8,597 9,409 9,771
12/99 9,435 10,593 10,675
3/00 10,043 11,400 11,225
6/00 9,996 11,450 11,245
</TABLE>
CLASS B SHARES Total Returns: 1 Year 12.46%, Since Inception -0.06%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL HIGH J.P. MORGAN EMERGING J.P. MORGAN EMBI GLOBAL
PERIOD END YIELD FUND MARKETS BOND INDEX* CONSTRAINED COMPOSITE+
---------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 9,700 9,711 9,757
9/98 7,369 7,649 7,930
12/98 8,318 8,408 8,929
3/99 8,588 8,834 9,356
6/99 8,759 9,297 9,660
9/99 8,884 9,409 9,771
12/99 9,733 10,593 10,675
3/00 10,345 11,400 11,225
6/00 9,988 11,450 11,245
</TABLE>
CLASS C SHARES Total Returns: 1 Year 16.46%, Since Inception 1.37%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY GLOBAL HIGH J.P. MORGAN EMERGING J.P. MORGAN EMBI GLOBAL
PERIOD END YIELD FUND MARKETS BOND INDEX* CONSTRAINED COMPOSITE+
---------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 9,700 9,711 9,757
9/98 7,639 7,649 7,930
12/98 8,318 8,408 8,929
3/99 8,588 8,834 9,356
6/99 8,759 9,297 9,660
9/99 8,884 9,409 9,771
12/99 9,733 10,593 10,675
3/00 10,345 11,400 11,225
6/00 10,288 11,450 11,245
</TABLE>
3
<PAGE> 505
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 4.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* 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. You cannot invest directly
in an index.
+ The MainStay Global High Yield Fund, going forward, will measure its
performance against the J.P. Morgan EMBI Global Constrained Composite. This
index reflects the holdings of the Fund better than the J.P. Morgan
Emerging Markets Bond Index (EMBI), and the subadvisor believes that the
J.P. Morgan EMBI Global Constrained Composite is, therefore, a better
performance benchmark. The J.P. Morgan EMBI Global Constrained Composite is
a uniquely-weighted version of the EMBI. It limits the weights of those
index countries with larger debt stocks by only including specified
portions of these countries' eligible current face amounts of debt
outstanding. You cannot invest directly in an index.
4
<PAGE> 506
Portfolio Management Discussion and Analysis
During the first six months of 2000, several factors affected the market for
global high-yield bonds. The first was foreign direct investment, which helped
stimulate the economies of Mexico, Brazil, Argentina, Malaysia, and several
other nations--creating jobs, providing better municipal services, and opening
opportunities for higher tax revenues.
A second factor was economic strength, which continued to increase in many
emerging nations. Asia expects growth between 3% and 4%, and Latin America
should grow about 3% for the remainder of the year. Brazil is keeping inflation
in check while slowly stimulating its economy. Working with the International
Monetary Fund, Turkey has agreed to reduce domestic grain subsidies and allow
certain assets to be privatized.
Commodity prices are a third force shaping the global markets. Oil, natural gas,
and certain metals have been strong enough to help Russia, Venezuela, and
Algeria. With many countries forecasting oil revenue based on a price of $16 to
$19 a barrel, recent prices of about $30 a barrel represent substantial
windfalls. Attractive yield spreads have drawn many investors to the global bond
markets, particularly as spreads have widened to exorbitant levels. Finally, the
global advance of telecommunications and media companies has opened the door for
substantial investment opportunities.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Global High Yield Fund returned
5.94% for Class A shares and 5.70% for Class B and Class C shares, excluding all
sales charges. All share classes underperformed the 6.45% return of the average
Lipper(1) emerging market debt fund and the 8.10% return of J.P. Morgan EMBI
Index(2) over the same period. All shares classes outperformed the 4.45% return
of the J.P. Morgan EMBI Global Constrained Composite,(3) against which the Fund
will measure its performance going forward.
Three different sources contributed to the Fund's underperformance relative to
its peers. The first was the Fund's underweighted position in Brady bonds. Brady
bonds are restructured bank loans, typically with principal backed by U.S.
Treasury securities. Secondly, we did not hold onto Russian bonds when Russia
decided to restructure its debt. Although we have been adding Russian bonds to
the Fund slowly since the end of last year, we missed the beginning of the
rally. Finally, our corporate bond holdings, approximately 20% of the Fund,
lagged sovereign debt in the rally. These bonds, however, tend to do well after
government securities start to trade sideways. Over time we believe the
corporate bonds in the Fund will contribute positively to performance.
--------------
(1) See footnote and table on page 9 for more information about Lipper Inc.
(2) See footnote on page 4 for more information about the J.P. Morgan EMBI
Index.
(3) See footnote on page 4 for more information about the J.P. Morgan EMBI
Global Constrained Composite.
5
<PAGE> 507
[BAR CHART]
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
----------- ---------------
<S> <C>
12/98 -16.38 Class A
12/99 18.15 Class A
6/00 5.94 Class A
12/98 -16.82 Class B and Class C
12/99 17.01 Class B and Class C
6/00 5.70 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 through 8/98. See
footnote * on page 9 for more information on performance.
TOP-PERFORMING COUNTRIES
During the first half of 2000, Russia and Venezuela were the best-performing
markets in which the Fund invested. Both benefited from higher oil prices and
attractive yield spreads. Venezuela has continued to repurchase debt, regardless
of whether oil is selling at $30 a barrel or $10 a barrel, providing an
economically stable and relatively reliable environment in which to invest.
Recent spread tightening in Venezuelan bonds has helped the Fund's returns. We
currently believe Russian bonds are trading at aggressively wide spreads, even
in light of recent difficulties in that country, and Russian bonds contributed
positively to the Fund's performance during the semiannual reporting period.
Algerian bonds, although somewhat more exotic than Russian or Venezuelan issues,
are also benefiting from higher oil prices and we continue to believe the Fund's
Algerian holdings have promise for the second half of 2000.
STRATEGIC INVESTING
Political elections often provide investment opportunities for the Fund.
Elections often stimulate additional market volatility, which may result in
wider yield spreads. The Fund seeks to purchase bonds inexpensively when spreads
widen to unreasonable levels. After the elections, spreads generally tighten to
more typical levels. The Fund has benefited from election-focused investing in
Peru and Russia, and we hope to use similar strategies in Mexico as their early
July elections approach. The possibility of an upset for the Institutional
Revolutionary Party (PRI) presents dynamics not seen in the last 71 years.
Unfortunately,
6
<PAGE> 508
spreads have not widened substantially to date, and the markets have remained
remarkably calm.
ASIAN INVESTMENTS
During the six months ended June 30, 2000, the Fund has had some exposure to
Asian markets, but we have not overweighted any Asian positions. The Fund has
been in and out of Korea a couple of times, but we maintained the Fund's
position in Malaysian Petronas bonds. Petronas is an oil/commodities holding
that we believed would benefit from economic improvements in Japan and Korea.
Although there are many factors to consider in international investing, we
believed Petronas bonds offered the Fund certain advantages over Malaysian
sovereign debt. For one thing, they carry little currency risk because much of
the company's balance sheet is in U.S. dollars. The bonds also allowed the Fund
to spread itself across different portions of the yield curve. The prospects for
Petronas, which produces and exports oil to the Asian region, improved as oil
prices started to rise. The bonds have been a positive contributor to the Fund's
performance.
OTHER CORPORATE HOLDINGS
Among the most significant of the Fund's corporate holdings during the first
half of the year were telecommunications and media bonds. Consolidation and
integration in these sectors has been a global theme, and the Fund has
capitalized on it with Mexican investments in Telmex and Televisa. Although the
Televisa bonds were repurchased, shareholders profited from owning Telmex bonds.
Brazilian electrical bonds also helped the Fund's performance, as yield spreads
tightened in that market. Two companies, Copel and Cemig have provided strong
results for the Fund since we bought their bonds at very low prices during the
Brazilian setback in 1999. The Fund has also entered the PVC market with Trikem,
whose bonds we also purchased at depressed prices. Since then, the market has
been looking for strong credits with high yields, and investors have driven
prices on these securities steadily higher.
LOOKING AHEAD
We anticipate that the United States' Federal Reserve will slow its tightening
during the second half of 2000, and we intend to extend the Fund's duration as
that occurs. If spreads tighten, as we believe they will, the Fund should be
well positioned.
Emerging market debt has stronger appeal as bonds are becoming less dependent on
equities for their fate. Strong credits trading at substantial spreads to
sovereign debt will continue to attract our attention. No matter
7
<PAGE> 509
what the markets or global economy 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
Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available
information, and changes in tax or currency laws or monetary policy. These risks
are likely to be greater for emerging markets than in developed markets.
High-yield securities ("junk bonds") are generally considered speculative
because they present a greater risk of loss than higher-quality debt securities
and may be subject to greater price volatility. The Fund may invest in
derivatives, which may increase the volatility of the Fund's net asset value and
may result in a loss to the Fund.
TARGETED DIVIDEND POLICY
The MainStay Global High Yield Fund seeks to maintain a fixed dividend, with
changes made only on an infrequent basis. In May 2000, the Fund increased
its dividend to reflect a higher level of current earnings within the Fund.
The increase did not materially impact 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 by its targeted dividend policy.
Past performance is no guarantee of future results.
8
<PAGE> 510
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 18.58% 2.21%
Class B 17.46% 1.37%
Class C 17.46% 1.37%
</TABLE>
FUND RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 13.25% -0.02%
Class B 12.46% -0.06%
Class C 16.46% 1.37%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 33 out of 25 out of
47 funds 44 funds
Class B 36 out of 28 out of
47 funds 44 funds
Class C 36 out of 36 out of
47 funds 45 funds
Average Lipper emerging
markets debt fund 20.74% 2.45%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $8.72 $0.3606 $0.0000
Class B $8.69 $0.3290 $0.0000
Class C $8.69 $0.3290 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions. Performance
figures reflect certain fee waivers and/or expense limitations, without which
total return figures may have been lower. Fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 4.5%. Class B
shares are subject to a CDSC of up to 5% if shares are redeemed within the
first six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
+ 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. Class A and Class B shares were first offered to the public
on 6/1/98, and Class C shares on 9/1/98. Since-inception return for the
average Lipper peer fund is for the period from 6/1/98 through 6/30/00.
9
<PAGE> 511
MainStay Global High Yield Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
LONG-TERM BONDS (96.4%)+
BRADY BONDS (24.2%)
ARGENTINA (2.2%)
Republic of Argentina
Series FRB
6.8125%, due 3/31/05 (a)....... $ 320,000 $ 292,000
-----------
BRAZIL (10.8%)
Republic of Brazil
Series RG
6.9375%, due 4/15/06 (a)....... 623,100 568,968
Series 20 year
8.00%, due 4/15/14 (b)(c)...... 1,182,154 869,622
-----------
1,438,590
-----------
BULGARIA (4.2%)
Republic of Bulgaria
Series A
6.50%, due 7/28/24 (a)......... 700,000 553,000
-----------
PERU (3.4%)
Republic of Peru
Series 20 year
3.75%, due 3/7/17 (d).......... 750,000 456,562
-----------
POLAND (1.4%)
Republic of Poland
Series PDIB
6.00%, due 10/27/14
7.00%, beginning 10/27/02...... 200,000 178,500
-----------
VENEZUELA (2.2%)
Republic of Venezuela
Series DL
7.00%, due 12/18/07 (a)........ 357,143 290,625
-----------
Total Brady Bonds
(Cost $2,883,883).............. 3,209,277
-----------
CORPORATE BONDS (11.0%)
BERMUDA (0.6%)
GlobeNet Communications Group
Ltd.
13.00%, due 7/15/07 (e)........ 75,000 75,656
-----------
BRAZIL (4.4%)
Companhia Paranaense
de Energia Series REGS
9.75%, due 5/2/05.............. 200,000 198,000
Globo Communicacoes e
Participacoes S.A.
Series REGS
10.625%, due 12/5/08........... 124,000 104,160
Trikem S.A.
Series REGS
10.625%, due 7/24/07........... 200,000 149,000
-------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
* Investments are grouped by country of issuance.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
BRAZIL (CONTINUED)
Votorantim Celulose e Papel
Series REGS
8.50%, due 6/27/05............. $ 130,000 $ 128,050
-----------
579,210
-----------
INDONESIA (0.4%)
Indah Kiat Pulp & Paper Corp.
10.00%, due 7/1/07............. 88,000 53,680
-----------
MALAYSIA (2.1%)
Petroliam Nasional Berhad
Series REGS
7.125%, due 10/18/06........... 100,000 94,750
Series REGS
7.625%, due 10/15/26........... 100,000 86,000
8.875%, due 8/1/04 (e)......... 100,000 102,850
-----------
283,600
-----------
MEXICO (2.6%)
Grupo Iusacell S.A. de C.V.
Series REGS
14.25%, due 12/1/06............ 125,000 130,313
Maxcom Telecomunicacione
13.75%, due 4/1/07 (e)(f)...... 250 222,500
-----------
352,813
-----------
UNITED STATES (0.9%)
Freeport - McMoRan Copper &
Gold, Inc.
7.50%, due 11/15/06............ 100,000 66,000
Nextel International, Inc.
12.125%, due 4/15/08........... 75,000 48,750
-----------
114,750
-----------
Total Corporate Bonds
(Cost $1,466,937).............. 1,459,709
-----------
GOVERNMENTS & FEDERAL AGENCIES (50.3%)
ARGENTINA (11.8%)
Republic of Argentina
9.75%, due 9/19/27............. 705,000 545,053
11.75%, due 4/7/09............. 200,000 186,500
12.00%, due 2/1/20 (c)......... 900,000 837,000
-----------
1,568,553
-----------
BRAZIL (14.1%)
Republic of Brazil
10.125%, due 5/15/27........... 450,000 354,375
11.625%, due 4/15/04 (c)....... 1,045,000 1,056,756
12.25%, due 3/6/30............. 500,000 458,750
-----------
1,869,881
-----------
MEXICO (4.9%)
United Mexican States
9.875%, due 2/1/10............. 625,000 651,563
-----------
PANAMA (2.5%)
Republic of Panama
8.875%, due 9/30/27............ 400,000 336,000
-----------
QATAR (0.9%)
The State of Qatar
9.75%, due 6/15/30 (e)......... 125,000 122,813
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 512
Portfolio of Investments* June 30, 2000 unaudited
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL AGENCIES (CONTINUED)
RUSSIA (7.6%)
Russian Federation
Series REGS
12.75%, due 6/24/28............ $ 700,000 $ 602,000
City of St. Petersburg
Series REGS
9.50%, due 6/18/02............. 120,000 101,550
Vnesheconombank
Series 24 year
7.9375%, due 12/15/20.......... 1,000,000 306,250
-----------
1,009,800
-----------
TURKEY (3.6%)
Republic of Turkey
11.75%, due 6/15/10............ 150,000 153,375
11.875%, due 1/15/30........... 300,000 318,750
-----------
472,125
-----------
VENEZUELA (4.9%)
Republic of Venezuela
9.25%, due 9/15/27............. 987,000 650,186
-----------
Total Governments & Federal
Agencies
(Cost $6,619,776).............. 6,680,921
-----------
LOAN PARTICIPATIONS (2.9%)
ALGERIA (1.5%)
Algeria
6.8125%, due 9/4/06 (a)(g)..... 250,000 206,875
-----------
MOROCCO (1.4%)
Morocco, Tranche A
6.9375%, due 1/1/09 (a)(g)..... 200,000 179,500
-----------
Total Loan Participations
(Cost $360,141)................ 386,375
-----------
YANKEE BONDS (8.0%)
ARGENTINA (1.4%)
Cablevision S.A.
Series 5, Tranche 1
13.75%, due 5/1/09............. 100,000 91,500
Multicanal S.A.
Series E
13.125%, due 4/15/09........... 100,000 96,250
-----------
187,750
-----------
LUXEMBOURG (1.0%)
Millicom International Cellular
S.A.
(zero coupon), due 6/1/06
13.50%, beginning 6/1/01....... 150,000 127,500
-----------
MEXICO (4.8%)
Azteca Holdings S.A.
11.00%, due 6/15/02............ 150,000 145,312
Innova S. de R.L.
12.875%, due 4/1/07............ 200,000 184,500
Petroleos Mexicanos
Series P
9.50%, due 9/15/27............. 175,000 177,625
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<S> <C> <C>
MEXICO (CONTINUED)
TV Azteca S.A. de C.V.
Series B
10.50%, due 2/15/07............ $ 145,000 $ 130,138
-----------
637,575
-----------
TURKEY (0.8%)
Cellco Finance N.V.
15.00%, due 8/1/05 (e)......... 100,000 107,250
-----------
Total Yankee Bonds
(Cost $1,066,184).............. 1,060,075
-----------
Total Long-Term Bonds
(Cost $12,396,921)............. 12,796,357
-----------
<CAPTION>
SHARES
-----------
<S> <C> <C>
COMMON STOCK (0.2%)
CHINA (0.2%)
China Unicom Ltd. ADR (h)....... 1,000 21,250
-----------
Total Common Stock
(Cost $19,990)................. 21,250
-----------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.5%)
COMMERCIAL PAPER (1.5%)
UNITED STATES (1.5%)
American Express Credit Corp.
6.88%, due 7/3/00.............. $ 200,000 199,923
-----------
Total Short-Term Investment
(Cost $199,923)................ 199,923
-----------
Total Investments
(Cost $12,616,834) (i)......... 98.1% 13,017,530(j)
Cash and Other Assets,
Less Liabilities............... 1.9 251,982
----- -----------
Net Assets...................... 100.0% $13,269,512
===== ===========
</TABLE>
-------
<TABLE>
<C> <S>
(a) Floating rate. Rate shown is the rate in effect at June
30, 2000.
(b) CIK ("Cash in Kind") -- interest payment is made with
cash or additional securities.
(c) Represents security of which a portion is out on loan.
(See Note 2)
(d) FLIRB (Floating 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) May be sold to institutional investors only.
(f) 250 units -- Each unit consists of $1M Senior Note and 1
warrant to acquire common stock at a future date.
(g) Restricted security.
(h) ADR -- American Depository Receipt.
(i) The cost stated also represents the aggregate cost for
federal income tax purposes.
(j) At June 30, 2000 net unrealized appreciation for
securities was $400,696 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 $645,125
and aggregate gross unrealized depreciation for all
investments on which there was an excess of cost over
market value of $244,429.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 513
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$12,616,834).............................................. $13,017,530
Cash........................................................ 78,128
Collateral held for securities loaned, at value (Note 2).... 1,526,705
Receivables:
Interest.................................................. 349,947
Investment securities sold................................ 281,722
Fund shares sold.......................................... 1,106
Unamortized organization expense............................ 39,414
-----------
Total assets.............................................. 15,294,552
-----------
LIABILITIES:
Securities lending collateral (Note 2)...................... 1,526,705
Payables:
Investment securities purchased........................... 347,604
Mainstay Management....................................... 12,376
Transfer agent............................................ 9,270
NYLIFE Distributors....................................... 5,590
Custodian................................................. 5,299
Trustees.................................................. 77
Accrued expenses............................................ 25,924
Dividend payable............................................ 92,195
-----------
Total liabilities......................................... 2,025,040
-----------
Net assets.................................................. $13,269,512
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 9,816
Class B................................................... 5,029
Class C................................................... 392
Additional paid-in capital.................................. 14,419,075
Accumulated undistributed net investment income............. 74,241
Accumulated net realized loss on investments................ (1,639,669)
Accumulated net realized loss on foreign currency
transactions.............................................. (68)
Net unrealized appreciation on investments.................. 400,696
-----------
Net assets.................................................. $13,269,512
===========
CLASS A
Net assets applicable to outstanding shares................. $ 8,560,741
===========
Shares of beneficial interest outstanding................... 981,599
===========
Net asset value per share outstanding....................... $ 8.72
Maximum sales charge (4.50% of offering price).............. 0.41
-----------
Maximum offering price per share outstanding................ $ 9.13
===========
CLASS B
Net assets applicable to outstanding shares................. $ 4,368,559
===========
Shares of beneficial interest outstanding................... 502,937
===========
Net asset value and offering price per share outstanding.... $ 8.69
===========
CLASS C
Net assets applicable to outstanding shares................. $ 340,212
===========
Shares of beneficial interest outstanding................... 39,163
===========
Net asset value and offering price per share outstanding.... $ 8.69
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 514
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 718,385
----------
Expenses:
Management................................................ 44,521
Transfer agent............................................ 31,295
Distribution--Class B..................................... 15,654
Distribution--Class C..................................... 571
Registration.............................................. 13,445
Service--Class A.......................................... 10,488
Service--Class B.......................................... 5,219
Service--Class C.......................................... 193
Professional.............................................. 9,075
Amortization of organization expense...................... 6,727
Recordkeeping............................................. 6,000
Custodian................................................. 4,628
Shareholder communication................................. 1,581
Trustees.................................................. 148
Miscellaneous............................................. 7,655
----------
Total expenses before waiver and reimbursement.......... 157,200
Fees waived and reimbursed by Manager....................... (32,333)
----------
Net expenses............................................ 124,867
----------
Net investment income....................................... 593,518
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions..................................... 381,181
Foreign currency transactions............................. (68)
----------
Net realized gain on investments and foreign currency
transactions.............................................. 381,113
----------
Net change in unrealized appreciation on investments........ (253,357)
----------
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 127,756
----------
Net increase in net assets resulting from operations........ $ 721,274
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 515
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 593,518 $ 1,005,035
Net realized gain (loss) on investments and foreign
currency transactions................................... 381,113 (740,048)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... (253,357) 1,562,334
----------- -----------
Net increase in net assets resulting from operations...... 721,274 1,827,321
----------- -----------
Dividends to shareholders:
From net investment income:
Class A................................................. (350,709) (739,975)
Class B................................................. (161,666) (285,613)
Class C................................................. (6,902) (3,998)
----------- -----------
Total dividends to shareholders....................... (519,277) (1,029,586)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 371,188 437,798
Class B................................................. 1,015,935 1,318,076
Class C................................................. 260,973 86,821
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Class A................................................. 18,372 28,858
Class B................................................. 65,087 121,870
Class C................................................. 2,069 2,180
----------- -----------
1,733,624 1,995,603
Cost of shares redeemed:
Class A................................................. (152,892) (377,473)
Class B................................................. (526,608) (459,094)
Class C................................................. (8,201) (15,448)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 1,045,923 1,143,588
----------- -----------
Net increase in net assets............................ 1,247,920 1,941,323
NET ASSETS:
Beginning of period......................................... 12,021,592 10,080,269
----------- -----------
End of period............................................... $13,269,512 $12,021,592
=========== ===========
Accumulated undistributed net investment income at end of
period.................................................... $ 74,241 $ --
=========== ===========
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 516
This page intentionally left blank
15
<PAGE> 517
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 8.58 $ 8.00 $ 10.00
------- ------- -------
Net investment income....................................... 0.39 0.78 0.34(a)
Net realized and unrealized gain (loss) on investments...... 0.11 0.58 (1.99)
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. -- 0.01 (0.01)
------- ------- -------
Total from investment operations............................ 0.50 1.37 (1.66)
------- ------- -------
Less dividends from net investment income................... (0.36) (0.79) (0.34)
------- ------- -------
Net asset value at end of period............................ $ 8.72 $ 8.58 $ 8.00
======= ======= =======
Total investment return (b)................................. 5.94% 18.15% (16.38)%
Ratios (to average net assets)/
Supplemental Data:
Net investment income................................... 9.60%++ 9.57% 7.40%++
Net expenses............................................ 1.70%++ 1.70% 3.39%++
Expenses (before waiver and reimbursement).............. 2.21%++ 2.78% 3.59%++
Portfolio turnover rate..................................... 42% 104% 96%
Net assets at end of period (in 000's)...................... $ 8,561 $ 8,186 $ 7,548
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
16
<PAGE> 518
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- ------------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 8.54 $ 7.98 $ 10.00 $ 8.54 $ 7.98 $ 7.18
------- ------- ------- ------- ------- -------
0.34 0.71 0.32(a) 0.34 0.71 0.27(a)
0.14 0.56 (2.01) 0.14 0.56 0.81
-- 0.01 (0.01) -- 0.01 (0.01)
------- ------- ------- ------- ------- -------
0.48 1.28 (1.70) 0.48 1.28 1.07
------- ------- ------- ------- ------- -------
(0.33) (0.72) (0.32) (0.33) (0.72) (0.27)
------- ------- ------- ------- ------- -------
$ 8.69 $ 8.54 $ 7.98 $ 8.69 $ 8.54 $ 7.98
======= ======= ======= ======= ======= =======
5.70% 17.01% (16.82)% 5.70% 17.01% 14.99%
8.85%++ 8.82% 6.65%++ 8.85%++ 8.82% 6.65%++
2.45%++ 2.45% 4.14%++ 2.45%++ 2.45% 4.14%++
2.96%++ 3.53% 4.34%++ 2.96%++ 3.53% 4.34%++
42% 104% 96% 42% 104% 96%
$ 4,369 $ 3,756 $ 2,532 $ 340 $ 79 $ --(c)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 519
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 (and certain other qualified purchases) 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 of investing in U.S. issuers. These risks include
those resulting from fluctuating currency values, less liquid trading markets,
greater price volatility, political and economic instability, less publicly
available information, and changes in tax or currency laws or monetary policy.
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
18
<PAGE> 520
Notes to Financial Statements unaudited
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 may 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 may enter 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 or to try to enhance the Fund's returns.
The use of foreign currency forward contracts involves, to varying degrees,
elements of market risk in excess of the amount recognized in the statement of
assets and liabilities. The contract amount reflects the extent of the Fund's
involvement in these financial instruments. Risks arise from the possible
movements in the foreign exchange rates underlying these instruments. The
unrealized appreciation (depreciation) on forward contracts reflects the Fund's
exposure at period-end to credit loss in the event of a counterparty's failure
to perform its obligations.
19
<PAGE> 521
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 June 30, 2000, the Fund had portfolio securities with a fair market value of
$1,338,440 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 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 on securities lending amounted to $3,134, net of broker fees
and rebates, for the six months ended June 30, 2000, which is included as
interest income on the Statement of Operations.
Investments made with cash collateral at June 30, 2000:
<TABLE>
<CAPTION>
SHARES VALUE
-------- ----------
<S> <C> <C>
CASH & CASH EQUIVALENTS
AIM Institutional Funds Group............................... 514,205 $ 514,205
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
REPURCHASE AGREEMENT
Credit Suisse First Boston Corp.
7.17%, due 7/3/00
(Collateralized by
$139,313 Commonwealth Edison Co.
7.375%, due 9/15/02 Market Value $139,313
$439,180 Millennium America, Inc.
7.00%, due 11/15/06 Market Value $439,180)............ $500,000 500,000
Morgan (J.P.) Securities Inc.
6.95%, due 7/3/00
(Collateralized by
$526,757 American General Finance Corp.
6.375%, due 3/1/03 Market Value $538,126)........... 512,500 512,500
----------
1,012,500
----------
Total investments made with cash collateral................. $1,526,705
==========
</TABLE>
20
<PAGE> 522
Notes to Financial Statements unaudited (continued)
RESTRICTED SECURITIES. A restricted security is a security which has been
purchased through a private offering and cannot be resold to the general public
without prior registration under the Securities Act of 1933 (the "1933 Act").
The Fund does not have the right to demand that such securities be registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult.
<TABLE>
<CAPTION>
PERCENT
DATE(S) OF PRINCIPAL 6/30/00 OF
SECURITY ACQUISITION AMOUNT COST VALUE NET ASSETS
-------- --------------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Algeria
6.8125%, due 9/4/06.............. 8/13/99-1/6/00 $250,000 $185,098 $206,875 1.5%
Morocco, Tranche A
6.9375%, due 1/1/09.............. 11/30/99-1/6/00 200,000 175,044 179,500 1.4
-------- -------- ---
$360,142 $386,375 2.9%
======== ======== ===
</TABLE>
FINANCIAL INSTRUMENTS WITH 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.
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 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
21
<PAGE> 523
MainStay Global High Yield Fund
amounts are reclassified within the capital accounts based on their federal tax
basis treatment; temporary differences do not require reclassification.
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 plans)
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 forward currency contracts, net currency gains or losses realized
as a result of differences between the amounts of securities sale proceeds,
purchase cost, dividends, interest and withholding taxes as recorded on the
Fund's books, and the U.S. dollar equivalent amount actually received or paid.
Net currency gains or losses from valuing foreign currency denominated assets
and liabilities other than investments at period end exchange rates are
reflected in unrealized foreign exchange gains or losses.
22
<PAGE> 524
Notes to Financial Statements unaudited (continued)
CONCENTRATION. As of June 30, 2000, the Fund invested approximately 29.3% 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 six months ended June 30, 2000, the
Manager earned $44,521 and waived $32,333 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 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940
23
<PAGE> 525
MainStay Global High Yield Fund
Act. Pursuant to the Class A Plan, the Distributor receives a monthly fee from
the Fund at an annual rate of 0.25% of the average daily net assets of the
Fund's Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The distribution plans provide 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 Plans provide 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 for the six months ended June
30, 2000. 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
$74, $7,693 and $53, respectively, for the six months ended June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("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 $31,295 for the six months ended
June 30, 2000.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A and Class B
with net asset values of $7,848,000 and $869,000, respectively. This represents
91.7% and 19.9%, respectively, of the net assets at period end for Class A and B
shares.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $124 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,000 for the six months ended June 30, 2000.
24
<PAGE> 526
Notes to Financial Statements unaudited (continued)
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 has elected to treat for Federal income tax purposes approximately
$7,500 of qualifying realized capital losses that arose during the prior 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 six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $6,045 and $5,181, 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 period ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 43 117 31 55 163 11
Shares issued in reinvestment of
dividends............................... 2 7 --(a) 4 15 --(a)
--- --- --- --- --- --
45 124 31 59 178 11
Shares redeemed........................... (18) (61) (1) (48) (55) (2)
--- --- --- --- --- --
Net increase.............................. 27 63 30 11 123 9
=== === === === === ==
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand shares.
</TABLE>
25
<PAGE> 527
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
26
<PAGE> 528
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
[MAINSTAY LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSGH11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Global High Yield Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 529
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 530
This page intentionally left blank
2
<PAGE> 531
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 532
$10,000 Invested in MainStay Growth
Opportunities Fund versus Lipper Growth &
Income Funds Index, S&P 500 Index, and Inflation
CLASS A SHARES Total Returns: 1 Year 12.15%, Since Inception 21.49%
[PERFORMANCE GRAPH]
<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 $ 9,450 $ 10,000 $ 10,000 $ 10,000
6/98 10,055 10,120 10,006 10,406
9/98 9,308 8,858 10,043 9,371
12/98 11,208 10,298 10,098 11,367
3/99 11,765 10,517 10,135 11,934
6/99 12,644 11,493 10,204 12,776
9/99 11,902 10,586 10,313 11,978
12/99 14,533 11,741 10,368 13,760
3/00 15,384 11,939 10,516 14,075
6/00 15,006 11,639 10,583 13,701
</TABLE>
CLASS B SHARES Total Returns: 1 Year 12.87%, Since Inception 22.74%
[PERFORMANCE GRAPH]
<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 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/98 10,630 10,120 10,006 10,406
9/98 9,820 8,858 10,043 9,371
12/98 11,800 10,298 10,098 11,367
3/99 12,360 10,517 10,135 11,934
6/99 13,260 11,493 10,204 12,776
9/99 12,470 10,586 10,313 11,978
12/99 15,199 11,741 10,368 13,760
3/00 16,049 11,939 10,516 14,075
6/00 15,329 11,639 10,583 13,701
</TABLE>
CLASS C SHARES Total Returns: 1 Year 16.87%, Since Inception 23.88%
[PERFORMANCE GRAPH]
<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 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/98 10,630 10,120 10,006 10,406
9/98 9,820 8,858 10,043 9,371
12/98 11,800 10,298 10,098 11,367
3/99 12,360 10,517 10,135 11,934
6/99 13,260 11,493 10,204 12,776
9/99 12,470 10,586 10,313 11,978
12/99 15,199 11,741 10,368 13,760
3/00 16,049 11,939 10,516 14,075
6/00 15,629 11,639 10,583 13,701
</TABLE>
4
<PAGE> 533
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price, reinvestment of dividend and capital gain distributions, and maximum
sales charges (see below). The graphs assume an initial investment of $10,000
and reflect deduction of all sales charges that would have applied for the
period of investment. Class A share performance reflects the effect of the
maximum 5.5% initial sales charge. Class B share performance reflects a
contingent deferred sales charge (CDSC) of 3%. Class C share performance
includes the historical performance of the Class B shares for periods from
6/1/98 through 8/31/98. Class C shares would be subject to a CDSC of 1% if
redeemed within one year of purchase.
* 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 Lipper growth and income fund universe. You cannot
invest directly in an index.
+ "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P
500 Index is an unmanaged index and is considered to be generally
representative of the large-cap U.S. stock market. Total returns reflect the
reinvestment of all dividends and capital gains. You cannot invest directly
in 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> 534
-------
(1) See footnote and table on page 9 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the S&P 500 Index.
Portfolio Management Discussion and Analysis
The U.S. stock market struggled during the first six months of 2000, with small-
cap stocks rising to new heights, declining severely, and then recovering
somewhat, while large-cap equities took a dramatically different course.
Among the most significant factors influencing the U.S. equity market during
this semiannual period were the Federal Reserve's moves to slow the economy
through incremental increases in the targeted federal funds rate. The Fed's
aggressive tightening posture dampened equity returns, despite robust growth in
gross domestic product and corporate profits. As the first half of 2000 came to
an end, it became apparent that the rising cost of capital brought about by six
Fed tightenings in 12 months had begun to impact certain segments of the
economy. On the positive side, Federal Reserve action has lowered prices among
many speculative stocks that had reached excessive valuations.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Growth Opportunities Fund
returned 3.25% for Class A shares and 2.83% 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 1.27% during the same period. All
share classes also outperformed the -0.42% return of the S&P 500 Index(2) for
the same period.
The Fund's performance benefited from a neutral weighting in most sectors
throughout much of the first half of 2000. While the uncertainty surrounding
rising interest rates made it difficult to emphasize any particular sector, this
environment enabled us to participate in two of the best-performing sectors for
the semiannual period--health care and utilities. More importantly, our stock
selection within the technology and financial service sectors enhanced the
Fund's overall performance.
STRATEGIC STYLE ALLOCATION AND STOCK SELECTION
The Fund entered 2000 with a bias toward stocks with strong revenue growth. When
the valuations of some of the Fund's growth-oriented holdings exceeded our
expectations early in the first quarter, however, we lowered the portfolio's
exposure to these stocks. Given the Federal Reserve's resolve to slow the
economy, we slightly shifted our focus toward companies with historically
consistent earnings growth in periods of decelerating corporate earnings and
that were still trading well below the valuation of the overall market. For
example, we maintained a market weighting in the technology sector through the
first half of the year, believing that technology should continue to produce
superior relative earnings gains. However, we shifted the Fund's emphasis within
the sector toward less cyclical companies. We also maintained some exposure to
value stocks, but again, lowered the Fund's exposure to cyclical stocks during
the semiannual period.
6
<PAGE> 535
-------
(3) Returns reflect performance for the six-month period ended 6/30/00.
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[FUND PERFORMANCE BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/98 18.60 Class A
12/99 29.67 Class A
6/00 3.25 Class A
12/98 18.00 Class B and Class C
12/99 28.80 Class B and Class C
6/00 2.83 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 through 8/98. See
footnote * on page 9 for more information on performance.
One of the Fund's best-performing holdings was Advanced Micro Devices
(+166%),(3) a semiconductor manufacturer that benefited from wide acceptance of
its new products. Another strong performer for the Fund was ADC
Telecommunications (+131%), a communications-equipment provider that has
benefited from demand for broadband connectivity. Coastal (+72%), a natural-gas
utility in the process of merging with El Paso Energy Corp., benefited from the
upward move in natural-gas prices. Finally, two of the Fund's pharmaceutical
holdings, Eli Lilly (+50%) and Pfizer, Inc. (+50%), performed well primarily due
to strong new-product pipelines.
The most important purchase we made for the Fund in the first half of the year
was Corning (105%), a fiber-optics manufacturer that has benefited from
explosive growth in the fiber-optics industry. Another strong performer and new
purchase for the Fund was Convergys Corp. (+51%). Convergys, a billing and
customer service provider for the telecommunications industry, has benefited
from the worldwide growth in wireless communications and its own high-quality
customer support.
Two of the worst-performing stocks in the Fund's portfolio were Microsoft (-31%)
and QUALCOMM (-66%), both in the technology sector. Microsoft, the world's
largest software company, suffered from the much-publicized court ruling to
split the company into two separate entities. We sold the Fund's Microsoft
position in May for a tax loss, but repurchased it in June when we believed its
valuation made the stock attractive again. QUALCOMM, a digital communications
products company and a top-performing stock in 1999, suffered from
lower-than-expected earnings. Another poor performer for the Fund was Cendant
(-45%), a franchisor and direct-marketing company.
7
<PAGE> 536
Past performance is no guarantee of future results.
Interestingly, Cendant actually exceeded earnings expectations in the first half
of 2000, making it difficult to assess why the stock has declined. We continue
to hold both QUALCOMM and Cendant in the Fund's portfolio, as we believe both
are attractively valued and have strong upside potential.
Early in the year, we sold the Fund's holdings in Yahoo! and America Online, two
of the largest Internet companies. Both stocks subsequently underperformed.
While these two companies continue to have profitable businesses, we believed
their valuations were excessive and symptomatic of speculative trading among
Internet stocks.
LOOKING AHEAD
We maintain a positive outlook for the second half of 2000, as we believe that
the Federal Reserve's interest-rate tightening cycle may be nearly complete.
Even though the Fed's recent actions should result in slower economic growth, a
more benign interest-rate environment would, in our view, be favorable for U.S.
equities. We also believe that companies that are able to demonstrate strong
earnings growth independent of general economic conditions should outperform.
The fact that the U.S. equity market has historically performed well during
presidential election years is another reason for our optimism.
We will 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
8
<PAGE> 537
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 18.68% 24.83%
Class B 17.87% 23.88%
Class C 17.87% 23.88%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 12.15% 21.49%
Class B 12.87% 22.74%
Class C 16.87% 23.88%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR THROUGH 6/30/00
<S> <C> <C>
Class A 65 out of 15 out of
434 funds 335 funds
Class B 82 out of 28 out of
434 funds 335 funds
Class C 82 out of 93 out of
434 funds 368 funds
Average Lipper
large-cap core fund 11.37% 17.01%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
06/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $15.87 $0.0000 $0.0000
Class B $15.62 $0.0000 $0.0000
Class C $15.62 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
+ 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. Since-inception
rankings reflect the performance of each share class from its initial offering
date through 6/30/00. Class A and Class B shares were first offered to the
public on 6/1/98, and Class C shares on 9/1/98. Since-inception return for the
average Lipper peer fund is for the period from 6/1/98 through 6/30/00.
9
<PAGE> 538
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.2%)+
AEROSPACE/DEFENSE (1.1%)
Boeing Co. (The)................ 31,400 $ 1,312,912
------------
ALUMINUM (0.7%)
Alcoa Inc. ..................... 30,000 870,000
------------
BANKS (2.1%)
Bank of New York Co., Inc.
(The).......................... 32,700 1,520,550
Chase Manhattan Corp. (The)..... 22,650 1,043,316
------------
2,563,866
------------
BEVERAGES (1.6%)
Anheuser-Busch Cos., Inc. ...... 16,500 1,232,344
Coca-Cola Co. (The)............. 13,500 775,406
------------
2,007,750
------------
BIOTECHNOLOGY (0.8%)
Genentech, Inc. (a)............. 5,500 946,000
------------
BROADCAST/MEDIA (2.6%)
AMFM Inc. (a)................... 7,432 512,808
Comcast Corp. Special Class A
(a)............................ 24,000 972,000
MediaOne Group, Inc. (a)........ 13,000 863,622
USA Networks, Inc. (a).......... 40,000 865,000
------------
3,213,430
------------
CHEMICALS (1.0%)
Eastman Chemical Co. ........... 7,500 358,125
Praxair Inc. ................... 10,000 374,375
Rohm and Haas Co. .............. 13,200 455,400
------------
1,187,900
------------
COMMUNICATIONS--EQUIPMENT (13.0%)
ADC Telecommunications, Inc.
(a)............................ 25,300 2,122,037
Andrew Corp. (a)................ 38,500 1,292,156
Cisco Systems, Inc. (a)......... 41,000 2,606,063
Corning Inc. ................... 7,100 1,916,112
General Motors Corp. Class H
(a)............................ 13,400 1,175,850
JDS Uniphase Corp. (a).......... 7,400 887,075
Nokia Corp. ADR (b)............. 25,600 1,278,400
Nortel Networks Corp. .......... 35,400 2,416,050
QUALCOMM Inc. (a)............... 12,000 720,000
Tellabs, Inc. (a)............... 25,000 1,710,938
------------
16,124,681
------------
COMPUTER SOFTWARE & SERVICES (5.3%)
ACNielsen Corp. (a)............. 20,000 440,000
Comdisco Inc. .................. 26,400 589,050
First Data Corp. ............... 5,600 277,900
Keane, Inc. (a)................. 33,400 722,275
Microsoft Corp. (a)............. 16,000 1,280,000
Oracle Corp. (a)................ 15,300 1,286,156
---------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES
(CONTINUED)
Sungard Data Systems Inc. (a)... 37,000 $ 1,147,000
Symantec Corp. (a).............. 15,000 809,063
------------
6,551,444
------------
COMPUTER SYSTEMS (5.1%)
Compaq Computer Corp. .......... 45,000 1,150,312
EMC Corp. (a)................... 26,000 2,000,375
International Business Machines
Corp. ......................... 12,000 1,314,750
Sun Microsystems, Inc. (a)...... 19,800 1,800,563
------------
6,266,000
------------
COMPUTERS--NETWORKING (0.5%)
Sycamore Networks, Inc. (a)..... 5,600 618,100
------------
COSMETICS/PERSONAL CARE (1.2%)
Avon Products, Inc. ............ 34,000 1,513,000
------------
ELECTRIC POWER COMPANIES (0.5%)
Duke Energy Corp. .............. 10,000 563,750
------------
ELECTRICAL EQUIPMENT (2.3%)
General Electric Co. ........... 54,000 2,862,000
------------
ELECTRONICS--COMPONENTS (2.1%)
SCI Systems, Inc. (a)........... 25,600 1,003,200
SPX Corp. (a)................... 13,200 1,596,375
------------
2,599,575
------------
ELECTRONICS--SEMICONDUCTORS
(7.1%)
Advanced Micro Devices, Inc.
(a)............................ 17,500 1,351,875
Applied Materials, Inc. (a)..... 13,000 1,178,125
Intel Corp. .................... 14,900 1,991,944
National Semiconductor Corp.
(a)............................ 18,500 1,049,875
Novellus Systems, Inc. (a)...... 16,000 905,000
Rambus Inc. (a)................. 6,000 618,000
Texas Instruments Inc. ......... 25,500 1,751,531
------------
8,846,350
------------
ENTERTAINMENT (3.2%)
Time Warner Inc. ............... 17,000 1,292,000
Viacom Inc. Class B (a)......... 21,700 1,479,669
Walt Disney Co. (The)........... 30,000 1,164,375
------------
3,936,044
------------
FINANCE (3.0%)
American Express Co. ........... 24,000 1,251,000
Citigroup Inc. ................. 20,000 1,205,000
Morgan Stanley Dean Witter &
Co. ........................... 15,830 1,317,847
------------
3,773,847
------------
FOOD & HEALTH CARE DISTRIBUTORS (1.0%)
Sysco Corp. .................... 30,800 1,297,450
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 539
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE--DRUGS (5.0%)
Lilly (Eli) & Co. .............. 17,000 $ 1,697,875
Pfizer Inc. .................... 54,312 2,606,976
Pharmacia Corp. ................ 30,800 1,591,975
SmithKline Beecham PLC ADR
(b)............................ 4,400 286,825
------------
6,183,651
------------
HEALTH CARE--MEDICAL PRODUCTS (2.8%)
Guidant Corp. (a)............... 18,500 915,750
Medtronic, Inc. ................ 27,200 1,354,900
Stryker Corp. .................. 16,400 717,500
Sybron International Corp.
(a)............................ 21,000 416,062
------------
3,404,212
------------
HEALTH CARE--MISCELLANEOUS
(2.5%)
Amgen Inc. (a).................. 22,500 1,580,625
Johnson & Johnson............... 15,400 1,568,875
------------
3,149,500
------------
INSURANCE (4.6%)
ACE Ltd. ....................... 40,300 1,128,400
American International Group,
Inc. .......................... 15,550 1,827,125
Marsh & McLennan Cos., Inc. .... 11,000 1,148,813
Radian Group Inc. .............. 10,600 548,550
St. Paul Cos., Inc. (The)....... 30,200 1,030,575
------------
5,683,463
------------
INTERNET SOFTWARE & SERVICES
(1.2%)
Alteon Websystems, Inc. (a)..... 6,100 610,381
Genuity Inc. (a)................ 94,100 861,608
------------
1,471,989
------------
INVESTMENT BANK/BROKERAGE (1.0%)
Merrill Lynch & Co., Inc. ...... 10,960 1,260,400
------------
MANUFACTURING (1.1%)
Tyco International Ltd. ........ 28,200 1,335,975
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (2.7%)
Coastal Corp. (The)............. 22,000 1,339,250
Enron Corp. .................... 16,000 1,032,000
Williams Cos., Inc. (The)....... 23,000 958,813
------------
3,330,063
------------
OIL & GAS SERVICES (0.6%)
Schlumberger Ltd. .............. 10,000 746,250
------------
OIL--INTEGRATED DOMESTIC (0.9%)
Tosco Corp. .................... 40,000 1,132,500
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------------------------------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL
(2.2%)
BP Amoco PLC ADR (b)............ 10,660 $ 602,956
Chevron Corp. .................. 12,000 1,017,750
Exxon Mobil Corp. .............. 13,820 1,084,870
------------
2,705,576
------------
REAL ESTATE INVESTMENT/MANAGEMENT (1.0%)
Duke-Weeks Realty Corp. ........ 25,000 559,375
First Industrial Realty Trust
Inc. .......................... 25,000 737,500
------------
1,296,875
------------
RETAIL (5.3%)
CVS Corp. ...................... 31,000 1,240,000
Kroger Co. (The) (a)............ 55,000 1,213,437
RadioShack Corp. ............... 2,900 137,388
Target Corp. ................... 18,000 1,044,000
Wal-Mart Stores, Inc. .......... 25,000 1,440,625
Walgreen Co. ................... 46,000 1,480,625
------------
6,556,075
------------
SPECIALIZED SERVICES (1.9%)
Cendant Corp. (a)............... 60,000 840,000
Convergys Corp. (a)............. 30,000 1,556,250
------------
2,396,250
------------
TELECOMMUNICATIONS (3.1%)
Allegiance Telecom, Inc. (a).... 12,550 803,200
Dobson Communications Corp.
Class A (a).................... 15,000 288,750
Sprint Corp. (FON Group)........ 24,400 1,244,400
Sprint Corp. (PCS Group) (a).... 10,500 624,750
Time Warner Telecom Inc. Class A
(a)............................ 2,500 160,938
Western Wireless Corp. Class A
(a)............................ 12,500 681,250
------------
3,803,288
------------
TELEPHONE (3.8%)
ALLTEL Corp. ................... 14,600 904,287
Bell Atlantic Corp.............. 15,400 782,513
GTE Corp. ...................... 4,000 249,000
Qwest Communications
International Inc. (a)......... 35,000 1,739,063
SBC Communications Inc. ........ 23,792 1,029,004
------------
4,703,867
------------
TEXTILES (0.3%)
WestPoint Stevens Inc. ......... 35,000 389,375
------------
Total Common Stocks
(Cost $94,243,607)............. 116,603,408
------------
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.6%)
CANADA (0.2%)
Canadian Government
6.42%, due 7/19/00............. $ 198,000 197,363
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 540
MainStay Growth Opportunities Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (4.4%)
Anheuser-Busch Cos., Inc.
6.80%, due 7/3/00.............. $ 1,658,000 $ 1,657,373
AT&T Corp.
6.60%, due 7/25/00............. 495,000 492,810
General Motors Corp.
6.79%, due 7/6/00.............. 1,826,000 1,824,277
Oyster Creek Fuel Corp.
6.88%, due 7/11/00............. 1,500,000 1,497,132
------------
Total Short-Term Investments
(Cost $5,668,955).............. 5,668,955
------------
Total Investments
(Cost $99,912,562) (c)......... 98.8% 122,272,363(d)
Cash and Other Assets,
Less Liabilities............... 1.2 1,553,044
----- ------------
Net Assets...................... 100.0% $123,825,407
===== ============
</TABLE>
-------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for federal income tax purposes is $99,910,371.
(d) At June 30, 2000, net unrealized appreciation was $22,361,992, 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 $26,171,101 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,809,109.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 541
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$99,912,562).............................................. $122,272,363
Cash........................................................ 226
Receivables:
Investment securities sold................................ 5,425,128
Fund shares sold.......................................... 330,203
Dividends and interest.................................... 63,356
Unamortized organization expense............................ 39,414
------------
Total assets........................................ 128,130,690
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 3,951,100
Transfer agent............................................ 85,281
NYLIFE Distributors....................................... 79,600
MainStay Management....................................... 73,416
Fund shares redeemed...................................... 60,322
Custodian................................................. 13,062
Trustees.................................................. 728
Accrued expenses............................................ 41,774
------------
Total liabilities................................... 4,305,283
------------
Net assets.................................................. $123,825,407
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 21,448
Class B................................................... 56,264
Class C................................................... 1,240
Additional paid-in capital.................................. 101,434,424
Accumulated net investment loss............................. (382,865)
Accumulated undistributed net realized gain on
investments............................................... 335,095
Net unrealized appreciation on investments.................. 22,359,801
------------
Net assets.................................................. $123,825,407
============
CLASS A
Net assets applicable to outstanding shares................. $ 34,029,060
============
Shares of beneficial interest outstanding................... 2,144,791
============
Net asset value per share outstanding....................... $ 15.87
Maximum sales charge (5.50% of offering price).............. 0.92
------------
Maximum offering price per share outstanding................ $ 16.79
============
CLASS B
Net assets applicable to outstanding shares................. $ 87,859,586
============
Shares of beneficial interest outstanding................... 5,626,373
============
Net asset value and offering price per share outstanding.... $ 15.62
============
CLASS C
Net assets applicable to outstanding shares................. $ 1,936,761
============
Shares of beneficial interest outstanding................... 124,026
============
Net asset value and offering price per share outstanding.... $ 15.62
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 542
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 458,668
Interest.................................................. 248,230
----------
Total income............................................ 706,898
----------
Expenses:
Management................................................ 371,326
Distribution--Class B..................................... 279,315
Distribution--Class C..................................... 5,466
Transfer agent............................................ 188,544
Service--Class A.......................................... 37,689
Service--Class B.......................................... 93,105
Service--Class C.......................................... 1,822
Registration.............................................. 22,166
Recordkeeping............................................. 18,221
Custodian................................................. 16,534
Shareholder communication................................. 15,490
Professional.............................................. 14,630
Amortization of organization expense...................... 6,727
Trustees.................................................. 1,431
Miscellaneous............................................. 17,297
----------
Total expenses.......................................... 1,089,763
----------
Net investment loss......................................... (382,865)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................ (186,697)
Net change in unrealized appreciation on investments........ 3,756,722
----------
Net realized and unrealized gain on investments............. 3,570,025
----------
Net increase in net assets resulting from operations........ $3,187,160
==========
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $3,030.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 543
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (382,865) $ (343,195)
Net realized gain (loss) on investments................... (186,697) 1,172,657
Net change in unrealized appreciation on investments...... 3,756,722 14,864,752
------------ -----------
Net increase in net assets resulting from operations...... 3,187,160 15,694,214
------------ -----------
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................................................. 10,022,941 9,759,082
Class B................................................. 35,275,051 42,863,447
Class C................................................. 1,158,432 744,572
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 14,255
Class B................................................. -- 31,469
Class C................................................. -- 402
------------ -----------
46,456,424 53,413,227
Cost of shares redeemed:
Class A................................................. (3,142,854) (2,170,937)
Class B................................................. (8,552,804) (6,533,286)
Class C................................................. (80,080) (42,926)
------------ -----------
Increase in net assets derived from capital share
transactions........................................ 34,680,686 44,666,078
------------ -----------
Net increase in net assets............................ 37,867,846 60,313,445
NET ASSETS:
Beginning of period......................................... 85,957,561 25,644,116
------------ -----------
End of period............................................... $123,825,407 $85,957,561
============ ===========
Accumulated net investment loss at end of period............ $ (382,865) $ --
============ ===========
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 544
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 15.37 $ 11.86 $ 10.00
------- ------- -------
Net investment loss (a)..................................... (0.01) (0.02) (0.05)
Net realized and unrealized gain on investments............. 0.51 3.54 1.91
------- ------- -------
Total from investment operations............................ 0.50 3.52 1.86
------- ------- -------
Less distributions:
From net realized gain on investments..................... -- (0.01) --
------- ------- -------
Net asset value at end of period............................ $ 15.87 $ 15.37 $ 11.86
======= ======= =======
Total investment return (b)................................. 3.25% 29.67% 18.60%
Ratios (to average net assets)/
Supplemental Data:
Net investment loss..................................... (0.18%)++ (0.16%) (1.09%)++
Expenses................................................ 1.52%++ 1.59% 2.53%++
Portfolio turnover rate..................................... 33% 72% 32%
Net assets at end of period (in 000's)...................... $34,029 $26,214 $13,293
</TABLE>
-------
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ 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.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 545
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- -----------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 15.19 $ 11.80 $ 10.00 $ 15.19 $11.80 $ 9.22
------- ------- ------- ------- ------ ------
(0.07) (0.11) (0.08) (0.07) (0.11) (0.06)
0.50 3.51 1.88 0.50 3.51 2.64
------- ------- ------- ------- ------ ------
0.43 3.40 1.80 0.43 3.40 2.58
------- ------- ------- ------- ------ ------
-- (0.01) -- -- (0.01) --
------- ------- ------- ------- ------ ------
$ 15.62 $ 15.19 $ 11.80 $ 15.62 $15.19 $11.80
======= ======= ======= ======= ====== ======
2.83% 28.80% 18.00% 2.83% 28.80% 27.98%
(0.93%)++ (0.91%) (1.84%)++ (0.93%)++ (0.91%) (1.84%)++
2.27%++ 2.34% 3.28%++ 2.27%++ 2.34% 3.28%++
33% 72% 32% 33% 72% 32%
$87,859 $58,937 $12,351 $ 1,937 $ 806 $ --(c)
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 546
MainStay Growth Opportunities 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
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 (and certain other qualified purchases) 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
18
<PAGE> 547
Notes to Financial Statements unaudited
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 may 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.
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
19
<PAGE> 548
MainStay Growth Opportunities Fund
distribution plans) 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 six months ended June
30, 2000, the Manager earned $371,326. 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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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.
20
<PAGE> 549
Notes to Financial Statements unaudited (continued)
The Plans provide 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 $1,090 for the six months ended
June 30, 2000. 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 $1,601, $39,846 and $101, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $188,544.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A with a net
asset value of $14,291,170 which represents 42.0% of the Class A net assets at
period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $950 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$18,221 for the six months ended June 30, 2000.
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $227,903 of capital loss carryforwards during the prior year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $70,428 and $32,178, 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
21
<PAGE> 550
MainStay Growth Opportunities Fund
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 six months ended June
30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................... 646 2,309 76 752 3,339 56
Shares issued in reinvestment of dividends and
distributions................................ -- -- -- 1 2 --(a)
---- ----- -- ---- ----- --
646 2,309 76 753 3,341 56
Shares redeemed................................ (206) (564) (5) (169) (506) (3)
---- ----- -- ---- ----- --
Net increase................................... 440 1,745 71 584 2,835 53
==== ===== == ==== ===== ==
</TABLE>
-------
* Unaudited.
(a) Less than one thousand.
22
<PAGE> 551
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 552
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY.LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSGP11-08/00
[RECYCLE.LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R) Growth
Opportunities Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
<PAGE> 553
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay Research Value
Fund versus Russell 1000 Value Index and
Inflation--Class A, Class B, and Class C
Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 554
This page intentionally left blank
2
<PAGE> 555
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 556
$10,000 Invested in MainStay
Research Value Fund versus
Russell 1000 Value Index and Inflation
CLASS A SHARES Total Returns: 1 Year 6.15%, Since Inception 11.77%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE
PERIOD END FUND INFLATION (CPI)+ RUSSELL 1000 VALUE INDEX*
---------- ----------------------- ---------------- -------------------------
<S> <C> <C> <C>
6/1/98 $ 9,450 $ 10,000 $ 10,000
6/98 9,327 10,006 10,128
9/98 8,203 10,043 8,955
12/98 9,734 10,098 10,442
3/99 10,074 10,135 10,591
6/99 11,227 10,209 11,786
9/99 10,499 10,313 10,631
12/99 11,520 10,368 11,208
3/00 12,412 10,516 11,262
6/00 12,610 10,583 10,734
</TABLE>
CLASS B SHARES Total Returns: 1 Year 6.56%, Since Inception 12.75%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE
PERIOD END FUND INFLATION (CPI)+ RUSSELL 1000 VALUE INDEX*
---------- ----------------------- ---------------- -------------------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 9,870 10,006 10,128
9/98 8,660 10,043 8,955
12/98 10,250 10,098 10,442
3/99 10,590 10,135 10,591
6/99 11,780 10,209 11,786
9/99 11,000 10,313 10,631
12/99 12,050 10,368 11,208
3/00 12,963 10,516 11,262
6/00 12,842 10,583 10,734
</TABLE>
CLASS C SHARES Total Returns: 1 Year 10.56%, Since Inception 14.00%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY RESEARCH VALUE
PERIOD END FUND INFLATION (CPI)+ RUSSELL 1000 VALUE INDEX*
---------- ----------------------- ---------------- -------------------------
<S> <C> <C> <C>
6/1/98 $ 10,000 $ 10,000 $ 10,000
6/98 9,870 10,006 10,128
9/98 8,660 10,043 8,955
12/98 10,250 10,098 10,442
3/99 10,590 10,135 10,591
6/99 11,780 10,209 11,786
9/99 11,000 10,313 10,631
12/99 12,050 10,368 11,208
3/00 12,963 10,516 11,262
6/00 13,142 10,583 10,734
</TABLE>
4
<PAGE> 557
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* 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. You cannot
invest directly in 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> 558
-------
(1) The NASDAQ Composite 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. You cannot invest directly in an index.
(2) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
Index is an unmanaged index and is considered to be generally representative
of the large-cap U.S. stock market. You cannot invest directly in an index.
(3) See footnote on page 5 for more information about the Russell 1000(R) Value
Index.
(4) See footnote and table on page 9 for more information about Lipper Inc.
(5) Returns reflect performance for the six-month period ended 6/30/00.
Portfolio Management Discussion and Analysis
The U.S. equity market was highly volatile during the first half of 2000. From
the first quarter to the second, investor sentiments and sector preferences
varied greatly.
The first quarter of 2000 began where 1999 left off--with technology stocks
leading a volatile and narrow market upward. Although technology stocks
corrected somewhat in March, the NASDAQ Composite(1) still posted a first-
quarter gain of 12.4% versus the S&P 500 Index(2) gain of 2.29% and the Russell
1000(R) Value Index(3) gain of 0.48% over the same period. During the second
quarter, technology stocks continued their correction, with the NASDAQ declining
13.3%. The S&P 500 Index dropped 2.7% for the second quarter and the Russell
1000 Value Index declined 4.7%. As the love affair with technology stocks waned,
the market broadened, with stronger performance among sectors such as health
care, utilities, and consumer staples.
STRONG FUND PERFORMANCE
For the six months ended June 30, 2000, MainStay Research Value Fund returned
9.47% for Class A shares and 9.06% for Class B and Class C shares, excluding all
sales charges. All shares classes significantly outperformed the -0.47% return
of the average Lipper(4) multi-cap value fund, the -4.23% return of the Russell
1000 Value Index, and the -0.42% return of the S&P 500 Index over the same
period.
The Fund's performance was due primarily to strong individual stock selection,
effective weighting of our highest-conviction ideas in the portfolio, and our
strict adherence to the Fund's fundamental research and portfolio
diversification disciplines.
RESEARCH-INTENSIVE, BOTTOM-UP VALUE APPROACH
The Fund's best-performing securities for the semiannual period were diversified
across several economic sectors.(5) These included:
- News Corporation (+42%) is an international media conglomerate headed by
Rupert Murdoch. We believe the company has significant growth potential
relative to its peers, yet trades at a notable valuation discount on a "sum of
the parts" valuation analysis.
- Williams Corporation (+36%) is an operator of interstate natural-gas
pipelines, a diversified energy services company, and 85% owner of Williams
Communications Group. The communications portion of the company owns a fiber
optic network that performed well during the reporting period. The energy
sector advanced on rising commodity prices.
6
<PAGE> 559
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN%
---------- -------------
<S> <C>
12/98 3.00 Class A
12/99 18.35 Class A
6/00 9.47 Class A
12/98 2.50 Class B and Class C
12/99 17.56 Class B and Class C
6/00 9.06 Class B and Class C
Past performance is no guarantee of future results. Class C
share returns reflect the historical performance of the
Class B shares through 8/98. See footnote * on page 9 for
more information on performance.
</TABLE>
- Nabisco Holdings (+68%) received a buyout offer of $55 per share from Philip
Morris at the end of the second quarter. We had established a position in
Nabisco early in the second quarter, believing that management would seek to
unlock the value of the company's food assets. In our opinion, this value was
not adequately reflected in the price of the stock.
- Philips Electronics (+41%) is the world's eighth largest electronics company.
With the stock trading at what we took to be a substantial discount to its net
assets, we believed that management would soon take steps to narrow the
discount.
- Texas Instruments (+42%) is a leading manufacturer and distributor of analog
and digital signal processing (DSP) chips used in modems, cell phones, and
other electronic devices. In our view, the company has shown a sustainable
competitive advantage in the fast growing DSP market.
Other stocks that performed well for the Fund were new additions in the
financial services sector--namely AON Corporation, Metropolitan Life, and John
Hancock. We do not seek to over- or underweight sectors in the Fund, but rather
construct the portfolio on a stock-by-stock basis. That said, we did increase
the Fund's exposure to the insurance sector. We bought AON Corporation at what
we took to be an attractive price given our optimistic view of industry
fundamentals. Metropolitan Life and John Hancock were demutualizations that went
public at attractive valuations, while rising interest rates were posing
challenges for financial stocks in general.
One of the Fund's worst-performing securities was Sabre Holdings (-34%), which
provides online reservations capabilities and information technology outsourcing
7
<PAGE> 560
Past performance is no guarantee of future results.
solutions for the business and leisure travel and transportation industries.
Tribune (-36%), a publisher of daily newspapers, with interests in television
and radio was also weak. Rockwell International Corp. (-34%) is a leading
supplier of automatic devices and advanced avionics and airborne mobile
communications systems. The Fund continues to hold these issues, since we
believe each is now at a compelling valuation and all hold leading competitive
positions within their respective industries.
During the semiannual period, we sold First Union when credit quality issues
arose. We also sold McKesson on concerns over cash-flow generation and the
ability of the company's health care software unit to rebound. Warner Lambert
was eliminated from the portfolio because we believed its stock was fully
valued.
LOOKING AHEAD
We remain focused on our disciplined strategy of value investing, searching for
new ideas primarily among stocks that are out of favor or that have suffered
temporary setbacks. The equity market has recently provided many potential
investments that are either priced substantially off a 52-week high or are near
a 52-week low and may offer value potential. We will continue to focus our
research on value opportunities of this general nature, seeking securities we
believe have the potential to outperform over time, while preserving capital on
the downside.
While the market remains volatile and challenging, we are optimistic that iden-
tifying value-enhancing catalysts such as revenue growth, improved productivity,
new product introductions, or new market development, will continue to gen-
erate strong risk-adjusted returns for the Fund over the rest of the year 2000.
Whatever the markets may bring, the Fund will continue to seek long-term capital
appreciation by investing primarily in securities of large-capitalization
companies.
Daniel M. Theriault
Portfolio Manager
John A. Levin & Co., Inc.
Stocks of small companies may be subject to higher price volatility,
significantly lower trading volumes, and greater spreads between bid and ask
prices, than stocks of larger companies. Small companies may be more vulnerable
to adverse business or market developments than mid- or large-capitalization
companies.
8
<PAGE> 561
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 12.32% 14.84%
Class B 11.56% 14.00%
Class C 11.56% 14.00%
</TABLE>
FUND RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 6.15% 11.77%
Class B 6.56% 12.75%
Class C 10.56% 14.00%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 28 out of 485 funds 25 out of 420 funds
Class B 30 out of 485 funds 26 out of 420 funds
Class C 30 out of 485 funds 31 out of 436 funds
Average Lipper
multi-cap value fund -3.99% 3.00%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $12.72 $0.0000 $0.0000
Class B $12.52 $0.0000 $0.0000
Class C $12.52 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price and reinvestment of dividend and capital gain distributions. Performance
figures reflect certain fee waivers and/or expense limitations, without which
total return figures may have been lower. Fee waivers and/or expense
limitations are voluntary and may be discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class B
shares are subject to a CDSC of up to 5% if shares are redeemed within the
first six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
+ 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. Since-inception rankings
reflect the performance of each share class from its initial offering date
through 6/30/00. Class A and Class B shares were first offered to the
public on 6/1/98, and Class C shares on 9/1/98. Since-inception return for
the average Lipper peer fund is for the period from 6/1/98 through 6/30/00.
Lipper returns and rankings are unaudited.
9
<PAGE> 562
MainStay Research Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (90.5%)+
AEROSPACE/DEFENSE (3.8%)
Rockwell International Corp. ... 20,700 $ 652,050
United Technologies Corp. ...... 11,032 649,509
-----------
1,301,559
-----------
AUTO PARTS & EQUIPMENT (0.1%)
Visteon Corp. (a)............... 1,610 19,527
-----------
AUTOMOBILES (1.5%)
Ford Motor Co. ................. 12,300 528,900
-----------
BANKS (5.8%)
Bank of New York Co., Inc.
(The).......................... 16,000 744,000
FleetBoston Financial Corp. .... 18,200 618,800
Northern Trust Corp. ........... 9,600 624,600
-----------
1,987,400
-----------
BEVERAGES (3.0%)
Anheuser-Busch Cos., Inc. ...... 8,800 657,250
Coca-Cola Co. (The)............. 6,600 379,087
-----------
1,036,337
-----------
BROADCAST/MEDIA (2.7%)
Fox Entertainment Group Inc.
Class A (a).................... 8,900 270,338
Grupo Televisa S.A. GDR
(a)(c)......................... 6,600 454,988
Pegasus Communications Corp.
(a)............................ 4,100 201,156
-----------
926,482
-----------
CHEMICALS (1.6%)
Du Pont (E.I.) De Nemours &
Co. ........................... 12,700 555,625
-----------
COMMUNICATIONS -- EQUIPMENT (1.5%)
General Motors Corp. Class-H
(a)............................ 5,800 508,950
-----------
COMPUTER SOFTWARE & SERVICES (3.4%)
Automatic Data Processing,
Inc............................ 3,200 171,400
First Data Corp. ............... 13,200 655,050
Sabre Holdings Corp. (a)........ 12,338 351,633
-----------
1,178,083
-----------
COMPUTER SYSTEMS (6.8%)
Compaq Computer Corp. .......... 33,300 851,231
Hewlett-Packard Co. ............ 5,000 624,375
International Business Machines
Corp........................... 2,500 273,906
Seagate Technology Inc. (a)..... 10,500 577,500
-----------
2,327,012
-----------
-------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COSMETICS/PERSONAL CARE (1.4%)
Gillette Co. ................... 13,600 $ 475,150
-----------
ELECTRIC POWER COMPANIES (0.9%)
DTE Energy Co. ................. 10,000 305,625
-----------
ELECTRICAL EQUIPMENT (6.4%)
Emerson Electric Co. ........... 7,500 452,813
General Electric Co. ........... 14,100 747,300
Koninklijke Philips
Electronics.................... 20,608 978,880
-----------
2,178,993
-----------
ELECTRONICS -- SEMICONDUCTORS (2.6%)
Texas Instruments Inc. ......... 12,800 879,200
-----------
ENTERTAINMENT (3.4%)
Viacom Inc. Class B (a)......... 12,100 825,069
Walt Disney Co. (The)........... 9,200 357,075
-----------
1,182,144
-----------
FOOD (2.0%)
Nabisco Holdings Corp.
Class-A........................ 13,000 682,500
-----------
HARDWARE & TOOLS (1.6%)
Black & Decker Corp. (The)...... 14,050 552,341
-----------
HEALTH CARE -- DRUGS (4.6%)
Lilly (Eli) & Co. .............. 7,200 719,100
Pharmacia Corp. ................ 16,833 870,056
-----------
1,589,156
-----------
HEALTH CARE -- HMOS (1.3%)
Aetna Inc. ..................... 6,800 436,475
-----------
HEALTH CARE -- MISCELLANEOUS (3.3%)
American Home Products Corp. ... 11,500 675,625
Johnson & Johnson............... 4,400 448,250
-----------
1,123,875
-----------
INSURANCE (8.0%)
ACE Ltd. ....................... 14,800 414,400
Aon Corp. ...................... 19,300 599,506
John Hancock Financial Services,
Inc. (a)....................... 23,800 563,762
MetLife, Inc. (a)............... 10,500 221,156
Tokio Marine & Fire Insurance
Co. Ltd. (The)................. 5,700 339,150
XL Capital Limited.............. 10,900 589,963
-----------
2,727,937
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 563
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING (2.5%)
Honeywell International Inc. ... 10,400 $ 350,350
Tyco International Ltd. ........ 10,500 497,437
-----------
847,787
-----------
NATURAL GAS DISTRIBUTORS & PIPELINES (5.4%)
KeySpan Corp. .................. 8,300 255,225
Williams Cos., Inc. (The) ...... 38,150 1,590,378
-----------
1,845,603
-----------
OFFICE EQUIPMENT & SUPPLIES (1.0%)
Xerox Corp. .................... 17,100 354,825
-----------
OIL & GAS SERVICES (3.9%)
Schlumberger Ltd. .............. 13,700 1,022,362
Unocal Corp. ................... 9,600 318,000
-----------
1,340,362
-----------
OIL -- INTEGRATED DOMESTIC (1.0%)
Conoco Inc. .................... 16,100 354,200
-----------
PUBLISHING (3.0%)
Tribune Co. .................... 29,100 1,018,500
-----------
RETAIL (2.4%)
Federated Department Stores
(a)............................ 12,000 405,000
Target Corp. ................... 7,300 423,400
-----------
828,400
-----------
TELEPHONE (5.6%)
Bell Atlantic Corp. ............ 17,100 868,894
BellSouth Corp. ................ 24,400 1,040,050
-----------
1,908,944
-----------
Total Common Stocks
(Cost $27,070,770)............. 31,001,892
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK (5.0%)
News Corp. Ltd. Pfd ADR (b)..... 36,100 $ 1,714,750
-----------
Total Preferred Stock
(Cost $1,171,546).............. 1,714,750
-----------
<CAPTION>
PRINCIPAL
AMOUNT
-------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (4.8%)
Bank of New York Cayman
5.75%, due 7/3/00............. $1,631,000 1,631,000
-----------
Total Short Term Investment
(Cost $1,631,000).............. 1,631,000
-----------
Total Investments
(Cost $29,873,316) (d)......... 100.3% 34,347,642(e)
Liabilities in Excess of Cash,
and Other Assets............... (0.3) (88,323)
----- ---------
Net Assets...................... 100.0% $34,259,319
===== =========
</TABLE>
-------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) GDR--Global Depository Receipt.
(d) The cost for federal income tax purposes is $30,004,922.
(e) At June 30, 2000 net unrealized appreciation was $4,342,720, 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 $5,700,841 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $1,358,121.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 564
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$29,873,316).............................................. $34,347,642
Cash........................................................ 879
Receivables:
Investment securities sold................................ 1,768,282
Fund shares sold.......................................... 130,578
Dividends and interest.................................... 30,532
Unamortized organization expense............................ 39,415
-----------
Total assets........................................ 36,317,328
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 1,956,600
MainStay Management....................................... 22,309
Transfer agent............................................ 20,297
NYLIFE Distributors....................................... 17,584
Custodian................................................. 6,895
Fund shares redeemed...................................... 1,009
Trustees.................................................. 198
Accrued expenses............................................ 33,117
-----------
Total liabilities................................... 2,058,009
-----------
Net assets.................................................. $34,259,319
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 13,246
Class B................................................... 12,615
Class C................................................... 1,287
Additional paid-in capital.................................. 28,807,794
Accumulated net investment loss............................. (87,057)
Accumulated undistributed net realized gain on
investments............................................... 1,037,108
Net unrealized appreciation on investments.................. 4,474,326
-----------
Net assets.................................................. $34,259,319
===========
CLASS A
Net assets applicable to outstanding shares................. $16,852,513
===========
Shares of beneficial interest outstanding................... 1,324,564
===========
Net asset value per share outstanding....................... $ 12.72
Maximum sales charge (5.50% of offering price).............. 0.74
-----------
Maximum offering price per share outstanding................ $ 13.46
===========
CLASS B
Net assets applicable to outstanding shares................. $15,795,228
===========
Shares of beneficial interest outstanding................... 1,261,532
===========
Net asset value and offering price per share outstanding.... $ 12.52
===========
CLASS C
Net assets applicable to outstanding shares................. $ 1,611,578
===========
Shares of beneficial interest outstanding................... 128,703
===========
Net asset value and offering price per share outstanding.... $ 12.52
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 565
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 190,578
Interest.................................................. 37,200
----------
Total income............................................ 227,778
----------
Expenses:
Management................................................ 124,166
Distribution--Class B..................................... 46,993
Distribution--Class C..................................... 4,907
Transfer agent............................................ 51,263
Service--Class A.......................................... 19,219
Service--Class B.......................................... 15,664
Service--Class C.......................................... 1,636
Registration.............................................. 13,625
Professional.............................................. 9,432
Custodian................................................. 8,902
Amortization of organization expense...................... 6,727
Recordkeeping............................................. 6,576
Shareholder communication................................. 3,184
Trustees.................................................. 368
Miscellaneous............................................. 9,714
----------
Total expenses before reimbursement..................... 322,376
Expense reimbursement by Manager............................ (7,541)
----------
Net Expenses............................................ 314,835
----------
Net investment loss......................................... (87,057)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 1,409,628
Net change in unrealized appreciation on investments........ 1,223,222
----------
Net realized and unrealized gain on investments............. 2,632,850
----------
Net increase in net assets resulting from operations........ $2,545,793
==========
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $1,585.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 566
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (87,057) $ (126,311)
Net realized gain on investments.......................... 1,409,628 1,343,606
Net change in unrealized appreciation on investments...... 1,223,222 2,061,596
----------- -----------
Net increase in net assets resulting from operations...... 2,545,793 3,278,891
----------- -----------
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................................................. 2,215,001 1,987,704
Class B................................................. 5,836,809 5,412,093
Class C................................................. 510,751 958,968
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 611,941
Class B................................................. -- 421,185
Class C................................................. -- 39,085
----------- -----------
8,562,561 9,430,976
Cost of shares redeemed:
Class A................................................. (751,066) (391,083)
Class B................................................. (1,257,339) (934,710)
Class C................................................. (150,583) (39,885)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 6,403,573 8,065,298
----------- -----------
Net increase in net assets............................ 8,949,366 10,204,963
NET ASSETS:
Beginning of period......................................... 25,309,953 15,104,990
----------- -----------
End of period............................................... 34,259,319 25,309,953
=========== ===========
Accumulated net investment loss at end of period............ $ (87,057) $ --
=========== ===========
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 567
This page intentionally left blank
15
<PAGE> 568
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 11.62 $ 10.30 $ 10.00
------- ------- -------
Net investment loss (a)..................................... (0.01) (0.03) (0.07)
Net realized and unrealized gain on investments............. 1.11 1.90 0.37
------- ------- -------
Total from investment operations............................ 1.10 1.87 0.30
------- ------- -------
Less distributions:
From net realized gain on investments..................... -- (0.37) --
In excess of net realized gain on investments............. -- (0.18) --
------- ------- -------
Total Distributions......................................... -- (0.55) --
------- ------- -------
Net asset value at end of period............................ $ 12.72 $ 11.62 $ 10.30
======= ======= =======
Total investment return (b)................................. 9.47% 18.35% 3.00%
Ratios (to average net assets)/
Supplemental Data:
Net investment loss..................................... (0.24%)++ (0.33%) (1.48%)++
Net expenses............................................ 1.80%++ 1.80% 3.15%++
Expenses (before reimbursement)......................... 1.85%++ 2.14% 3.15%++
Portfolio turnover rate..................................... 32% 63% 53%
Net assets at end of period (in 000's)...................... $16,852 $13,987 $10,378
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 569
<TABLE>
<CAPTION>
Class B Class C
---------------------------------------------- -----------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.48 $ 10.25 $ 10.00 $ 11.48 $ 10.25 $ 8.30
------- ------- ------- ------- ------- -------
(0.06) (0.09) (0.10) (0.06) (0.09) (0.06)
1.10 1.87 0.35 1.10 1.87 2.01
------- ------- ------- ------- ------- -------
1.04 1.78 0.25 1.04 1.78 1.95
------- ------- ------- ------- ------- -------
(0.37) -- (0.37) --
-- (0.18) -- -- (0.18) --
------- ------- ------- ------- ------- -------
-- (0.55) -- -- (0.55) --
------- ------- ------- ------- ------- -------
$ 12.52 $ 11.48 $ 10.25 $ 12.52 $ 11.48 $ 10.25
======= ======= ======= ======= ======= =======
9.06% 17.56% 2.50% 9.06% 17.56% 23.49%
(0.99%)++ (1.08%) (2.23%)++ (0.99%)++ (1.08%) (2.23%)++
2.55%++ 2.55% 3.90%++ 2.55%++ 2.55% 3.90%++
2.60%++ 2.89% 3.90%++ 2.60%++ 2.89% 3.90%++
32% 63% 53% 32% 63% 53%
$15,795 $10,176 $ 4,589 $ 1,612 $ 1,146 $ 138
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 570
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 (and certain other qualified purchases) 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
18
<PAGE> 571
Notes to Financial Statements unaudited
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 may 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.
19
<PAGE> 572
MainStay Research 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 plans)
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 six months ended June
30, 2000, the Manager earned $124,166 and reimbursed the Fund $7,541.
Pursuant to the terms of a Sub-Advisory Agreement between MainStay Management
and the Subadvisor, the Manager pays the Subadvisor a monthly fee at an annual
rate of 0.425% on assets up to $250 million, 0.3825% on assets from $250 million
to $500 million and 0.34% on assets in excess of $500 million.
DISTRIBUTION AND SERVICE FEES. The Trust, on behalf of the Fund, has a
Distribution Agreement with NYLIFE Distributors Inc. (the "Distributor"). The
Fund, with respect to each class of shares, has adopted distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940
20
<PAGE> 573
Notes to Financial Statements unaudited (continued)
Act. Pursuant to the Class A Plan, the Distributor receives a monthly fee from
the Fund at an annual rate of 0.25% of the average daily net assets of the
Fund's Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide 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 Plans provide 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 $565 for the six months ended
June 30, 2000. 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 $46, $13,242 and $409, respectively, for the six months ended June 30,
2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $51,263.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A and Class B
with net asset values of $12,009,798 and $1,314,160, respectively. This
represents 71.3% and 8.3%, respectively, of the net assets at period end for
Class A and B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $269 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$6,576 for the six months ended June 30, 2000.
21
<PAGE> 574
MainStay Research Value Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund has elected, to the extent provided by regulations, to treat $242,971
of qualifying capital losses that arose during the prior year as if they arose
on January 1, 2000. In addition, the Fund utilized $410,996 of capital loss
carryforwards during the prior year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $14,325 and $9,097, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
----------------------------------- -----------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold......................... 181 485 42 175 485 86
Shares issued in reinvestment of
distributions..................... -- -- -- 55 38 4
--- ---- --- ----- --- --
181 485 42 230 523 90
Shares redeemed..................... (60) (109) (13) (35) (85) (3)
--- ---- --- ----- --- --
Net increase........................ 121 376 29 195 438 87
=== ==== === ===== === ==
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
22
<PAGE> 575
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 576
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors, Inc. All rights reserved. MSRV11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Research Value Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 577
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 578
This page intentionally left blank
2
<PAGE> 579
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ STEPHEN C. ROUSSIN
Stephen C. Roussin
July 2000
3
<PAGE> 580
$10,000 Invested in MainStay Small Cap
Growth Fund versus Russell 2000 Index
and Inflation
CLASS A SHARES Total Returns: 1 Year 55.55%, Since Inception 39.71%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $ 9,450 $10,000 $10,000
6/98 10,272 10,021 10,006
9/98 8,505 8,002 10,043
12/98 9,932 9,307 10,098
3/99 10,159 8,802 10,135
6/99 12,200 10,136 10,209
9/99 13,428 9,495 10,313
12/99 20,620 11,246 10,368
3/00 23,994 12,043 10,516
6/00 20,081 11,587 10,583
</TABLE>
CLASS B SHARES Total Returns: 1 Year 58.28%, Since Inception 41.43%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $10,000 $10,000 $10,000
6/98 10,860 10,021 10,006
9/98 8,980 8,002 10,043
12/98 10,460 9,307 10,098
3/99 10,680 8,802 10,135
6/99 12,800 10,136 10,209
9/99 14,060 9,495 10,313
12/99 21,530 11,246 10,368
3/00 25,010 12,043 10,516
6/00 20,600 11,587 10,583
</TABLE>
CLASS C SHARES Total Returns: 1 Year 62.28%, Since Inception 42.41%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END GROWTH FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $10,000 $10,000 $10,000
6/98 10,860 10,021 10,006
9/98 8,980 8,002 10,043
12/98 10,460 9,307 10,098
3/99 10,680 8,802 10,135
6/99 12,800 10,136 10,209
9/99 14,060 9,495 10,313
12/99 21,550 11,246 10,368
3/00 25,010 12,043 10,516
6/00 20,900 11,587 10,583
</TABLE>
4
<PAGE> 581
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* 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. You cannot invest directly in 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> 582
Portfolio Management Discussion and Analysis
The first half of 2000 was a study in contrasts. For most of the first quarter,
the market appeared to shrug off any worries, as small-cap stocks and
particularly small-cap growth stocks surged ahead. Energy, technology, and
health care stocks--especially biotechnology issues--led the way. This trend
reversed sharply in the latter half of March, however, when technology and
biotechnology stocks led small-cap growth stocks to a net loss for the month.
But that was only the beginning of an extended small-cap decline.
As the broader market began to react to interest-rate concerns and the
possibility of a harder-than-desired landing, biotech, consumer cyclical,
communications, and technology stocks tumbled in a steep slide that seemed to
exhaust itself in April, then regained momentum through the end of May. By many
accounts small-cap communications and technology stocks experienced a record
correction.
As signs of economic slowing appeared in the first days of June, market jitters
faded and technology stocks regained some of the ground they had lost and health
care issues staged a strong rally.
PERFORMANCE REVIEW
For the six months ended June 30, 2000, MainStay Small Cap Growth Fund returned
-2.61% for Class A shares and -3.02% for Class B and Class C shares, excluding
all sales charges. All share classes underperformed the 9.45% return of the
average Lipper(1) small-cap growth fund and the 3.04% return of the Russell 2000
Index(2) over the same period.
A number of factors contributed to the Fund's underperformance. While
communication and consumer-cyclical holdings had the lowest returns in the
Fund's portfolio, when portfolio weightings were taken into account, technology
stocks took the greatest toll on the Fund's performance. Despite the slight
recovery in June, the overall decline in technology stocks had a negative impact
on performance.
Energy holdings provided the highest returns of any sector in the Fund, but with
an underweighted position, the sector's contribution to overall Fund performance
was small. Considering the effects of both returns and weightings, health care
stocks were the strongest positive contributors to portfolio performance, with
biotech stocks leading the way.
-------
(1) See footnote and table on page 9 for more information about Lipper Inc.
(2) See footnote on page 5 for more information about the Russell 2000 Index.
6
<PAGE> 583
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/98 5.10 CLASS A
12/99 107.61 CLASS A
6/00 -2.61 CLASS A
12/98 4.60 CLASS B AND CLASS C
12/99 106.02 CLASS B AND CLASS C
6/00 -3.02 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 through 8/98. See
footnote * on page 9 for more information on performance.
During the second quarter of 2000, we gradually repositioned the Fund's
technology holdings, adopting a more defensive posture that strongly favored
component, equipment, and hardware and software infrastructure stocks. In the
process, we pared back modestly on the Fund's technology weighting. We also
slightly increased the Fund's allocation to health care stocks. As of June 30,
2000, the Fund remained underweighted in other sectors of the market.
BEST AND WORST PERFORMERS
During the first half of 2000, the Fund's best-performing stocks included
Plexus, an electronics manufacturer; Maxygen, a commercial gene modification
company; Merix, a printed circuit board manufacturer; Nuance Communications, a
voice-interface software company; and NVIDIA, a 3D graphics processor company.
The stocks that took the greatest toll on the Fund's performance in the first
six months of 2000 were Great Plains Software, a business management software
company; Project Software and Development, which develops asset management
software; QRS, a provider of electronic cataloguing and marketplace services for
retailers; RAVISENT, a digital encoding and decoding software company; and
Viador, an enterprise information portal company.
LOOKING AHEAD
In June 2000, we concentrated the Fund in stocks that we believed had a clear
four- to six-quarter window to profitability and those with broad stock sponsor-
ship by small-cap standards. We continue to diligently search for promising
growth candidates across all sectors of the small-cap market.
7
<PAGE> 584
While much of the market continues to focus on inflation, the economy, and the
Federal Reserve, we continue to pursue our "bottom-up" investment process,
analyzing stocks one-by-one for their growth potential in any economic
environment. Whatever the economy or the markets 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
Stocks of small companies may be subject to higher price volatility,
significantly lower trading volumes, and greater spreads between bid and ask
prices, than stocks of larger companies. Small companies may be more vulnerable
to adverse business or market developments than mid- or large-capitalization
companies. Returns in 1999 were primarily achieved during unusually favorable
conditions in the market, particularly for technology companies and through
investments in initial public offerings. You should not expect that such
favorable returns can consistently be achieved.
Past performance is no guarantee of future results.
8
<PAGE> 585
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 64.60% 43.55%
Class B 63.28% 42.41%
Class C 63.28% 42.41%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 55.55% 39.71%
Class B 58.28% 41.43%
Class C 62.28% 42.41%
</TABLE>
FUND LIPPER (+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION THROUGH 6/30/00
<S> <C> <C>
Class A 80 out of 252 funds 44 out of 205 funds
Class B 83 out of 252 funds 51 out of 205 funds
Class C 83 out of 252 funds 86 out of 221 funds
Average Lipper
small-cap
growth fund 57.71% 32.25%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $21.25 $0.0000 $0.0000
Class B $20.90 $0.0000 $0.0000
Class C $20.90 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
+ 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. Since-inception rankings reflect the
performance of each share class from its initial offering date through
6/30/00. Class A and Class B shares were first offered to the public on
6/1/98, and Class C shares on 9/1/98. Since-inception return for the average
Lipper peer fund is for the period from 6/1/98 through 6/30/00.
9
<PAGE> 586
Past performance is no guarantee of future results.
MainStay Small Cap Growth Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.6%)+
AEROSPACE/DEFENSE (0.6%)
REMEC, Inc. (a)................. 60,000 $ 2,512,500
------------
BIOTECHNOLOGY (4.8%)
Alkermes, Inc. (a).............. 73,000 3,440,125
Cephalon, Inc. (a).............. 73,100 4,376,862
Invitrogen Corp. (a)............ 51,300 3,857,919
Protein Design Labs, Inc. (a)... 24,500 4,041,351
Techne Corp. (a)................ 43,900 5,707,000
------------
21,423,257
------------
BROADCAST/MEDIA (2.6%)
Citadel Communications Corp.
(a)............................ 89,700 3,133,894
Macrovision Corp. (a)........... 83,100 5,311,910
Sirius Satellite Radio Inc.
(a)............................ 72,200 3,199,362
------------
11,645,166
------------
CHEMICALS (0.6%)
Uniroyal Technology Corp. (a)... 231,600 2,562,075
------------
COMMERCIAL & CONSUMER SERVICES (0.4%)
Profit Recovery Group
International, Inc. (The)
(a)............................ 110,600 1,838,725
------------
COMMUNICATIONS--EQUIPMENT (4.6%)
ANTEC Corp. (a)................. 58,800 2,443,875
Audiovox Corp. Class A (a)...... 50,000 1,103,125
Digital Microwave Corp. (a)..... 109,300 4,167,063
Finisar Corp. (a)............... 132,000 3,456,750
Orckit Communications Ltd.
(a)............................ 144,900 4,365,112
Proxim, Inc. (a)................ 52,000 5,146,378
------------
20,682,303
------------
COMPUTER SOFTWARE & SERVICES (13.2%)
Advanced Digital Information
Corp. (a)...................... 201,300 3,208,219
Advent Software, Inc. (a)....... 64,300 4,147,350
Daleen Technologies, Inc. (a)... 95,900 1,480,456
Exchange Applications, Inc.
(a)............................ 100,000 2,662,500
M-Systems Flash Disk Pioneers
Ltd. (a)....................... 72,900 5,677,087
Manhattan Associates, Inc.
(a)............................ 161,700 4,042,500
Mercator Software, Inc. (a)..... 99,300 6,826,875
Nuance Communications, Inc.
(a)............................ 94,700 7,889,694
Peregrine Systems, Inc. (a)..... 185,000 6,417,188
Precise Software Solutions Ltd.
(a)............................ 37,200 892,800
Project Software & Development,
Inc. (a)....................... 159,400 2,869,200
QRS Corp. (a)................... 53,600 1,316,550
Verity, Inc. (a)................ 82,400 3,131,200
Vitria Technology, Inc. (a)..... 112,900 6,901,012
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
Zomax Inc. (a).................. 117,100 $ 1,536,938
------------
58,999,569
------------
COMPUTER SYSTEMS (1.1%)
SanDisk Corp. (a)............... 78,000 4,772,625
------------
COMPUTERS--NETWORKING (2.0%)
Paradyne Networks, Inc. (a)..... 99,900 3,252,994
Turnstone Systems, Inc. (a)..... 35,400 5,864,785
------------
9,117,779
------------
COMPUTERS--PERIPHERAL (2.5%)
Crossroads Systems, Inc. (a).... 78,200 1,974,550
Cybex Computer Products Corp.
(a)............................ 125,500 5,396,500
SCM Microsystems, Inc. (a)...... 61,800 3,742,762
------------
11,113,812
------------
DATA PROCESSING SERVICES (1.0%)
National Computer Systems,
Inc. .......................... 87,600 4,314,300
------------
ELECTRIC POWER COMPANIES (1.4%)
Calpine Corp. (a)............... 98,000 6,443,500
------------
ELECTRICAL EQUIPMENT (2.8%)
Capstone Turbine Corp. (a)...... 43,500 1,960,219
Plexus Corp. (a)................ 62,700 7,085,100
Gilat Satellite Networks Ltd.
(a)............................ 48,100 3,336,937
------------
12,382,256
------------
ELECTRONICS--COMPONENTS (7.8%)
Amphenol Corp. Class A (a)...... 87,700 5,804,644
DSP Group, Inc. (a)............. 74,000 4,144,000
Merix Corp. (a)................. 127,000 5,969,000
NVIDIA Corp. (a)................ 98,400 6,254,550
QLogic Corp. (a)................ 68,200 4,505,462
Stratos Lightwave, Inc. (a)..... 118,800 3,311,550
Zoran Corp. (a)................. 73,900 4,872,781
------------
34,861,987
------------
ELECTRONICS--DEFENSE (1.1%)
Aeroflex Inc. (a)............... 100,500 4,993,594
------------
ELECTRONICS--INSTRUMENTATION (2.0%)
Exfo Electro-Optical Engineering
Inc. (a)....................... 12,400 544,050
Mettler-Toledo International
Inc. (a)....................... 121,800 4,872,000
Optimal Robotics Corp. (a)...... 90,100 3,457,588
------------
8,873,638
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 587
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS--SEMICONDUCTORS
(3.3%)
EMCORE Corp. (a)................ 48,600 $ 5,832,000
General Semiconductor, Inc.
(a)............................ 199,800 2,947,050
NETsilicon, Inc. (a)............ 188,700 6,179,925
------------
14,958,975
------------
FINANCE (1.7%)
BlackRock, Inc. (a)............. 154,100 4,468,900
London Pacific Group Ltd. Class
A (b).......................... 250,000 3,250,000
------------
7,718,900
------------
FOOD & HEALTH CARE DISTRIBUTORS (0.6%)
Patterson Dental Co. (a)........ 56,600 2,886,600
------------
HEALTH CARE--DRUGS (9.5%)
Abgenix, Inc. (a)............... 34,200 4,099,192
Alpharma Inc. Class A........... 92,700 5,770,575
AmeriSource Health Corp. Class A
(a)............................ 175,000 5,425,000
Andrx Corp. (a)................. 75,700 4,838,888
Barr Laboratories, Inc. (a)..... 98,100 4,396,106
Celgene Corp. (a)............... 84,800 4,992,600
Inhale Therapeutic Systems, Inc.
(a)............................ 40,500 4,109,486
King Pharmaceuticals, Inc.
(a)............................ 129,000 5,659,875
Maxim Pharmaceuticals, Inc.
(a)............................ 65,800 3,380,475
------------
42,672,197
------------
HEALTH CARE--MEDICAL PRODUCTS (4.4%)
Aclara Biosciences, Inc. (a).... 78,200 3,983,312
Charles River Laboratories Inc.
(a)............................ 113,100 2,509,406
Cytyc Corp. (a)................. 30,000 1,601,250
Datascope Corp.................. 81,700 2,941,200
Digene Corp. (a)................ 84,500 3,411,688
ORATEC Interventions, Inc.
(a)............................ 72,200 2,409,675
PolyMedica Corp. (a)............ 70,000 3,027,500
------------
19,884,031
------------
INTERNET SOFTWARE & SERVICES
(7.1%)
Active Software, Inc. (a)....... 35,000 2,719,062
Agile Software Corp. (a)........ 108,400 7,662,525
Cobalt Networks, Inc. (a)....... 41,900 2,424,962
iXL Enterprises, Inc. (a)....... 40,700 590,150
Loudeye Technologies, Inc.
(a)............................ 148,400 2,587,725
RADWARE Ltd. (a)................ 164,300 4,353,950
SonicWALL, Inc. (a)............. 71,500 6,296,469
VerticalNet, Inc. (a)........... 70,900 2,618,869
Viador, Inc. (a)................ 175,500 2,786,063
------------
32,039,775
------------
INVESTMENT MANAGEMENT (1.1%)
Affiliated Managers Group, Inc.
(a)............................ 105,300 4,791,150
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
OIL & GAS SERVICES (2.0%)
Hanover Compressor Co. (a)...... 140,000 $ 5,320,000
Universal Compression Holding,
Inc. (a)....................... 111,600 3,738,600
------------
9,058,600
------------
RETAIL (3.4%)
AnnTaylor Stores Corp. (a)...... 113,000 3,743,125
Cost Plus Inc. (a).............. 129,000 3,700,688
Linens 'n Things, Inc. (a)...... 125,700 3,409,612
SUNDAY Communications Ltd. (a)
(b)............................ 155,400 543,900
Williams-Sonoma, Inc. (a)....... 123,400 4,002,787
------------
15,400,112
------------
SPECIALIZED SERVICES (1.1%)
Corporate Executive Board Co.
(The) (a)...................... 81,600 4,885,800
------------
TELECOMMUNICATIONS (11.0%)
Alamosa PCS Holdings, Inc.
(a)............................ 110,000 2,296,250
BreezeCom Ltd. (a).............. 115,400 5,019,900
Digital Lightwave, Inc. (a)..... 59,200 5,949,600
GoAmerica, Inc. (a)............. 388,900 6,003,644
LCC International, Inc. Class A
(a)............................ 221,200 6,041,525
MCK Communications, Inc. (a).... 121,300 2,805,063
Primus Telecommunications Group,
Inc. (a)....................... 96,000 2,388,000
Rural Cellular Corp. Class A
(a)............................ 41,200 3,154,375
Spectrasite Holdings, Inc.
(a)............................ 84,300 2,392,012
Terayon Communication Systems,
Inc. (a)....................... 57,000 3,661,361
TTI Team Telecom International
Ltd. (a)....................... 164,800 5,932,800
Tut Systems, Inc. (a)........... 66,000 3,786,750
------------
49,431,280
------------
TEXTILES--APPAREL MANUFACTURERS (1.0%)
Gildan Activewear Inc. Class A
(a)............................ 117,100 4,303,425
------------
TRANSPORTATION (0.9%)
C.H. Robinson Worldwide,
Inc. .......................... 85,000 4,207,500
------------
Total Common Stocks (Cost
$372,599,866).................. 428,775,431
------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.4%)
COMMERCIAL PAPER (5.4%)
Ford Motor Credit Corp.
6.55%, due 7/7/00.............. $4,000,000 3,995,624
General Electric Capital Corp.
6.52%, due 7/12/00............. 6,435,000 6,422,136
Prudential Funding Corp.
6.52%, due 7/6/00.............. 3,715,000 3,711,621
6.54%, due 7/6/00.............. 6,000,000 5,994,535
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 588
MainStay Small Cap Growth Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
UBS Finance Delaware LLC
6.54%, due 7/20/00............. $4,000,000 $ 3,986,166
------------
Total Short-Term Investments
(Cost $24,110,082)............. 24,110,082
------------
Total Investments (Cost
$396,709,948) (c).............. 101.0% 452,885,513(d)
Liabilities in Excess of Cash,
and Other Assets............... (1.0) (4,490,152)
---------- ------------
Net Assets...................... 100.0% $448,395,361
========== ============
</TABLE>
-------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for federal income tax
purposes.
(d) At June 30, 2000, net unrealized appreciation was $56,175,565, 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 $99,064,521 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $42,888,956.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 589
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$396,709,948)............................................. $452,885,513
Cash........................................................ 3,388
Receivables:
Investment securities sold................................ 11,997,820
Fund shares sold.......................................... 1,065,469
Dividends................................................. 10,400
Unamortized organization expense............................ 39,415
------------
Total assets........................................ 466,002,005
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 14,199,293
Fund shares redeemed...................................... 2,461,488
MainStay Management....................................... 341,981
NYLIFE Distributors....................................... 267,530
Transfer agent............................................ 230,357
Custodian................................................. 16,299
Trustees.................................................. 2,267
Accrued expenses............................................ 87,429
------------
Total liabilities................................... 17,606,644
------------
Net assets.................................................. $448,395,361
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 57,294
Class B................................................... 149,855
Class C................................................... 6,424
Additional paid-in capital.................................. 426,614,777
Accumulated net investment loss............................. (3,188,789)
Accumulated net realized loss on investments................ (31,419,765)
Net unrealized appreciation on investments.................. 56,175,565
------------
Net assets.................................................. $448,395,361
============
CLASS A
Net assets applicable to outstanding shares................. $121,765,199
============
Shares of beneficial interest outstanding................... 5,729,369
============
Net asset value per share outstanding....................... $ 21.25
Maximum sales charge (5.50% of offering price).............. 1.24
------------
Maximum offering price per share outstanding................ $ 22.49
============
CLASS B
Net assets applicable to outstanding shares................. $313,204,301
============
Shares of beneficial interest outstanding................... 14,985,460
============
Net asset value and offering price per share outstanding.... $ 20.90
============
CLASS C
Net assets applicable to outstanding shares................. $ 13,425,861
============
Shares of beneficial interest outstanding................... 642,375
============
Net asset value and offering price per share outstanding.... $ 20.90
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 590
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.................................................. $ 736,242
Dividends................................................. 182,114
------------
Total income............................................ 918,356
------------
Expenses:
Management................................................ 1,829,992
Distribution--Class B..................................... 945,684
Distribution--Class C..................................... 34,161
Transfer agent............................................ 542,080
Service--Class A.......................................... 130,883
Service--Class B.......................................... 315,228
Service--Class C.......................................... 11,387
Registration.............................................. 96,927
Recordkeeping............................................. 31,561
Shareholder communication................................. 28,054
Custodian................................................. 21,691
Professional.............................................. 21,592
Amortization of organization expense...................... 6,727
Trustees.................................................. 5,331
Miscellaneous............................................. 85,847
------------
Total expenses.......................................... 4,107,145
------------
Net investment loss......................................... (3,188,789)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments............................ (37,587,839)
Net change in unrealized appreciation on investments........ (12,059,002)
------------
Net realized and unrealized loss on investments............. (49,646,841)
------------
Net decrease in net assets resulting from operations........ $(52,835,630)
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 591
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (3,188,789) $ (1,380,155)
Net realized gain (loss) on investments................... (37,587,839) 9,165,533
Net change in unrealized appreciation on investments...... (12,059,002) 64,530,904
------------ ------------
Net increase (decrease) in net assets resulting from
operations.............................................. (52,835,630) 72,316,282
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 124,918,039 45,801,102
Class B................................................. 283,132,905 77,404,539
Class C................................................. 21,158,679 1,625,927
Cost of shares redeemed:
Class A................................................. (54,522,149) (23,160,400)
Class B................................................. (63,325,615) (12,976,606)
Class C................................................. (7,120,482) (88,853)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 304,241,377 88,605,709
------------ ------------
Net increase in net assets............................ 251,405,747 160,921,991
NET ASSETS:
Beginning of period......................................... 196,989,614 36,067,623
------------ ------------
End of period............................................... $448,395,361 $196,989,614
============ ============
Accumulated net investment loss at end of period............ $ (3,188,789) $ --
============ ============
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 592
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
----------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 21.82 $ 10.51 $ 10.00
-------- ------- -------
Net investment loss (a)..................................... (0.13) (0.20) (0.10)
Net realized and unrealized gain (loss) on investments...... (0.44) 11.51 0.61
-------- ------- -------
Total from investment operations............................ (0.57) 11.31 0.51
-------- ------- -------
Net asset value at end of period............................ $ 21.25 $ 21.82 $ 10.51
======== ======= =======
Total investment return (b)................................. (2.61%) 107.61% 5.10%
Ratios (to average net assets)/
Supplemental Data:
Net investment loss...................................... (1.21%)++ (1.48%) (2.12%)++
Expenses................................................. 1.71%++ 1.91% 2.63%++
Portfolio turnover rate..................................... 65% 86% 32%
Net assets at end of period (in 000's)...................... $121,765 $64,470 $15,319
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Total return is calculated exclusive of sales charges and is
not annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 593
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------ ------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 21.55 $ 10.46 $ 10.00 $ 21.55 $10.46 $ 8.43
-------- -------- ------- ------- ------ ------
(0.20) (0.29) (0.12) (0.20) (0.29) (0.09)
(0.45) 11.38 0.58 (0.45) 11.38 2.12
-------- -------- ------- ------- ------ ------
(0.65) 11.09 0.46 (0.65) 11.09 2.03
-------- -------- ------- ------- ------ ------
$ 20.90 $ 21.55 $ 10.46 $ 20.90 $21.55 $10.46
======== ======== ======= ======= ====== ======
(3.02%) 106.02% 4.60% (3.02%) 106.02% 24.08%
(1.96%)++ (2.23%) (2.87%)++ (1.96%)++ (2.23%) (2.87%)++
2.46%++ 2.66% 3.38%++ 2.46%++ 2.66% 3.38%++
65% 86% 32% 65% 86% 32%
$313,204 $130,487 $20,748 $13,426 $2,032 $ 1
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 594
MainStay Small Cap Growth Fund
NOTE 1--ORGANIZATION AND BUSINESS:
The MainStay Funds (the "Trust") was organized on January 9, 1986 as a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company and is comprised of twenty-three funds (collectively referred
to as the "Funds"). These financial statements and notes relate only to MainStay
Small Cap Growth Fund (the "Fund").
The Fund currently offers three classes of shares. Distribution of Class A
shares and Class B shares commenced on June 1, 1998. Class C shares were
initially offered on September 1, 1998. Class A shares are offered at net asset
value per share plus an initial sales charge. No sales charge applies on
investments of $1 million or more (and certain other qualified purchases) 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
18
<PAGE> 595
Notes to Financial Statements unaudited
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 may 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.
19
<PAGE> 596
MainStay Small Cap Growth Fund
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Fund records security
transactions on the trade date. Realized gains and losses on security
transactions are determined using the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is accrued daily.
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the distribution plans)
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 six months ended June 30, 2000, the Manager
earned $1,829,992.
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 adopted distribution plans (the
"Plans") 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> 597
Notes to Financial Statements unaudited (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 provide 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 Plans provide 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 $57,755 for the six months ended
June 30, 2000. 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 $4,657, $129,680 and $6,572, respectively, for the six months ended
June 30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $542,080.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Subadvisor, the Manager or the Distributor, are paid an annual fee of $45,000,
$2,000 for each Board meeting and $1,000 for each Committee meeting attended
plus reimbursement for travel and out-of-pocket expenses. The Trust allocates
this expense in proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A with a net
asset value of $19,125,000 which represents 15.7% of the net assets of Class A
at period end.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $2,947 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$31,561 for the six months ended June 30, 2000.
21
<PAGE> 598
MainStay Small Cap Growth Fund
NOTE 4--FEDERAL INCOME TAX:
The Fund utilized $1,410,209 of capital loss carryforwards during the prior
year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $512,297 and $220,899, 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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................... 5,238 11,840 908 2,911 5,003 100
Shares redeemed............................... (2,463) (2,911) (360) (1,414) (930) (6)
------- ------ ----- ------- ----- ---
Net increase.................................. 2,775 8,929 548 1,497 4,073 94
======= ====== ===== ======= ===== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
22
<PAGE> 599
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 600
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[MAINSTAY FUNDS LOGO]
NYLIFE DISTRIBUTORS INC.
300 Interpace Parkway, Building A
Parsippany, New Jersey 07054
Distributor of the MainStay Funds
www.mainstayinv.com
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSSG11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Small Cap Growth Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY FUNDS LOGO]
<PAGE> 601
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in 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 and Six-Month Performance 7
Returns and Lipper Rankings 9
Portfolio of Investments 10
Financial Statements 12
Notes to Financial Statements 18
The MainStay(R) Funds 23
</TABLE>
<PAGE> 602
This page intentionally left blank
2
<PAGE> 603
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 604
$10,000 Invested in MainStay
Small Cap Value Fund versus Russell 2000
Index and Inflation
CLASS A SHARES Total Returns: 1 Year 9.34%, Since Inception 2.61%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END VALUE FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- -------------- ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $ 9,450 $10,000 $10,000
6/98 $ 9,119 $10,021 $10,006
9/98 $ 7,532 $ 8,002 $10,043
12/98 $ 8,533 $ 9,307 $10,098
3/99 $ 7,749 $ 8,802 $10,135
6/99 $ 9,119 $10,136 $10,209
9/99 $ 8,600 $ 9,495 $10,313
12/99 $ 9,055 $11,246 $10,368
3/00 $ 9,850 $12,043 $10,516
6/00 $10,551 $11,587 $10,583
</TABLE>
CLASS B SHARES Total Returns: 1 Year 9.77%, Since Inception 3.27%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END VALUE FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- -------------- ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $10,000 $10,000 $10,000
6/98 $ 9,640 $10,021 $10,006
9/98 $ 7,950 $ 8,002 $10,043
12/98 $ 9,000 $ 9,307 $10,098
3/99 $ 8,150 $ 8,802 $10,135
6/99 $ 9,580 $10,136 $10,209
9/99 $ 9,020 $ 9,495 $10,313
12/99 $ 9,481 $11,246 $10,368
3/00 $10,283 $12,043 $10,516
6/00 $10,695 $11,587 $10,583
</TABLE>
CLASS C SHARES Total Returns: 1 Year 13.77%, Since Inception 4.65%
[LINE GRAPH]
<TABLE>
<CAPTION>
MAINSTAY SMALL CAP
PERIOD END VALUE FUND RUSSELL 2000 INDEX* INFLATION (CPI)+
---------- -------------- ------------------- ----------------
<S> <C> <C> <C>
6/1/98 $10,000 $10,000 $10,000
6/98 $ 9,640 $10,021 $10,006
9/98 $ 7,950 $ 8,002 $10,043
12/98 $ 9,000 $ 9,307 $10,098
3/99 $ 8,150 $ 8,802 $10,135
6/99 $ 9,580 $10,136 $10,209
9/99 $ 9,020 $ 9,495 $10,313
12/99 $ 9,481 $11,246 $10,368
3/00 $10,283 $12,043 $10,516
6/00 $10,995 $11,587 $10,583
</TABLE>
4
<PAGE> 605
-------
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price, reinvestment of dividend and capital gain
distributions, and maximum sales charges (see below). Performance figures
reflect certain fee waivers and/or expense limitations, without which total
return figures may have been lower. Fee waivers and/or expense limitations
are voluntary and may be discontinued at any time. The graphs assume an
initial investment of $10,000 and reflect deduction of all sales charges
that would have applied for the period of investment. Class A share
performance reflects the effect of the maximum 5.5% initial sales charge.
Class B share performance reflects a contingent deferred sales charge
(CDSC) of 3%. Class C share performance includes the historical performance
of the Class B shares for periods from 6/1/98 through 8/31/98. Class C
shares would be subject to a CDSC of 1% if redeemed within one year of
purchase.
* 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. You cannot invest directly in 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> 606
-------
(1) See footnote on page 5 for more information about the Russell 2000(R) Index.
(2) 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. You cannot invest directly in an index.
(3) 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. You cannot invest directly in an index.
(4) See footnote and table on page 9 for more information about Lipper Inc.
Portfolio Management Discussion and Analysis
The small-cap equity market outperformed large-cap issues for the six months
ended June 30, 2000, as investors continued to seek lower valuations among
small-cap stocks. Even so, small caps struggled against the same forces that
affected large-cap stocks, weighed down at first by fears of an overheating
economy and higher interest rates, and then by concerns about profit growth as
the economy appeared to slow. Also like the broader markets, the small-cap
equity market remained narrow throughout the reporting period. During the first
half of the year, only four sectors--energy, health care, technology, and
capital goods--outperformed the Russell 2000(R) Index.(1)
Within the small-cap equity market, investor sentiment experienced wide swings
during the first half of 2000. Growth stocks, including technology and
biotechnology issues, gained 22% in the first two months of the year and then
collapsed. Value stocks came into favor from March through May, based on
inflation concerns, a shift in investor sentiment regarding "new economy" versus
"old economy" stocks, and the near-certain prospect of higher interest rates
followed by a gradual slowdown in economic growth. In June, growth stocks
regained popularity, as optimism increased over the possibility of the Federal
Reserve engineering a "soft landing" for the U.S. economy. At the end of all
this turbulence, small-cap value equities significantly outperformed their
growth counterparts for the semiannual period, with a 5.9% return for the
Russell 2000(R) Value Index(2) versus a 1.2% return for the Russell 2000(R)
Growth Index.(3)
STRONG FUND PERFORMANCE
For the six months ended June 30, 2000, MainStay Small Cap Value Fund returned
16.53% for Class A shares and 15.96% for Class B and Class C shares, excluding
all sales charges. All share classes outperformed the 6.56% return of the
average Lipper(4) small-cap value fund over the same period. All share classes
also outperformed the 3.04% return of the Russell 2000(R) Index and the 5.9%
return of the Russell 2000(R) Value Index over the semiannual period.
The Fund's outperformance was due to two primary factors. The first was a timely
shift away from the technology sector. The Fund began the year with a 20%
technology weighting. As these stocks appreciated sharply in the first quarter,
we lowered the Fund's exposure to about 12%. Capturing these profits in a timely
manner contributed to the Fund's overall technology sector results, which
represented a gain of more than 50% for the first half of the year. The second
factor was the positive impact of merger and acquisition activity, which also
contributed positively to the Fund's performance during the reporting period.
Some of the Fund's holdings commanded substantial premiums over the prices at
which they were originally purchased. Given the Fund's focus on stocks
6
<PAGE> 607
-------
(5) Returns reflect performance for the six-month period ended 6/30/00.
-------
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
[PERFORMANCE CHART; BAR GRAPH]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- --------------
<S> <C>
12/98 -9.70 Class A
12/99 6.11 Class A
6/00 16.53 Class A
12/98 -10.00 Class B and Class C
12/99 5.35 Class B and Class C
6/00 15.96 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 through 8/98. See
footnote * on page 9 for more information on performance.
selling at low multiples of cash flow, we believe many other stocks in the Fund
are attractive acquisition candidates.
DIVERSIFIED SECTOR APPROACH
The Fund's best-performing securities for the semiannual period were diversified
across several economic sectors. These included:
- Rexall Sundown, the leading U.S. manufacturer and marketer of vitamins and
other home health care items, appreciated over 130% and was then sold in June.
The company was acquired by Royal Numico N.V., a leading European company in
the same industry.(5)
- Etec Systems is a manufacturer of semiconductor equipment. The company's
dominance in its niche attracted acquirer Applied Materials, and the Fund sold
the stock in February after its price had doubled.
- Hussman International has a significant market share in refrigeration
equipment manufacturing, which attracted an acquisition offer from
Ingersoll-Rand. In June, the Fund sold its shares, realizing a 92% profit.
- Mediacom Communications is a cable TV operator in rural communities across the
U.S. The Fund purchased the company's stock in April when investors became
disenchanted with the cable industry, and Mediacom, which had just gone public
in February, was under enormous selling pressure. The stock subsequently
appreciated 68%.
7
<PAGE> 608
Past performance is no guarantee of future results.
- Artesyn Technologies, a leading low-cost producer of power supplies for the
telecommunications and computer markets, was another timely purchase for the
Fund. We added the stock to the portfolio in February and by the end of June,
it was up 49%.
One of the portfolio's worst performers was A. Schulman, a specialty chemical
manufacturer, which declined 21% in the first half of 2000. The company faced
rising costs for raw materials but was having difficult passing them through to
its customers. Theses margin pressures led us to eliminate the Fund's position
in the stock in May.
West Pharmaceutical declined 30% during the first half of the year due to lower
earnings expectations. The company's contract manufacturing and packaging unit
experienced setbacks when sales of their customers' products declined. The Fund
continues to hold this stock, however, as we see potential in the company's
recent cost-cutting initiatives and its new drug-delivery division. Another
stock we continue to hold, despite a 41% decline, is Lancaster Colony, a
multiproduct company producing candles, food, and auto parts. Despite business
disappointments and reduced earnings estimates, we believe the stock's decline
was excessive and that at current levels the stock has upside potential.
LOOKING AHEAD
We anticipate a slower rate of economic growth in the second half of 2000 which
may be accompanied by a leveling off in interest rates. In our opinion, this
"soft landing" scenario may continue to reward undervalued stocks, especially in
the industrial sector. Given this economic view, the Fund also anticipates
adding to its positions in the financial services sector, focusing on issues
that have underperformed in the first half of 2000 due to rising interest rates.
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.
Stocks of small companies may be subject to higher price volatility,
significantly lower trading volumes, and greater spreads between bid and ask
prices, than stocks of larger companies. Small companies may be more vulnerable
to adverse business or market developments than mid- or large-capitalization
companies.
8
<PAGE> 609
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
Class A 15.70% 5.43%
Class B 14.77% 4.65%
Class C 14.77% 4.65%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
Class A 9.34% 2.61%
Class B 9.77% 3.27%
Class C 13.77% 4.65%
</TABLE>
FUND LIPPER(+) RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C> <C>
Class A 66 out of 53 out of
327 funds 262 funds
Class B 72 out of 56 out of
327 funds 262 funds
Class C 72 out of 61 out of
327 funds 274 funds
Average Lipper small-cap
value fund 6.40% -0.32%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $11.14 $0.0000 $0.0000
Class B $10.97 $0.0000 $0.0000
Class C $10.97 $0.0000 $0.0000
</TABLE>
-------
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued at any time.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class
B shares are subject to a CDSC of up to 5% if shares are redeemed within
the first six years of purchase. Class C shares are subject to a CDSC of 1%
if redeemed within one year of purchase. Performance figures for this class
include the historical performance of the Class B shares for periods from
inception (6/1/98) through 8/31/98. Performance figures for the two classes
vary after this date based on differences in their sales charges.
+ 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. Since-inception rankings reflect the
performance of each share class from its initial offering date through
6/30/00. Class A and Class B shares were first offered to the public on
6/1/98, and Class C shares on 9/1/98. Since-inception return for the average
Lipper peer fund is for the period from 6/1/98 through 6/30/00.
9
<PAGE> 610
MainStay Small Cap Value Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.8%)+
AUTO PARTS & EQUIPMENT (2.2%)
Aftermarket Technology Corp.
(a)............................. 50,800 $ 431,800
BorgWarner Inc. ................. 14,900 523,362
-----------
955,162
-----------
BANKS (8.9%)
Banknorth Group, Inc. ........... 61,750 945,547
Centura Banks, Inc. ............. 19,600 665,175
Colonial BancGroup, Inc. (The)... 79,400 764,225
IBERIABANK Corp. ................ 15,500 238,312
Local Financial Corp. (a)........ 78,700 656,657
Staten Island Bancorp, Inc. ..... 29,300 516,413
-----------
3,786,329
-----------
BUILDING MATERIALS (3.2%)
NCI Building Systems, Inc. (a)... 28,900 585,225
Simpson Manufacturing Co., Inc.
(a)............................. 16,000 765,000
-----------
1,350,225
-----------
CHEMICALS (2.4%)
Arch Chemicals, Inc. ............ 46,600 1,019,375
-----------
COMMUNICATIONS--EQUIPMENT (3.3%)
EMS Technologies, Inc. (a)....... 23,100 415,800
Plantronics, Inc. (a)............ 8,700 1,004,850
-----------
1,420,650
-----------
COMPUTER SOFTWARE & SERVICES
(4.3%)
iGate Capital Corp. (a).......... 12,600 173,250
IMRglobal Corp. (a).............. 51,800 676,637
Perot Systems Corp. (a).......... 39,200 431,200
Systems & Computer Technology
Corp. (a)....................... 26,700 534,000
-----------
1,815,087
-----------
CONSUMER PRODUCTS (1.0%)
Lancaster Colony Corp. .......... 22,000 422,125
-----------
COSMETICS/PERSONAL CARE (1.8%)
Steiner Leisure Ltd. (a)......... 34,500 780,562
-----------
ELECTRIC POWER COMPANIES (3.0%)
IPALCO Enterprises Inc. ......... 32,500 654,062
Sierra Pacific Resources......... 49,200 618,075
-----------
1,272,137
-----------
ELECTRICAL EQUIPMENT (6.9%)
Artesyn Technologies, Inc. (a)... 32,400 901,125
Harman International Industries,
Inc. ........................... 17,400 1,061,400
Technitrol, Inc. ................ 10,200 988,125
-----------
2,950,650
-----------
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
FOOD (1.7%)
Smithfield Foods, Inc. (a)....... 25,700 $ 721,206
-----------
HEALTH CARE--MEDICAL PRODUCTS
(5.8%)
Arrow International, Inc. ....... 18,100 606,350
Beckman Coulter, Inc. ........... 12,400 723,850
DENTSPLY International, Inc. .... 23,900 736,419
West Pharmaceutical Services,
Inc. ........................... 19,000 410,875
-----------
2,477,494
-----------
HEALTH CARE--MISCELLANEOUS (4.6%)
Mallinckrodt Inc. ............... 20,500 890,469
Orthodontic Centers of America,
Inc. (a)........................ 46,700 1,056,587
-----------
1,947,056
-----------
HOUSEWARES (1.1%)
Oneida Ltd. ..................... 25,400 450,850
-----------
INSURANCE (2.1%)
American Medical Security Group,
Inc. ........................... 47,000 323,125
MIIX Group, Inc. (The)........... 47,000 564,000
-----------
887,125
-----------
LEISURE TIME (2.3%)
Arctic Cat, Inc. ................ 38,900 461,937
Coachmen Industries, Inc. ....... 46,800 538,200
-----------
1,000,137
-----------
MANUFACTURING (11.1%)
Brady Corp. Class A.............. 18,000 585,000
CLARCOR Inc. .................... 32,500 645,937
Esterline Technologies
Corp.(a)........................ 15,100 224,613
Harsco Corp. .................... 19,100 487,050
Idex Corp. ...................... 16,800 530,250
Mark IV Industries, Inc. ........ 31,900 665,913
Matthews International Corp. .... 15,800 458,200
Specialty Equipment Cos., Inc.
(a)............................. 42,100 1,141,962
-----------
4,738,925
-----------
METALS--PROCESSING & FABRICATION (0.8%)
Hawk Corp. Class A (a)........... 47,500 359,219
-----------
OFFICE EQUIPMENT & SUPPLIES
(0.4%)
Hunt Corp. ...................... 15,700 162,887
-----------
OIL & GAS SERVICES (5.3%)
Houston Exploration Co. (The)
(a)............................. 27,300 685,913
McMoRan Exploration Co. (a)...... 57,800 953,700
Pride International, Inc. (a).... 25,300 626,175
-----------
2,265,788
-----------
PAPER & FOREST PRODUCTS (1.8%)
FiberMark, Inc. (a).............. 29,400 363,825
Wausau-Mosinee Paper Corp. ...... 46,900 401,581
-----------
765,406
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 611
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PUBLISHING (3.2%)
Hollinger International Inc. .... 39,900 $ 543,638
R. H. Donnelley Corp. (a)........ 41,800 809,875
-----------
1,353,513
-----------
REAL ESTATE INVESTMENT/
MANAGEMENT (6.2%)
Bedford Property Investors,
Inc. ........................... 21,000 389,813
IStar Financial Inc. ............ 21,900 458,531
Koger Equity, Inc. .............. 27,500 464,062
LNR Property Corp. .............. 24,200 471,900
Pan Pacific Retail Properties,
Inc. ........................... 21,100 424,638
Post Properties, Inc. ........... 9,400 413,600
-----------
2,622,544
-----------
RESTAURANTS (3.6%)
Buffets, Inc. (a)................ 91,000 1,154,563
Landry's Seafood Restaurants,
Inc. ........................... 43,600 370,600
-----------
1,525,163
-----------
RETAIL (1.4%)
Payless ShoeSource Inc. (a)...... 11,800 615,813
-----------
SPECIALIZED SERVICES (1.9%)
Banta Corp. ..................... 35,600 674,175
Staff Leasing, Inc. (a).......... 37,600 133,950
-----------
808,125
-----------
TELECOMMUNICATIONS (3.0%)
Clearnet Communications Inc.
Class A (a)..................... 14,400 399,825
Mediacom Communications Corp.
(a)............................. 58,000 891,750
-----------
1,291,575
-----------
</TABLE>
<TABLE>
--------------------------------------------------------------
<CAPTION>
SHARES VALUE
<S> <C> <C>
TRANSPORTATION (1.2%)
Arnold Industries, Inc. ......... 42,700 $ 515,069
-----------
TRUCKERS (1.3%)
Heartland Express, Inc. (a)...... 32,900 549,019
-----------
Total Common Stocks (Cost
$38,730,405).................... 40,829,216
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (10.1%)
TIME DEPOSIT (10.1%)
Bank of New York Cayman 5.75%,
due 7/3/00...................... $4,282,000 4,282,000
-----------
Total Short-Term Investment (Cost
$4,282,000)..................... 4,282,000
-----------
Total Investments (Cost
$43,012,405) (b)................ 105.9% 45,111,216(c)
Liabilities in Excess of Cash,
and Other Assets................ (5.9) (2,515,371)
---------- -----------
Net Assets....................... 100.0% $42,595,845
========== ===========
</TABLE>
-------
(a) Non-income producing security.
(b) The cost cost for federal income tax purposes is $43,028,943.
(c) At June 30, 2000, net unrealized appreciation was $2,082,273, 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 $5,513,335 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,431,062.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 612
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$43,012,405).............................................. $45,111,216
Cash........................................................ 744
Receivables:
Investment securities sold................................ 4,238,677
Fund shares sold.......................................... 140,098
Dividends and interest.................................... 59,139
Unamortized organization expense............................ 39,414
-----------
Total assets........................................ 49,589,288
-----------
LIABILITIES:
Payables:
Investment securities purchased........................... 6,859,788
Transfer agent............................................ 29,640
MainStay Management....................................... 29,207
NYLIFE Distributors....................................... 21,825
Fund shares redeemed...................................... 12,257
Custodian................................................. 8,751
Trustees.................................................. 269
Accrued expenses............................................ 31,706
-----------
Total liabilities................................... 6,993,443
-----------
Net assets.................................................. $42,595,845
===========
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 17,965
Class B................................................... 19,477
Class C................................................... 1,110
Additional paid-in capital.................................. 35,939,716
Accumulated net investment loss............................. (78,062)
Accumulated net realized gain on investments................ 4,596,828
Net unrealized appreciation on investments.................. 2,098,811
-----------
Net assets.................................................. $42,595,845
===========
CLASS A
Net assets applicable to outstanding shares................. $20,010,766
===========
Shares of beneficial interest outstanding................... 1,796,476
===========
Net asset value per share outstanding....................... $ 11.14
Maximum sales charge (5.50% of offering price).............. 0.65
-----------
Maximum offering price per share outstanding................ $ 11.79
===========
CLASS B
Net assets applicable to outstanding shares................. $21,367,494
===========
Shares of beneficial interest outstanding................... 1,947,667
===========
Net asset value and offering price per share outstanding.... $ 10.97
===========
CLASS C
Net assets applicable to outstanding shares................. $ 1,217,585
===========
Shares of beneficial interest outstanding................... 110,983
===========
Net asset value and offering price per share outstanding.... $ 10.97
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 613
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends................................................. $ 259,027
Interest.................................................. 66,215
----------
Total income............................................ 325,242
----------
Expenses:
Management................................................ 179,267
Transfer agent............................................ 77,540
Distribution--Class B..................................... 66,689
Distribution--Class C..................................... 3,777
Service--Class A.......................................... 21,328
Service--Class B.......................................... 22,230
Service--Class C.......................................... 1,259
Registration.............................................. 13,975
Custodian................................................. 10,429
Professional.............................................. 9,612
Recordkeeping............................................. 7,634
Amortization of organization expense...................... 6,727
Shareholder communication................................. 1,881
Trustees.................................................. 467
Miscellaneous............................................. 8,984
----------
Total expenses before reimbursement..................... 431,799
Expense reimbursement by Manager............................ (20,725)
----------
Net expenses............................................ 411,074
----------
Net investment loss......................................... (85,832)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................ 5,243,586
Net change in unrealized appreciation on investments........ 408,698
----------
Net realized and unrealized gain on investments............. 5,652,284
----------
Net increase in net assets resulting from operations........ $5,566,452
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 614
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months
ended Year ended
June 30, 2000* December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss....................................... $ (85,832) $ (210,498)
Net realized gain on investments.......................... 5,243,586 174,014
Net change in unrealized appreciation on investments...... 408,698 1,788,220
----------- -----------
Net increase in net assets resulting from operations...... 5,566,452 1,751,736
----------- -----------
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................................................. 4,021,380 3,577,142
Class B................................................. 6,145,274 8,566,971
Class C................................................. 844,730 540,308
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Class A................................................. -- 30,736
Class B................................................. -- 32,019
Class C................................................. -- 684
----------- -----------
11,011,384 12,747,860
Cost of shares redeemed:
Class A................................................. (1,886,468) (1,602,497)
Class B................................................. (3,229,972) (3,817,385)
Class C................................................. (427,012) (130,900)
----------- -----------
Increase in net assets derived from capital share
transactions........................................ 5,467,932 7,197,078
----------- -----------
Net increase in net assets............................ 11,034,384 8,880,640
NET ASSETS:
Beginning of period......................................... 31,561,461 22,680,821
----------- -----------
End of period............................................... $42,595,845 $31,561,461
=========== ===========
Accumulated undistributed net investment income (loss) at
end of period............................................. $ (78,062) $ 7,770
=========== ===========
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 615
This page intentionally left blank
15
<PAGE> 616
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A
------------------------------------------
Six months June 1*
ended Year ended through
June 30, December 31, December 31,
2000+ 1999 1998
---------- ------------ ------------
<S> <C> <C> <C>
Net asset value at beginning of period...................... $ 9.56 $ 9.03 $ 10.00
------- ------- -------
Net investment loss (a)..................................... (0.00)(b) (0.03) (0.06)
Net realized and unrealized gain (loss) on investments...... 1.58 0.58 (0.91)
------- ------- -------
Total from investment operations............................ 1.58 0.55 (0.97)
------- ------- -------
Less distributions:
From net realized gain on investments...................... -- (0.02) --
------- ------- -------
Net asset value at end of period............................ $ 11.14 $ 9.56 $ 9.03
======= ======= =======
Total investment return (c)................................. 16.53% 6.11% (9.70%)
Ratios (to average net assets)/
Supplemental Data:
Net investment loss...................................... (0.09%)++ (0.34%) (1.53%)++
Net expenses............................................. 1.90%++ 1.90% 3.14%++
Expenses (before reimbursement).......................... 2.02%++ 2.21% 3.14%++
Portfolio turnover rate..................................... 39% 42% 24%
Net assets at end of period (in 000's)...................... $20,011 $15,205 $12,339
</TABLE>
-------
<TABLE>
<C> <S>
* Commencement of Operations.
** Class C shares were first offered on September 1, 1998.
+ Unaudited.
++ Annualized.
(a) Per share data based on average shares outstanding during
the period.
(b) Less than one cent per share.
(c) 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> 617
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------- -------------------------------------------
Six months June 1* Six months September 1**
ended Year ended through ended Year ended through
June 30, December 31, December 31, June 30, December 31, December 31,
2000+ 1999 1998 2000+ 1999 1998
---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.46 $ 9.00 $ 10.00 $ 9.46 $ 9.00 $ 7.49
------- ------- ------- ------- ------- ------
(0.04) (0.10) (0.09) (0.04) (0.10) (0.06)
1.55 0.58 (0.91) 1.55 0.58 1.57
------- ------- ------- ------- ------- ------
1.51 0.48 (1.00) 1.51 0.48 1.51
------- ------- ------- ------- ------- ------
-- (0.02) -- -- (0.02) --
------- ------- ------- ------- ------- ------
$ 10.97 $ 9.46 $ 9.00 $ 10.97 $ 9.46 $ 9.00
======= ======= ======= ======= ======= ======
15.96% 5.35% (10.00%) 15.96% 5.35% 20.16%
(0.84%)++ (1.09%) (2.28%)++ (0.84%)++ (1.09%) (2.28%)++
2.65%++ 2.65% 3.89%++ 2.65%++ 2.65% 3.89%++
2.77%++ 2.96% 3.89%++ 2.77%++ 2.96% 3.89%++
39% 42% 24% 39% 42% 24%
$21,367 $15,722 $10,145 $ 1,218 $ 634 $ 196
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 618
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 (and certain other qualified purchases) 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
18
<PAGE> 619
Notes to Financial Statements unaudited
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 may 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.
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> 620
MainStay Small Cap Value Fund
EXPENSES. Expenses of the Trust are allocated to the individual Funds in
proportion to the net assets of the respective Funds when the expenses are
incurred except when direct allocations of expenses can be made. The investment
income and expenses (other than expenses incurred under the distribution plans)
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 Dalton, Greiner,
Hartman, Maher & Co. (the "Subadvisor"). Under the supervision of the Trust's
Board of Trustees and the Manager, the Subadvisor is responsible for the
day-to-day portfolio management of the Fund.
The Trust, on behalf of the Fund, pays the Manager a monthly fee for services
performed and the facilities furnished at an annual rate of 1.00% of the Fund's
average daily net assets. The Manager has voluntarily agreed to reimburse the
expenses of the Fund to the extent that operating expenses would exceed on an
annualized basis 1.90%, 2.65% and 2.65% of the average daily net assets of the
Class A, Class B and Class C shares, respectively. For the six months ended June
30, 2000, the Manager earned $179,267 and reimbursed the Fund $20,725.
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 distribution plans (the
"Plans") in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Class A Plan, the Distributor receives a monthly fee from the
Fund at an annual rate of 0.25% of the average daily net assets of the Fund's
Class A shares, which is an expense of the Class A shares of the Fund for
distribution or service activities as designated by the Distributor. Pursuant to
the Class B and Class C Plans, the Fund pays the Distributor a monthly fee,
which is an expense of the Class B and Class C shares of the Fund, at the annual
rate of 0.75% of the average daily net assets of the Fund's Class B and Class C
shares. The Distribution Plans provide that the Class B
20
<PAGE> 621
Notes to Financial Statements unaudited (continued)
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 Plans provide 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 $1,774 for the six months ended
June 30, 2000. 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 $673, $20,365 and $3,558, respectively, for the six months ended June
30, 2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000, amounted to $77,540.
TRUSTEES' FEES. Trustees, other than those affiliated with New York Life, the
Manager or the Distributor, are paid an annual fee of $45,000, $2,000 for each
Board meeting and $1,000 for each Committee meeting attended plus reimbursement
for travel and out-of-pocket expenses. The Trust allocates this expense in
proportion to the net assets of the respective Funds.
CAPITAL. At June 30, 2000, New York Life held shares of Class A and Class B
with net asset values of $10,048,548 and $1,099,492, respectively. This
represents 50.2% and 5.1%, respectively, of the net assets at period end for
Class A and B.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $331 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$7,634 for the six months ended June 30, 2000.
NOTE 4--FEDERAL INCOME TAX:
The Fund has elected, to the extent provided by regulations, to treat $642,742
of qualifying capital losses that arose during the prior year as if they arose
on January 1, 2000. In addition, the Fund utilized $594,148 of capital loss
carryforwards during the prior year.
NOTE 5--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $18,619 and $13,230, respectively.
21
<PAGE> 622
MainStay Small Cap Value Fund
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 six months ended June 30, 2000.
NOTE 7--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000* DECEMBER 31, 1999
--------------------------- ---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 397 612 85 398 960 60
Shares issued in reinvestment of dividends
and distributions.......................... -- -- -- 3 3 --(a)
---- ---- --- ---- ---- ---
397 612 85 401 963 60
Shares redeemed.............................. (191) (326) (41) (177) (428) (15)
---- ---- --- ---- ---- ---
Net increase................................. 206 286 44 224 535 45
==== ==== === ==== ==== ===
</TABLE>
-------
<TABLE>
<C> <S>
* Unaudited.
(a) Less than one thousand.
</TABLE>
22
<PAGE> 623
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
23
<PAGE> 624
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSSV11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
Small Cap Value Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY LOGO]
<PAGE> 625
Table of Contents
<TABLE>
<S> <C>
President's Letter 3
$10,000 Invested in MainStay MAP Equity Fund
versus S&P 500 Index, Lipper Growth & Income
Fund Index, and Inflation--Class A, B, C, and
I Shares 4
Portfolio Management Discussion and Analysis 6
Year-by-Year and Six-Month Performance 7
Returns and Lipper Rankings 10
Portfolio of Investments 12
Financial Statements 15
Notes to Financial Statements 20
The MainStay(R) Funds 26
</TABLE>
<PAGE> 626
This page intentionally left blank
2
<PAGE> 627
President's Letter
Both large- and small-cap stocks ended the first six months of 2000 relatively
close to where they began, despite continuing market turbulence. As millennium
fervor subsided, large-capitalization stocks drifted downward and the market
focused on smaller technology issues through the beginning of March. By
mid-March, however, the directions of the two markets had shifted, with
large-cap stocks improving and small-cap issues beginning an extended decline.
Throughout the first half of 2000, rising interest rates, surprising inflation
reports, a landmark antitrust decision, and continuing competitive pressures
helped shape results for domestic and international investors. After some of the
most spectacular daily gains and losses on record, overall results for the
six-month period tended to be less remarkable. A strong U.S. dollar weakened
most international returns.
To slow the rate of U.S. economic growth and keep inflation in check, the
Federal Reserve increased the targeted federal funds rate by 25 basis points in
both February and March and by 50 basis points in May. The net impact on bond
investors was negative, although the government's initiative to repurchase
Treasury securities helped reduce supply and stabilize government-bond prices.
With mounting evidence that economic growth was slowing, the Federal Reserve
failed to take any rate action at the end of June, which may have a positive
impact in the months ahead.
As always, through the ups and downs of the last six months, The MainStay(R)
Funds remained focused on the long term. Each of our Funds follows a disciplined
investment process that is consistently applied in all market environments.
During the reporting period, we continued to seek competitive performance,
provide a high level of customer service, and demonstrate integrity in our
strategies, operations, and transactions.
This semiannual report outlines the specific events that affected your MainStay
investment during the six months ended June 30, 2000. If you have any questions
about this report or the management of your Fund, your registered representative
will be pleased to assist you.
At MainStay, we believe that consistent application of sound investment
disciplines is the best way to help you pursue your long-term investment goals.
Recent market volatility has underscored the integrity of our approach and the
value of our commitment to you as a MainStay shareholder in all investment
environments.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
July 2000
3
<PAGE> 628
$10,000 Invested in MainStay MAP Equity Fund versus S&P 500 Index, Lipper
Growth & Income Fund Index, and Inflation
CLASS I SHARES Total Returns: 1 Year 10.00%, 5 Years 21.44%, 10 Years 16.00%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
PERIOD END S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
---------- -------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
12/89 $ 10,000 $ 10,000 $ 9,523 $ 10,000
12/90 9,690 9,401 9,032 10,625
12/91 12,636 12,010 11,534 10,942
12/92 13,597 13,166 12,760 11,265
12/93 14,963 15,091 13,862 11,574
12/94 15,160 15,029 14,250 11,875
12/95 20,851 19,710 18,898 12,184
12/96 25,634 23,783 23,438 12,587
12/97 34,186 30,176 30,082 12,801
12/98 43,956 34,274 37,377 13,007
12/99 53,205 38,339 41,929 13,356
6/00 52,981 38,163 44,661 13,632
</TABLE>
CLASS A SHARES Total Returns: 1 Year 3.68%, Since Inception 7.66%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
PERIOD END S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
---------- -------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 $ 10,000 $ 10,000 $ 9,550 $ 10,000
6/99 10,544 10,339 9,858 10,000
9/99 9,885 9,512 9,119 10,102
12/99 11,356 10,364 10,161 10,157
3/00 11,616 10,587 11,049 10,301
6/00 11,567 10,324 10,816 10,367
</TABLE>
CLASS B SHARES Total Return: 1 Year 3.94%, Since Inception 9.03%
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
PERIOD END S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
---------- -------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/99 10,544 10,339 10,430 10,000
9/99 9,885 9,512 9,632 10,102
12/99 11,356 10,364 10,723 10,157
3/00 11,616 10,587 11,625 10,301
6/00 11,567 10,324 10,963 10,367
</TABLE>
4
<PAGE> 629
CLASS C SHARES Total Returns: 1 Year 7.94%, Since Inception 12.77%
[PERFORMANCE GRAGH]
<TABLE>
<CAPTION>
LIPPER GROWTH & MAINSTAY MAP
PERIOD END S&P 500* INCOME FUND INDEX+ EQUITY FUND INFLATION (CPI)++
---------- -------- ------------------ ------------ -----------------
<S> <C> <C> <C> <C>
6/9/99 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/99 10,544 10,339 10,430 10,000
9/99 9,885 9,512 9,632 10,102
12/99 11,356 10,364 10,723 10,157
3/00 11,616 10,587 11,625 10,301
6/00 11,567 10,324 11,363 10,367
</TABLE>
-------
On 6/9/99, the MAP-Equity Fund was reorganized as MainStay MAP Equity Fund
Class I shares.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET VOLATILITY,
CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include change in share
price, reinvestment of dividend and capital gain distributions, and maximum
sales charges (see below). Performance figures reflect certain fee waivers
and/or expense limitations, without which total return figures may have been
lower. Fee waivers and/or expense limitations are voluntary and may be
discontinued after 5/31/01. The graphs assume an initial investment of
$10,000 and reflect deduction of all sales charges that would have applied
for the period of investment. Class A share performance reflects the effect
of the maximum 5.5% initial sales charge. Class B share performance reflects
a contingent deferred sales charge (CDSC) of 4%. Class C shares would be
subject to a CDSC of 1% if redeemed within one year of purchase. Class I
share performance includes the historical performance of the MAP-Equity Fund
from inception (1/21/71) through 6/8/99. Prior to the reorganization, shares
of MAP-Equity Fund were subject to a maximum 4.75% initial sales charge.
Class I shares are subject to no initial or contingent deferred sales
charges.
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500 is
an unmanaged index and is considered to be generally representative of the
large-cap U.S. stock market. Total returns reflect the reinvestment of all
capital gains and dividends. You cannot invest directly in an index.
+ The Lipper Growth & Income Fund Index is an unmanaged equally weighted
performance index of the thirty largest qualifying funds in the Lipper 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. You cannot invest directly in 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> 630
-------
(1) See footnote on page 5 for more information about the S&P 500(R) Index.
(2) The NASDAQ Composite 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. You cannot invest directly in an index.
(3) See footnote and table on page 10 for more information about Lipper Inc.
(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. The top 10% of funds in a broad assets 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 S&P 500 Index(1) declined slightly during the first six months of 2000, with
a semiannual return of -0.42%. Over the first half of the year, small-cap stocks
continued their 1999 trend by outperforming their large-cap counterparts. Mid-
cap stocks turned in the best semiannual performance of all equity
capitalization sectors. As has been the case for the past several years,
large-capitalization growth-oriented stocks outperformed their value
counterparts for the semiannual period. The reverse was true in the small-cap
equity market, where value outperformed growth.
Equity markets struggled within each capitalization sector, weighed down at
first by fears of economic overheating and rising interest rates, and then by
concerns about profit growth in a slowing economic environment. Each of the
markets also remained extremely narrow and volatile throughout the semiannual
period.
During the first quarter of 2000, the broader U.S. equity market gained, but
intraday volatility was high. In the second quarter, many major U.S. equity
indices were down dramatically due to the NASDAQ Composite(2) correction that
began in March and carried into April and May and shifted many investors out of
"new economy" stocks into "old economy" issues with more reliable earnings. The
equity markets rallied impressively in June, on optimism that the Federal
Reserve would manage to engineer a "soft landing" for the U.S. economy.
STRONG FUND PERFORMANCE
For the six months ended June 30, 2000, MainStay MAP Equity Fund returned 6.51%
for Class I shares. Class A shares returned 6.45% and Class B and Class C shares
returned 5.97%, excluding all sales charges. All share classes outperformed the
2.53% return of the average Lipper(3) multi-cap core fund and the -0.42% return
of the S&P 500 Index for the same period.
It is also worth noting that Morningstar(4) rated MainStay MAP Equity Fund Class
I shares four stars overall out of 3,642 domestic equity funds as of June 30,
2000. The Fund's Class I shares received four stars out of 3,642 domestic equity
funds for the three-year period then ended, four stars out of 2,328 domestic
equity funds for the five-year period then ended, and four stars out of 783
domestic equity funds for the 10-year period then ended.
6
<PAGE> 631
YEAR-BY-YEAR AND SIX-MONTH PERFORMANCE
CLASS I SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- ------------
<S> <C>
12/89 28.18
12/90 -5.09
12/91 27.69
12/92 10.53
12/93 8.67
12/94 2.76
12/95 32.50
12/96 23.82
12/97 27.99
12/98 24.23
12/99 12.18
6/00 6.51
Past performance is no guarantee of future results. Class I share returns
include the performance of the MAP-Equity Fund through 6/8/99. See footnote *
on page 10 for more information on performance.
</TABLE>
CLASS A, B, AND C SHARES
[BAR CHART]
<TABLE>
<CAPTION>
PERIOD END TOTAL RETURN %
---------- ------------
<S> <C>
12/98 7.53 Class A
6/00 6.45 Class A
12/99 7.23 Class B and Class C
6/00 5.97 Class B and Class C
Past performance is no guarantee of future results. See footnote * on page 9 for
more information on performance.
</TABLE>
There were several reasons for the Fund's outperformance. First, we adhered
closely to the Fund's disciplined stock-by-stock selection approach. Second, the
Fund focused on mid-cap and small-cap sectors of the market, which outperformed.
Third was our decision to overweight the aerospace defense sector. We bought
some of these stocks close to their two-year lows on the belief that defense
spending in the U.S. was turning up after a 13-year decline. Fourth, while
maintaining the Fund's overweighting in the technology sector, we reduced its
technology positions. Finally, the Fund had few investments in unseasoned
high-growth companies that suffered major price declines beginning in March of
this year. While the Fund does sometimes buy broken growth stocks and securities
of companies temporarily posting losses, we generally
7
<PAGE> 632
-------
(5) Returns reflect performance for the six-month period ended 6/30/00.
attempt to contain the overall risk level of the portfolio and to maintain our
value-oriented strategies. This approach worked well for the Fund during the
first half of 2000.
DIVERSIFIED VALUE APPROACH
The Fund remained broadly diversified across many industries, with the largest
weightings in the industrial, technology, and health care sectors. The following
were among the Fund's top-performing securities during the first half of the
year.(5)
- TriQuint Semiconductor (+72%), one of the world's leading suppliers of gallium
arsenide chips for the mobile cellular phone market, continued to appreciate
after it posted very strong earnings.
- Kinder Morgan (+71%), the corporate parent of a natural-gas pipeline complex
and general partner of the Kinder Morgan Master Limited Partnership, is a
unique vehicle benefiting from the surge in natural gas prices. The company is
also taking advantage of pipeline rights-of-way for optical data transmission
networks. Positive investor sentiment toward the tax-advantages of this
well-managed energy transportation complex helped moved the stock higher.
- State Street (+45%) appreciated after it announced that earnings would be
better than expected for the first quarter. The company is beginning to show
positive operating leverage for the first time in several years.
- Santa Fe Snyder (+42%), a domestic oil and gas driller with international
potential, appreciated after it entered into a merger agreement with Devon
Energy.
- Pharmacia (+36%) rose after the controversial merger between Pharmacia &
Upjohn and its former rival, Monsanto, was completed. After the continuing CEO
explained the synergies available to the two companies, the stock price
firmed.
- National Computer Systems (+31%) appreciated nicely on the back of strong
earnings and a growing recognition that its CEO has positioned the company to
continue its participation in the growth of the nation's educational-testing
markets.
- PathoGenesis (+21%) appreciated when management put the company up for sale in
early June. PathoGenesis has an exclusive position supplying the most
effective cystic-fibrosis drug and is positioned to effectively deliver a wide
array of antibiotics directly through the lungs using a state-of-the-art
nebulizer.
Of course, not all of the Fund's stocks performed well. Informix merged with
Ardent Software during the first half of the year, but synergies were less than
expected, which took a toll on the stock's performance. DoubleClick declined due
to weaker Internet advertising, as small independent Internet companies
8
<PAGE> 633
Past performance is no guarantee of future results.
pulled back and decided to conserve cash given the change in the initial public
offering market. EDS declined after the company announced that revenue growth
would slow in the second quarter. While these issues detracted from the Fund's
performance during the first half of the year, we continue to hold the
positions, believing that each has positive long-term potential.
RESHAPING THE PORTFOLIO
We made some significant purchases and sales for the Fund during the first half
of 2000. We added to the Fund's positions in Qwest Communications, PathoGenesis,
State Street, and Johnson & Johnson and initiated a position in Metromedia Fiber
Network. Each move contributed positively to Fund returns. Other purchases
included Northrop Grumman, Teledyne Technologies, Litton Industries, and
Lockheed Martin, all aerospace suppliers, which in the aggregate also
contributed to the Fund's strong performance. As potential turnarounds, we added
Consolidated Stores, Walter Industries, and Archer-Daniels-Midland. Two
noteworthy sales during the first half included a material reduction in the
Fund's Seagate Technology holdings after management proposed a less-than-
optimal merger and eliminating the Fund's entire position in Motorola prior to
the stock's decline.
LOOKING AHEAD
We believe there are some inexpensively priced retailers and financial
intermediaries, which could benefit if the U.S. economy cools off. We also see
the turn in defense spending and the major revolution in communications
infrastructure and Internet backbone as important secular trends. We generally
try to buy stocks that we believe are cheap and offer strong reasons to
anticipate appreciation. One of the major factors we use as a guide in spotting
inexpensively priced individual stocks is ownership and buying activity by
company insiders. 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
9
<PAGE> 634
Returns and Lipper Rankings as of 6/30/00
FUND TOTAL RETURNS (WITHOUT SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 9.71% n/a n/a 13.54%
Class B 8.94% n/a n/a 12.77%
Class C 8.94% n/a n/a 12.77%
Class I 10.00% 22.63% 16.56% 12.12%
</TABLE>
FUND TOTAL RETURNS (WITH SALES CHARGES)*
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 3.68% n/a n/a 7.66%
Class B 3.94% n/a n/a 9.03%
Class C 7.94% n/a n/a 12.77%
Class I 10.00% 21.44% 16.00% 11.94%
</TABLE>
FUND LIPPER+ RANKINGS AND LIPPER CATEGORY RETURNS AS OF 6/30/00
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS THROUGH 6/30/00
<S> <C> <C> <C> <C>
Class A 190 out of n/a n/a 179 out of
366 funds 358 funds
Class B 204 out of n/a n/a 196 out of
366 funds 358 funds
Class C 204 out of n/a n/a 196 out of
366 funds 358 funds
Class I 183 out of 22 out of 18 out of 6 out of
366 funds 126 funds 52 funds 16 funds
Average Lipper
multi-cap
core fund 11.54% 19.33% 15.67% 12.14%
</TABLE>
FUND PER SHARE NET ASSET VALUES AND DISTRIBUTIONS FOR THE PERIOD ENDED
6/30/00
<TABLE>
<CAPTION>
NAV 6/30/00 INCOME CAPITAL GAINS
<S> <C> <C> <C>
Class A $27.91 $0.0000 $0.0000
Class B $27.71 $0.0000 $0.0000
Class C $27.71 $0.0000 $0.0000
Class I $27.96 $0.0000 $0.0000
</TABLE>
-------
* On 6/9/99, MAP-Equity Fund was reorganized as MainStay MAP Equity Fund
Class I shares.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. DUE TO MARKET
VOLATILITY, CURRENT PERFORMANCE MAY BE LESS THAN THAT SHOWN. INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Total returns include
change in share price and reinvestment of dividend and capital gain
distributions. Performance figures reflect certain fee waivers and/or
10
<PAGE> 635
expense limitations, without which total return figures may have been lower.
Fee waivers and/or expense limitations are voluntary and may be discontinued
after 5/31/01.
Class A shares are sold with a maximum initial sales charge of 5.5%. Class B
shares are subject to a CDSC of up to 5% if shares are redeemed within the
first six years of purchase. Class C shares are subject to a CDSC of 1% if
redeemed within one year of purchase. Class I shares are subject to no
initial or contingent deferred sales charges. Performance figures for this
class include the historical performance of the MAP-Equity Fund from
inception (1/21/71) through 6/8/99. Prior to the reorganization, shares of
MAP-Equity Fund were subject to a maximum 4.75% initial sales charge.
+ 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. Since-inception rankings reflect the performance of each share
class from its initial offering date through 6/30/00. 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. Since-inception return for
the average Lipper peer fund is for the period from 1/21/71 through
6/30/00. Lipper averages are not class specific.
11
<PAGE> 636
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.0%)+
ADVERTISING & MARKETING SERVICES (5.0%)
Catalina Marketing Corp. (a).... 31,537 $ 3,216,774
Harte-Hanks, Inc. .............. 85,662 2,141,550
------------
5,358,324
------------
AEROSPACE/DEFENSE (7.0%)
Boeing Co. (The)................ 33,348 1,394,363
Litton Industries, Inc. (a)..... 75,700 3,179,400
Lockheed Martin Corp. .......... 69,000 1,712,063
Northrop Grumman Corp. ......... 10,000 662,500
Teledyne Technologies Inc.
(a)............................ 31,500 527,625
------------
7,475,951
------------
AIRLINES (0.5%)
AMR Corp. (a)................... 20,000 528,750
------------
BANKS (5.8%)
Bank One Corp. ................. 78,800 2,093,125
Northern Trust Corp. ........... 22,310 1,451,544
Popular, Inc. .................. 20,940 399,169
State Street Corp. ............. 21,300 2,259,131
------------
6,202,969
------------
BEVERAGES (0.1%)
PepsiCo, Inc. .................. 3,597 159,842
------------
BROADCAST/MEDIA (0.4%)
MediaOne Group, Inc. (a)........ 5,928 393,812
------------
BUILDING MATERIALS (4.1%)
Martin Marietta Materials,
Inc. .......................... 20,000 808,750
Vulcan Materials Co. ........... 84,478 3,606,155
------------
4,414,905
------------
CHEMICALS (1.2%)
IMC Global Inc. ................ 5,850 76,050
Great Lakes Chemical Corp. ..... 35,105 1,105,807
Valspar Corp. (The)............. 3,445 116,269
------------
1,298,126
------------
COMMUNICATIONS--EQUIPMENT (3.8%)
Cabletron Systems, Inc. (a)..... 53,700 1,355,925
CommScope, Inc. (a)............. 19,018 779,738
Metromedia Fiber Network, Inc.
(a)............................ 30,000 1,190,625
Nortel Networks Corp. .......... 10,944 746,928
------------
4,073,216
------------
COMPUTER SOFTWARE & SERVICES (6.1%)
ACNielsen Corp. (a)............. 93,259 2,051,698
Avid Technology, Inc. (a)....... 11,232 134,784
--------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (CONTINUED)
Electronic Data Systems
Corp. ......................... 27,713 $ 1,143,161
Gartner Group, Inc. Class B
(a)............................ 2,178 21,508
Informix Corp. (a).............. 200,550 1,491,591
Shared Medical Systems Corp. ... 1,682 122,681
Titan Corp. (The) (a)........... 34,300 1,534,925
------------
6,500,348
------------
COMPUTER SYSTEMS (1.0%)
Seagate Technology, Inc. (a).... 19,100 1,050,500
------------
CONSUMER PRODUCTS (0.1%)
Energizer Holdings, Inc. (a).... 4,880 89,060
------------
DATA PROCESSING SERVICES (1.8%)
National Computer Systems,
Inc. .......................... 39,140 1,927,645
------------
ELECTRIC POWER COMPANIES (0.9%)
Reliant Energy, Inc. ........... 31,622 934,825
------------
ELECTRICAL EQUIPMENT (0.2%)
Checkpoint Systems, Inc. (a).... 23,203 174,022
------------
ELECTRONICS--COMPONENTS (1.2%)
Arrow Electronics, Inc. (a)..... 1,375 42,625
TriQuint Semiconductor, Inc.
(a)............................ 12,678 1,213,126
------------
1,255,751
------------
ENTERTAINMENT (2.1%)
Time Warner, Inc. .............. 28,902 2,196,552
------------
FINANCE (0.0%) (c)
American Express Co. ........... 621 32,370
------------
FOOD (3.4%)
Archer Daniels Midland Co. ..... 108,900 1,068,581
Bestfoods....................... 6,589 456,288
Quaker Oats Co. (The)........... 24,549 1,844,244
Ralston-Ralston Purina Group.... 14,641 291,905
------------
3,661,018
------------
HEALTH CARE--DRUGS (6.5%)
PathoGenesis Corp. (a).......... 131,500 3,419,000
Pharmacia Corp. ................ 67,421 3,484,823
------------
6,903,823
------------
HEALTH CARE--MEDICAL PRODUCTS (1.5%)
Becton, Dickinson & Co. ........ 56,900 1,632,319
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 637
Portfolio of Investments June 30, 2000 unaudited
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE--MISCELLANEOUS (4.2%)
Biogen, Inc. (a)................ 16,112 $ 1,039,224
Caremark Rx, Inc. (a)........... 38,542 262,567
Johnson & Johnson............... 31,027 3,160,876
------------
4,462,667
------------
HOUSEHOLD PRODUCTS (2.5%)
Clorox Co. (The)................ 59,200 2,652,900
------------
HOUSEWARES (0.1%)
Tupperware Corp. ............... 6,079 133,738
------------
INSURANCE (2.5%)
ALLmerica Financial Corp. ...... 40,251 2,108,146
SAFECO Corp. (The).............. 25,880 514,365
------------
2,622,511
------------
INTERNET SOFTWARE & SERVICES (1.5%)
About.com, Inc. (a)............. 14,000 441,000
DoubleClick Inc. (a)............ 30,000 1,143,750
EarthLink, Inc. (a)............. 1,100 16,981
------------
1,601,731
------------
MANUFACTURING (2.0%)
Minnesota Mining and
Manufacturing Co. ............. 16,390 1,352,175
Pentair, Inc. .................. 1,774 62,977
Tyco International Ltd. ........ 5,932 281,029
Walter Industries, Inc. ........ 35,100 401,456
------------
2,097,637
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (5.1%)
Kinder Morgan, Inc. ............ 156,900 5,422,856
------------
OIL & GAS SERVICES (3.4%)
Apache Corp. ................... 5,661 332,938
Devon Energy Corp. ............. 18,242 1,024,972
Santa Fe Synder Corp. (a)....... 200,000 2,275,000
------------
3,632,910
------------
OIL--INTEGRATED INTERNATIONAL (1.8%)
BP Amoco PLC ADR (b)............ 26,736 1,512,255
Royal Dutch Petroleum Co. ADR
(b)............................ 6,415 394,923
------------
1,907,178
------------
PAPER & FOREST PRODUCTS (1.0%)
Louisiana-Pacific Corp. ........ 97,863 1,064,260
------------
PHOTOGRAPHY/IMAGING (1.6%)
Polaroid Corp. ................. 92,800 1,676,200
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
PUBLISHING (0.7%)
Meredith Corp. ................. 15,400 $ 519,750
R.H. Donnelley Inc. (a)......... 9,808 190,030
Thomas Nelson, Inc. ............ 10,082 86,327
------------
796,107
------------
REAL ESTATE INVESTMENT/MANAGEMENT (1.2%)
Health Care Property Investors,
Inc. .......................... 31,146 848,728
United Dominion Realty Trust,
Inc. .......................... 37,339 410,729
------------
1,259,457
------------
RESTAURANTS (1.2%)
VICORP Restaurants, Inc. (a).... 73,135 1,334,714
------------
RETAIL (5.6%)
Burlington Coat Factory
Warehouse Corp. ............... 31,348 338,950
Charming Shoppes, Inc. (a)...... 97,400 496,136
Consolidated Stores Corp. (a)... 241,900 2,902,800
CVS Corp. ...................... 27,776 1,111,040
Kroger Co. (The) (a)............ 30,128 664,699
Mazel Stores, Inc. (a).......... 51,400 430,475
Systemax Inc. (a)............... 20,306 78,686
------------
6,022,786
------------
SPECIALIZED SERVICES (1.5%)
Cendant Corp. (a)............... 24,000 336,000
Dun & Bradstreet Corp. (The).... 19,920 570,210
IMS Health Inc. ................ 16,730 301,140
National Service Industries,
Inc. .......................... 18,744 365,508
------------
1,572,858
------------
TELECOMMUNICATIONS (2.3%)
Adelphia Communications Corp.
(a)............................ 3,000 140,625
Sprint Corp. (FON Group)........ 36,834 1,878,534
Sprint Corp. (PCS Group) (a).... 7,866 468,027
------------
2,487,186
------------
TELEPHONE (5.6%)
ALLTEL Corp. ................... 45,800 2,836,738
GTE Corp. ...................... 5,237 326,003
Qwest Communications
International Inc. (a)......... 32,000 1,590,000
US West, Inc. .................. 14,700 1,260,525
------------
6,013,266
------------
TEXTILES--SPECIALTY (0.0%) (c)
Burlington Industries, Inc.
(a)............................ 14,286 24,108
------------
TOYS (0.5%)
Mattel, Inc. ................... 39,400 519,588
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 638
MainStay MAP Equity Fund
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION (0.0%) (c)
Petroleum Helicopters, Inc. .... 2,534 $ 24,390
------------
Total Common Stocks
(Cost $86,119,704)............. 103,593,176
------------
PREFERRED STOCKS (0.4%)
BROADCAST/MEDIA (0.4%)
News Corp. Ltd., Pfd. ADR (b)... 8,614 409,165
------------
MISCELLANEOUS (0.0%) (c)
Craig Corp., Class A (a)........ 3,242 12,360
------------
Total Preferred Stocks
(Cost $92,849)................. 421,525
------------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.7%)
TIME DEPOSIT (2.7%)
Bank of New York Cayman
5.75%, due 7/3/00.............. $2,866,000 2,866,000
------------
Total Short-Term Investment
(Cost $2,866,000).............. 2,866,000
------------
Total Investments
(Cost $89,078,553) (d)......... 100.1% 106,880,701(e)
Liabilities in Excess of Cash,
and Other Assets............... (0.1) (49,691)
---------- ------------
Net Assets...................... 100.0% $106,831,010
========== ============
</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 $89,064,421.
(e) At June 30, 2000, net unrealized appreciation was $17,816,280, 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 $25,608,762 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $7,792,482.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 639
Statement of Assets and Liabilities as of June 30, 2000 unaudited
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$89,078,553).............................................. $106,880,701
Cash........................................................ 10,477
Receivables:
Investment securities sold................................ 3,911,625
Fund shares sold.......................................... 345,625
Dividends and interest.................................... 114,706
------------
Total assets........................................ 111,263,134
------------
LIABILITIES:
Payables:
Investment securities purchased........................... 3,515,805
Fund shares redeemed...................................... 763,383
Transfer agent............................................ 53,261
MainStay Management....................................... 52,100
NYLIFE Distributors....................................... 26,369
Custodian................................................. 11,260
Trustees.................................................. 967
Accrued expenses............................................ 8,979
------------
Total liabilities................................... 4,432,124
------------
Net assets.................................................. $106,831,010
============
COMPOSITION OF NET ASSETS:
Shares of beneficial interest outstanding (par value of $.01
per share) unlimited number of shares authorized:
Class A................................................... $ 5,046
Class B................................................... 9,038
Class C................................................... 1,581
Class I................................................... 22,649
Additional paid-in capital.................................. 77,644,662
Accumulated undistributed net investment income............. 62,572
Accumulated undistributed net realized gain on
investments............................................... 11,283,314
Net unrealized appreciation on investments.................. 17,802,148
------------
Net assets.................................................. $106,831,010
============
CLASS A
Net assets applicable to outstanding shares................. $ 14,085,328
============
Shares of beneficial interest outstanding................... 504,645
============
Net asset value per share outstanding....................... $ 27.91
Maximum sales charge (5.50% of offering price).............. 1.62
------------
Maximum offering price per share outstanding................ $ 29.53
============
CLASS B
Net assets applicable to outstanding shares................. $ 25,044,719
============
Shares of beneficial interest outstanding................... 903,778
============
Net asset value and offering price per share outstanding.... $ 27.71
============
CLASS C
Net assets applicable to outstanding shares................. $ 4,381,492
============
Shares of beneficial interest outstanding................... 158,116
============
Net asset value and offering price per share outstanding.... $ 27.71
============
CLASS I
Net assets applicable to outstanding shares................. $ 63,319,471
============
Shares of beneficial interest outstanding................... 2,264,859
============
Net asset value and offering price per share outstanding.... $ 27.96
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 640
Statement of Operations for the six months ended June 30, 2000 unaudited
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)............................................. $ 538,369
Interest.................................................. 131,436
-----------
Total income............................................ 669,805
-----------
Expenses:
Management................................................ 362,813
Transfer agent............................................ 93,010
Distribution--Class B..................................... 68,166
Distribution--Class C..................................... 13,509
Registration.............................................. 26,491
Service--Class A.......................................... 14,583
Service--Class B.......................................... 22,722
Service--Class C.......................................... 4,503
Recordkeeping............................................. 17,556
Professional.............................................. 16,837
Shareholder communication................................. 13,617
Custodian................................................. 12,229
Trustees.................................................. 1,546
Miscellaneous............................................. 10,624
-----------
Total expenses before reimbursement..................... 678,206
-----------
Expense reimbursement by Manager............................ (70,973)
-----------
Net expenses................................................ 607,233
-----------
Net investment income....................................... 62,572
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments............................ 10,183,523
Net change in unrealized appreciation on investments........ (4,289,482)
-----------
Net realized and unrealized gain on investments............. 5,894,041
-----------
Net increase in net assets resulting from operations........ $ 5,956,613
===========
</TABLE>
-------
(a) Dividends recorded net of foreign withholding taxes of $3,241.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 641
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months Year ended
ended December 31,
June 30, 2000* 1999
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income..................................... $ 62,572 $ 260,275
Net realized gain on investments.......................... 10,183,523 4,098,524
Net change in unrealized appreciation on investments...... (4,289,482) 4,226,445
------------ ------------
Net increase in net assets resulting from operations...... 5,956,613 8,585,244
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Class A................................................. -- (11,898)
Class B................................................. -- (1,837)
Class C................................................. -- (222)
Class I................................................. -- (269,185)
From net realized gain on investments:
Class A................................................. -- (310,408)
Class B................................................. -- (381,844)
Class C................................................. -- (81,020)
Class I................................................. -- (2,719,235)
------------ ------------
Total dividends and distributions to shareholders..... -- (3,775,649)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Class A................................................. 6,860,656 9,046,008
Class B................................................. 13,766,335 11,149,210
Class C................................................. 2,036,289 2,347,220
Class I................................................. 3,051,338 13,782,334
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
------------ ------------
25,714,618 39,791,285
Cost of shares redeemed:
Class A................................................. (2,161,214) (900,257)
Class B................................................. (1,203,920) (279,066)
Class C................................................. (340,945) (28,635)
Class I................................................. (7,233,245) (17,708,062)
------------ ------------
Increase in net assets derived from capital share
transactions......................................... 14,775,294 20,875,265
------------ ------------
Net increase in net assets............................ 20,731,907 25,684,860
NET ASSETS:
Beginning of period......................................... 86,099,103 60,414,243
------------ ------------
End of period............................................... $106,831,010 $ 86,099,103
============ ============
Accumulated undistributed net investment income at end of
period.................................................... $ 62,572 $ --
============ ============
</TABLE>
-------
* Unaudited.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE> 642
Financial Highlights selected per share data and ratios
<TABLE>
<CAPTION>
Class A Class B
---------------------------- ----------------------------
Six months June 9* Six months June 9*
ended through ended through
June 30, December 31, June 30, December 31,
2000+ 1999 2000+ 1999
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period............ $ 26.22 $25.38 $ 26.15 $ 25.38
------- ------ ------- -------
Net investment income (loss)...................... 0.02 0.05 (0.06) 0.02
Net realized and unrealized gain on investments... 1.67 1.81 1.62 1.76
------- ------ ------- -------
Total from investment operations.................. 1.69 1.86 1.56 1.78
------- ------ ------- -------
Less dividends and distributions:
From net investment income...................... -- (0.08) -- (0.07)
From net realized gain on investments........... -- (0.94) -- (0.94)
Distribution in excess of net investment
income........................................ -- -- -- --
------- ------ ------- -------
Total dividends and distributions................. -- (1.02) -- (1.01)
------- ------ ------- -------
Net asset value at end of period.................. $ 27.91 $26.22 $ 27.71 $ 26.15
======= ====== ======= =======
Total investment return (a)....................... 6.45% 7.53% 5.97% 7.23%
Ratios (to average net assets)/
Supplemental Data:
Net investment income (loss).................. 0.13%++ 0.46%++ (0.62)%++ (0.29)%++
Net expenses.................................. 1.25%++ 1.25%++ 2.00%++ 2.00%++
Expenses (before reimbursement)............... 1.40%++ 1.41%++ 2.15%++ 2.16%++
Portfolio turnover rate........................... 20% 32% 20% 32%
Net assets at end of period (in 000's)............ $14,085 $8,651 $25,045 $11,511
</TABLE>
-------
<TABLE>
<C> <S>
* Class A, B and C shares first offered on June 9, 1999.
** 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.
+ Unaudited.
++ Annualized.
(a) Total return is calculated exclusive of sales charges and is not
annualized.
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 643
<TABLE>
<CAPTION>
Class C Class I**
---------------------------- ---------------------------------------------------------------------------
Six months June 9* Six months
ended through ended Year ended December 31,
June 30, December 31, June 30, -----------------------------------------------------------
2000+ 1999 2000+ 1999 1998 1997 1996 1995
---------- ------------ ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$26.15 $25.38 $ 26.25 $ 24.58 $ 22.73 $ 20.66 $ 19.36 $ 16.67
------ ------ ------- ------- ------- ------- ------- -------
(0.06) 0.02 0.05 0.11 0.33 0.28 0.36 0.43
1.62 1.76 1.66 2.81 4.81 5.49 4.16 4.90
------ ------ ------- ------- ------- ------- ------- -------
1.56 1.78 1.71 2.92 5.14 5.77 4.52 5.33
------ ------ ------- ------- ------- ------- ------- -------
-- (0.07) -- (0.11) (0.33) (0.29) (0.36) (0.43)
-- (0.94) -- (1.14) (2.96) (3.41) (2.86) (2.07)
-- -- -- -- -- -- -- (0.14)
------ ------ ------- ------- ------- ------- ------- -------
-- (1.01) -- (1.25) (3.29) (3.70) (3.22) (2.64)
------ ------ ------- ------- ------- ------- ------- -------
$27.71 $26.15 $ 27.96 $ 26.25 $ 24.58 $ 22.73 $ 20.66 $ 19.36
====== ====== ======= ======= ======= ======= ======= =======
5.97% 7.23% 6.51% 12.18% 24.23% 27.99% 23.82% 32.50%
(0.62)%++ (0.29)%++ 0.38%++ 0.39% 1.10% 1.18% 1.82% 2.30%
2.00%++ 2.00%++ 1.00%++ 0.88% 0.70% 0.82% 0.74% 0.81%
2.15%++ 2.16%++ 1.15%++ 0.96% 0.77% 0.82% 0.74% 0.81%
20% 32% 20% 32% 41% 58% 53% 39%
$4,381 $2,478 $63,319 $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> 644
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 (and certain other qualified purchases) 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> 645
Notes to Financial Statements unaudited
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 may 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> 646
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.
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 plans)
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 six months ended June 30, 2000, the
Manager earned $362,813 and reimbursed the Fund $70,973. 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
22
<PAGE> 647
Notes to Financial Statements unaudited (continued)
the expense limitation, the Manager may be entitled to reimbursement for a
portion of expenses paid pursuant to the expense limitation. At June 30, 2000,
the amount of such expenses was $136,927.
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.
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
distribution plans (the "Plans") in accordance with the provisions of Rule 12b-1
under the 1940 Act. Pursuant to the Class A Plan, the Distributor receives a
monthly fee from the Fund at an annual rate of 0.25% of the average daily net
assets of the Fund's Class A shares, which is an expense of the Class A shares
of the Fund for distribution or service activities as designated by the
Distributor. Pursuant to the Class B and Class C Plans, the Fund pays the
Distributor a monthly fee, which is an expense of the Class B and Class C shares
of the Fund, at the annual rate of 0.75% of the average daily net assets of the
Fund's Class B and Class C shares. The Distribution Plans provide that the Class
B and Class C shares of the Fund also incur a service fee at the annual rate of
0.25% of the average daily net asset value of the Class B or Class C shares of
the Fund. Class I shares are not subject to a distribution or service fee.
The Plans provide 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 $6,871 for the six months
ended June 30, 2000. 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 $642, $7,849 and $748, respectively, for the six months ended June 30,
2000.
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services LLC ("MSS"), an indirect wholly owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS") by which BFDS will perform certain of the services for which MSS is
responsible. Transfer agent expense accrued for the six months ended June 30,
2000 amounted to $93,010.
23
<PAGE> 648
MainStay 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.
OTHER. Fees for the cost of legal services provided to the Fund by the Office
of General Counsel of New York Life amounted to $912 for the six months ended
June 30, 2000.
Fees for recordkeeping services provided to the Fund by the Manager amounted to
$17,556 for the six months ended June 30, 2000.
NOTE 4--PURCHASES AND SALES OF SECURITIES (IN 000'S):
During the six months ended June 30, 2000, purchases and sales of securities,
other than short-term securities, were $32,430 and $18,118, 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 six months ended June 30, 2000.
24
<PAGE> 649
Notes to Financial Statements unaudited (continued)
NOTE 6--CAPITAL SHARE TRANSACTIONS (IN 000'S):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000+ YEAR ENDED DECEMBER 31, 1999
------------------------------------- -------------------------------------------------
CLASS A CLASS B CLASS C CLASS I CLASS A(a) CLASS B(a) CLASS C(a) CLASS I(b)
------- ------- ------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.......... 253 508 76 114 354 437 93 551
Shares issued in
reinvestment of
dividends and
distributions...... -- -- -- -- 11 14 3 110
--- --- --- ---- --- --- -- ----
253 508 76 114 365 451 96 661
Shares redeemed...... (78) (44) (13) (267) (35) (11) (1) (701)
--- --- --- ---- --- --- -- ----
Net increase
(decrease)......... 175 464 63 (153) 330 440 95 (40)
=== === === ==== === === == ====
</TABLE>
-------
<TABLE>
<C> <S>
+ Unaudited.
(a) First offered on June 9, 1999.
(b) 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> 650
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
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
INTERNATIONAL FUNDS
MainStay International Equity Fund
MainStay Global High Yield Fund
MainStay International Bond Fund
FUND MANAGER
MAINSTAY MANAGEMENT LLC(1)
Parsippany, New Jersey
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) Part of New York Life Investment Management.
26
<PAGE> 651
Officers and Trustees*
<TABLE>
<S> <C>
RICHARD M. KERNAN, JR. Chairman and Trustee
STEPHEN C. ROUSSIN President, Chief Executive
Officer, and 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
GARY E. WENDLANDT Trustee
JOHN A. FLANAGAN Chief Financial Officer
RICHARD W. ZUCCARO Tax Vice President
JOSEPH J. MCBRIEN Secretary
</TABLE>
DECHERT
Legal Counsel
PRICEWATERHOUSECOOPERS LLP
Independent Accountants
* As of June 30, 2000.
[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.
This report may only be distributed to Fund shareholders or when accompanied or
preceded by a current Fund prospectus.
(C)2000 NYLIFE Distributors Inc. All rights reserved. MSME11-08/00
[RECYCLE LOGO]
[MAINSTAY FUNDS LOGO]
MainStay(R)
MAP Equity Fund
SEMIANNUAL REPORT
UNAUDITED
JUNE 30, 2000
[MAINSTAY.LOGO]
