<PAGE>
[LOGO OF MAINSTAY INSTITUTIONAL FUNDS INC. APPEARS HERE]
MAINSTAY(R)
INSTITUTIONAL
FUNDS INC.
1996 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
Performance Highlights--Total Returns** -----------------------------------
SEC Average Annual
12 Months Ended December 31, 1996 Total Returns
as of December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Funds 1991 1992 1993 1994 1995 1996 1 Year 5 Year Since Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Funds
- --------------------------------------------------------------------------------------------------------------------------------
EAFE Index (Instl. Class)+ 10.10% -12.22% 28.97% 6.83% 9.03% 6.45% 6.45% 7.02% 7.52%
- --------------------------------------------------------------------------------------------------------------------------------
EAFE Index (Serv. Class)* 10.10 -12.22 28.97 6.83 8.63 6.37 6.37 6.92 7.44
- --------------------------------------------------------------------------------------------------------------------------------
Growth Equity (Instl. Class)+ 67.00 5.63 9.59 -2.23 37.88 21.62 21.62 13.67 21.18
- --------------------------------------------------------------------------------------------------------------------------------
Growth Equity (Serv. Class)* 67.00 5.63 9.59 -2.23 37.50 21.29 21.29 13.55 21.07
- --------------------------------------------------------------------------------------------------------------------------------
Indexed Equity (Instl. Class)+ 29.80 7.19 9.41 0.90 36.88 22.57 22.57 14.70 17.07
- --------------------------------------------------------------------------------------------------------------------------------
Indexed Equity (Serv. Class)* 29.80 7.19 9.41 0.90 36.70 22.21 22.21 14.60 16.99
- --------------------------------------------------------------------------------------------------------------------------------
International Equity (Instl. Class)(S) N/A N/A N/A N/A 7.17 12.09 12.09 N/A 9.58
- --------------------------------------------------------------------------------------------------------------------------------
International Equity (Serv. Class)(S) N/A N/A N/A N/A 6.86 11.59 11.59 N/A 9.17
- --------------------------------------------------------------------------------------------------------------------------------
Multi-Asset (Instl. Class)+ 17.90 7.09 8.79 -0.86 26.81 16.16 16.16 11.22 12.29
- --------------------------------------------------------------------------------------------------------------------------------
Multi-Asset (Serv. Class)* 17.90 7.09 8.79 -0.86 26.70 15.89 15.89 11.14 12.23
- --------------------------------------------------------------------------------------------------------------------------------
Value Equity (Instl. Class)+ 36.60 20.71 14.90 1.22 29.42 22.41 22.41 17.34 20.33
- --------------------------------------------------------------------------------------------------------------------------------
Value Equity (Serv. Class)* 36.60 20.71 14.90 1.22 29.32 22.10 22.10 17.26 20.26
- --------------------------------------------------------------------------------------------------------------------------------
Income Funds
- --------------------------------------------------------------------------------------------------------------------------------
Bond (Instl. Class)+ 14.00% 6.39% 9.74% -3.31% 17.88% 2.80% 2.80% 6.47% 7.68%
- --------------------------------------------------------------------------------------------------------------------------------
Bond (Serv. Class)* 14.00 6.39 9.74 -3.31 17.55 2.62 2.62 6.37 7.60
- --------------------------------------------------------------------------------------------------------------------------------
Indexed Bond (Instl. Class)+ 14.70 7.09 9.64 -3.44 18.07 2.55 2.55 6.54 7.85
- --------------------------------------------------------------------------------------------------------------------------------
Indexed Bond (Serv. Class)* 14.70 7.09 9.64 -3.44 17.97 2.34 2.34 6.48 7.80
- --------------------------------------------------------------------------------------------------------------------------------
International Bond (Instl. Class)(S) N/A N/A N/A N/A 18.46 14.32 14.32 N/A 16.32
- --------------------------------------------------------------------------------------------------------------------------------
International Bond (Serv. Class)(S) N/A N/A N/A N/A 18.26 14.08 14.08 N/A 16.10
- --------------------------------------------------------------------------------------------------------------------------------
Money Market++ (Instl. Class)+ 5.95 3.66 2.89 3.88 5.63 5.11 5.11 4.23 4.51
- --------------------------------------------------------------------------------------------------------------------------------
Money Market++ (Serv. Class)* 5.95 3.66 2.89 3.88 5.46 4.85 4.85 4.14 4.44
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond (Instl. Class)+ 11.30 5.94 5.67 0.11 10.27 4.81 4.81 5.31 6.28
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond (Serv. Class)* 11.30 5.94 5.67 0.11 10.07 4.46 4.46 5.20 6.19
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Funds' inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
+ The inception date of these Institutional Class shares and the date such
shares were first offered to the public is 1/2/91.
(S) The inception date of the International Equity Fund and International Bond
Fund shares and the date such shares were first offered to the public is
1/1/95.
** The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee
of .25%.
++ The Money Market Fund-Institutional Class had an effective 7-day yield of
5.16% with an average 7-day yield of 5.04%, both as of 12/31/96. The Money
Market Fund-Service Class had an effective 7-day yield of 4.91% with an
average 7-day yield of 4.79%, both as of 12/31/96. The Administrator has
agreed to assume a portion of the expenses for this Fund. Had certain
expenses not been assumed by the Administrator, the effective 7-day yield
and the average 7-day yield would have been 5.02% and 4.90%, respectively,
for the Institutional Class and 4.76% and 4.65%, respectively, for the
Service Class.
Investments in the Money Market Fund are neither insured nor guaranteed by
the U.S. Government, and there is no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
Performance figures for each Fund reflect the waiver (through 1993 for the
Value Equity Fund and Growth Equity Fund) of a portion of New York Life
Insurance Company's fees (up to the amount of such fees), received as
Administrator for each Fund, to the extent necessary to limit the total
operating expenses of such Funds. As a result, total return figures, which
take into account this fee waiver, would have been lower had New York Life
not waived its administrative fees.
The Funds currently offer two Classes of shares. Investors should consider,
when deciding whether to purchase a particular Class of shares, the services
desired and other relevant factors.
See prospectus for more detailed information. The Funds' prospectus contains
more information about advisory fees, other expenses and share classes.
Please read it carefully before you invest or send money.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
Foreign investing may be subject to greater risks than domestic investing.
These may include securities markets that are less efficient, less liquid
and more volatile than those in the United States, as well as foreign
currency fluctuations and different governmental regulatory concerns.
================================================================================
<PAGE>
TABLE OF CONTENTS
Contents
Chairperson's Letter 2
PORTFOLIO MANAGERS' INTERVIEWS & COMMENTS
&
FINANCIAL STATEMENTS
EQUITY FUNDS
EAFE Index Fund 3
Growth Equity Fund 18
Indexed Equity Fund 27
International Equity Fund 41
Multi-Asset Fund 54
Value Equity Fund 70
INCOME FUNDS
Bond Fund 79
Indexed Bond Fund 89
International Bond Fund 98
Money Market Fund 107
Short-Term Bond Fund 115
Note 1 Organization and Business 124
Note 2 Significant Accounting Policies 125
Note 3 Fees and Related Party Policies 130
Note 4 Federal Income Tax 132
Note 5 Financial Investments 133
Note 6 Purchase and Sales of Securities 134
Note 7 Capital Share Transactions 134
Report of Independent Accountants 136
<PAGE>
CHAIRPERSON'S LETTER
================================================================================
REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
The undisputed story of 1996 was the remarkable momentum of the equity market.
The bond market took a back seat while the financial community and investors
watched the U.S. stock market soar by 23%.* The Dow Jones Industrial Average
broke 6,600. Exciting new companies entered the markets and received
overwhelming public support. New trends--the Internet, for one--gave rise to new
waves of optimism. Assets in mutual funds surpassed all the gold in both Fort
Knox and the New York Federal Reserve combined.
[PHOTO OF ALICE T. KANE, CHAIRPERSON APPEARS HERE]
Strong performance is important, but we shouldn't lose sight of what must be
consistent in any investment climate: the philosophy, the strategies, the work
ethic, the education, and the communication between a mutual fund company and
its investors. It shouldn't be assumed that the market will continue at this
pace--even though past successes will cause some to think it will. It is
important to remember that mutual fund investing isn't about timing markets,
it's about setting realistic goals and plotting a long term course to help you
get there.
That's where MainStay(R) comes in. It's a name that stands for working to stay
the course no matter what the conditions. We know you depend on us to remain
steadfast in our vigilance, to do the research, make prudent choices, and
provide timely, accurate, and useful information. However, staying steady
doesn't mean standing pat. So we continue to work at creating simplicity, and
going beyond providing information, to providing understanding. For example, our
simplified prospectus is unlike any other in the industry, and we've been
complimented in the press for our series of educational brochures, such as
Navigating through the Star Ratings and What Is The S&P 500 ... And What Can It
Tell Me About My Investments?
We at MainStay have a responsibility to help you, our investors, stay informed
and to be in a position to make intelligent decisions. One way we are doing
this is through the comprehensive Internet site that we launched on the World
Wide Web in November of 1996. Our goal is to make fund and investment
information available to you 24 hours a day, 7 days a week. The site features
extensive information about all of our Funds, daily net asset values and easy-
to-read material on retirement plan investing. Our Internet address is:
http://www.mainstayfunds.com. Visit us often, and e-mail us from any page in
the site with your questions, comments and requests.
No one can promise 1997 will be a repeat of 1996 because the market is ever-
changing. But we at MainStay can promise to continue managing funds to seek
downside protection as well as upside performance. We'll be with you to help
stay the course toward your investment horizons.
Wishing you all the best,
/s/ Alice T. Kane
Alice T. Kane
January 1997
- --------------------------------------------------------------------------------
* As measured by the S&P 500 Stock Index. The S&P 500 Stock Index is a
registered trademark of Standard & Poor's Corporation. The S&P 500 Stock Index
is an unmanaged index that is considered representative of the U.S. stock
market.
2
<PAGE>
PORTFOLIO MANAGERS' INTERVIEWS & COMMENTS
EAFE INDEX FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Many stock markets around the globe provided double-digit returns for the 12
months ended 12/31/96, with several markets outperforming the S&P 500 Stock
Index+ return of 22.94%
. Japan, the world's second largest equity market, declined 4.92% in local
terms and was down a full 15.50% when the results were translated into
dollars
. Outstanding returns were recorded in Spain, Sweden, Finland, Norway, and
the U.K.
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. For the year ended 12/31/96, the MainStay Institutional EAFE Index Fund
returned 6.45% and 6.37% for Institutional Class shares and Service Class
shares, respectively
. Throughout the year, the Fund closely tracked its benchmark, the Morgan
Stanley Capital International (MSCI) Europe, Far East, Australia (EAFE)
Index(S)
- --------------------------------------------------------------------------------
Inflation An increase in the cost of goods and services over time.
Bourse The French term for stock exchange is sometimes used as a general term to
refer to European stock exchanges in general.
Weighting The proportion of a portfolio allocated to a specific market sector
or country, i.e., a fund is said to be overweighted in a country when that
portion of the portfolio is larger than the country's securities are to the
market or index as a whole.
Bullish/Bearish A bull market occurs when stock prices are rising, a bear
market occurs when stock prices decline. A bullish attitude therefore suggests a
positive outlook, while a bearish attitude represents a negative view of the
market or the opportunities it may present.
- --------------------------------------------------------------------------------
In 1996, many of the world's stock markets provided outstanding returns.
Strengthening economies across Europe combined with low inflation to push prices
on local bourses higher. While several European countries even outperformed the
22.94% return of the S&P 500 Stock Index, Japanese stocks had a severely
negative impact on the Morgan Stanley Capital International EAFE Index for the
year.
With the yen falling relative to the dollar, the earnings outlook for many
export-oriented Japanese companies looked good in the first half, as Japanese
stock prices rose 7.53% in local terms. But when expected economic improvements
in Japan failed to materialize and its banking sector suffered major setbacks,
Japanese stocks ended the year down 4.92% in local terms. Unfortunately for
American investors, however, the weak yen resulted in a 15.50% loss, when
translated into U.S. dollars.
European stock markets did considerably better. Spain was up 40.05%, Finland
gained 33.94%, Norway advanced 28.63%, Sweden rose 37.21%, and the U.K. was up
27.42% (all translated into U.S. dollars) for the year. These strong results
boosted the return on the MSCI EAFE Index to 6.05% for the 12 months ended
12/31/96.
- --------------------------------------------------------------------------------
+ The S&P 500 Stock Index is a registered trademark of Standard & Poor's
Corporation. The S&P 500 Stock Index is an unmanaged index that is
considered representative of the U.S. stock market.
(S) The MSCI EAFE Index is an unmanaged index generally considered
representative of the international stock market.
3
<PAGE>
================================================================================
Given this context, how did the MainStay Institutional EAFE Index Fund do?
For the 12 months ended 12/31/96, the MainStay Institutional EAFE Index Fund
returned 6.45% and 6.37% for Institutional Class shares and Service Class
shares, respectively. Both share classes slightly outperformed their benchmark
Index, but underperformed the average Lipper* international fund, which returned
11.78% over the same period.
Why was there such a gap between the Fund and its Lipper peers?
The Fund seeks to track the makeup and performance of the EAFE Index, which is
heavily weighted in Japanese stocks. Since the Fund's weightings are determined
by those of the Index, we did not have the option of reducing our exposure to
Japanese equities, as many strategically managed international funds did during
the year. While heavy participation in any declining market will be negative for
the portfolio as a whole, the Fund is also designed to participate heavily in
the Japanese market in any year in which it may rise, which may have a positive
effect on performance.
Which markets receive the heaviest weightings in the EAFE Index?
Japan is the world's second largest stock market and the largest market in the
Index, accounting for 31.9% of its investments. The United Kingdom represents
the largest European market, accounting for 18.6% of the Index, and contributed
significantly to the Fund's positive performance. While Spain and the
Scandinavian markets had excellent returns, their individual weightings in the
portfolio are smaller, which affected the significance of their impact on
overall performance.
Why did Japanese stocks do so poorly?
Although Japan was well positioned for an economic recovery, investors were
generally bearish on the market, perhaps waiting for additional signs that
investments there will be rewarded. The banking sector was severely battered in
1996, suffering the effects of bad loans made in previous years, which helped
bring Japanese stocks into negative territory. Unfortunately, the negative
returns were compounded by unfavorable currency relationships. When the dollar
is strong and the yen is weak, international investors may experience additional
losses when returns in a weak currency are translated into U.S. dollars.
What's your outlook for 1997?
We remain optimistic and continue to believe that international equities
represent a sound way for investors to diversify their portfolios as they pursue
higher return potential.
James A. Mehling, CFA
Portfolio Manager
Note: Foreign investing may be subject to greater risks than domestic investing.
These may include securities markets that are less efficient, less liquid and
more volatile than those in the United States, as well as foreign currency
fluctuations and different governmental regulatory concerns.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
* Lipper Analytical Services 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.
Unlike other funds which generally seek to "beat" the market, index funds
seek to "match" their respective indices.
4
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
EAFE INDEX FUND VS MSCI EAFE INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE EAFE INDEX FUND MSCI EAFE INDEX
---- --------------- ---------------
<S> <C> <C>
1/2/91 10,000 10,000
10,630 10,752
10,180 10,173
10,930 11,055
91 11,010 11,249
9,665 9,923
9,866 10,142
10,027 10,304
92 9,665 9,916
10,681 11,114
11,635 12,241
12,427 13,062
93 12,464 13,183
12,858 13,652
13,542 14,359
13,521 14,382
94 13,315 14,246
13,526 14,522
13,547 14,639
14,043 15,261
95 14,518 15,891
14,989 16,362
15,247 16,633
15,235 16,625
12/31/96 15,453 16,591
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
EAFE INDEX FUND VS MSCI EAFE INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE EAFE INDEX FUND MSCI EAFE INDEX
---- --------------- ---------------
<S> <C> <C>
1/2/91 10,000 10,000
10,630 10,752
10,180 10,173
10,930 11,055
91 11,010 11,249
9,665 9,923
9,866 10,142
10,027 10,304
92 9,665 9,916
10,681 11,114
11,635 12,241
12,427 13,062
93 12,464 13,183
12,858 13,652
13,542 14,359
13,521 14,382
94 13,315 14,246
13,537 14,522
13,547 14,639
14,011 15,261
95 14,465 15,891
14,947 16,362
15,182 16,633
15,150 16,625
12/31/96 15,385 16,591
</TABLE>
. EAFE Index Fund --MSCI EAFE Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EAFE Index Fund Institutional Class 6.45% 6.45% 7.02% 7.52%
EAFE Index Fund Service Class** 6.37% 6.37% 6.92% 7.44%
Average Lipper International Fund 11.78% 11.78% 10.09% 10.56%
MSCI EAFE Index 6.05% 6.05% 8.15% 8.81%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 10.10
1992 -12.22
1993 28.97
1994 6.83
1995 9.03
1996 6.45
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
. Common Stocks 97.72%
. Cash & Equivalents 1.83%
. Other 0.45%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Toyota Motor Corp. 1.86%
2. Royal Dutch Petroleum Co. 1.46%
3. Bank of Tokyo-Mitsubishi 1.39%
4. Novartis AG 1.31%
5. British Petroleum Co. PLC. 1.27%
6. Roche Holding AG-Bearer 1.00%
7. Glaxo Wellcome PLC. 0.93%
8. Bayer AG 0.86%
9. Deutsche Telekom AG 0.82%
10. Nestle SA 0.78%
- --------------------------------------------------------------------------------
Top 10 Countries
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Japan 32.00%
2. United Kingdom 18.62%
3. Germany 7.69%
4. France 6.72%
5. Switzerland 5.71%
6. Netherlands 4.42%
7. Hong Kong 3.69%
8. Australia 2.94%
9. Italy 2.86%
10. Malaysia 2.37%
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
Unlike other funds which generally seek to "beat" the market, index funds
seek to "match" their respective indices.
5
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (97.7%)+
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
AUSTRALIA (2.9%)
Boral, Ltd. (building materials & components).............. 12,500 $ 35,543
Broken Hill Proprietary Co., Ltd. (energy sources)......... 17,270 245,804
Coles Myer, Ltd. (merchandising)........................... 40,137 165,132
CRA, Ltd. (metals-nonferrous).............................. 16,447 258,004
National Australia Bank, Ltd. (banking).................... 42,900 504,285
News Corp., Ltd.
(broadcasting & publishing)............................... 33,000 174,035
Pacific Dunlop, Ltd.
(multi-industry).......................................... 25,200 64,048
Pioneer International, Ltd. (building materials &
components)............................................... 42,400 126,284
Plutonic Resources, Ltd.
(metals-nonferrous)....................................... 14,000 65,048
Smith (Howard), Ltd.
(multi-industry).......................................... 20,900 171,809
Sydney Harbour Casino Holdings, Ltd. (leisure & tourism)
(a)....................................................... 40,000 61,632
Westpac Banking Corp., Ltd. (banking)...................... 70,800 402,625
WMC, Ltd. (metals-nonferrous).............................. 44,600 280,909
-----------
2,555,158
-----------
AUSTRIA (0.5%)
Bank Austria AG (banking).................................. 1,750 129,157
Creditanstalt-Bankverein Stamm AG (banking)................ 700 47,336
EA-Generali AG (insurance)................................. 500 147,608
Flughafen Wien AG
(transportation-airlines)................................. 2,700 137,496
-----------
461,597
-----------
BELGIUM (1.3%)
Electrabel SA
(utilities-electrical & gas).............................. 1,800 425,569
Fortis AG (financial services)............................. 3,200 512,774
PetroFina SA (energy sources).............................. 820 260,731
-----------
1,199,074
-----------
DENMARK (0.9%)
Dampskibsselskabet AF 1912 Class B (transportation-
shipping)................................................. 7 179,779
Dampskibsselskabet Svendborg AS Class B (transportation-
shipping)................................................. 4 149,858
Den Danske Bank (banking).................................. 1,800 144,942
FLS Industries AS Class B
(machinery & engineering)................................. 700 89,593
Novo Nordisk AS Class B
(health & personal care).................................. 1,400 263,439
-----------
827,611
-----------
FINLAND (0.9%)
Kesko
(food & household products)............................... 3,400 47,876
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
FINLAND (Continued)
Kone Corp. Class B
(transportation-shipping)................................. 1,900 $ 209,416
Metra Oy Class B
(machinery & engineering)................................. 2,300 128,748
Nokia AB Class A (electronic components & instruments)..... 5,200 301,010
Pohjola Insurance Group Class B (insurance)................ 4,600 103,297
-----------
790,347
-----------
FRANCE (6.7%)
Alcatel Alsthom, SA
(electrical & electronics)................................ 2,500 200,433
AXA, SA (insurance)........................................ 5,000 317,385
Carrefour, SA
(food & household products)............................... 600 389,633
Compagnie de Saint Gobain, SA (miscellaneous-materials &
components)............................................... 1,670 235,784
Compagnie Financiere de Paribas, SA Class A (banking)...... 3,400 229,490
Compagnie Generale de
Geophysique, SA
(energy equipment & service) (a).......................... 300 20,774
Compagnie Generale des Eaux, SA (business & public
services)................................................. 2,572 318,115
Credit National, SA (banking).............................. 2,744 157,713
Dollfus-Mieg & Cie, SA
(textiles & apparel)...................................... 2,450 59,285
Elf Aquitaine, SA (energy sources)......................... 4,800 436,075
Etablissements Economiques du Casino Guichard-Perrachon, SA
(merchandising)........................................... 6,100 283,484
Groupe Danone, SA
(food & household products)............................... 1,675 232,946
Lafarge, SA (building materials & components).............. 1,936 115,928
L'Air Liquide, SA (chemicals).............................. 2,894 450,905
L'Oreal, SA
(health & personal care).................................. 1,430 537,480
LVMH (Moet Hennessy Louis Vuitton), SA
(beverages & tobacco)..................................... 2,310 643,847
Michelin (CGDE), SA Class B (industrial components)........ 3,200 172,411
PSA Peugeot, SA (automobiles).............................. 1,150 129,185
Sanofi, SA (health & personal care)........................ 4,040 400,989
Schneider, SA
(electrical & electronics)................................ 3,000 138,437
Societe Generale, SA (banking)............................. 1,600 172,657
Total, SA Class B
(oil/gas-exploration)..................................... 3,000 243,521
Union des Assurances de Paris, SA (insurance).............. 5,000 124,549
-----------
6,011,026
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
6
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
GERMANY (7.7%)
AGIV AG fuer Industrie und Verkehrswesen
(multi-industry) (a)...................................... 5,000 $ 72,999
Allianz AG Holding (insurance)............................. 272 488,895
BASF AG (chemicals)........................................ 16,500 631,688
Bayer AG (chemicals)....................................... 19,000 769,931
Bayerische Hypotheken-und
Wechsel-Bank AG (banking)................................. 12,450 374,846
Bayerische Vereinsbank AG (banking)........................ 6,630 268,451
Beiersdorf AG
(health & personal care).................................. 3,000 148,529
Daimler-Benz AG (automobiles) (a).......................... 9,000 616,114
Deutsche Bank AG (banking)................................. 4,100 191,018
Deutsche Telekom AG (telecommunications) (a)............... 35,000 729,018
Dresdner Bank AG (banking)................................. 600 17,909
Heidelberger Zement AG (building materials & components)... 1,100 88,650
Hochtief AG
(construction & housing).................................. 3,500 137,401
Mannesmann AG
(machinery & engineering)................................. 860 369,534
Muenchener Rueckversicherungs-Gesellschaft AG Registered
(insurance)............................................... 150 363,537
RWE AG (utilities-electrical & gas)........................ 8,400 351,019
Siemens AG
(electrical & electronics)................................ 11,500 532,947
STRABAG AG
(construction & housing) (a).............................. 900 57,815
VEBA AG (utilities-electrical & gas)....................... 6,900 396,240
Viag AG (multi-industry)................................... 700 273,667
-----------
6,880,208
-----------
HONG KONG (3.7%)
Cathay Pacific Airways, Ltd. (transportation-airlines)..... 90,000 141,948
Cheung Kong (Holdings), Ltd. (construction & housing)...... 40,000 355,524
China Light & Power Co., Ltd. (utilities-electrical & gas). 31,200 138,756
Chinese Estates Holdings, Ltd.
(multi-industry).......................................... 60,000 66,708
Hang Lung Development Co.
(multi-industry).......................................... 38,000 83,516
Hang Seng Bank, Ltd. (banking)............................. 32,000 388,880
Hong Kong & China Gas Co., Ltd. (utilities-electrical &
gas)...................................................... 73,613 142,271
Hong Kong Telecommunications, Ltd. (telecommunications).... 185,000 297,757
Hopewell Holdings, Ltd. (construction & housing)........... 100,000 64,640
Hutchison Whampoa, Ltd.
(multi-industry).......................................... 69,000 541,919
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
HONG KONG (Continued)
Miramar Hotel & Investment, Ltd. (leisure & tourism)........ 50,000 $ 100,190
New World Development Co., Ltd. (multi-industry)............ 34,000 229,670
Shangri-La Asia, Ltd.
(multi-industry)........................................... 60,000 88,812
Sun Hung Kai Properties, Ltd. (construction & housing)...... 33,000 404,234
Swire Pacific, Ltd. Class A
(multi-industry)........................................... 19,500 185,923
Winsor Industrial Corp., Ltd.
(textiles & apparel)....................................... 300,000 70,200
-----------
3,300,948
-----------
IRELAND (0.5%)
Allied Irish Banks PLC (banking)............................ 12,000 79,615
Independent Newspapers PLC (broadcasting & publishing)...... 50,000 254,555
Irish Life PLC (insurance).................................. 15,000 69,561
-----------
403,731
-----------
ITALY (2.8%)
Alleanza Assicurazioni S.p.A. di Risp (insurance)........... 63 316
Assicurazioni Generali S.p.A. (insurance)................... 13,310 251,668
Banca Commerciale Italiana S.p.A. (banking)................. 48,500 88,032
Bulgari S.p.A. (recreation &
other consumer goods)...................................... 5,000 101,282
Cementir S.p.A. (building materials & components)........... 62,000 39,593
Credito Italiano S.p.A. (banking)........................... 66,000 72,310
Edison S.p.A. (energy sources).............................. 18,200 114,909
Ente Nazionale Idrocarburi S.p.A. (energy sources).......... 110,000 563,200
Fiat S.p.A. (automobiles)................................... 56,000 169,047
Finanziaria Autogrill S.p.A.
(food & household products) (a)............................ 45,000 43,502
Istituto Mobiliare Italiano S.p.A. (banking)................ 9,600 82,078
Istituto Nazionale delle Assicurazioni S.p.A. (insurance)... 65,700 85,377
Magneti Marelli S.p.A. (automobiles)........................ 53,000 65,704
Mediobanca S.p.A.
(financial services)....................................... 19,850 106,853
Montedison S.p.A.
(multi-industry) (a)....................................... 100,800 68,544
Pirelli S.p.A. (beverages & tobacco)........................ 72,000 133,294
Snia BPD S.p.A. (multi-industry)............................ 50,400 52,038
Telecom Italia S.p.A. (telecommunications).................. 90,000 233,208
Telecom Italia Mobile S.p.A. (telecommunications)........... 90,000 226,989
-----------
2,497,944
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
7
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
JAPAN (31.9%)
Acom Co., Ltd. (financial services)........................ 3,000 $ 127,682
Ajinomoto Co., Inc.
(food & household products)............................... 5,000 50,831
Arabian Oil Co., Ltd.
(energy sources).......................................... 2,000 74,093
Asahi Bank, Ltd. (banking)................................. 38,000 337,208
Asahi Breweries, Ltd.
(beverages & tobacco)..................................... 14,000 144,739
Asahi Chemical Industry Co., Ltd. (chemicals).............. 46,000 259,978
Asahi Glass Co., Ltd. (miscellaneous-materials &
components)............................................... 12,000 112,690
Ashikaga Bank, Ltd. (banking).............................. 19,000 91,504
Bank of Tokyo-Mitsubishi, Ltd. (banking)................... 67,000 1,241,061
Bank of Yokohama, Ltd. (banking)........................... 11,000 71,078
Bridgestone Corp.
(industrial components)................................... 10,000 189,540
Brother Industries, Ltd. (appliances & household durables). 22,000 94,769
Canon, Inc. (recreation &
other consumer goods)..................................... 18,000 397,001
Chiba Bank, Ltd. (banking)................................. 25,000 170,155
Chichibu Onoda Cement Corp. (building materials &
components)............................................... 22,000 93,443
Chiyoda Corp. (machinery & engineering).................... 5,000 32,351
Chugai Pharmaceutical Co., Ltd. (health & personal care)... 10,000 83,570
Citizen Watch Co., Ltd. (recreation & other consumer
goods).................................................... 19,000 135,865
Dai Nippon Printing Co., Ltd. (business & public services). 10,000 174,894
Daiei, Inc. (merchandising)................................ 17,000 129,620
Daikin Industries, Ltd.
(machinery & engineering)................................. 6,000 53,243
Dainippon Ink & Chemical, Inc. (chemicals)................. 33,000 121,968
Daiwa House Industry Co., Ltd. (construction & housing).... 8,000 102,696
Daiwa Securities Co., Ltd.
(financial services)...................................... 23,000 204,100
Denso Corp.
(industrial components)................................... 23,000 552,856
East Japan Railway Co. (transportation-road & rail)........ 65 291,764
Ebara Corp.
(machinery & engineering)................................. 6,000 78,056
Eisai Co., Ltd.
(health & personal care).................................. 6,000 117,860
Fanuc, Ltd. (electronic
components & instruments)................................. 5,000 159,817
Fuji Bank, Ltd. (banking).................................. 44,000 640,644
Fuji Photo Film, Ltd. (recreation & other consumer goods).. 13,000 427,844
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
JAPAN (Continued)
Fujitsu, Ltd. (data processing & reproduction)............. 31,000 $ 288,446
Furukawa Electric Co.
(industrial components)................................... 15,000 70,949
Gakken Co.
(broadcasting & publishing)............................... 13,000 73,360
Gunma Bank (banking)....................................... 14,000 121,822
Hitachi Corp., Ltd.
(electrical & electronics)................................ 57,000 530,368
Hitachi Zosen Corp. (metals-steel)......................... 20,000 77,538
Hokuriku Bank (banking).................................... 27,000 132,125
Honda Motor Co., Ltd. (automobiles)........................ 19,000 541,827
Industrial Bank of Japan, Ltd. (banking)................... 36,000 623,416
Ito-Yokado Co., Ltd. (merchandising)....................... 7,000 303,954
Japan Airlines Co.
(transportation-airlines) (a)............................. 36,000 190,746
Japan Energy Corp. (energy sources)........................ 34,000 92,269
Japan Steel Works (metals-steel) (a)....................... 58,000 131,915
Joyo Bank (banking)........................................ 18,800 113,056
Kajima Corp.
(construction & housing).................................. 20,000 142,672
Kamigumi Co., Ltd.
(business & public services).............................. 22,000 144,049
Kansai Electric Power Co., Inc. (utilities-electrical &
gas)...................................................... 8,800 181,958
Kao Corp.
(food & household products)............................... 4,000 46,524
Kawasaki Heavy Industries (construction & housing)......... 22,000 90,790
Kawasaki Steel Corp. (metals-steel)........................ 66,000 189,347
Keihin Electric Express Railway (transportation-road &
rail)..................................................... 16,000 73,197
Kinki Nippon Railway
(transportation-road & rail).............................. 55,000 342,589
Kirin Brewery Co., Ltd.
(beverages & tobacco)..................................... 14,000 137,502
Komatsu, Ltd.
(machinery & engineering)................................. 15,000 122,771
Kubota Corp.
(machinery & engineering)................................. 39,000 187,824
Kumagai Gumi Co., Ltd. (construction & housing)............ 33,000 81,596
Kurabo Industries
(textiles & apparel)...................................... 15,000 42,647
Kyocera Corp. (electronic components & instruments)........ 3,000 186,611
Kyowa Hakko Kogyo
(health & personal care).................................. 8,000 60,928
Makita Corp.
(electrical & electronics)................................ 8,000 111,656
Marubeni Corp.
(wholesale & international trade)......................... 16,000 68,648
Marui Co., Ltd. (merchandising)............................ 8,000 144,050
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
8
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
JAPAN (Continued)
Matsushita Electric Industrial Co., Ltd. (appliances &
household durables)....................................... 32,000 $ 521,062
Mitsubishi Chemical Corp. (chemicals)...................... 30,000 96,924
Mitsubishi Corp.
(wholesale & international trade)......................... 28,000 289,478
Mitsubishi Estate Co., Ltd. (construction & housing)....... 19,000 194,796
Mitsubishi Heavy Industries, Ltd. (machinery &
engineering).............................................. 72,000 570,686
Mitsubishi Oil Co., Ltd.
(energy sources).......................................... 8,000 47,764
Mitsubishi Trust & Banking Co. (financial services)........ 23,000 307,142
Mitsui & Co.
(wholesale & international trade)......................... 23,000 186,265
Mitsui Fudosan Co.
(construction & housing).................................. 15,000 149,909
Mitsui Marine & Fire Insurance Co., Ltd. (insurance)....... 9,000 48,307
Mitsui O.S.K. Lines, Ltd. (transportation-shipping) (a).... 49,000 116,934
Mitsui Trust & Banking Co.
(financial services)...................................... 25,000 194,925
Mitsukoshi, Ltd. (merchandising)........................... 24,000 169,966
NEC Corp.
(electrical & electronics)................................ 27,000 325,663
NGK Insulators, Ltd.
(industrial components)................................... 11,000 104,247
Niigata Engineering Co., Ltd. (machinery & engineering)
(a)....................................................... 11,000 30,705
Nikon Corp. (multi-industry)............................... 9,000 111,657
Nippon Express Co., Ltd. (transportation-road & rail)...... 32,000 218,899
Nippon Fire & Marine Insurance (insurance)................. 15,000 67,847
Nippon Light Metal Co.
(metals-nonferrous)....................................... 22,000 90,220
Nippon Meat Packers, Inc.
(food & household products)............................... 12,000 155,078
Nippon Oil Co., Ltd.
(energy sources).......................................... 17,000 87,145
Nippon Steel Corp. (metals-steel).......................... 83,000 244,551
Nissan Motor Co., Ltd. (automobiles)....................... 42,000 243,163
Nisshinbo Industries, Inc.
(textiles & apparel)...................................... 17,000 132,109
Nissin Food Products Co., Ltd.
(food & household products)............................... 9,000 191,522
NKK Corp. (metals-steel) (a)............................... 66,000 148,408
Nomura Securities Co., Ltd.
(financial services)...................................... 30,000 449,727
Obayashi Corp.
(construction & housing).................................. 28,000 188,644
Oji Paper Co., Ltd.
(forest products & paper)................................. 27,000 170,508
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
JAPAN (Continued)
Olympus Optical Co., Ltd.
(recreation & other
consumer goods)........................................... 20,000 $ 189,540
Orient Corp. (financial services).......................... 30,000 161,022
Osaka Gas Co.
(utilities-electrical & gas).............................. 15,000 40,967
Penta-Ocean Construction (construction & housing).......... 10,000 44,455
Pioneer Electronic Corp. (appliances & household durables). 5,000 95,201
Sakura Bank, Ltd. (banking)................................ 48,000 342,413
Sankyo Co., Ltd.
(health & personal care).................................. 11,000 310,847
Sanrio Co., Ltd.
(business & public services) (a).......................... 5,000 40,277
Sanyo Electric Co., Ltd. (appliances & household durables). 32,000 132,333
Sapporo Breweries
(beverages & tobacco)..................................... 28,000 231,582
Sato Kogyo Co.
(construction & housing).................................. 12,000 41,767
Sharp Corp. (appliances &
household durables)....................................... 18,000 255,879
Shimizu Corp.
(construction & housing).................................. 18,000 134,141
Shin-Etsu Chemical Co. (chemicals)......................... 11,000 199,965
Shionogi & Co.
(health & personal care).................................. 9,000 64,125
Shiseido Co., Ltd.
(health & personal care).................................. 13,000 150,081
Shizuoka Bank (banking).................................... 16,000 169,552
Sony Corp. (appliances &
household durables)....................................... 5,400 353,114
Sumitomo Bank, Ltd. (banking).............................. 46,000 661,839
Sumitomo Chemical Co.
(chemicals)............................................... 30,000 118,635
Sumitomo Corp.
(wholesale & international trade)......................... 34,000 267,441
Sumitomo Electric Industries (industrial components)....... 21,000 293,097
Sumitomo Marine & Fire Insurance Co. (insurance)........... 9,000 55,828
Sumitomo Metal Industries, Ltd. (metals-nonferrous)........ 38,000 93,305
Sumitomo Metal Mining Co.
(metals-steel)............................................ 14,000 94,200
Taisei Corp.
(construction & housing).................................. 15,000 77,538
Taisho Pharmaceutical Co.
(health & personal care).................................. 10,000 235,202
Taiyo Yuden Co., Ltd. (electronic components &
instruments).............................................. 11,000 153,527
Takashimaya Co. (merchandising)............................ 13,000 155,681
Takeda Chemical Industries, Ltd. (health & personal care).. 13,000 272,163
Teikoku Oil Co. (energy sources)........................... 20,000 108,382
Tobu Railway Co., Ltd. (transportation-road & rail)........ 16,000 78,158
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
JAPAN (Continued)
Tohoku Electric Power
(utilities-electrical & gas).............................. 6,000 $ 118,894
Tokai Bank (banking)....................................... 29,000 302,316
Tokio Marine & Fire Insurance Co. (insurance).............. 34,000 319,287
Tokyo Dome Corp.
(leisure & tourism)....................................... 6,000 104,419
Tokyo Electric Power Co., Ltd. (utilities-electrical &
gas)...................................................... 13,100 286,671
Tokyo Electron, Ltd. (electronic components & instruments). 5,000 152,924
Tokyo Gas Co., Ltd.
(utilities-electrical & gas).............................. 68,000 183,954
Tokyo Steel Manufacturing Co., Ltd. (machinery &
engineering).............................................. 7,000 99,509
Tokyu Corp.
(transportation-road & rail).............................. 18,000 102,040
Toppan Printing Co., Ltd.
(business & public services).............................. 22,000 274,833
Tostem Corp. (building materials & components)............. 5,000 137,847
Toto, Ltd. (building materials & components)............... 6,000 68,234
Toyo Seikan Kaisha (miscellaneous-materials & components).. 6,000 144,223
Toyoda Automatic Loom Works, Ltd. (machinery &
engineering).............................................. 4,000 74,782
Toyota Motor Corp. (automobiles)........................... 58,000 1,663,991
Ube Industries, Ltd. (miscellaneous-materials &
components)............................................... 44,000 124,335
Uny Co., Ltd.
(food & household products)............................... 7,000 127,854
Yamaha Corp. (recreation & other consumer goods)........... 11,000 186,697
Yamaichi Securities Co., Ltd. (financial services)......... 10,000 44,369
Yamanouchi Pharmaceutical Co., Ltd. (health & personal
care)..................................................... 2,000 41,010
Yasuda Trust & Banking
(financial services)...................................... 15,000 63,453
-----------
28,508,220
-----------
MALAYSIA (2.4%)
Golden Hope Plantations Berhad (food & household products). 40,000 68,104
Hong Leong Properties Berhad (construction & housing)...... 60,000 79,350
Kuala Lumpur Kepong Berhad
(forest products & paper)................................. 70,500 178,654
Leader Universal Holdings Berhad (electrical &
electronics).............................................. 30,000 62,955
Malayan Banking Berhad (banking)........................... 22,000 243,910
Malaysia International Shipping Berhad Foreign Registered
(transportation-shipping)................................. 37,333 110,869
Malaysian Airline System Berhad (transportation-airlines).. 50,000 129,675
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
MALAYSIA (Continued)
Malaysian Helicopter Services Berhad (transportation-
airlines)................................................. 11,600 $ 13,779
Malaysian Resources Corp. Berhad (construction & housing).. 19,000 74,856
Metroplex Berhad
(construction & housing).................................. 80,000 98,192
Multi-Purpose Holdings Berhad (multi-industry)............. 27,000 52,385
Perlis Plantations Berhad
(multi-industry).......................................... 31,250 97,131
Resorts World Berhad
(leisure & tourism)....................................... 18,000 81,963
Sime Darby Berhad (multi-industry)......................... 80,000 315,184
Technology Resources Industries Berhad (multi-industry)
(a)....................................................... 29,000 57,182
Telekom Malaysia Berhad (telecommunications)............... 30,000 267,273
Tenaga Nasional Berhad
(utilities-electrical & gas).............................. 39,000 186,853
-----------
2,118,315
-----------
NETHERLANDS (4.4%)
ABN Amro Holding NV (banking).............................. 4,400 285,916
Elsevier NV
(broadcasting & publishing)............................... 29,670 500,862
Hollandsche Beton Groep NV (construction & housing)........ 1,000 206,910
ING Groep NV (insurance)................................... 15,482 556,720
Koninklijke Hoogovens CVA NV (metals-steel)................ 1,000 41,625
Koninklijke KNP BT NV
(forest products & paper)................................. 3,200 69,745
Koninklijke Nedlloyd NV (transportation-shipping).......... 2,000 54,806
Koninklijke Pakhoed NV (transportation-shipping)........... 1,000 31,219
Philips Electronics NV (appliances & household durables)... 6,500 263,045
Royal Dutch Petroleum Co.
(energy sources).......................................... 7,455 1,305,469
Stork NV (multi-industry).................................. 2,700 95,060
Unilever CVA NV
(food & household products)............................... 3,083 544,686
-----------
3,956,063
-----------
NEW ZEALAND (0.4%)
Carter Holt Harvey Ltd.
(forest products & paper)................................. 23,100 52,388
Fletcher Challenge Building (building materials &
components)............................................... 8,775 26,969
Fletcher Challenge Energy
(oil/gas-exploration)..................................... 8,775 25,419
Fletcher Challenge Forests
(forest products & paper)................................. 30,174 50,523
Fletcher Challenge Paper
(forest products & paper)................................. 17,550 36,083
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
NEW ZEALAND (Continued)
Telecom Corp. of New Zealand Ltd. (telecommunications)..... 32,000 $ 163,235
-----------
354,617
-----------
NORWAY (0.6%)
Christiania Bank Og Kreditkasse (banking).................. 35,000 110,719
Elkem ASA Class A
(metals-nonferrous)....................................... 5,600 92,524
Norsk Hydro ASA Class A
(energy sources).......................................... 6,800 367,401
-----------
570,644
-----------
SINGAPORE (1.3%)
City Developments, Ltd.
(real estate)............................................. 29,000 261,217
Development Bank of Singapore, Ltd. Foreign Registered
(banking)................................................. 8,750 118,224
First Capital Corp., Ltd.
(multi-industry).......................................... 24,000 72,403
Goldtron, Ltd. (electronic components & instruments)....... 140,000 81,564
Singapore Airlines, Ltd.
Foreign Registered
(transportation-airlines)................................. 15,000 136,185
Singapore Technologies Industrial Corp. (multi-industry)... 15,000 37,532
Singapore Telecommunications, Ltd. (telecommunications).... 92,000 217,037
United Overseas Bank, Ltd.
Foreign Registered (banking).............................. 20,250 225,832
Van der Horst, Ltd.
(machinery & engineering)................................. 7,000 29,274
-----------
1,179,268
-----------
SPAIN (2.3%)
Banco de Bilbao Vizcaya, SA, Registered (banking).......... 6,367 343,130
Banco de Santander, SA (banking)........................... 3,100 198,047
Banco Espanol de Credito, SA (Banesto) (banking) (a)....... 1,033 7,981
Compania Sevillana de Electricidad, SA (utilities-
electrical & gas)......................................... 6,049 68,593
Empresa Nacional de Celulosas, SA (forest products &
paper).................................................... 3,000 35,864
Empresa Nacional de Electricidad, SA (utilities-electrical
& gas).................................................... 4,300 305,455
Gas Natural SDG, SA
(utilities-electrical & gas).............................. 1,200 278,608
Iberdrola, SA
(utilities-electrical & gas).............................. 18,500 261,694
Repsol, SA (energy sources)................................ 4,200 160,799
Telefonica de Espana, SA (telecommunications).............. 19,056 441,697
-----------
2,101,868
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
SWEDEN (2.2%)
ABB AB Series B
(utilities-electrical & gas)............................. 2,500 $ 282,659
Astra AB Series A
(health & personal care)................................. 8,205 404,961
Stadshypotek AB Series A (banking)........................ 3,000 82,161
Svenska Cellulosa AB Series B
(forest products & paper)................................ 10,000 202,840
Swedish Match AB
(beverages & tobacco).................................... 26,030 91,493
Telefonaktiebolaget LM Ericsson Series B
(telecommunications)..................................... 19,672 607,904
Volvo AB Series B (automobiles)........................... 12,030 265,159
-----------
1,937,177
-----------
SWITZERLAND (5.7%)
CS Holding AG Registered
(financial services)..................................... 3,750 384,015
Holderbank Financiere Glarus AG Bearer (building materials
& components)............................................ 134 95,406
Holderbank Financiere Glarus AG Registered (building
materials & components).................................. 1,200 172,485
Jelmoli Holdings, Ltd. Bearer (merchandising) (a)......... 300 165,336
Nestle SA Registered
(food & household products).............................. 650 695,639
Novartis SA Bearer
(health & personal care)................................. 358 408,086
Novartis SA Registered
(health & personal care)................................. 1,027 1,172,917
Roche Holding AG Bearer
(health & personal care)................................. 115 892,013
Schindler Holding AG Participating Certificate
(miscellaneous-materials & components)................... 125 135,452
Schindler Holding AG Registered (miscellaneous-materials &
components).............................................. 75 76,524
Schweizerischer Bankverein Registered (banking)........... 1,220 231,239
SGS Societe Generale de Surveillance Holding SA Bearer
(business & public services)............................. 110 269,527
SGS Societe Generale de Surveillance Holding SA Registered
(business & public services)............................. 250 109,479
Sika Finanz AG Registered (building materials &
components).............................................. 2,400 98,308
Societe Suisse pour la Microelectronique et Horlogerie AG
Registered (recreation & other consumer goods)........... 500 71,124
Sulzer AG Participating Certificate (industrial
components).............................................. 100 53,325
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
SWITZERLAND (Continued)
Sulzer AG Registered
(industrial components)................................... 125 $ 71,962
-----------
5,102,837
-----------
UNITED KINGDOM (18.6%)
Abbey National PLC (insurance)............................. 39,100 511,874
Associated British Foods PLC
(food & household products)............................... 29,400 243,761
Barclays PLC (banking)..................................... 25,211 431,650
Bass PLC (beverages & tobacco)............................. 19,600 275,374
B.A.T. Industries PLC
(beverages & tobacco)..................................... 44,666 370,335
Boots Co. PLC (merchandising).............................. 19,101 196,941
British Gas PLC (energy sources)........................... 82,100 315,412
British Petroleum Co. PLC
(energy sources).......................................... 94,427 1,131,953
British Sky Broadcasting Group PLC (broadcasting &
publishing)............................................... 40,000 357,316
British Steel PLC (metals-steel)........................... 54,500 149,690
British Telecommunications PLC (telecommunications)........ 99,095 668,990
BTR PLC (multi-industry)................................... 63,913 310,618
Cable & Wireless PLC (telecommunications).................. 40,976 340,441
Chubb Security PLC
(business & public services).............................. 20,520 114,651
Coats Viyella PLC
(textiles & apparel)...................................... 55,900 127,228
Courtaulds PLC (chemicals)................................. 12,663 85,271
De La Rue PLC
(forest products & paper)................................. 15,300 149,896
General Accident PLC (insurance)........................... 16,500 216,432
General Electric Co. PLC
(electrical & electronics)................................ 56,040 366,339
Glaxo Wellcome PLC
(health & personal care).................................. 51,208 830,753
Granada Group PLC
(leisure & tourism)....................................... 11,410 168,217
Grand Metropolitan PLC
(multi-industry).......................................... 48,764 383,032
Guardian Royal Exchange PLC (insurance).................... 31,700 151,621
Guinness PLC
(beverages & tobacco)..................................... 35,386 277,041
Hanson PLC (multi-industry)................................ 127,470 177,782
Harrisons & Crosfield PLC (miscellaneous-materials &
components)............................................... 59,200 135,242
HSBC Holdings PLC (HK par) (financial services)............ 28,300 616,026
Imperial Chemical Industries PLC (chemicals)............... 20,553 270,299
Imperial Tobacco Group PLC (beverages & tobacco)........... 3,747 24,174
Kingfisher PLC (merchandising)............................. 16,000 172,909
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Ladbroke Group PLC
(leisure & tourism)................................... 65,000 $ 256,952
LASMO PLC (energy sources)............................. 29,400 119,740
Lloyds TSB Group PLC (banking)......................... 73,328 540,217
Marks & Spencer PLC (merchandising).................... 67,789 569,590
National Grid Group PLC
(utilities-electrical & gas).......................... 20,447 68,405
National Power PLC
(utilities-electrical & gas).......................... 25,000 209,205
Next PLC (merchandising)............................... 15,000 145,674
Northern Electric PLC
(utilities-electrical & gas).......................... 4,158 46,212
Prudential Corp. PLC (insurance)....................... 38,200 321,300
Racal Electronic PLC
(multi-industry)...................................... 25,020 110,251
Rank Group PLC
(leisure & tourism)................................... 40,500 301,834
Reuters Holdings PLC
(broadcasting & publishing)........................... 37,000 475,835
Rolls-Royce PLC (aerospace & military technology)...... 45,985 202,633
Royal & Sun Alliance Insurance Group PLC (insurance)... 26,461 201,281
Royal Bank of Scotland Group PLC (banking)............. 25,900 249,756
RTZ Corp. PLC Registered
(metals-nonferrous)................................... 21,400 342,963
Sainsbury (J) PLC (merchandising)...................... 40,082 266,136
SmithKline Beecham PLC
(health & personal care).............................. 43,176 598,116
Tarmac PLC (building materials & components)........... 79,168 132,765
Tesco PLC (merchandising).............................. 50,058 303,677
Thames Water PLC
(utilities-electrical & gas).......................... 14,000 146,744
Unilever PLC
(food & household products)........................... 10,089 244,562
United Biscuits (Holdings) PLC
(food & household products)........................... 30,091 108,138
Vodafone Group PLC
(multi-industry)...................................... 95,135 401,308
Williams Holdings PLC (building materials &
components)........................................... 37,000 217,497
Wilson Connolly Holdings PLC (construction & housing).. 30,300 85,816
Zeneca Group PLC (chemicals)........................... 13,553 382,108
-----------
16,619,983
-----------
UNITED STATES (0.0%) (b)
Millennium Chemicals Inc. (chemicals).................. 535 9,496
-----------
Total Common Stocks
(Cost $67,475,476).................................... 87,386,132 (e)
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
PREFERRED STOCKS (0.4%)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------
<S> <C> <C>
AUSTRALIA (0.1%)
News Corp., Ltd. Preference Shares (broadcasting &
publishing)............................................... 16,500 $ 73,389
-----------
GERMANY (0.3%)
RWE AG Preference Shares
(utilities-electrical & gas).............................. 8,000 267,339
-----------
ITALY (0.0%) (b)
Fiat S.p.A. Preference Shares (automobiles)................ 35,000 57,659
-----------
Total Preferred Stocks
(Cost $314,219)........................................... 398,387
-----------
WARRANTS (0.0%) (b)
HONG KONG (0.0%) (b)
Hong Kong & China Gas Co., Ltd. (Call Warrants-expire
9/30/97-strike price HK 11.50)
(utilities-electrical & gas) (a).......................... 6,134 3,410
-----------
UNITED KINGDOM (0.0%) (b)
BTR PLC (Call Warrants-expire 11/30/97-strike price
(Pounds) 2.58)
(multi-industry) (a)...................................... 418 240
BTR PLC (Call Warrants-expire 11/26/98-strike price
(Pounds) 4.05)
(multi-industry) (a)...................................... 1,227 136
-----------
376
-----------
Total Warrants
(Cost $1,282)............................................. 3,786
-----------
</TABLE>
SHORT-TERM INVESTMENTS (1.6%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
U.S. GOVERNMENT (1.6%)
United States Treasury Bills
4.83%, due 2/6/97 (c)........................... $ 1,300,000 $ 1,293,721
4.99%, due 4/3/97............................... 100,000 98,696
-----------
Total Short-Term Investments (Cost $1,392,446)... 1,392,417
-----------
Total Investments
(Cost $69,183,423) (f).......................... 99.7% 89,180,722 (g)
Cash and Other Assets,
Less Liabilities................................ 0.3 244,806
----------- -----------
Net Assets....................................... 100.0% $89,425,528
=========== ===========
FUTURES
CONTRACTS (0.0%) (b)
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION)
----------------------------
<S> <C> <C>
JAPAN (0.0%) (b)
Japanese Yen, TOPIX Index, March 1997............ 6 $ (20,505)(d)
-----------
UNITED KINGDOM (0.0%) (b)
Pound Sterling, FTSE 100 Index, March 1997....... 3 6,504 (d)
-----------
Total Futures Contracts (Settlement Value
$1,290,272)..................................... $ (14,001)
===========
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) Segregated as collateral for futures contracts.
(d) Represents difference between the value of the contract at the time it was
opened and the value at December 31, 1996.
(e) The combined market value of common stocks and settlement value of Index
futures represents 99.2% of net assets.
(f) The cost for Federal income tax purposes is $69,581,915.
(g) At December 31, 1996 net unrealized appreciation for securities was
$19,598,807, based on cost for Federal income tax purposes. This consisted
of aggregate gross unrealized appreciation for all investments on which
there was an excess of market value over cost of $24,450,855 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $4,852,048.
(h) The following abbreviations are used in the above portfolio:
HK--Hong Kong Dollar
(Pounds)--Pound Sterling
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
The table below sets forth the diversification of EAFE Index Fund investments
by industry.
COMMON STOCKS,
PREFERRED STOCKS,
WARRANTS &
SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
VALUE PERCENT +
------------------
<S> <C> <C>
Aerospace & Military Technology........................... $ 202,633 0.2%
Appliances & Household Durables........................... 1,715,404 1.9
Automobiles............................................... 3,751,850 4.2
Banking................................................... 11,438,315 12.8
Beverages & Tobacco....................................... 2,329,380 2.6
Broadcasting & Publishing................................. 1,909,352 2.1
Building Materials & Components........................... 1,448,953 1.6
Business & Public Services................................ 1,445,826 1.6
Chemicals................................................. 3,397,168 3.8
Construction & Housing.................................... 2,813,741 3.1
Data Processing & Reproduction............................ 288,446 0.3
Electrical & Electronics.................................. 2,268,799 2.5
Electronic Components & Instruments....................... 1,035,454 1.2
Energy Equipment & Service................................ 20,774 0.0#
Energy Sources............................................ 5,431,148 6.1
Financial Services........................................ 3,172,086 3.5
Food & Household Products................................. 3,190,656 3.6
Forest Products & Paper................................... 946,500 1.1
Health & Personal Care.................................... 6,993,067 7.8
Industrial Components..................................... 1,508,386 1.7
Insurance................................................. 4,402,689 4.9
Leisure & Tourism......................................... 1,075,207 1.2
Machinery & Engineering................................... 1,867,076 2.1
Merchandising............................................. 3,172,150 3.6
</TABLE>
<TABLE>
<CAPTION>
VALUE PERCENT +
------------------
<S> <C> <C>
Metals-Nonferrous......................................... $ 1,222,972 1.4%
Metals-Steel.............................................. 1,077,274 1.2
Miscellaneous-Materials & Components...................... 964,251 1.1
Multi-Industry............................................ 4,121,554 4.6
Oil/Gas-Exploration....................................... 268,939 0.3
Real Estate............................................... 261,217 0.3
Recreation & Other Consumer Goods......................... 1,509,354 1.7
Telecommunications........................................ 4,193,551 4.7
Textiles & Apparel........................................ 431,469 0.5
Transportation-Airlines................................... 749,829 0.8
Transportation-Road & Rail................................ 1,106,648 1.2
Transportation-Shipping................................... 852,880 1.0
U.S. Government........................................... 1,392,417 1.6
Utilities-Electrical & Gas................................ 4,391,475 4.9
Wholesale & International Trade........................... 811,832 0.9
----------- -----
89,180,722 99.7
Cash and Other Assets,
Less Liabilities......................................... 244,806 0.3
----------- -----
Net Assets................................................ $89,425,528 100.0%
=========== =====
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
# Less than one tenth of a percent.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
EAFE INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $69,183,423)................................... $89,180,722
Cash denominated in foreign currencies (identified cost
$66,336)........................................................ 60,012
Cash............................................................. 16,291
Receivables:
Dividends and interest........................................... 268,374
Fund shares sold................................................. 3,843
Investment securities sold....................................... 3,408
-----------
Total assets................................................... 89,532,650
-----------
LIABILITIES:
Payables:
Administrator.................................................... 23,462
Fund shares redeemed............................................. 16,264
Adviser.......................................................... 11,044
Custodian........................................................ 6,855
Transfer agent................................................... 4,280
Directors........................................................ 102
Accrued expenses................................................. 31,114
Variation margin payable on futures contracts 14,001
-----------
Total liabilities.............................................. 107,122
-----------
Net assets....................................................... $89,425,528
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized
Institutional Class.............................................. $ 6,357
Institutional Service Class...................................... 28
Additional paid-in capital....................................... 69,829,592
Accumulated distribution in excess of net investment income...... (347,089)
Accumulated distribution in excess of net realized gain on
investments..................................................... (40,902)
Net unrealized appreciation on investments....................... 19,983,298
Net unrealized depreciation on translation of assets and
liabilities in foreign currencies............................... (5,756)
-----------
Net assets....................................................... $89,425,528
===========
Institutional Class
Net assets applicable to outstanding shares...................... $89,029,090
===========
Shares of capital stock outstanding.............................. 6,357,386
===========
Net asset value per share outstanding............................ $ 14.00
===========
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 396,438
===========
Shares of capital stock outstanding.............................. 28,387
===========
Net asset value per share outstanding............................ $ 13.97
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $1,632,310
Interest......................................................... 63,250
----------
Total income................................................... 1,695,560
----------
Expenses:
Administration................................................... 662,846
Advisory......................................................... 124,284
Portfolio pricing................................................ 68,431
Custodian........................................................ 49,461
Professional..................................................... 36,990
Registration..................................................... 28,468
Transfer agent................................................... 27,882
Shareholder communication........................................ 13,991
Directors........................................................ 2,646
Service.......................................................... 932
Miscellaneous.................................................... 2,609
----------
Total expenses before
reimbursement................................................. 1,018,540
Expense reimbursement from Administrator......................... (238,764)
----------
Net expenses................................................... 779,776
----------
Net investment income............................................ 915,784
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions............................................ 642,760
Futures transactions............................................. (76,195)
Foreign currency transactions.................................... (2,371)
----------
Net realized gain on investments and foreign currency
transactions.................................................... 564,194
----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions............................................ 3,817,612
Futures transactions............................................. (14,001)
Translation of assets and liabilities in foreign currencies...... (20,453)
----------
Net unrealized gain on investments and foreign currencies........ 3,783,158
----------
Net realized and unrealized gain on investments and foreign
currency transactions........................................... 4,347,352
----------
Net increase in net assets resulting from operations............. $5,263,136
==========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $245,743.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE>
EAFE INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................ $ 915,784 $ 779,846
Net realized gain on investments..................... 566,565 1,764,177
Net realized loss on foreign currency transactions... (2,371) (631,201)
Net change in unrealized appreciation on
investments......................................... 3,803,611 4,874,109
Net change in unrealized appreciation (depreciation)
on translation of assets and liabilities in foreign
currencies.......................................... (20,453) 10,506
----------- -----------
Net increase in net assets resulting from
operations.......................................... 5,263,136 6,797,437
----------- -----------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................. (912,611) (229,241)
Institutional Service Class......................... (3,173) (736)
From net realized gain on investments and foreign
currency transactions:
Institutional Class................................. (1,555,065) (812,185)
Institutional Service Class......................... (7,001) (2,606)
In excess of net investment income:
Institutional Class................................. (161,899) (181,506)
Institutional Service Class......................... (731) (582)
----------- -----------
Total dividends and distributions to shareholders.. (2,640,480) (1,226,856)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................. 20,042,853 24,179,826
Institutional Service Class......................... 246,922 248,855
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................. 2,628,297 1,222,774
Institutional Service Class......................... 10,905 3,923
----------- -----------
22,928,977 25,655,378
Cost of shares redeemed:
Institutional Class................................. (16,341,457) (23,146,316)
Institutional Service Class......................... (129,092) --
----------- -----------
Increase in net assets derived from capital share
transactions....................................... 6,458,428 2,509,062
----------- -----------
Net increase in net assets.......................... 9,081,084 8,079,643
NET ASSETS:
Beginning of year.................................... 80,344,444 72,264,801
----------- -----------
End of year.......................................... $89,425,528 $80,344,444
=========== ===========
Accumulated distribution in excess of net investment
income.............................................. $ (347,089) $ (182,088)
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
EAFE INDEX FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- -------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------- --------------------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 13.56 $ 13.51 $ 12.63 $12.63 $ 12.03 $ 9.60 $ 11.01
------- ------- ------- ------- ------- ------- -------
Net investment income... 0.16 0.12 0.13 0.14 0.10 0.06 0.08
Net realized and
unrealized gain (loss)
on investments......... 0.71 0.73 1.11 1.05 0.70 2.71 (1.41)
Net realized and
unrealized gain (loss)
on foreign currency
transactions........... (0.00)(a) (0.00)(a) (0.10) (0.10) 0.03 (0.01) (0.01)
------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 0.87 0.85 1.14 1.09 0.83 2.76 (1.34)
------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment
income................. (0.16) (0.12) (0.04) (0.04) (0.09) (0.14) (0.07)
From net realized gain
on investments and
foreign currency
transactions........... (0.25) (0.25) (0.14) (0.14) (0.14) (0.19) --
In excess of net
investment income ..... (0.02) (0.02) (0.03) (0.03) -- -- --
------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions.......... (0.43) (0.39) (0.21) (0.21) (0.23) (0.33) (0.07)
------- ------- ------- ------- ------- ------- -------
Net asset value at end
of year................ $ 14.00 $ 13.97 $ 13.56 $ 13.51 $ 12.63 $ 12.03 $ 9.60
======= ======= ======= ======= ======= ======= =======
Total investment return
....................... 6.45% 6.37% 9.03% 8.63% 6.83% 28.97% (12.22%)
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.11% 0.86% 1.01% 0.76% 0.57% 0.53% 0.76%
Net expenses........... 0.94% 1.19% 1.03% 1.28% 1.26% 1.27% 1.32%
Expenses (before
reimbursement)........ 1.23% 1.48% 1.24% 1.49% 1.26% 1.27% 1.32%
Portfolio turnover
rate................... 4% 4% 6% 6% 7% 16% 1%
Average commission rate
paid................... $0.0097 $0.0097 (b) (b) (b) (b) (b)
Net assets at end of
year (in 000's)........ $89,029 $ 396 $80,087 $ 257 $72,265 $53,714 $40,531
</TABLE>
- --------
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
17
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<PAGE>
GROWTH EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Despite unusual volatility, the stock market had a strong year in 1996, with
the S&P 500 Stock Index+ rising 22.94%
. Throughout the year, investors focused on interest rates, inflation, and the
possibility of Federal Reserve action
. Stocks declined sharply in June and July, but recovered through the second
half of the year
. While growth stocks did well through the first nine months of the year,
value stocks were stronger in the fourth quarter
. Most of the stock market's gains were concentrated in a small number of
stocks
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 21.62% and 21.29% for Institutional Class and
Service Class shares, respectively, as of 12/31/96
. Both share classes outperformed the average Lipper* growth fund, which
returned 19.24% for the 12 months ended 12/31/96
. The Fund's financial, technology, and energy stocks contributed positively
to performance
. Health care stocks tended to underperform, as did certain media issues which
were sold in the second and third quarters
- --------------------------------------------------------------------------------
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
Capitalization The amount of outstanding equity a company has issued. Companies
may vary greatly in the amount of equity capital they have raised, and their
capitalization may change with new issues or stock repurchases.
- --------------------------------------------------------------------------------
Growth stocks had another outstanding year in 1996, with the S&P 500 Stock Index
returning 22.94% -- more than twice the average annual total return for the
previous 70 years.(S) Unlike 1995, however, the gains were mostly concentrated
in a small number of issues. Throughout the year, investors tried to anticipate
the Federal Reserve's interest rate moves, carefully watched for signs of
impending inflation, and reacted quickly and decisively to negative earnings
reports.
A sharp decline in small capitalization stocks in May was followed by a broader
correction in June and July, making stocks much more volatile than in recent
years. While the market recovered strongly in the second half, by the fourth
quarter, investors had shifted their focus from growth equities to value stocks.
For the entire year, the leading industries were energy, banks, and technology,
including semiconductors, computers, and software. Footwear companies stepped
ahead of the market, while trucking, steel, and factory equipment lagged the
market. Media and health care generally underperformed the market. In general,
stock performance was strengthened by huge cash inflows into equity mutual
funds. Despite heavy volatility and variable results in different industries,
for the 12 months ended 12/31/96, the average Lipper growth fund returned
19.24%.
- --------------------------------------------------------------------------------
+ The S&P 500 Stock Index is a registered trademark of Standard & Poor's
Corporation. The S&P 500 Stock Index is an unmanaged index that is
considered representative of the U.S. stock market.
* Lipper Analytical Services 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.
(S) Source: Ibbotson Associates, Chicago. Used with permission. All rights
reserved.
18
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Bottom-up investing Security selection based on the specific fundamental merits
of individual issues. The opposite of "top-down" investing, which starts with
general economic trends, compares market sectors, and uses relative security
values to narrow the range of issues to examine.
Weighting The proportion of a portfolio allocated to a specific security or
sector, i.e., a fund is said to be overweighted in a sector when that portion of
the portfolio is greater than the sector's general relationship to the market as
a whole.
- --------------------------------------------------------------------------------
Given this context, how did the MainStay Institutional Growth Equity Fund do in
1996?
The Fund performed very well. For the year ended December 31, 1996, the MainStay
Institutional Growth Equity Fund returned 21.62% and 21.29% for Institutional
Class and Service Class shares, respectively. Both classes of shares
outperformed the average Lipper growth fund.
How did the Fund manage to do so well?
The Fund uses a bottom-up investment approach, evaluating each stock on its
individual merits. When the portfolio managers see fundamental value and strong
growth characteristics, the Fund may be rewarded, even when it takes the Fund in
a different direction than other growth managers. For example, in 1996, the Fund
was overweighted in financial stocks all year long. Many growth managers didn't
invest in financial issues, but we felt some had potential for bottom line
growth in excess of 20%. We weren't betting on where interest rates were headed.
We felt that we'd found stocks that could perform well because of their inherent
strengths. As it happened, the Federal Reserve didn't make any major moves
during the year, and financial stocks did very well.
Can you be more specific?
Certainly. Green Tree Financial is a leading financier of manufactured housing,
small aircraft purchases, and has moved into the home improvement business.
Their bottom line was growing quickly and the stock was trading at an attractive
price for its earnings potential. We held the stock all year, and even though it
had some ups and downs, overall it returned 53% for the portfolio.**
Were there other attractive financial stocks?
Yes, there were. SunAmerica is an annuity company that did particularly well in
the fourth quarter. For the year, it was up 89%, and it had the greatest
positive impact of any stock in the Fund's portfolio. First U.S.A. is one of the
nation's biggest credit card companies, and Traveler's is a diversified
financial company with Smith Barney, a subsidiary, as a star performer. Both of
these stocks performed very well during the year. Unfortunately, we had some
disappointment in the financial sector. In the second quarter, we reduced our
exposure to financial services stocks and sold Bank of New York and Barnett
Bank, both of which rose to all-time highs after we cut our positions. While we
sold at a profit, we missed some opportunities there.
What other stocks did you sell during the year?
Moving into the second and third quarters, we sold several of our media stocks,
including News Corp. and Tele-Communications International. We saw their
earnings estimates were coming down and felt their fundamentals were
deteriorating. The decision turned out to be a wise one, since these stocks have
generally underperformed the market. In the third quarter, we also sold two
airline stocks -- Southwest and Atlantic Southeast. Again, we were convinced
that their fundamentals were weakening and our decision paid off. While they've
recovered a bit from where we sold them, on a relative basis, they've both
underperformed the market.
What did you buy during the year?
One of our most important purchases was Nike, which we bought in the first
quarter. The company sells shoes and sportswear, and its fundamentals have
continued to improve. The company profited from the Olympic games, and now their
future orders are very strong. Over the course of the year, the stock returned
79% for the Fund. Another stock we bought in the first quarter was Safeway, a
leading supermarket chain that showed strong growth characteristics, based on
our proprietary evaluation techniques. Safeway returned 62% for the Fund in
1996.
- --------------------------------------------------------------------------------
** Returns reflect performance during the period securities were held in the
Fund.
19
<PAGE>
================================================================================
Are there other holdings that performed well?
We did well with Tyco International, a diversified company that manufactures
everything from sprinklers and fire hydrants to bandages and fiber optics. We
liked their rate of earnings growth, which has continued to improve. For the
year, the stock gained 78%. HFS is a company we bought in 1995. They're a
leading hotel franchiser, with interests in real estate, condominium time
shares, and rental cars. They were up 63% for the year and we expect outstanding
earnings growth in 1997. We also owned Cisco Systems, a large networking
company, based on its strong fundamentals and earnings potential. Later in the
year, as the market moved toward larger, more seasoned names, such as Microsoft
and Intel, Cisco Systems also advanced, bringing a 29% gain to the Fund.
What about the Fund's other technology stocks?
Technology stocks were highly volatile in 1996, particularly during June and
July. But many advanced over the course of the year. Intel was up 131% for the
year, performing particularly well, especially during the fourth quarter.
Another networking company, 3Com, was up 58%. Computer Associates did well for
the year, despite some negative news on European earnings in the fourth quarter.
Other technology stocks were considerably weaker. We sold Micron Technology and
Motorola in the first quarter because they faced severe pricing pressure,
despite strong sales. The Micron sale helped the portfolio, since the stock has
underperformed. While Motorola has come back a bit, we view our decision to sell
as positive in reducing portfolio volatility. Lam Research, another
semiconductor company, was a major disappointment, down 39% for the year.
What happened to the Fund's health care stock holdings in 1996?
When it became clear that President Clinton was likely to win the re-election,
health care issues started to decline. The most severely hurt sector was HMOs,
which suffered because of higher medical costs, greater utilization, and slow
premium growth. When United Healthcare preannounced poor second quarter
performance, the Fund suffered. Even though United Healthcare and Humana were
both down 31% for the year, we've continued to hold the stocks, because we
believe they have long-term potential. Early in the year, we sold Mylan Labs,
the leading name in generic drugs. While generic drugs are growing in
popularity, competitive pressures have undermined their pricing edge. Since the
stock was down 40% in 1996, we believe the sale was a wise decision.
Are there other medical stocks that did well?
Johnson & Johnson and Schering-Plough both provided positive performance for the
Fund. Medtronic, the world's largest medical implant manufacturer, and Guidant,
a company in a related business had excellent results. Guidant has grown about
20% over the year and has developed a new product for cardiac surgery that may
have the potential to substantially increase their sales in the future.
Speaking of the future, what's your outlook for 1997?
At the end of the year we were overweighted in financials and large
capitalization technology issues. We're continuing to evaluate the fundamental
prospects in the health care sector, with a focus on HMOs. While Nike was an
exception, most consumer stocks did poorly in the fourth quarter. We're looking
for ways to improve performance in the near term while seeking companies that
will do well over the long haul. As always, we'll continue to look for
opportunities and evaluate risks, seeking long-term capital growth for our
shareholders.
Edmund Spelman
Rudy Carryl
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
20
<PAGE>
[GRAPH APPEARS HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE GROWTH EQUITY FUND S & P 500 INDEX
---- ------------------ ---------------
<S> <C> <C>
1/2/91 10,000 10,000
12,560 11,453
12,100 11,427
14,680 12,038
91 16,700 13,047
16,369 12,717
14,175 12,958
14,738 13,366
92 17,640 14,040
17,434 14,654
17,663 14,726
19,168 15,105
93 19,333 15,456
19,064 14,870
17,735 14,933
19,453 15,663
94 18,901 15,660
20,628 17,185
22,729 18,826
25,437 20,323
95 26,062 21,546
28,040 22,703
28,939 23,723
30,783 24,456
12/31/96 31,696 26,493
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE GROWTH EQUITY FUND S & P 500 INDEX
---- ------------------ ---------------
<S> <C> <C>
1/2/91 10,000 10,000
12,560 11,453
12,100 11,427
14,680 12,038
91 16,700 13,047
16,369 12,717
14,175 12,958
14,738 13,366
92 17,640 14,040
17,434 14,654
17,663 14,726
19,168 15,105
93 19,333 15,456
19,064 14,870
17,735 14,933
19,453 15,663
94 18,901 15,660
20,615 17,185
22,701 18,826
25,381 20,323
95 25,990 21,546
27,939 22,703
28,810 23,723
30,649 24,456
12/31/96 31,529 26,493
</TABLE>
. Growth Equity Fund --S&P 500 Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Equity Fund Institutional Class 21.62% 21.62% 13.67% 21.18%
Growth Equity Fund Service Class** 21.29% 21.29% 13.55% 21.07%
Average Lipper Growth Fund 19.24% 19.24% 13.04% 16.63%
S&P 500 Stock Index 22.94% 22.94% 15.20% 17.63%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 67.00
1992 5.63
1993 9.59
1994 -2.23
1995 37.88
1996 21.62
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Common Stocks 96.71%
Cash & Equivalents 3.29%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. 3Com Corp. 3.68%
2. SunAmerica Inc. 3.38%
3. HFS Inc. 2.77%
4. Computer Associates International Inc. 2.71%
5. Green Tree Financial Corp. 2.37%
6. Schwab (Charles) Corp. 2.36%
7. Medtronic, Inc. 2.29%
8. Intel Corp. 2.24%
9. Travelers Group Inc. 2.24%
10. Oracle Corp. 1.95%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. Finance 15.11%
2. Health Care 8.80%
3. Technology 8.01%
4. Retail 7.90%
5. Computers & Office Equipment 7.30%
</TABLE>
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
21
<PAGE>
GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (96.7%)+
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AUTO PARTS (0.8%)
Lear Seating Corp. (a)................................ 135,000 $ 4,606,875
------------
BANKS (2.5%)
NationsBank Corp...................................... 62,000 6,060,500
Wells Fargo & Co...................................... 28,000 7,553,000
------------
13,613,500
------------
BROKERAGE (2.4%)
Schwab (Charles) Corp................................. 405,000 12,960,000
------------
BUILDINGS (1.1%)
Oakwood Homes Corp.................................... 260,000 5,947,500
------------
COMPUTER SERVICES (1.3%)
Electronic Data Systems Corp.......................... 80,000 3,460,000
Sabre Group Holdings, Inc. Class A.................... 138,300 3,855,113
------------
7,315,113
------------
COMPUTERS & OFFICE EQUIPMENT (7.3%)
Alco Standard Corp.................................... 201,100 10,381,787
Danka Business Systems
PLC ADR (b).......................................... 148,100 5,239,038
Hewlett-Packard Co.................................... 136,000 6,834,000
Seagate Technology (a)................................ 122,200 4,826,900
Sun Microsystems (a).................................. 316,000 8,117,250
Sterling Commerce, Inc................................ 130,593 4,603,403
------------
40,002,378
------------
CONSUMER DURABLES (1.5%)
Black & Decker Corp................................... 60,000 1,807,500
Harley-Davidson, Inc.................................. 133,000 6,251,000
------------
8,058,500
------------
CONSUMER FINANCIAL SERVICES (1.2%)
First Data Corp....................................... 183,400 6,694,100
------------
CONSUMER SERVICES (2.2%)
CUC International Inc. (a)............................ 204,000 4,845,000
Service Corp. International........................... 249,600 6,988,800
------------
11,833,800
------------
CREDIT & FINANCE (0.8%)
Equifax Inc........................................... 134,000 4,103,750
------------
DOMESTIC OIL (1.0%)
Triton Energy Ltd. (a)................................ 112,800 5,470,800
------------
DRUGS (7.1%)
Amgen Inc. (a)........................................ 190,400 10,353,000
Elan Corp. PLC ADR (a) (b)............................ 203,000 6,749,750
Genzyme Corp. (a)..................................... 156,200 3,397,350
Pharmacia & Upjohn, Inc............................... 140,000 5,547,500
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
DRUGS (Continued)
Schering-Plough Corp.................................. 130,000 $ 8,417,500
Teva Pharmaceutical Industries Ltd. ADR (b)........... 92,000 4,623,000
------------
39,088,100
------------
ELECTRONICS (1.6%)
Vishay Intertechnology, Inc. (a)...................... 176,400 4,123,350
Waters Corp. (a)...................................... 150,000 4,556,250
------------
8,679,600
------------
FINANCE (15.1%)
Associates First Capital Corp......................... 86,700 3,825,638
Federal National Mortgage Association................. 224,000 8,344,000
First USA, Inc........................................ 267,600 9,265,650
Green Tree Financial Corp............................. 336,000 12,978,000
Household International, Inc.......................... 109,800 10,129,050
MGIC Investment Corp.................................. 98,600 7,493,600
SunAmerica Inc........................................ 417,000 18,504,375
Travelers Group Inc................................... 270,465 12,272,349
------------
82,812,662
------------
HEALTH CARE (8.8%)
Columbia/HCA Healthcare Corp.......................... 212,388 8,654,811
HealthCare COMPARE Corp. (a).......................... 105,100 4,453,613
HEALTHSOUTH Corp. (a)................................. 207,000 7,995,375
Humana Inc. (a)....................................... 168,000 3,213,000
Johnson & Johnson..................................... 175,504 8,731,324
OrNda HealthCorp. (a)................................. 168,500 4,928,625
PacifiCare Health Systems, Inc. Class B (a)........... 45,900 3,912,975
United Healthcare Corp................................ 140,500 6,322,500
------------
48,212,223
------------
INDUSTRIAL (1.4%)
Tyco International Ltd................................ 146,000 7,719,750
------------
INSURANCE (1.8%)
American International Group, Inc..................... 92,550 10,018,537
------------
INTERNATIONAL OIL (1.4%)
Abacan Resource Corp. (a)............................. 375,000 3,257,812
British Petroleum Co., PLC ADR (b).................... 30,207 4,270,515
------------
7,528,327
------------
MEDICAL EQUIPMENT (4.0%)
Guidant Corp.......................................... 134,000 7,638,000
Heartport, Inc........................................ 80,000 1,830,000
Medtronic, Inc........................................ 184,800 12,566,400
------------
22,034,400
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
22
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------ ------------
<S> <C> <C>
OIL SERVICES (1.0%)
Tidewater Inc......................................... 120,000 $ 5,430,000
------------
RESTAURANTS & LODGING (4.2%)
HFS Inc. (a).......................................... 254,400 15,200,400
Lone Star Steakhouse & Saloon, Inc. (a)............... 111,000 2,969,250
Mirage Resorts Inc. (a)............................... 222,400 4,809,400
------------
22,979,050
------------
RETAIL (7.9%)
AutoZone, Inc. (a).................................... 136,700 3,759,250
Bed Bath & Beyond, Inc. (a)........................... 130,800 3,171,900
Home Depot, Inc. (The)................................ 105,500 5,288,187
Kohl's Corp. (a)...................................... 180,000 7,065,000
Kroger Co. (The) (a).................................. 139,000 6,463,500
Lowe's Cos., Inc...................................... 186,500 6,620,750
Safeway Inc. (a)...................................... 203,900 8,716,725
Staples, Inc. (a)..................................... 123,900 2,237,944
------------
43,323,256
------------
SOFTWARE (6.4%)
Computer Associates International, Inc................ 298,500 14,850,375
Mircosoft Corp. (a)................................... 82,000 6,775,250
Oracle Corp. (a)...................................... 255,750 10,677,563
Sterling Software Inc. (a)............................ 82,000 2,593,250
------------
34,896,438
------------
TECHNOLOGY (8.0%)
Cisco Systems, Inc. (a)............................... 134,500 8,557,562
Intel Corp............................................ 93,900 12,295,031
Lam Research Corp. (a)................................ 100,500 2,826,563
3Com Corp. (a)........................................ 275,200 20,192,800
------------
43,871,956
------------
TELECOMMUNICATION EQUIPMENT (0.8%)
Lucent Technologies Inc............................... 100,000 4,625,000
------------
TELECOMMUNICATION SERVICES (1.8%)
Worldcom, Inc. (a).................................... 379,088 9,879,981
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------ ------------
<S> <C> <C>
TEXTILE & APPAREL (2.8%)
Nike, Inc. Class B................................ 164,900 $ 9,852,775
Nine West Group Inc. (a).......................... 123,100 5,708,762
------------
15,561,537
------------
TOYS (0.5%)
Mattel, Inc....................................... 100,000 2,775,000
------------
Total Common Stocks (Cost $315,380,368)........... 530,042,133
------------
SHORT-TERM
INVESTMENT (3.2%)
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
COMMERCIAL PAPER (3.2%)
American Express Credit Corp. 6.75%, due 1/2/97... $17,315,000 17,315,000
------------
Total Short-Term Investment (Cost $17,315,000).... 17,315,000
------------
Total Investments (Cost $332,695,368) (c)......... 99.9% 547,357,133 (d)
Cash and Other Assets, Less Liabilities........... 0.1 696,855
----------- ------------
Net Assets........................................ 100.0% $548,053,988
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR--American Depository Receipts.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1996 net unrealized appreciation was $214,661,765, 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 $220,996,783 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $6,335,018.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
23
<PAGE>
GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $332,695,368).................................. $547,357,133
Cash............................................................. 469
Receivables:
Investment securities sold....................................... 2,130,819
Fund shares sold................................................. 299,913
Dividends and interest........................................... 169,888
------------
Total assets................................................... 549,958,222
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................. 1,415,887
Administrator.................................................... 277,190
Adviser.......................................................... 115,496
Custodian........................................................ 5,908
Transfer agent................................................... 5,290
Directors........................................................ 574
Accrued expenses................................................. 83,889
------------
Total liabilities.............................................. 1,904,234
------------
Net assets....................................................... $548,053,988
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 24,608
Institutional Service Class...................................... 313
Additional paid-in capital....................................... 330,177,014
Accumulated undistributed net realized gain on investments....... 3,190,288
Net unrealized appreciation on investments....................... 214,661,765
------------
Net assets....................................................... $548,053,988
============
Institutional Class
Net assets applicable to outstanding shares...................... $541,211,688
============
Shares of capital stock outstanding.............................. 24,608,280
============
Net asset value per share outstanding............................ $ 21.99
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 6,842,300
============
Shares of capital stock outstanding.............................. 312,675
============
Net asset value per share outstanding............................ $ 21.88
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)..................................................... $ 2,594,763
Interest.......................................................... 498,087
-----------
Total income.................................................... 3,092,850
-----------
Expenses:
Administration.................................................... 2,847,330
Advisory.......................................................... 1,186,388
Professional...................................................... 128,910
Shareholder communication......................................... 75,996
Registration...................................................... 47,108
Custodian......................................................... 42,166
Transfer agent.................................................... 31,812
Directors......................................................... 15,978
Service........................................................... 13,008
Miscellaneous..................................................... 9,419
-----------
Total expenses.................................................. 4,398,115
-----------
Net investment loss............................................... (1,305,265)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................................. 25,602,618
Net change in unrealized appreciation on investments.............. 67,459,450
-----------
Net realized and unrealized gain on investments................... 93,062,068
-----------
Net increase in net assets resulting from operations.............. $91,756,803
===========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $11,320.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
24
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income (loss)...................... $ (1,305,265) $ 412,493
Net realized gain (loss) on investments........... 25,602,618 (174,620)
Net change in unrealized appreciation on
investments...................................... 67,459,450 110,020,858
------------ ------------
Net increase in net assets resulting from
operations....................................... 91,756,803 110,258,731
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. -- (411,584)
Institutional Service Class...................... -- (960)
From net realized gain on investments:
Institutional Class.............................. (21,861,690) --
Institutional Service Class...................... (276,715) --
In excess of net investment income
Institutional Class.............................. -- (2,536)
Institutional Service Class...................... -- (6)
In excess of net realized gain on investments:
Institutional Class.............................. -- (81,570)
Institutional Service Class...................... -- (527)
------------ ------------
Total dividends and distributions to
shareholders................................... (22,138,405) (497,183)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 184,940,316 156,413,353
Institutional Service Class...................... 3,762,904 2,609,492
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 21,861,690 571,650
Institutional Service Class...................... 276,715 1,493
------------ ------------
210,841,625 159,595,988
Cost of shares redeemed:
Institutional Class.............................. (146,673,191) (138,869,720)
Institutional Service Class...................... (590,510) (17,893)
------------ ------------
Increase in net assets derived from capital
share transactions.............................. 63,577,924 20,708,375
------------ ------------
Net increase in net assets....................... 133,196,322 130,469,923
NET ASSETS:
Beginning of year................................. 414,857,666 284,387,743
------------ ------------
End of year....................................... $548,053,988 $414,857,666
============ ============
Accumulated distribution in excess of net
investment income................................ $ -- $ (2,542)
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
25
<PAGE>
GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- --------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- ----------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 18.84 $ 18.80 $ 13.68 $ 13.68 $ 14.40 $ 14.71 $ 16.70
-------- -------- -------- -------- -------- -------- --------
Net investment income
(loss)................. (0.06) (0.11) 0.02 (0.01) 0.01 (0.01) (0.03)
Net realized and
unrealized gain (loss)
on investments......... 4.14 4.12 5.16 5.14 (0.33) 1.41 0.80
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 4.08 4.01 5.18 5.13 (0.32) 1.40 0.77
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. -- -- (0.02) (0.01) (0.01) -- (0.02)
From net realized gain
on investments......... (0.93) (0.93) -- -- (0.39) (1.68) (2.74)
In excess of net
investment income...... -- -- (0.00)(a) (0.00)(a) -- -- --
In excess of net
realized gain on
investments............ -- -- (0.00)(a) (0.00)(a) (0.00)(a) (0.03) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.93) (0.93) (0.02) (0.01) (0.40) (1.71) (2.76)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 21.99 $ 21.88 $ 18.84 $ 18.80 $ 13.68 $ 14.40 $ 14.71
======== ======== ======== ======== ======== ======== ========
Total investment
return................. 21.62% 21.29% 37.88% 37.50% (2.23%) 9.59% 5.63%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income
(loss)................ (0.27%) (0.52%) 0.12% (0.13%) 0.04% (0.07%) (0.19%)
Net expenses........... 0.92% 1.17% 0.93% 1.18% 0.92% 0.90% 0.90%
Expenses (before
reimbursement)........ 0.92% 1.17% 0.93% 1.18% 0.92% 0.93% 0.95%
Portfolio turnover
rate................... 22% 22% 33% 33% 37% 81% 121%
Average commission rate
paid................... $ 0.0604 $ 0.0604 (b) (b) (b) (b) (b)
Net assets at end of
year (in 000's)........ $541,212 $ 6,842 $412,129 $ 2,729 $284,388 $258,751 $212,619
</TABLE>
- --------
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
26
<PAGE>
INDEXED EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. The year was an outstanding one for stocks, particularly large
capitalization issues
. The Dow Jones Industrial Average recorded a 28.91% gain for the year
. Top performing sectors included Oil & Gas Drilling, Shoes, and Electronic
Semiconductors
. Worst performing sectors included Truckers, Broadcast/Media and Machines
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 22.57% and 22.21% for Institutional Class and
Service Class shares, respectively, as of 12/31/96
. Best one-year performance of all MainStay Institutional Funds as of 12/31/96
. Institutional Class shares received a four-star overall rating from
Morningstar, Inc.++ , as of 12/31/96
. Fund returns closely tracked the S&P 500 Stock Index+
- --------------------------------------------------------------------------------
Total return The performance of an investment with all income and capital
gains reinvested.
Capitalization The amount of outstanding equity a company has issued.
Companies may vary greatly in the amount of equity capital they have raised, and
their capitalization may change with new issues or stock repurchases.
Bull market/bear market A bull market is a period of rising prices, and a bear
market is a period of falling prices.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
- --------------------------------------------------------------------------------
To the surprise and delight of equity investors, 1996 was another stellar year
for stocks. While this year's results didn't match the Fund's 37% return earned
in 1995, it would be hard to be disappointed with the S&P 500 Stock Index's
return of 22.94% for the 12 months ended 12/31/96, which was more than twice the
average annual total return of the Index over the previous 70 years.(S)
Large capitalization stocks led the way, with the Dow Jones Industrial Average
increasing 28.91% for the year. For the year ended 12/31/96, the average Lipper
S&P 500 Index fund* returned 22.30%.
Given this context, how did the MainStay Institutional Indexed Equity Fund do in
1996?
For the 12 months ended 12/31/96, the MainStay Institutional Indexed Equity Fund
returned 22.57% and 22.21% for Institutional Class shares and Service Class
shares, respectively. The Institutional Class shares outperformed the average
Lipper S&P 500 Index fund for the same period, and both classes
- --------------------------------------------------------------------------------
++ Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect risk-adjusted performance, which does not include sales charges,
and may change monthly. Its ratings of 1 (low) and 5 (high) stars are based
on a fund's 3-, 5- & 10-year average annual returns with fee adjustments,
and a risk factor that reflects fund performance relative to 3-month
Treasury bill monthly returns. A one-year rating is calculated using the
same methodology, but is not a component of the overall rating. As of
12/31/96, the individual 1, 3 and 5 year ratings for the MainStay
Institutional Indexed Equity Fund was 4, 5 and 4 stars, respectively. For
the one-year period, the Fund was rated among 2,959 funds in the domestic
equity category. Only 10% of the funds in an investment category may
receive 5 stars and 22.5% may receive 4 stars. Ratings reflect
Institutional Class performance only. Service Class shares, first
introduced January 1, 1995, will not be rated by Morningstar until they
have a three year operating history.
+ The S&P 500 Stock Index is a registered trademark of Standard & Poor's
Corporation. The S&P 500 Stock Index is an unmanaged index that is
considered representative of the U.S. stock market.
(S) Source: Ibbotson Associates, Chicago. Used with permission. All rights
reserved.
* Lipper Analytical Services 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.
27
<PAGE>
================================================================================
of shares outperformed the average Lipper U.S. stock fund, which returned 19.47%
for the year.
This performance helped the Fund's Institutional Class shares earn a four-star
overall rating from Morningstar, placing them among the top 33% of their
Morningstar universe, which consisted of 1,826 domestic equity funds for the
3-year period and 1,058 domestic equity funds for the 5-year period ending
12/31/96.
Which stocks did best in 1996?
The S&P 500 Stock Index is composed primarily of large capitalization stocks,
many of which did exceedingly well in 1996. Among the strongest performing
stocks for the year were Rowan Co., up 135.1%, Nike, up 73.5%, and Intel, up
131.3% in their respective industry sectors; Oil & Gas Drilling, up 103.9%,
Shoes up 65.0%, and Electronic Semiconductors, up 56.9%.
Were these sectors equally weighted in the Fund's portfolio?
No. Each sector is individually weighted in the S&P 500 by its perceived
importance in the economy. Because of this, Oil & Gas Drilling, Shoes, and
Electronic Semiconductors represented 0.06%, 0.36%, and 3.27%, respectively of
the Index. So each made a different level of contribution to the overall
performance of the Index and the Fund.
Which sectors were the worst performers?
Truckers was the weakest sector in 1996, but represented only 0.01% of the
Index. Broadcast/Media and Machines were also laggards, representing 0.47% and
0.02% of the Index, respectively.
Why didn't the Fund outperform the Index?
Unlike an index, the returns of which are based on hypothetical investments, the
Fund is a real-world investment and incurs trading expenses and management fees.
As a result, the Fund cannot fully replicate the performance of the Index, and
will usually trail it by at least a small margin. Investors should take this
into account in evaluating the performance of any indexed fund.
How does the Fund seek to track the Index?
The Fund seeks to remain as fully invested as possible at all times, attempting
to mirror the performance of the Index by investing in all 500 stocks in the
same proportion as they are represented in the Index. Doing so allows the Fund
to participate as fully as possible in bull markets, like the one we had this
year. On the other hand, this policy will also cause the Fund to participate as
fully as possible in declines during bear markets.
Does indexing offer any advantages over other forms of investing?
While past performance is no guarantee of future results, over the five years
ended 12/31/96, the average annual total return of the average Lipper U.S. stock
fund was 13.65%, compared to 14.71% for the average Lipper S&P 500 Index Fund.
For the 10-year period ended 12/31/96, the numbers are 13.29% and 14.43%,
respectively. While the Indexed Equity Fund's returns may be higher or lower
than the S&P 500 and the Lipper averages over any given period, these figures
suggest that indexing may be an appropriate strategy for inflation-conscious
investors seeking higher equity returns over the long-term.
James A. Mehling, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
28
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INDEXED EQUITY FUND S & P 500 INDEX
---- ------------------- ---------------
<S> <C> <C>
1/2/91 10,000 10,000
11,440 11,453
11,390 11,427
11,990 12,038
91 12,980 13,047
12,646 12,717
12,872 12,958
13,264 13,366
92 13,913 14,040
14,494 14,654
14,537 14,726
14,888 15,105
93 15,222 15,456
14,618 14,870
14,662 14,933
15,365 15,663
94 15,359 15,660
16,846 17,185
18,424 18,826
19,854 20,323
95 21,024 21,546
22,145 22,703
23,112 23,723
23,796 24,456
12/31/96 25,769 26,493
</TABLE>
$10,000 INVESTED IN MAIN STAY INSTITUTIONAL
INDEXED EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE INDEXED EQUITY FUND S & P 500 INDEX
---- ------------------- ---------------
<S> <C> <C>
1/2/91 10,000 10,000
11,440 11,453
11,390 11,427
11,990 12,038
91 12,980 13,047
12,646 12,717
12,872 12,958
13,264 13,366
92 13,913 14,040
14,494 14,654
14,537 14,726
14,888 15,105
93 15,222 15,456
14,618 14,870
14,662 14,933
15,365 15,663
94 15,359 15,660
16,846 17,185
18,413 18,826
19,843 20,323
95 20,995 21,546
22,104 22,703
23,047 23,723
23,707 24,456
12/31/96 25,659 26,493
</TABLE>
. Indexed Equity Fund --S&P 500 Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Equity Fund Institutional Class 22.57% 22.57% 14.70% 17.07%
Indexed Equity Fund Service Class** 22.21% 22.21% 14.60% 16.99%
Average Lipper S&P 500 Index Fund 22.30% 22.30% 14.71% 17.07%
S&P 500 Stock Index 22.94% 22.94% 15.20% 17.63%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 29.80
1992 7.19
1993 9.41
1994 0.90
1995 36.88
1996 22.57
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Common Stocks 98.90%
Cash & Equivalents 1.10%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. General Electric Co. 2.85%
2. Coca-Cola Co. 2.29%
3. Exxon Corp. 2.13%
4. Intel Corp. 1.88%
5. Microsoft Corp. 1.73%
6. Merck & Co., Inc. 1.67%
7. Philip Morris Cos., Inc. 1.61%
8. Royal Dutch Petroleum Co. 1.60%
9. International Business Machines Corp. 1.37%
10. Procter & Gamble Co. 1.28%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Oil - Integrated International 6.48%
2. Major Regional Banks 4.75%
3. Telephone 4.15%
4. Drugs 4.08%
5. Health Care - Diversified 3.91%
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee
of .25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
Unlike other funds which generally seek to "beat" the market, index funds
seek to "match" their respective indices.
29
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (98.9%)+
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
AEROSPACE/DEFENSE (2.1%)
Boeing Co................................................. 39,095 $ 4,158,731
General Dynamics Corp..................................... 6,962 490,821
Lockheed Martin Corp...................................... 21,010 1,922,415
McDonnell Douglas Corp.................................... 23,182 1,483,648
Northrop Grumman Corp..................................... 6,433 532,331
Raytheon Co............................................... 25,773 1,240,325
Rockwell International Corp............................... 23,861 1,452,538
United Technologies Corp.................................. 26,226 1,730,916
------------
13,011,725
------------
AIRLINES (0.3%)
AMR Corp. (a)............................................. 10,076 887,948
Delta Air Lines, Inc...................................... 8,269 586,065
Southwest Airlines Co..................................... 15,808 349,752
USAir Group, Inc. (a)..................................... 7,037 164,490
------------
1,988,255
------------
ALUMINUM (0.4%)
Alcan Aluminum Ltd........................................ 24,731 831,580
Aluminum Co. of America................................... 19,177 1,222,534
Reynolds Metals Co........................................ 7,065 398,289
------------
2,452,403
------------
AUTOMOBILES (1.8%)
Chrysler Corp............................................. 79,502 2,623,566
Ford Motor Co............................................. 129,482 4,127,239
General Motors Corp....................................... 82,579 4,603,779
------------
11,354,584
------------
AUTOPARTS--AFTER MARKET (0.3%)
Cooper Tire & Rubber Co................................... 9,070 179,133
Echlin Inc................................................ 6,802 215,113
Genuine Parts Co.......................................... 13,161 585,664
Goodyear Tire & Rubber Co................................. 17,140 880,568
------------
1,860,478
------------
BEVERAGES--ALCOHOLIC (0.7%)
Anheuser-Busch Cos., Inc.................................. 54,498 2,179,920
Brown-Forman Corp. Class B................................ 7,599 347,654
Coors (Adolph) Co. Class B................................ 4,021 76,399
Seagram Co. Ltd........................................... 40,762 1,579,528
------------
4,183,501
------------
BEVERAGES--SOFT DRINKS (3.1%)
Coca-Cola Co.............................................. 271,664 14,296,318
PepsiCo, Inc.............................................. 169,603 4,960,888
------------
19,257,206
------------
BROADCAST/MEDIA (0.5%)
Comcast Corp. Class A..................................... 35,596 634,054
Tele-Communications TCI Group Series A (a)................ 72,528 947,397
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
BROADCAST/MEDIA (Continued)
U.S. West Media Group (a).............................. 68,204 $ 1,261,774
------------
2,843,225
------------
BUILDING MATERIALS (0.2%)
Masco Corp............................................. 17,705 637,380
Owens-Corning Corp..................................... 5,674 241,854
Sherwin-Williams Co.................................... 9,448 529,088
------------
1,408,322
------------
CHEMICALS (2.3%)
Air Products & Chemicals, Inc. ........................ 12,420 858,533
Dow Chemical Co........................................ 26,572 2,082,581
Du Pont (E.I.) De Nemours & Co......................... 61,453 5,799,627
Eastman Chemical Co.................................... 8,721 481,835
Goodrich (B.F.) Co..................................... 5,859 237,289
Hercules, Inc.......................................... 11,415 493,699
Monsanto Co............................................ 64,189 2,495,347
Praxair, Inc........................................... 17,257 795,979
Rohm & Haas Co......................................... 7,053 575,701
Union Carbide Corp..................................... 14,103 576,460
------------
14,397,051
------------
CHEMICALS--DIVERSIFIED (0.3%)
Avery Dennison Corp.................................... 11,600 410,350
Engelhard Corp......................................... 15,747 301,161
FMC Corp. (a).......................................... 4,192 293,964
PPG Industries Inc..................................... 20,023 1,123,791
------------
2,129,266
------------
CHEMICALS--SPECIALTY (0.3%)
Grace (W.R.) & Co...................................... 9,814 507,875
Great Lakes Chemical Corp.............................. 7,052 329,681
Morton International, Inc.............................. 15,537 633,133
Nalco Chemical Co...................................... 7,411 267,722
Sigma-Aldrich Corp..................................... 5,482 342,282
------------
2,080,693
------------
COMMUNICATION--EQUIPMENT MANUFACTURERS (2.2%)
Andrew Corp. (a)....................................... 6,719 356,527
Bay Networks, Inc. (a)................................. 21,400 446,725
Cabletron Systems, Inc. (a)............................ 17,240 573,230
Cisco Systems, Inc. (a)................................ 70,906 4,511,394
DSC Communications Corp. (a)........................... 12,963 231,714
General Instrument Corp. (a)........................... 14,988 324,116
Lucent Technologies Inc................................ 69,543 3,216,364
Northern Telecom Ltd................................... 28,175 1,743,328
Scientific-Atlanta, Inc................................ 8,649 129,735
Tellabs, Inc. (a)...................................... 19,541 735,230
3Com Corp. (a)......................................... 18,921 1,388,328
------------
13,656,691
------------
COMPUTER--SOFTWARE & SERVICES (3.3%)
Autodesk, Inc.......................................... 5,075 142,100
Automatic Data Processing, Inc......................... 31,739 1,360,810
Ceridian Corp. (a)..................................... 7,466 302,373
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
30
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCK (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
COMPUTER--SOFTWARE & SERVICES (Continued)
Computer Associates International, Inc.................. 39,814 $ 1,980,746
Computer Sciences Corp. (a)............................. 8,391 689,111
First Data Corp......................................... 48,894 1,784,631
Microsoft Corp. (a)..................................... 130,456 10,778,927
Novell Inc. (a)......................................... 37,573 355,771
Oracle Corp. (a)........................................ 71,787 2,997,107
Shared Medical Systems Corp............................. 2,687 132,335
------------
20,523,911
------------
COMPUTER SYSTEMS (3.6%)
Amdahl Corp. (a)........................................ 13,209 160,159
Apple Computer, Inc. (a)................................ 13,731 286,635
Compaq Computer Corp. (a)............................... 29,524 2,192,157
Data General Corp. (a).................................. 4,324 62,698
Dell Computer Corp. (a)................................. 19,626 1,042,631
Digital Equipment Corp. (a)............................. 17,121 622,776
EMC Corp. (a)........................................... 25,378 840,646
Hewlett-Packard Co...................................... 111,038 5,579,660
Intergraph Corp. (a).................................... 5,294 54,263
International Business Machines Corp.................... 56,469 8,526,819
Seagate Technology (a).................................. 27,381 1,081,550
Silicon Graphics Inc. (a)............................... 19,147 488,248
Sun Microsystems (a).................................... 40,097 1,029,992
Tandem Computers Inc. (a)............................... 13,053 179,479
Unisys Corp. (a)........................................ 19,056 128,628
------------
22,276,341
------------
CONGLOMERATES (0.3%)
Tenneco, Inc............................................ 18,659 841,987
Textron Inc............................................. 9,256 872,378
------------
1,714,365
------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp............................................... 3,285 85,410
Crown Cork & Seal Co., Inc.............................. 14,144 769,080
------------
854,490
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc.......................................... 5,748 211,957
Stone Container Corp.................................... 10,931 162,599
Temple-Inland Inc....................................... 6,143 332,490
------------
707,046
------------
COSMETICS (0.9%)
Alberto-Culver Co. Class B.............................. 3,029 145,392
Avon Products, Inc...................................... 14,532 830,141
Gillette Co............................................. 48,659 3,783,237
International Flavors & Fragrances Inc.................. 12,094 544,230
------------
5,303,000
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
DRUGS (4.1%)
Lilly (Eli) & Co.......................................... 60,229 $ 4,396,717
Merck & Co., Inc.......................................... 131,607 10,429,855
Pfizer Inc................................................ 70,414 5,835,560
Pharmacia & Upjohn, Inc................................... 55,430 2,196,414
Schering-Plough Corp...................................... 40,350 2,612,662
------------
25,471,208
------------
ELECTRIC POWER COMPANIES (2.8%)
American Electric
Power Co., Inc........................................... 20,421 839,814
Baltimore Gas & Electric Co............................... 16,351 437,389
Carolina Power & Light Co................................. 16,558 604,367
Central & South West Corp................................. 22,980 588,863
Cinergy Corp.............................................. 17,419 581,359
Consolidated Edison Co. of New York, Inc.................. 25,651 750,292
Dominion Resources, Inc................................... 19,642 756,217
DTE Energy Co............................................. 15,808 511,784
Duke Power Co............................................. 22,047 1,019,674
Edison International...................................... 47,340 940,883
Entergy Corp.............................................. 25,260 700,965
FPL Group, Inc............................................ 19,945 917,470
General Public Utilities Corp............................. 13,303 447,313
Houston Industries Inc.................................... 25,625 579,766
Niagara Mohawk Power Corp. (a)............................ 15,758 155,610
Northern States Power Co.................................. 7,503 344,200
Ohio Edison Co............................................ 16,614 377,969
Pacific Gas & Electric Co................................. 44,994 944,874
PacifiCorp................................................ 32,185 659,792
PECO Energy Co............................................ 24,276 612,969
PP&L Resources, Inc....................................... 17,923 412,229
Public Service Enterprise Group Inc....................... 26,044 709,699
Southern Co. (The)........................................ 73,569 1,664,499
Texas Utilities Co........................................ 24,558 1,000,738
Unicom Corp............................................... 23,562 639,119
Union Electric Co......................................... 11,327 436,089
------------
17,633,943
------------
ELECTRICAL EQUIPMENT (3.9%)
AMP Inc................................................... 24,008 921,307
Emerson Electric Co....................................... 24,440 2,364,570
General Electric Co....................................... 179,750 17,772,781
General Signal Corp....................................... 5,544 237,006
Grainger (W.W.), Inc...................................... 5,926 475,562
Honeywell, Inc............................................ 14,054 924,050
Raychem Corp.............................................. 4,997 400,385
Thomas & Betts Corp....................................... 5,945 263,809
Westinghouse Electric Corp................................ 46,048 915,204
------------
24,274,674
------------
ELECTRONIC--DEFENSE (0.0%) (b)
EG&G, Inc................................................. 5,063 101,893
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
31
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
ELECTRONIC--INSTRUMENTATION (0.1%)
Perkin-Elmer Corp......................................... 4,882 $ 287,428
Tektronix, Inc............................................ 3,751 192,239
------------
479,667
------------
ELECTRONIC--SEMICONDUCTORS (3.1%)
Advanced Micro Devices, Inc. (a).......................... 14,923 384,267
Applied Materials, Inc. (a)............................... 19,877 714,330
Intel Corp................................................ 89,612 11,733,571
LSI Logic Corp. (a)....................................... 14,190 379,582
Micron Technology, Inc.................................... 22,840 665,215
Motorola, Inc............................................. 64,778 3,975,750
National Semiconductor Corp. (a).......................... 15,085 367,697
Texas Instruments, Inc.................................... 20,709 1,320,199
------------
19,540,611
------------
ENGINEERING & CONSTRUCTION (0.1%)
Fluor Corp................................................ 9,366 587,717
Foster Wheeler Corp....................................... 4,468 165,874
------------
753,591
------------
ENTERTAINMENT (1.4%)
King World Productions, Inc. (a).......................... 4,107 151,446
Time Warner Inc........................................... 62,074 2,327,775
Viacom, Inc. Class B (a).................................. 38,662 1,348,337
Walt Disney Co. (The)..................................... 74,008 5,152,807
------------
8,980,365
------------
FINANCIAL--MISCELLANEOUS (2.3%)
American Express Co....................................... 51,776 2,925,344
American General Corp..................................... 22,169 906,158
Dean Witter, Discover & Co................................ 17,577 1,164,476
Federal Home Loan Mortgage Corp........................... 19,497 2,147,107
Federal National Mortgage Association..................... 119,200 4,440,200
Green Tree Financial Corp................................. 15,186 586,559
MBIA Corp. ............................................... 4,822 488,228
MBNA Corp................................................. 24,333 1,009,820
Transamerica Corp......................................... 7,257 573,303
------------
14,241,195
------------
FOOD DISTRIBUTORS (0.2%)
Fleming Cos., Inc......................................... 4,208 72,588
Supervalu Inc............................................. 7,426 210,713
Sysco Corp................................................ 19,496 636,057
------------
919,358
------------
FOODS (2.9%)
Archer-Daniels-Midland Co................................. 59,367 1,306,074
Campbell Soup Co.......................................... 25,515 2,047,579
ConAgra, Inc.............................................. 26,303 1,308,574
CPC International Inc..................................... 15,923 1,234,032
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
FOODS (Continued)
General Mills, Inc........................................ 17,323 $ 1,097,845
Heinz (H.J.) Co........................................... 40,193 1,436,900
Hershey Foods Corp........................................ 16,719 731,456
Kellogg Co................................................ 23,019 1,510,622
Quaker Oats Co............................................ 15,049 573,743
Ralston-Ralston Purina Group.............................. 11,719 859,882
Sara Lee Corp............................................. 52,815 1,967,359
Unilever, N.V............................................. 17,440 3,056,360
Wrigley (Wm.) Jr. Co...................................... 12,842 722,362
------------
17,852,788
------------
GOLD (0.5%)
Barrick Gold Corp......................................... 39,004 1,121,365
Battle Mountain Gold Co................................... 24,476 168,272
Echo Bay Mines Ltd........................................ 15,214 100,793
Homestake Mining Co....................................... 16,182 230,594
Newmont Mining Corp....................................... 10,978 491,265
Placer Dome Inc........................................... 26,169 569,176
Santa Fe Pacific Gold Corp................................ 14,543 223,599
------------
2,905,064
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp....................................... 9,668 291,249
Snap-On, Inc.............................................. 6,786 241,751
Stanley Works (The)....................................... 9,742 263,034
------------
796,034
------------
HEALTH CARE--DIVERSIFIED (3.9%)
Abbott Laboratories....................................... 84,807 4,303,955
Allergan, Inc............................................. 7,322 260,846
American Home Products Corp............................... 69,768 4,090,149
Bristol-Myers Squibb Co................................... 54,632 5,941,230
Johnson & Johnson......................................... 145,354 7,231,362
Mallinckrodt Group Inc.................................... 8,214 362,443
Warner-Lambert Co......................................... 29,624 2,221,800
------------
24,411,785
------------
HEALTH CARE--HMOs (0.2%)
Humana Inc. (a)........................................... 17,780 340,043
United Healthcare Corp.................................... 20,064 902,880
------------
1,242,923
------------
HEALTH CARE--MISCELLANEOUS (0.3%)
ALZA Corp. (a)............................................ 9,455 244,648
Amgen Inc. (a)............................................ 28,893 1,571,057
Beverly Enterprises, Inc. (a)............................. 10,820 137,955
Manor Care, Inc........................................... 6,885 185,895
------------
2,139,555
------------
HEAVY TRUCKS & PARTS (0.3%)
Cummins Engine Co., Inc................................... 4,473 205,758
Dana Corp................................................. 11,271 367,716
Eaton Corp................................................ 8,560 597,060
ITT Industries, Inc....................................... 12,984 318,108
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
32
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
HEAVY TRUCKS & PARTS (Continued)
Navistar International Corp. (a)........................ 8,093 $ 73,849
PACCAR Inc.............................................. 4,263 289,884
------------
1,852,375
------------
HOMEBUILDING (0.0%) (b)
Centex Corp............................................. 3,060 115,133
Kaufman & Broad Home Corp............................... 4,269 54,963
Pulte Corp.............................................. 2,579 79,304
------------
249,400
------------
HOSPITAL MANAGEMENT (0.6%)
Columbia/HCA Healthcare Corp............................ 73,290 2,986,567
Tenet Healthcare Corp. (a).............................. 23,674 517,869
------------
3,504,436
------------
HOTEL--MOTEL (0.4%)
Harrah's Entertainment, Inc. (a)........................ 11,193 222,461
Hilton Hotels Corp...................................... 27,338 714,205
ITT Corp. (a)........................................... 12,667 549,431
Marriott International Inc.............................. 14,173 783,058
------------
2,269,155
------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World Industries, Inc......................... 4,614 320,673
Maytag Corp............................................. 10,901 215,295
Whirlpool Corp.......................................... 8,178 381,299
------------
917,267
------------
HOUSEHOLD PRODUCTS (2.1%)
Clorox Co. (The)........................................ 5,751 577,257
Colgate-Palmolive Co.................................... 16,197 1,494,173
Kimberly-Clark Corp..................................... 30,847 2,938,177
Procter & Gamble Co. (The).............................. 74,414 7,999,505
------------
13,009,112
------------
HOUSEWARES (0.2%)
Newell Co............................................... 17,298 544,887
Rubbermaid Inc.......................................... 16,543 376,353
Tupperware Corp......................................... 6,838 366,688
------------
1,287,928
------------
INSURANCE BROKERS (0.3%)
Alexander & Alexander Services Inc...................... 5,001 86,892
Aon Corp................................................ 12,023 746,929
Marsh & McLennan Cos., Inc.............................. 8,058 838,032
------------
1,671,853
------------
INVESTMENT BANK/BROKERAGE (0.5%)
Merrill Lynch & Co., Inc................................ 17,943 1,462,354
Morgan Stanley Group Inc................................ 16,656 951,474
Salomon Inc............................................. 12,118 571,061
------------
2,984,889
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
LEISURE TIME (0.0%) (b)
Brunswick Corp............................................ 10,839 $ 260,136
------------
LIFE INSURANCE (0.6%)
Aetna Inc................................................. 16,413 1,313,040
Jefferson-Pilot Corp...................................... 7,888 446,658
Lincoln National Corp..................................... 11,522 604,905
Providian Corp............................................ 10,398 534,197
Torchmark Corp............................................ 7,930 400,465
UNUM Corp................................................. 8,082 583,925
USLIFE Corp............................................... 3,669 121,994
------------
4,005,184
------------
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc................................... 4,433 96,972
Giddings & Lewis, Inc..................................... 3,708 47,740
------------
144,712
------------
MACHINERY--DIVERSIFIED (0.8%)
Briggs & Stratton Corp.................................... 3,067 134,948
Case Corp................................................. 7,989 435,401
Caterpillar Inc........................................... 20,893 1,572,198
Cooper Industries Inc..................................... 11,938 502,888
Deere & Co................................................ 28,222 1,146,519
Harnischfeger Industries, Inc............................. 5,270 253,619
Ingersoll-Rand Co......................................... 12,108 538,806
NACCO Industries, Inc. Class A............................ 960 51,360
Thermo Electron Corp. (a)................................. 7,600 313,500
Timken Co. (The).......................................... 3,324 152,488
------------
5,101,727
------------
MAJOR REGIONAL BANKS (4.8%)
Banc One Corp............................................. 46,667 2,006,681
Bank of Boston Corp....................................... 16,880 1,084,540
Bank of New York Co., Inc. (The).......................... 42,777 1,443,724
Barnett Banks, Inc........................................ 21,261 874,359
Boatmen's Bancshares, Inc................................. 16,903 1,090,244
Comerica Inc.............................................. 11,967 626,772
CoreStates Financial Corp................................. 24,266 1,258,799
Fifth Third Bancorp....................................... 11,799 741,125
First Bank System, Inc.................................... 14,650 999,862
First Union Corp.......................................... 30,943 2,289,782
Fleet Financial Group, Inc................................ 28,647 1,428,769
KeyCorp................................................... 24,649 1,244,774
Mellon Bank Corp.......................................... 14,122 1,002,662
National City Corp........................................ 24,246 1,088,039
NationsBank Corp.......................................... 31,356 3,065,049
Norwest Corp.............................................. 40,428 1,758,618
PNC Bank Corp............................................. 37,207 1,399,913
Republic New York Corp.................................... 6,195 505,667
SunTrust Banks, Inc....................................... 24,330 1,198,252
U.S. Bancorp.............................................. 16,484 740,750
Wachovia Corp............................................. 18,226 1,029,769
Wells Fargo & Co.......................................... 10,186 2,747,673
------------
29,625,823
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
33
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises Inc................................. 3,973 $ 109,258
------------
MANUFACTURING--DIVERSIFIED (1.0%)
AlliedSignal Inc.......................................... 30,879 2,068,893
Crane Co.................................................. 5,169 149,915
Dover Corp................................................ 12,271 616,618
Illinois Tool Works Inc................................... 13,608 1,086,939
Johnson Controls, Inc..................................... 4,511 373,849
Millipore Corp............................................ 4,781 197,814
Pall Corp................................................. 12,543 319,846
Parker-Hannifin Corp...................................... 8,245 319,494
TRINOVA Corp.............................................. 3,143 114,327
Tyco International Ltd.................................... 17,066 902,365
------------
6,150,060
------------
MEDICAL PRODUCTS (1.0%)
Bard (C.R.), Inc.......................................... 6,260 175,280
Bausch & Lomb Inc......................................... 6,191 216,685
Baxter International Inc.................................. 29,806 1,222,046
Becton, Dickinson & Co.................................... 13,814 599,182
Biomet, Inc............................................... 12,620 190,878
Boston Scientific Corp. (a)............................... 19,440 1,166,400
Guidant Corp.............................................. 8,246 470,022
Medtronic, Inc............................................ 26,167 1,779,356
St. Jude Medical, Inc. (a)................................ 8,819 375,910
United States Surgical Corp............................... 6,797 267,632
------------
6,463,391
------------
METALS--MISCELLANEOUS (0.3%)
ASARCO Inc................................................ 4,752 118,206
Cyprus Amax Minerals Co................................... 10,300 240,763
Freeport-McMoRan Copper & Gold Inc. Class B............... 21,125 631,109
Inco Ltd.................................................. 18,342 584,651
Phelps Dodge Corp......................................... 7,090 478,575
------------
2,053,304
------------
MISCELLANEOUS (1.4%)
Airtouch Communications, Inc. (a)......................... 54,701 1,381,200
American Greetings Corp. Class A.......................... 8,301 235,541
Corning Inc............................................... 25,161 1,163,696
Harcourt General, Inc..................................... 7,885 363,696
Harris Corp............................................... 4,250 291,656
Jostens, Inc.............................................. 4,391 92,760
Minnesota Mining & Manufacturing Co....................... 45,678 3,785,564
Pioneer Hi-Bred International, Inc........................ 8,946 626,220
TRW, Inc.................................................. 13,827 684,437
Whitman Corp.............................................. 11,521 263,543
------------
8,888,313
------------
MONEY CENTER BANKS (2.9%)
BankAmerica Corp.......................................... 39,160 3,906,210
Bankers Trust New York Corp............................... 9,080 783,150
Chase Manhattan Corp...................................... 47,941 4,278,734
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
MONEY CENTER BANKS (Continued)
Citicorp.................................................. 51,360 $ 5,290,080
First Chicago Corp........................................ 34,811 1,871,091
Morgan (J.P.) & Co., Inc.................................. 20,586 2,009,709
------------
18,138,974
------------
MULTI-LINE INSURANCE (1.7%)
American International Group, Inc. ....................... 51,289 5,552,034
CIGNA Corp................................................ 8,432 1,152,022
ITT Hartford Group, Inc................................... 12,973 875,678
Travelers Group Inc....................................... 69,899 3,171,667
------------
10,751,401
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.9%)
Coastal Corp.............................................. 11,668 570,274
Columbia Gas System, Inc.................................. 6,104 388,367
Consolidated Natural Gas Co............................... 10,368 572,832
Eastern Enterprises....................................... 2,213 78,285
Enron Corp................................................ 27,792 1,198,530
ENSERCH Corp.............................................. 7,620 175,260
NICOR Inc................................................. 5,511 197,018
NorAm Energy Corp......................................... 15,021 230,948
ONEOK Inc................................................. 2,902 87,060
Pacific Enterprises....................................... 9,447 286,953
PanEnergy Corp............................................ 16,654 749,430
Peoples Energy Corp....................................... 3,732 126,421
Sonat, Inc................................................ 9,562 492,443
Williams Cos., Inc. (The)................................. 17,376 651,600
------------
5,805,421
------------
OFFICE EQUIPMENT & SUPPLIES (0.6%)
Alco Standard Corp........................................ 14,223 734,263
Moore Corp. Ltd........................................... 11,045 225,042
Pitney Bowes Inc.......................................... 16,380 892,710
Xerox Corp................................................ 35,466 1,866,398
------------
3,718,413
------------
OIL & GAS DRILLING (0.1%)
Helmerich & Payne, Inc.................................... 2,736 142,614
Rowan Cos., Inc. (a)...................................... 9,403 212,743
------------
355,357
------------
OIL--EXPLORATION & PRODUCTION (0.3%)
Burlington Resources Inc.................................. 13,847 697,542
Oryx Energy Co. (a)....................................... 11,445 283,264
Santa Fe Energy Resources, Inc. (a)....................... 10,111 140,290
Union Pacific Resources Group, Inc........................ 27,271 797,677
------------
1,918,773
------------
OIL--INTEGRATED DOMESTIC (1.3%)
Amerada Hess Corp......................................... 10,350 599,006
Ashland Inc............................................... 7,067 310,065
Atlantic Richfield Co..................................... 17,560 2,326,700
Kerr-McGee Corp........................................... 5,374 386,928
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
34
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
OIL--INTEGRATED DOMESTIC (Continued)
Louisiana Land & Exploration Co. (The).................... 3,784 $ 202,917
Occidental Petroleum Corp................................. 35,927 839,794
Pennzoil Co............................................... 5,148 290,862
Phillips Petroleum Co..................................... 28,706 1,270,241
Sun Co., Inc.............................................. 8,192 199,680
Unocal Corp............................................... 27,306 1,109,306
USX-Marathon Group........................................ 31,404 749,770
------------
8,285,269
------------
OIL--INTEGRATED INTERNATIONAL (6.5%)
Amoco Corp................................................ 54,310 4,371,955
Chevron Corp.............................................. 71,257 4,631,705
Exxon Corp................................................ 135,581 13,286,938
Mobil Corp................................................ 43,001 5,256,872
Royal Dutch Petroleum Co.................................. 58,576 10,001,852
Texaco Inc................................................ 28,889 2,834,733
------------
40,384,055
------------
OIL--WELL EQUIPMENT & SERVICES (0.8%)
Baker Hughes Inc.......................................... 15,813 545,548
Dresser Industries, Inc................................... 19,177 594,487
Halliburton Co............................................ 13,840 833,860
McDermott International, Inc.............................. 6,105 101,496
Schlumberger Ltd.......................................... 26,914 2,688,036
Western Atlas Inc. (a).................................... 5,935 420,643
------------
5,184,070
------------
PAPER & FOREST PRODUCTS (0.9%)
Boise Cascade Corp........................................ 5,361 170,212
Champion International Corp............................... 10,611 458,926
Georgia-Pacific Corp...................................... 10,089 726,408
International Paper Co.................................... 32,809 1,324,663
James River Corp. of Virginia............................. 9,401 311,408
Louisiana-Pacific Corp.................................... 12,019 253,901
Mead Corp................................................. 5,797 336,951
Potlatch Corp............................................. 3,057 131,451
Union Camp Corp........................................... 7,648 365,192
Westvaco Corp............................................. 11,295 324,731
Weyerhaeuser Co........................................... 21,674 1,026,806
Willamette Industries, Inc................................ 6,085 423,668
------------
5,854,317
------------
PERSONAL LOANS (0.2%)
Beneficial Corp........................................... 5,877 372,455
Household International, Inc.............................. 10,749 991,595
------------
1,364,050
------------
PHOTOGRAPHY/IMAGING (0.5%)
Eastman Kodak Co.......................................... 36,425 2,923,106
Polaroid Corp............................................. 5,022 218,457
------------
3,141,563
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
POLLUTION CONTROL (0.4%)
Browning-Ferris Industries Inc.......................... 23,186 $ 608,633
Laidlaw Inc. Class B.................................... 34,297 394,415
WMX Technologies, Inc................................... 52,995 1,728,962
------------
2,732,010
------------
PROPERTY--CASUALTY INSURANCE (1.3%)
Allstate Corp........................................... 48,582 2,811,683
Chubb Corp.............................................. 18,987 1,020,551
General Re Corp......................................... 9,227 1,455,559
Loews Corp.............................................. 12,527 1,180,670
MGIC Investment Corp.................................... 6,465 491,340
SAFECO Corp............................................. 13,928 549,286
St. Paul Cos., Inc. (The)............................... 9,271 543,512
USF&G Corp.............................................. 12,596 262,942
------------
8,315,543
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The)............................ 10,964 505,715
Meredith Corp........................................... 2,936 154,874
------------
660,589
------------
PUBLISHING--NEWSPAPER (0.6%)
Dow Jones & Co., Inc.................................... 10,502 355,755
Gannett Co., Inc........................................ 15,604 1,168,350
Knight-Ridder Inc....................................... 10,444 399,483
New York Times Co. (The) Class A........................ 10,536 400,368
Times Mirror Co. (The) Class A.......................... 11,027 548,593
Tribune Co.............................................. 6,850 540,294
------------
3,412,843
------------
RAILROADS (1.0%)
Burlington Northern Santa
Fe Corp................................................ 16,868 1,456,974
Conrail Inc............................................. 8,914 888,057
CSX Corp................................................ 23,676 1,000,311
Norfolk Southern Corp................................... 13,832 1,210,300
Union Pacific Corp...................................... 26,689 1,604,676
------------
6,160,318
------------
RESTAURANTS (0.6%)
Darden Restaurants, Inc................................. 17,427 152,486
McDonald's Corp......................................... 76,128 3,444,792
Wendy's International, Inc.............................. 14,101 289,071
------------
3,886,349
------------
RETAIL STORES--APPAREL (0.3%)
Charming Shoppes, Inc. (a).............................. 11,667 59,064
Gap, Inc. (The)......................................... 30,917 931,375
Limited, Inc. (The)..................................... 29,592 543,753
TJX Cos., Inc. (The).................................... 8,681 411,262
------------
1,945,454
------------
RETAIL STORES--DEPARTMENT (0.7%)
Dillard Department Stores, Inc. Class A................. 12,552 387,543
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
35
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
RETAIL STORES--DEPARTMENT (Continued)
Federated Department Stores, Inc. (a)................... 22,928 $ 782,418
May Department Stores Co................................ 27,492 1,285,251
Mercantile Stores Co., Inc.............................. 4,090 201,944
Nordstrom, Inc.......................................... 9,010 319,292
Penney (J.C.) Co., Inc.................................. 25,145 1,225,818
------------
4,202,266
------------
RETAIL STORES--DRUG (0.3%)
Longs Drug Stores Corp.................................. 2,094 102,868
Rite-Aid Corp........................................... 13,399 532,610
Walgreen Co............................................. 26,880 1,075,200
------------
1,710,678
------------
RETAIL STORES--FOOD CHAIN (0.5%)
Albertson's, Inc........................................ 27,489 979,296
American Stores Co...................................... 15,875 648,891
Giant Food, Inc. Class A................................ 6,565 226,493
Great Atlantic & Pacific Tea Co., Inc. (The)............ 4,228 134,767
Kroger Co. (a).......................................... 13,976 649,884
Winn-Dixie Stores, Inc.................................. 16,500 521,812
------------
3,161,143
------------
RETAIL STORES--GENERAL MERCHANDISE (1.5%)
Dayton-Hudson Corp...................................... 23,703 930,343
Kmart Corp. (a)......................................... 52,805 547,852
Sears, Roebuck & Co..................................... 42,735 1,971,152
Wal-Mart Stores, Inc.................................... 250,467 5,729,432
------------
9,178,779
------------
RETAIL STORES--SPECIALTY (1.1%)
Autozone, Inc. (a)...................................... 7,900 217,250
Circuit City Stores, Inc................................ 10,776 324,627
CVS Corp................................................ 11,620 480,777
Home Depot, Inc. (The).................................. 52,399 2,626,500
Lowe's Cos., Inc........................................ 19,104 678,192
Pep Boys-Manny, Moe & Jack.............................. 6,933 213,190
Price/Costco, Inc. (a).................................. 21,421 538,203
Tandy Corp.............................................. 6,398 281,512
Toys "R" Us, Inc. (a)................................... 29,983 899,490
Woolworth Corp. (a)..................................... 14,737 322,372
------------
6,582,113
------------
SAVINGS & LOANS (0.2%)
Ahmanson (H.F.) & Co.................................... 11,478 373,035
Golden West Financial Corp.............................. 6,257 394,973
Great Western Financial Corp............................ 15,233 441,757
------------
1,209,765
------------
SHOES (0.4%)
Nike Inc. Class B....................................... 31,492 1,881,647
Reebok International Ltd................................ 6,214 260,988
Stride Rite Corp........................................ 5,575 55,750
------------
2,198,385
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
SPECIALIZED SERVICES (0.8%)
Block (H&R), Inc.......................................... 11,486 $ 333,094
Cognizant Corp............................................ 18,848 621,984
CUC International Inc. (a)................................ 43,007 1,021,416
Dun & Bradstreet Corp. (The).............................. 18,544 440,420
Ecolab Inc................................................ 7,095 266,949
HFS Inc. (a).............................................. 14,294 854,067
Interpublic Group of Cos., Inc............................ 8,834 419,615
National Service Industries, Inc.......................... 5,333 199,321
Safety-Kleen Corp......................................... 6,413 105,013
Service Corp. International............................... 25,726 720,328
------------
4,982,207
------------
SPECIALTY PRINTING (0.2%)
Deluxe Corp............................................... 9,148 299,597
Donnelley (R.R.) & Sons Co................................ 16,463 516,527
Harland (John H.) Co...................................... 3,322 109,626
------------
925,750
------------
STEEL (0.3%)
Allegheny Teledyne Inc.................................... 19,067 438,541
Armco Inc. (a)............................................ 11,743 48,440
Bethlehem Steel Corp. (a)................................. 12,303 110,727
Inland Steel Industries Inc............................... 5,378 107,560
Nucor Corp................................................ 9,699 494,649
USX-U.S. Steel Group...................................... 9,227 289,497
Worthington Industries, Inc............................... 10,056 182,265
------------
1,671,679
------------
TELECOMMUNICATIONS--LONG DISTANCE (2.2%)
AT&T Corp................................................. 176,946 7,697,151
MCI Communications Corp................................... 74,811 2,445,384
Sprint Corp............................................... 47,043 1,875,840
WorldCom, Inc. (a)........................................ 65,236 1,700,213
------------
13,718,588
------------
TELEPHONE (4.2%)
ALLTEL Corp............................................... 20,709 649,745
Ameritech Corp............................................ 59,957 3,634,893
Bell Atlantic Corp........................................ 47,845 3,097,964
BellSouth Corp............................................ 108,508 4,381,011
Frontier Corp............................................. 10,000 226,250
GTE Corp.................................................. 105,014 4,778,137
NYNEX Corp................................................ 48,010 2,310,481
Pacific Telesis Group..................................... 46,787 1,719,422
SBC Communications Inc.................................... 65,865 3,408,514
US West, Inc.............................................. 52,184 1,682,934
------------
25,889,351
------------
TEXTILES--APPAREL MANUFACTURERS (0.2%)
Fruit of the Loom, Inc.
Class A (a).............................................. 8,473 320,915
Liz Claiborne, Inc........................................ 7,914 305,678
Russell Corp.............................................. 4,356 129,591
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
36
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
TEXTILES--APPAREL MANUFACTURERS (Continued)
Springs Industries, Inc. Class A.......................... 2,185 $ 93,955
VF Corp................................................... 7,086 478,305
------------
1,328,444
------------
TOBACCO (1.9%)
American Brands, Inc...................................... 18,569 921,487
Philip Morris Cos., Inc................................... 88,903 10,012,700
UST Inc................................................... 20,297 657,115
------------
11,591,302
------------
TOYS (0.2%)
Hasbro Inc................................................ 9,574 372,189
Mattel, Inc............................................... 29,694 824,009
------------
1,196,198
------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
Federal Express Corp. (a)................................. 12,543 558,164
Ryder System, Inc......................................... 9,145 257,203
------------
815,367
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
TRUCKERS (0.0%) (b)
Caliber System, Inc................................... 4,156 $ 80,003
------------
Total Common Stocks (Cost $429,738,273)............... 616,752,317
------------
Total Investments (Cost $429,738,273) (c)............. 98.9% 616,752,317 (d)
Cash and Other Assets, Less Liabilities............... 1.1 6,828,566
------- ------------
Net Assets............................................ 100.0% $623,580,883
======= ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) The cost for Federal income tax purposes is $430,048,112.
(d) At December 31, 1996 net unrealized appreciation was $186,704,205 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 $191,071,127 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,366,922.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
37
<PAGE>
INDEXED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $429,738,273).................................. $616,752,317
Receivables:
Investment securities sold....................................... 13,034,027
Fund shares sold................................................. 1,739,212
Dividends and interest........................................... 1,057,943
------------
Total assets................................................... 632,583,499
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................. 5,154,316
Investment securities purchased.................................. 2,424,681
Custodian........................................................ 1,194,293
Administrator.................................................... 62,119
Adviser.......................................................... 26,497
Transfer agent................................................... 5,789
Directors........................................................ 643
Accrued expenses................................................. 134,278
------------
Total liabilities.............................................. 9,002,616
------------
Net assets....................................................... $623,580,883
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 29,349
Institutional Service Class...................................... 279
Additional paid-in capital....................................... 427,874,752
Accumulated undistributed net realized gain on investments....... 8,662,459
Net unrealized appreciation on investments....................... 187,014,044
------------
Net assets....................................................... $623,580,883
============
Institutional Class
Net assets applicable to outstanding shares...................... $617,715,830
============
Shares of capital stock outstanding.............................. 29,349,295
============
Net asset value per share outstanding............................ $ 21.05
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 5,865,053
============
Shares of capital stock outstanding.............................. 279,179
============
Net asset value per share outstanding............................ $ 21.01
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 10,428,406
Interest......................................................... 1,648,424
------------
Total income................................................... 12,076,830
------------
Expenses:
Administration................................................... 2,010,753
Advisory......................................................... 502,686
Professional..................................................... 129,928
Registration..................................................... 94,965
Custodian........................................................ 85,539
Shareholder communication........................................ 78,127
Transfer agent................................................... 30,307
Directors........................................................ 16,296
Service.......................................................... 9,405
Miscellaneous.................................................... 11,615
------------
Total expenses before
reimbursement................................................. 2,969,621
Expense reimbursement from Administrator and Adviser............. (753,575)
------------
Net expenses................................................... 2,216,046
------------
Net investment income............................................ 9,860,784
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions............................................ 16,988,467
Futures transactions............................................. 4,106,943
------------
Net realized gain on investments................................. 21,095,410
------------
Net change in unrealized appreciation on investments:
Security transactions............................................ 71,711,312
Futures transactions............................................. (18,782)
------------
Net unrealized gain on investments............................... 71,692,530
------------
Net realized and unrealized gain on investments.................. 92,787,940
------------
Net increase in net assets resulting from operations............. $102,648,724
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $97,095.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
38
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INDEXED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 9,860,784 $ 6,542,760
Net realized gain on investments.................. 21,095,410 7,990,629
Net change in unrealized appreciation on invest-
ments............................................ 71,692,530 76,650,549
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 102,648,724 91,183,938
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (9,781,685) (6,591,393)
Institutional Service Class...................... (81,268) (16,388)
From net realized gain on investments:
Institutional Class.............................. (13,063,037) (6,792,059)
Institutional Service Class...................... (121,038) (17,654)
------------ ------------
Total dividends and distributions to sharehold-
ers............................................ (23,047,028) (13,417,494)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 252,112,038 78,587,684
Institutional Service Class...................... 4,498,994 897,435
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 22,844,722 13,357,924
Institutional Service Class...................... 202,306 34,040
------------ ------------
279,658,060 92,877,083
Cost of shares redeemed:
Institutional Class.............................. (90,730,104) (59,931,221)
Institutional Service Class...................... (337,651) (8,197)
------------ ------------
Increase in net assets derived from capital
share transactions.............................. 188,590,305 32,937,665
------------ ------------
Net increase in net assets....................... 268,192,001 110,704,109
NET ASSETS:
Beginning of year................................. $355,388,882 $244,684,773
============ ============
End of year....................................... $623,580,883 $355,388,882
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
39
<PAGE>
INDEXED EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------------------------
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 17.82 $ 17.81 $ 13.53 $ 13.53 $ 13.86 $ 13.50 $ 12.98
-------- -------- -------- -------- -------- -------- --------
Net investment income... 0.34 0.31 0.35 0.33 0.33 0.30 0.30
Net realized and
unrealized gain (loss)
on investments......... 3.69 3.66 4.64 4.64 (0.20) 0.93 0.61
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 4.03 3.97 4.99 4.97 0.13 1.23 0.91
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.34) (0.31) (0.34) (0.33) (0.33) (0.61) (0.32)
From net realized gain
on investments......... (0.46) (0.46) (0.36) (0.36) (0.13) (0.25) (0.07)
In excess of net
realized gain on
investments............ -- -- -- -- 0.00(a) (0.01) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.80) (0.77) (0.70) (0.69) (0.46) (0.87) (0.39)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 21.05 $ 21.01 $ 17.82 $ 17.81 $ 13.53 $ 13.86 $ 13.50
======== ======== ======== ======== ======== ======== ========
Total investment return
....................... 22.57% 22.21% 36.88% 36.70% 0.90% 9.41% 7.19%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.96% 1.71% 2.21% 1.96% 2.43% 2.39% 2.52%
Net expenses........... 0.44% 0.69% 0.50% 0.75% 0.50% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.59% 0.84% 0.59% 0.84% 0.58% 0.60% 0.62%
Portfolio turnover
rate................... 8% 8% 4% 4% 5% 5% 4%
Average commission rate
paid................... $ 0.0498 $ 0.0498 (b) (b) (b) (b) (b)
Net assets at end of
year (in 000's)........ $617,716 $ 5,865 $354,420 $ 969 $244,685 $219,351 $164,858
</TABLE>
- --------
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
40
<PAGE>
INTERNATIONAL EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. International equity markets generally experienced positive performance,
with the Morgan Stanley Capital International EAFE Index(S) returning 6.05%
for the 12 months ended December 31, 1996
. An accommodative interest rate environment worldwide was good for
international corporate growth, and particularly good for interest rate
sensitive stocks
. While Japan showed improving fundamentals, the Japanese stock market
provided the worst returns of any major world market, losing 4.92% for the
year
. Spain, Norway, Sweden, Finland and the Netherlands markets provided
excellent overall performance, with Italy, France, Germany, and Hong Kong
also providing positive returns
. A market reversal in June and July, led by declines in U.S. equities, left
many international returns in the second half of the year at more modest
levels
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 12.09% and 11.59% for Institutional Class and
Service Class shares, respectively, as of 12/31/96
. The Fund outpaced the Morgan Stanley Capital International EAFE Index for
the 12 months ended 12/31/96
. The Fund performed closely with the average Lipper* international equity
fund for the 12 months ended 12/31/96
. The portfolio benefited from investments in Spain and Italy, and energy
investments in Norway and the Netherlands, but was hurt by large holdings in
Japan
. Selective currency hedging helped work to the advantage of investors in the
Fund throughout the year
- --------------------------------------------------------------------------------
Accomodative interest rates When countries maintain low interest rates that
allow businesses to borrow at lower cost, they are said to be "accommodating"
business in this regard. Low interest rates tend to allow companies to raise
more affordable capital for expansion, and may stimulate corporate and economic
growth.
- --------------------------------------------------------------------------------
Throughout 1996, the international equity markets benefited from accommodative
interest rate policies in most major markets around the world. The low interest
rate environment helped act as a stimulus for corporate growth and had a
positive impact on interest rate sensitive industries such as banking and
finance. The strengthening of economic fundamentals also led to gains in energy
stocks, which benefited from greater demand for fuel around the world.
In Europe, massive restructuring has begun, offering potential opportunities for
companies to increase their profitability and reduce their labor costs. A new
law recently passed in Germany will allow employers to substantially reduce
their benefit costs, which could improve corporate earnings prospects there. In
France, corporate profit growth continues to be promising due to the lack of
wage cost increases caused by high unemployment rates and generally lower
- --------------------------------------------------------------------------------
(S) The MSCI EAFE Index is an unmanaged index generally considered
representative of the international stock market.
* Lipper Analytical Services 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.
41
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Restructuring Any action designed to improve the overall financial structure,
labor relations, or productivity of a company. Restructuring may include such
steps as changing management, investing in new plants and equipment, engaging in
mergers and acquisitions, or taking other action to increase output or lower
costs.
Bullish/Bearish A bull market occurs when stock prices are rising, a bear
market occurs when stock prices decline. A bullish attitude therefore suggests a
positive outlook, while a bearish attitude represents a negative view of the
market or the opportunities it may present.
Weighting The proportion of a portfolio allocated to a specific market sector
or country, i.e., a fund is said to be overweighted in a country when that
portion of the portfolio is larger than the country's securities are to the
market as a whole.
Currency management/hedging The process of managing or "hedging" the risks
associated with owning securities denominated in different currencies, the
relative values of which may change at any time. There can be no assurance that
currency hedging will be beneficial to investors.
- --------------------------------------------------------------------------------
production costs. All of this may be good for industry in France and Germany and
may bode well for the future of European industry.
Although Asian markets faltered in July when the U.S. technology industry had a
severe setback, later in the year, the situation stabilized and growth trends
are once again emerging. Japan appears as a notable exception. Despite improving
economic fundamentals, investors have remained bearish, resulting in an overall
market decline of about 5% for the year. While some Japanese banks closed during
the year, others did relatively well. Autos were good performers within the weak
Japanese market. But retailers were hurt by low returns on savings and reduced
consumer confidence.
How did the MainStay Institutional International Equity Fund perform in this
context?
For the 12 months ended December 31, 1996, the MainStay Institutional
International Equity Fund had total returns of 12.09% and 11.59% for
Institutional Class shares and Service Class shares, respectively. These results
closely followed the average Lipper international fund, which returned 11.78%
for the same period, but were well ahead of the Morgan Stanley Capital
International EAFE Index, which returned only 6.05%.
What were the Fund's strongest investments during the year?
The Fund uses a country-first approach, seeking out the most promising markets
and then investing in a wide range of companies in the markets the portfolio
manager feels have positive prospects. In 1996, the Fund saw strong returns in
Spain and Italy (up 50.16% and 7.81%, respectively in local terms), the
Netherlands (+37.59% in local terms) and Norway (+30.00% in local terms), where
we concentrated in oil and energy-related issues. The Fund also did well in
France, where interest rates had a positive impact on agriculture-related
businesses that feed most of Europe.
What can those successes be attributed to?
We believe strategy was ultimately responsible. The Fund has held energy-related
positions in the Netherlands and Norway for some time, and recognized that the
improving economic fundamentals would increase demand for fuels. Oil prices
started the year at about $16 per barrel and ended around $23 per barrel, and
the rising prices were good for the Fund. In Spain, the Fund's holdings
increased among utilities and banks, which profited from the accommodative
interest rate environment. All of these positions have made positive
contributions to the Fund throughout the year.
Were there any major market opportunities that were missed?
The Fund wasn't invested in Sweden, which was up 41.36% (in local terms) for the
year--or Finland, which was up 42.18% (local terms). Given how these markets had
performed in 1995, the portfolio manager felt they were fully valued. Their
growth was surprising and some opportunities in these markets were missed.
What about the Far East?
The big story in the Far East was Japan. All the fundamentals seemed in place
for a market improvement. Interest rates were low and the environment was
friendly for business. However, investors remained bearish all year. Since Japan
was the weakest major market, down 4.92% in 1996, the Fund's large position
there definitely hurt perfor-
42
<PAGE>
================================================================================
mance. There were, however, some redeeming factors. While some Japanese banks
closed during the year, the Fund was invested in stronger banks that survived
the crisis. The Fund also held auto stocks which did well on a relative basis.
In the fourth quarter, as it appeared that the market was not going to respond
to positive fundamentals, the Fund reduced its weighting in Japan, which was
already lower than the overall weighting in the EAFE index. This helped the
Fund's portfolio control risk and avoid some losses. If conditions remain the
same, we intend to continue moving away from Japan, waiting for investor
sentiment to turn more positive.
What were the Fund's other investments in the Far East?
In Hong Kong, the Fund increased its holdings in the second half of the year
when we saw opportunities to profit from this gateway for Chinese exports. The
result was positive for the Fund. Singapore, which is a major exporter of
electronic components and computer products, faced a downturn in midyear, when
U.S. technology stocks faltered. While that had a negative impact on Fund
performance, the Fund continued to hold its Singapore equities, such as
Singapore Telecommunications, Ltd. and Oversea-Chinese Banking Corp., Ltd.,
which represent a relatively small portion of the Fund's holdings. In the fourth
quarter, orders began to flow back to Singapore, so the downturn appears to be
reversing. We're pleased that this decision to hold these securities had
positive results and look forward to improved prospects in 1997.
How has the Fund's portfolio responded to restructuring in Europe?
Restructuring can be a positive factor for virtually any economy. We see it as a
positive force that could improve balance sheets, enhance productivity, and
lower labor costs through outsourcing production to Eastern Europe and Asia. By
adding to the Fund's holdings in Germany and the Netherlands in the fourth
quarter, the Fund sought to capitalize on the restructuring trend, and this has
had a positive impact on the Fund's performance.
What happened in the U.K.?
The stock market was up about 15% for 1996, which generally sounds good, but was
modest in light of markets like Spain, Finland, and Sweden that advanced more
than 40%. Since the Fund was underweighted in the U.K., its performance had a
generally positive, but not a major impact on the Fund.
How was currency risk managed throughout the year?
Generally speaking, selective hedging was used to manage currency risk.
Throughout the year, this had a positive impact on performance.
Looking forward what do you see?
We believe we will continue to see the dollar strengthening against other
currencies in the long term. However, the dollar's protracted upward move might
have temporary setbacks. The Fund's managers are carefully watching the
situation.
Which markets do you like for 1997?
We'll be moving more into core markets, such as Germany, France, and the
Netherlands, if we continue to believe restructuring in these markets is likely
to have the greatest impact in the shortest amount of time. We believe exporting
markets are likely to continue to do well, but we are likely to place more
emphasis in Europe than in Asia, at least for the foreseeable future. As far as
Japan is concerned, until we see signs of a turnaround, we may continue to
reduce the Fund's positions. Overall, we'll continue to focus on developed
markets and established companies, seeking long-term growth of capital with an
acceptable level of risk.
Shigemi Takagi
Portfolio Manager
Note: Foreign investing may be subject to greater risks than domestic investing.
These may include securities markets that are less efficient, less liquid and
more volatile than those in the United States, as well as foreign currency
fluctuations and different governmental regulatory concerns.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
43
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS MSCI EAFE INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INTL. EQUITY FUND MSCI EAFE INDEX
---- ----------------- ---------------
<S> <C> <C>
1/1/95 10,000 10,000
9,830 10,194
2Q 1995 9,490 10,276
10,150 10,713
4Q 1995 10,717 11,155
11,245 11,486
2Q 1996 11,629 11,676
11,597 11,670
12/31/96 12,013 11,793
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS MSCI EAFE INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE INTL. EQUITY FUND MSCI EAFE INDEX
---- ----------------- ---------------
<S> <C> <C>
1/1/95 10,000 10,000
9,830 10,194
2Q 1995 9,480 10,276
10,120 10,713
4Q 1995 10,686 11,155
11,192 11,486
2Q 1996 11,565 11,676
11,523 11,670
12/31/96 11,924 11,793
</TABLE>
. International Equity Fund --MSCI EAFE Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/1/95.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund Institutional Class 12.09% 12.09% N/A 9.58%
International Equity Fund Service Class 11.59% 11.59% N/A 9.17%
Average Lipper International Fund 11.78% 11.78% 10.09% 10.52%
MSCI EAFE Index 6.05% 6.05% 8.15% 8.60%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
. Common Stocks 90.97%
. Cash & Equivalents 8.94%
. Other 0.09%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Toyota Motor Corp. 1.81%
2. Ente Nazionale Idrocarburi, S.p.A. 1.70%
3. Singapore Telecommunications, Ltd. 1.58%
4. Siemens AG 1.22%
5. Mitsubishi Heavy Industries, Ltd. 1.09%
6. Deutsche Telekom AG 1.09%
7. Allianz AG Holding 1.07%
8. Telefonica de Espana, SA 1.07%
9. Norsk Hydro ASA 1.06%
10. Broken Hill Proprietary Co., Ltd. 0.99%
- --------------------------------------------------------------------------------
TOP 10 COUNTRIES
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Japan 28.57%
2. France 10.55%
3. United Kingdom 8.22%
4. Germany 8.18%
5. Italy 6.64%
6. Spain 5.60%
7. Singapore 5.07%
8. Australia 4.82%
9. Hong Kong 3.54%
10. Austria 3.23%
- --------------------------------------------------------------------------------
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include the
change in share price and reinvestment of capital gains distributions and
dividends, and, for the Service Class shares, include the service fee of .25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares are sold with no initial or contingent deferred sales charge, but
are subject to an annual shareholder service fee of .25%.
The inception date of the International Equity Fund and the date such shares
were first offered to the public was 1/1/95.
44
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (91.0%)+
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
AUSTRALIA (4.8%)
Amcor, Ltd.
(forest products & paper)................................ 65,766 $ 422,581
Boral, Ltd. (building materials & components)............. 40,300 114,590
Brambles Industries, Ltd.
(business & public services)............................. 16,500 321,733
Broken Hill Proprietary Co., Ltd. (energy sources)........ 88,079 1,253,639
Coles Myer, Ltd.
(merchandising).......................................... 87,136 358,499
CRA, Ltd. (metals-nonferrous)............................. 29,842 468,118
CSR, Ltd. (multi-industry)................................ 58,400 204,092
Foster's Brewing Group, Ltd. (beverages & tobacco)........ 105,427 213,526
Mount Isa Mines Holdings, Ltd. (metals-nonferrous)........ 46,343 64,782
National Australia Bank, Ltd. (banking)................... 88,805 1,043,900
News Corp., Ltd.
(broadcasting & publishing).............................. 76,572 403,829
Pacific Dunlop, Ltd.
(multi-industry)......................................... 83,030 211,030
Santos, Ltd. (energy sources)............................. 40,400 163,648
Westpac Banking Corp., Ltd. (banking)..................... 73,170 416,108
WMC, Ltd. (metals-nonferrous)............................. 72,425 456,165
------------
6,116,240
------------
AUSTRIA (3.1%)
Austrian Airlines Oesterreichische Luftverkehrs AG
(transportation-airlines) (a)............................ 650 98,943
Bank Austria AG (banking)................................. 10,100 745,420
Creditanstalt-Bankverein Stamm AG (banking)............... 6,200 419,262
EA-Generali AG (insurance)................................ 1,500 442,824
Flughafen Wien AG
(transportation-airlines)................................ 3,950 201,153
Oesterreichische Brau-Beteiligungs AG (beverages &
tobacco)................................................. 3,000 203,422
OMV AG (energy sources)................................... 5,350 602,642
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class A (utilities-electrical
& gas)................................................... 5,800 433,682
Voest-Alpine Technologie AG (machinery & engineering)..... 2,850 446,844
Wienerberger Baustoffindustrie AG (building materials &
components).............................................. 2,050 397,158
------------
3,991,350
------------
FRANCE (10.6%)
Alcatel Alsthom, SA
(electrical & electronics)............................... 5,454 437,264
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
FRANCE (Continued)
AXA, SA (insurance)....................................... 10,134 $ 643,274
Carrefour, SA (merchandising)............................. 1,795 1,165,650
Compagnie de Saint Gobain, SA (miscellaneous-materials &
commodities)............................................. 5,427 766,226
Compagnie de Suez, SA
(banking)................................................ 8,023 340,442
Compagnie Financiere de Paribas, SA Class A (banking)..... 5,804 391,753
Compagnie Generale des Eaux, SA (business & public
services)................................................ 5,112 632,271
Elf Aquitaine, SA
(energy sources)......................................... 9,235 838,989
Eridania Beghin-Say, SA
(food & household products).............................. 1,970 316,413
Groupe Danone, SA
(food & household products).............................. 5,527 768,651
Havas, SA
(business & public services)............................. 5,050 353,585
Lafarge, SA (building materials & components)............. 5,323 318,740
L'Air Liquide, SA (chemicals)............................. 6,420 1,000,279
L'Oreal, SA
(health & personal care)................................. 2,728 1,025,345
LVMH (Moet Hennessy Louis Vuitton), SA
(beverages & tobacco).................................... 3,780 1,053,565
Lyonnaise des Eaux, SA
(multi-industry)......................................... 3,914 363,563
Michelin (CGDE), SA Class B
(tire & rubber).......................................... 5,045 271,816
Pernod-Ricard, SA
(beverages & tobacco).................................... 2,680 147,951
Pinault-Printemps-Redoute, SA (building materials &
components).............................................. 1,030 407,741
PSA Peugeot, SA (automobiles)............................. 1,620 181,982
Rhone-Poulenc, SA Class A
(chemicals).............................................. 11,262 383,217
Schneider, SA
(machinery & engineering)................................ 3,096 142,867
Societe Generale, SA (banking)............................ 4,624 498,979
Thomson CSF, SA (aerospace &
military technology)..................................... 9,085 294,110
Total, SA Class B
(energy sources)......................................... 8,020 651,011
------------
13,395,684
------------
GERMANY (8.2%)
Allianz AG Holding (insurance)............................ 750 1,362,654
BASF AG (chemicals)....................................... 25,550 982,801
Bayer AG (chemicals)...................................... 27,850 1,134,883
Daimler-Benz AG
(automobiles) (a)........................................ 10,000 687,816
Deutsche Bank AG (banking)................................ 11,500 536,529
Deutsche Telekom AG (telecommunications) (a).............. 65,500 1,379,185
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
45
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
GERMANY (Continued)
Dresdner Bank AG (banking)................................ 28,700 $ 858,518
Karstadt AG (merchandising)............................... 150 50,613
Linde AG (machinery & engineering)........................ 200 121,990
Mannesmann AG
(machinery & engineering)................................ 450 194,762
Muenchener Rueckversicherungs-Gesellschaft AG (insurance). 109 271,950
Preussag AG (multi-industry).............................. 200 45,227
RWE AG (utilities-electrical & gas)....................... 4,500 190,382
Siemens AG
(electrical & electronics)............................... 32,900 1,547,748
Thyssen AG (metals-steel)................................. 450 79,715
VEBA AG
(utilities-electrical & gas)............................. 12,100 698,782
Viag AG (multi-industry).................................. 300 117,578
Volkswagen AG (automobiles)............................... 300 124,586
------------
10,385,719
------------
HONG KONG (3.6%)
Cheung Kong (Holdings), Ltd.
(real estate)............................................ 89,000 791,050
China Light & Power Co., Ltd. (utilities-electrical &
gas)..................................................... 79,500 353,563
Hang Seng Bank, Ltd. (banking)............................ 53,500 650,164
Hong Kong Telecommunications, Ltd. (telecommunications)... 352,400 567,214
Hutchison Whampoa, Ltd.
(multi-industry)......................................... 104,000 816,810
Sun Hung Kai Properties, Ltd.
(real estate)............................................ 69,000 845,220
Swire Pacific, Ltd. Class A
(multi-industry)......................................... 50,000 476,731
------------
4,500,752
------------
ITALY (6.6%)
Assicurazioni Generali S.p.A. (insurance)................. 48,015 908,324
Banca Commerciale Italiana S.p.A.
(banking)................................................ 97,000 176,160
Benetton Group S.p.A.
(textiles & apparel)..................................... 11,000 138,897
Credito Italiano S.p.A. (banking)......................... 114,000 124,970
Edison S.p.A. (energy sources)............................ 33,000 208,454
Ente Nazionale Idrocarburi S.p.A. (energy sources)........ 421,000 2,156,585
Fiat S.p.A. (automobiles)................................. 165,000 498,336
Fiat S.p.A. di Risp (automobiles)......................... 56,000 98,016
Istituto Bancario San Paolo di Torino S.p.A. (banking).... 75,000 458,955
Istituto Nazionale delle Assicurazioni S.p.A. (insurance). 243,000 315,951
Italgas S.p.A.
(utilities-electrical & gas)............................. 43,000 179,243
Mediobanca S.p.A.
(financial services)..................................... 43,900 236,434
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
ITALY (Continued)
Montedison S.p.A.
(multi-industry) (a)..................................... 210,900 $ 143,490
Olivetti Group S.p.A. (data processing & reproduction)
(a)...................................................... 237,500 83,607
Parmalat Finanziaria S.p.A.
(food & household products).............................. 93,000 141,970
Pirelli S.p.A.
(industrial components).................................. 78,000 144,477
Riunione Adriatica di Sicurta S.p.A. (insurance).......... 19,600 182,490
Sirti S.p.A. (telecommunications)......................... 28,000 169,501
Telecom Italia S.p.A. (telecommunications)................ 366,000 948,862
Telecom Italia S.p.A. di Risp (telecommunications)........ 81,000 157,762
Telecom Italia Mobile S.p.A. (telecommunications)......... 351,000 885,724
Telecom Italia Mobile S.p.A. di Risp (telecommunications). 55,000 78,351
------------
8,436,559
------------
JAPAN (28.6%)
Ajinomoto Co., Inc.
(food & household products) (b).......................... 26,000 264,308
Asahi Bank, Ltd. (banking) (b)............................ 17,000 150,849
Asahi Chemical Industry Co., Ltd. (chemicals) (b)......... 84,000 474,721
Asahi Glass Co., Ltd. (miscellaneous-materials &
components) (b).......................................... 50,000 469,517
Bridgestone Corp.
(industrial components) (b).............................. 30,000 568,590
Canon, Inc. (recreation & other consumer goods) (b)....... 24,000 529,306
Chiba Bank, Ltd. (banking) (b)............................ 34,000 231,399
Dai Nippon Printing Co., Ltd. (business & public services)
(b)...................................................... 34,000 594,607
Daiei, Inc. (merchandising) (b)........................... 37,000 282,098
Daiwa House Industry Co., Ltd. (construction & housing)
(b)...................................................... 34,000 436,436
Denso Corp.
(industrial components).................................. 25,000 600,896
Fanuc, Ltd. (electronic components & instruments) (b)..... 9,000 287,655
Fuji Bank, Ltd. (banking) (b)............................. 63,000 917,239
Fuji Photo Film, Ltd.
(recreation & other consumer goods)...................... 14,000 460,730
Fujitsu, Ltd. (data processing & reproduction)............ 63,000 586,165
Furukawa Electric Co.
(industrial components).................................. 51,000 241,211
Hankyu Corp.
(transportation-road & rail)............................. 21,000 104,026
Hitachi Corp., Ltd.
(electrical & electronics)............................... 84,000 781,553
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
46
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
JAPAN (Continued)
Honda Motor Co., Ltd. (automobiles)....................... 23,000 $ 655,860
Industrial Bank of Japan, Ltd. (banking).................. 62,000 1,073,601
Ito-Yokado Co., Ltd. (merchandising)...................... 12,000 521,035
Itochu Corp. (wholesale & international trade)............ 98,000 525,136
Japan Airlines Co.
(transportation-airlines) (a)............................ 47,000 249,017
Japan Energy Corp. (energy sources)....................... 86,000 233,380
Joyo Bank (banking)....................................... 15,000 90,199
Kajima Corp.
(construction & housing)................................. 26,000 185,464
Kansai Electric Power Co., Inc. (utilities-electrical &
gas)..................................................... 26,200 541,711
Kao Corp.
(food & household products).............................. 6,000 69,781
Kawasaki Steel Corp.
(metals-steel)........................................... 45,000 129,096
Kirin Brewery Co., Ltd.
(beverages & tobacco).................................... 37,000 363,381
Komatsu, Ltd.
(machinery & engineering)................................ 48,000 392,844
Kubota Corp.
(machinery & engineering)................................ 100,000 481,578
Marubeni Corp. (wholesale & international trade).......... 96,000 411,866
Marui Co., Ltd. (merchandising)........................... 14,000 252,075
Matsushita Electric Industrial Co., Ltd. (appliances &
household durables)...................................... 22,000 358,212
Mitsubishi Chemical Corp. (chemicals)..................... 99,000 319,832
Mitsubishi Corp. (multi-industry)......................... 33,000 341,154
Mitsubishi Electric Corp.
(electrical & electronics)............................... 104,000 618,212
Mitsubishi Estate Co., Ltd. (construction & housing)...... 28,000 287,052
Mitsubishi Heavy Industries, Ltd. (machinery &
engineering)............................................. 175,000 1,387,015
Mitsubishi Trust & Banking Co. (financial services)....... 44,000 587,543
Mitsui Engineering & Shipbuilding Co., Ltd.
(machinery & engineering) (a)............................ 142,000 288,706
Mitsui Fudosan Co.
(construction & housing)................................. 24,000 239,842
Mitsui Marine & Fire Insurance Co., Ltd. (insurance)...... 42,000 225,420
Mitsui Trust & Banking Co. (financial services)........... 28,000 218,304
Mitsukoshi, Ltd. (merchandising).......................... 26,000 184,120
NEC Corp. (electrical & electronics)...................... 40,000 482,440
Nippon Express Co., Ltd. (transportation-road & rail)..... 63,000 430,940
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
JAPAN (Continued)
Nippon Oil Co., Ltd.
(energy sources)......................................... 56,000 $ 287,052
Nippon Paper Industries Co.
(forest products & paper)................................ 26,000 120,955
Nippon Steel Corp. (metals-steel)......................... 117,000 344,721
Nippon Yusen Kabushiki Kaisha (transportation-shipping)... 38,000 171,542
Nissan Motor Co., Ltd. (automobiles)...................... 60,000 347,357
NKK Corp. (metals-steel) (a).............................. 106,000 238,343
Nomura Securities Co., Ltd. (financial services).......... 53,000 794,475
Obayashi Corp.
(construction & housing)................................. 36,000 242,529
Oji Paper Co., Ltd.
(forest products & paper)................................ 23,000 145,240
Osaka Gas Co.
(utilities-electrical & gas)............................. 46,000 125,624
Sakura Bank, Ltd. (banking)............................... 84,000 599,190
Sankyo Co., Ltd.
(health & personal care)................................. 12,000 339,086
Sanyo Electric Co., Ltd.
(appliances & household durables)........................ 55,000 227,436
Sekisui Chemical Co. (building materials & components).... 13,000 131,034
Sekisui House, Ltd.
(construction & housing)................................. 17,000 172,817
Sharp Corp. (appliances & household durables)............. 23,000 326,939
Shimizu Corp.
(construction & housing)................................. 53,000 394,955
Shiseido Co., Ltd.
(health & personal care)................................. 17,000 196,250
Shizuoka Bank, Ltd. (banking)............................. 6,000 63,579
Sony Corp. (appliances &
household durables)...................................... 9,200 601,568
Sumitomo Bank, Ltd. (banking)............................. 69,000 992,706
Sumitomo Chemical Co. (chemicals)......................... 38,000 150,263
Sumitomo Electric Industries (industrial components)...... 35,000 488,470
Sumitomo Marine & Fire Insurance Co. (insurance).......... 33,000 204,692
Sumitomo Metal Industries, Ltd. (metals-steel)............ 74,000 181,690
Sumitomo Metal Mining Co. (metals-nonferrous)............. 24,000 161,480
Taisho Pharmaceutical Co.
(health & personal care)................................. 14,000 329,265
Takeda Chemical Industries, Ltd. (health & personal care). 30,000 628,033
Teijin, Ltd. (chemicals).................................. 139,000 605,927
Tobu Railway Co., Ltd. (transportation-road & rail)....... 48,000 234,466
Tohoku Electric Power
(utilities-electrical & gas)............................. 9,000 178,331
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
47
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
JAPAN (Continued)
Tokai Bank (banking)...................................... 52,000 $ 542,056
Tokio Marine & Fire Insurance Co. (insurance)............. 32,000 300,491
Tokyo Dome Corp.
(leisure & tourism)...................................... 9,000 156,621
Tokyo Electric Power Co., Inc. (utilities-electrical &
gas)..................................................... 26,300 575,499
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)............................. 151,000 408,472
Tokyu Corp.
(transportation-road & rail)............................. 27,000 153,054
Toppan Printing Co., Ltd.
(business & public services)............................. 40,000 499,670
Tostem Corp. (building materials
& components)............................................ 5,000 137,840
Toto, Ltd. (building materials & components).............. 6,000 68,231
Toyoda Automatic Loom Works, Ltd. (machinery &
engineering)............................................. 5,000 93,473
Toyota Motor Corp.
(automobiles)............................................ 80,000 2,295,036
Yamaichi Securities Co., Ltd. (financial services)........ 69,000 306,134
Yamanouchi Pharmaceutical Co., Ltd. (health & personal
care).................................................... 15,000 307,556
Yamazaki Baking Co., Ltd.
(food & household products).............................. 6,000 95,627
Yasuda Trust & Banking (financial services)............... 44,000 186,118
------------
36,278,015
------------
MALAYSIA (2.6%)
AMMB Holdings Berhad
(financial services)..................................... 16,000 134,310
DCB Holdings Berhad
(financial services)..................................... 22,000 75,351
Edaran Otomobil Nasional Berhad (automobiles)............. 6,000 59,988
Golden Hope Plantations Berhad (miscellaneous-materials &
commodities)............................................. 116,000 197,505
Hume Industries Berhad (building materials & components).. 19,000 119,619
Malayan Banking Berhad (banking).......................... 36,000 399,128
Malaysia International Shipping Berhad Foreign Registered
(transportation-shipping)................................ 38,000 112,849
Malaysian Resources Corp. Berhad (real estate)............ 31,000 122,134
Resorts World Berhad
(leisure & tourism)...................................... 62,000 282,319
Rothmans of Pall Mall Berhad (beverages & tobacco)........ 15,000 157,394
Sime Darby Berhad
(multi-industry)......................................... 107,000 421,559
Technology Resources Industries Berhad (multi-industry)
(a)...................................................... 29,000 57,184
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
MALAYSIA (Continued)
Telekom Malaysia Berhad (telecommunications).............. 44,000 $ 392,000
Tenaga Nasional Berhad
(utilities-electrical & gas)............................. 67,000 321,005
United Engineers, Ltd.
(machinery & engineering)................................ 39,000 352,088
YTL Corp. Berhad (multi-industry)......................... 12,000 64,621
------------
3,269,054
------------
NETHERLANDS (2.0%)
Elsevier NV
(broadcasting & publishing).............................. 10,900 184,005
ING Groep NV (insurance).................................. 8,905 320,217
Koninklijke PTT Nederland NV (forest products & paper).... 7,286 277,584
Philips Electronics NV (appliances & household durables).. 4,400 178,062
Royal Dutch Petroleum Co.
(energy sources)......................................... 6,400 1,120,726
Unilever CVA NV
(food & household products).............................. 2,200 388,684
Wolters Kluwer CVA NV (broadcasting & publishing)......... 910 120,738
------------
2,590,016
------------
NORWAY (2.0%)
Bergesen d.y. ASA Class A (transportation-shipping)....... 6,200 151,471
Bergesen d.y. ASA Class B (transportation-shipping)....... 3,900 92,837
Dyno Industrier ASA (chemicals)........................... 3,800 96,408
Hafslund ASA Class A
(energy sources)......................................... 6,600 48,580
Hafslund ASA Class B
(energy sources)......................................... 4,900 33,534
Kvaerner ASA Class B
(machinery & engineering)................................ 3,000 130,141
Norsk Hydro ASA
(energy sources)......................................... 24,900 1,345,341
Norske Skogindustrier ASA Class A (forest products &
paper)................................................... 5,400 180,131
Nycomed ASA Class A
(health & personal care) (a)............................. 6,600 100,777
Nycomed ASA Class B
(health & personal care) (a)............................. 4,900 75,203
Orkla ASA Class A (multi-industry)........................ 4,700 327,546
------------
2,581,969
------------
SINGAPORE (5.1%)
City Developments, Ltd.
(real estate)............................................ 55,000 495,418
DBS Land, Ltd. (real estate).............................. 79,000 290,852
Development Bank of Singapore, Ltd. Foreign Registered
(banking)................................................ 42,000 567,479
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
48
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
SINGAPORE (Continued)
Fraser & Neave, Ltd.
(beverages & tobacco).................................... 30,000 $ 308,832
Keppel Corp., Ltd.
(machinery & engineering)................................ 41,000 319,484
Oversea-Chinese Banking Corp., Ltd. Foreign Registered
(banking)................................................ 59,000 733,905
Singapore Airlines, Ltd. Foreign Registered
(transportation-airlines)................................ 75,000 680,932
Singapore Press Holdings, Ltd. Foreign Registered
(broadcasting & publishing).............................. 21,400 422,242
Singapore Telecommunications, Ltd. (telecommunications)... 852,000 2,009,982
United Overseas Bank, Ltd. Foreign Registered (banking)... 55,000 613,375
------------
6,442,501
------------
SPAIN (5.6%)
Acerinox, SA (metals-steel)............................... 924 133,266
Autopistas Concesionares Espanola, SA (business & public
services)................................................ 11,893 163,666
Banco de Bilbao Vizcaya, SA Registered (banking).......... 12,370 666,655
Banco de Central Hispanoamericano, SA (banking)........... 5,830 149,478
Banco de Santander, SA (banking).......................... 8,120 518,765
Corporacion Bancaria de Espana, SA (banking).............. 7,510 335,451
Corporacion Mapfre, SA (insurance)........................ 1,890 114,935
Empresa Nacional de Electricidad, SA (utilities-electrical
& gas)................................................... 16,690 1,185,610
Fomento de Construcciones y Contratas, SA
(construction & housing)................................. 2,000 186,050
Gas Natural SDG, SA
(utilities-electrical & gas)............................. 1,830 424,885
Iberdrola, SA
(utilities-electrical & gas)............................. 69,000 976,068
Repsol, SA (energy sources)............................... 23,520 900,492
Telefonica de Espana, SA (telecommunications)............. 58,590 1,358,076
------------
7,113,397
------------
UNITED KINGDOM (8.2%)
Abbey National PLC (banking) (b).......................... 20,208 264,552
Barclays PLC (banking) (b)................................ 17,891 306,322
Bass PLC (beverages & tobacco) (b)........................ 13,628 191,470
B.A.T. Industries PLC
(beverages & tobacco) (b)................................ 37,057 307,249
BOC Group PLC (chemicals) (b)............................. 9,367 140,020
Boots Co. PLC (merchandising) (b)......................... 17,184 177,177
British Airways PLC
(transportation-airlines) (b)............................ 21,194 219,610
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
British Gas PLC (energy sources) (b)...................... 52,514 $ 201,752
British Petroleum Co. PLC
(energy sources) (b)..................................... 62,780 752,585
British Telecommunications PLC (telecommunications) (b)... 64,026 432,245
BTR PLC (multi-industry) (b).............................. 46,844 227,666
Cable & Wireless PLC (telecommunications) (b)............. 41,978 348,768
Commercial Union PLC (insurance) (b)...................... 15,034 175,849
EMI Group PLC (recreation & other consumer goods) (b)..... 7,618 179,906
General Electric Co. PLC
(electrical & electronics) (b)........................... 39,522 258,362
GKN PLC
(machinery & engineering) (b)............................ 6,135 105,093
Glaxo Wellcome PLC
(health & personal care) (b)............................. 42,582 690,813
Granada Group PLC
(leisure & tourism) (b).................................. 8,096 119,358
Grand Metropolitan PLC
(multi-industry) (b)..................................... 29,926 235,065
Great Universal Stores PLC (The) (merchandising) (b)...... 8,956 93,798
Guinness PLC
(beverages & tobacco) (b)................................ 28,550 223,524
Hanson PLC (multi-industry) (b)........................... 174,208 242,970
HSBC Holdings PLC (GBP par) (financial services) (b)...... 8,602 192,251
HSBC Holdings PLC (HKD par) (financial services) (b)...... 14,700 319,986
Imperial Chemical Industries PLC (chemicals) (b).......... 6,680 87,851
Imperial Tobacco Group PLC (beverages & tobacco) (b)...... 17,420 112,387
Kingfisher PLC (merchandising) (b)........................ 5,898 63,739
Lloyds TSB Group PLC (banking) (b)........................ 63,168 465,369
Marks & Spencer PLC (merchandising) (b)................... 41,348 347,426
MEPC PLC (real estate) (b)................................ 6,204 45,971
National Power PLC
(utilities-electrical & gas) (b)......................... 9,720 81,339
Peninsular & Oriental Steam Navigation Co. Deferred Stock
(The) (transportation-shipping) (b)...................... 22,626 228,447
Prudential Corp. PLC (insurance) (b)...................... 42,229 355,190
Rank Group PLC
(leisure & tourism) (b).................................. 27,627 205,896
Redland PLC (building materials & components) (b)......... 11,809 74,065
Reed International PLC (broadcasting & publishing) (b).... 8,786 165,616
Reuters Holdings PLC
(broadcasting & publishing) (b).......................... 31,560 405,875
RMC Group PLC (building materials & components) (b)....... 4,593 78,403
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
49
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
RTZ Corp. PLC Registered
(metals-nonferrous) (b)............................. 19,008 $ 304,628
Sainsbury (J.) PLC (merchandising) (b)............... 24,989 165,923
Scottish Power PLC
(utilities-electrical & gas) (b).................... 47,860 288,298
Thorn PLC (appliances & household durables) (a)(b)... 7,618 32,787
Unilever PLC (food &
household products) (b)............................. 14,361 348,119
Vodafone Group PLC
(multi-industry) (b)................................ 41,072 173,256
------------
10,436,976
------------
Total Common Stocks
(Cost $110,685,740)................................. 115,538,232
------------
PREFERRED STOCK (0.1%)
AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug AG (banking)......... 2,400 110,706
------------
Total Preferred Stock
(Cost $140,469)..................................... 110,706
------------
SHORT-TERM
INVESTMENT (0.5%)
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
COMMERCIAL PAPER (0.5%)
UNITED STATES (0.5%)
Ameritech Corp.
6.25%, due 1/2/97................................... $650,000 649,887
------------
Total Short-Term Investment
(Cost $649,887)..................................... 649,887
------------
Total Investments
(Cost $111,476,096) (c)............................. 91.6% 116,298,825 (d)
Cash and Other Assets,
Less Liabilities.................................... 8.4 10,706,587
-------- ------------
Net Assets........................................... 100.0% $127,005,412
======== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(c) The cost for Federal income tax purposes is $111,995,672.
(d) At December 31, 1996 net unrealized appreciation for securities was
$4,303,153, 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 $14,534,238 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $10,231,085.
The table below sets forth the diversification of International Equity Fund
investments by industry.
COMMON STOCKS,
PREFERRED STOCK &
SHORT-TERM
INVESTMENT
<TABLE>
<CAPTION>
VALUE PERCENT +
-------------------
<S> <C> <C>
Aerospace & Military Technology.......................... $ 294,110 0.2%
Appliances & Household Durables.......................... 1,904,911 1.5
Automobiles.............................................. 4,948,976 3.9
Banking.................................................. 16,453,163 13.0
Beverages & Tobacco...................................... 3,282,701 2.6
Broadcasting & Publishing................................ 1,702,305 1.3
Building Materials & Components.......................... 1,847,422 1.5
Business & Public Services............................... 2,565,532 2.0
Chemicals................................................ 5,376,202 4.2
Construction & Housing................................... 2,145,144 1.7
Data Processing & Reproduction........................... 669,772 0.5
Electrical & Electronics................................. 4,125,580 3.2
Electronic Components & Instruments...................... 287,655 0.2
Energy Sources........................................... 10,798,410 8.5
Financial Services....................................... 3,050,906 2.4
Food & Household Products................................ 2,393,552 1.9
Forest Products & Paper.................................. 1,146,491 0.9
Health & Personal Care................................... 3,692,329 2.9
Industrial Components.................................... 2,043,645 1.6
Insurance................................................ 5,824,261 4.6
Leisure & Tourism........................................ 764,194 0.6
Machinery & Engineering.................................. 4,456,886 3.5
Merchandising............................................ 3,662,152 2.9
Metals-Nonferrous........................................ 1,455,173 1.2
Metals-Steel............................................. 1,106,830 0.9
Miscellaneous-Materials & Commodities.................... 963,731 0.8
Miscellaneous-Materials & Components..................... 469,517 0.4
Multi-Industry........................................... 4,469,541 3.5
Real Estate.............................................. 2,590,646 2.0
Recreation & Other Consumer Goods........................ 990,036 0.8
Telecommunications....................................... 9,377,557 7.4
Textiles & Apparel....................................... 138,897 0.1
Tire & Rubber............................................ 271,816 0.2
Transportation-Airlines.................................. 1,449,655 1.2
Transportation-Road & Rail............................... 922,486 0.7
Transportation-Shipping.................................. 757,146 0.6
Utilities-Electrical & Gas............................... 6,962,493 5.5
Wholesale & International Trade.......................... 937,002 0.7
------------ -----
116,298,825 91.6
Cash and Other Assets,
Less Liabilities........................................ 10,706,587 8.4
------------ -----
Net Assets............................................... $127,005,412 100.0%
============ =====
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
50
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $111,476,096)................................. $116,298,825
Cash denominated in foreign currencies (identified cost
$4,898,998).................................................... 5,316,233
Cash............................................................ 493,151
Receivables:
Investment securities sold...................................... 5,151,406
Dividends and interest.......................................... 308,246
Fund shares sold................................................ 36,094
Unrealized net appreciation on forward foreign currency
contracts...................................................... 4,684,346
Unamortized organization expense................................ 6,798
Other assets.................................................... 53,294
------------
Total assets.................................................. 132,348,393
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 5,205,303
Administrator................................................... 37,660
Adviser......................................................... 36,820
Custodian....................................................... 15,475
Fund shares redeemed............................................ 10,185
Transfer agent.................................................. 4,096
Directors....................................................... 148
Accrued expenses................................................ 33,294
------------
Total liabilities............................................. 5,342,981
------------
Net assets...................................................... $127,005,412
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized
Institutional Class............................................. $ 11,877
Institutional Service Class..................................... 69
Additional paid-in capital...................................... 121,001,806
Accumulated distribution in excess of net investment income..... (2,430,733)
Accumulated distribution in excess of net realized gain on
investments.................................................... (1,459,791)
Net unrealized appreciation on investments...................... 4,822,729
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies and forward foreign currency
contracts...................................................... 5,059,455
------------
Net assets...................................................... $127,005,412
============
Institutional Class
Net assets applicable to outstanding shares..................... $126,279,992
============
Shares of capital stock outstanding............................. 11,877,158
============
Net asset value per share outstanding........................... $ 10.63
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 725,420
============
Shares of capital stock outstanding............................. 68,534
============
Net asset value per share outstanding........................... $ 10.58
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 1,837,920
Interest......................................................... 231,990
-----------
Total income................................................... 2,069,910
-----------
Expenses:
Administration................................................... 565,311
Advisory......................................................... 395,717
Custodian........................................................ 86,061
Professional..................................................... 45,514
Registration..................................................... 39,574
Transfer agent................................................... 25,787
Shareholder communication........................................ 17,956
Amortization of organization expense............................. 11,062
Directors........................................................ 3,259
Service.......................................................... 1,401
Miscellaneous.................................................... 22,583
-----------
Total expenses before
reimbursement................................................. 1,214,225
Expense reimbursement from Administrator......................... (82,203)
-----------
Net expenses................................................... 1,132,022
-----------
Net investment income............................................ 937,888
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions............................................ 460,599
Foreign currency transactions.................................... 4,894,535
-----------
Net realized gain on investments and foreign currency
transactions.................................................... 5,355,134
-----------
Net change in unrealized appreciation on investments:
Security transactions............................................ 1,369,142
Translation of assets and liabilities in foreign currencies and
forward foreign currency contracts.............................. 4,942,018
-----------
Net unrealized gain on investments and foreign currencies........ 6,311,160
-----------
Net realized and unrealized gain on investments and foreign
currency transactions........................................... 11,666,294
-----------
Net increase in net assets resulting from operations............. $12,604,182
===========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $262,695.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
51
<PAGE>
INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income.............................. $ 937,888 $ 875,662
Net realized gain (loss) on investments............ 460,599 (391,405)
Net realized gain on foreign currency
transactions...................................... 4,894,535 3,113,934
Net change in unrealized appreciation on
investments....................................... 1,369,142 3,453,587
Net change in unrealized appreciation on
translation of assets and liabilities in foreign
currencies and forward foreign currency
contracts......................................... 4,942,018 117,437
------------ -----------
Net increase in net assets resulting from
operations........................................ 12,604,182 7,169,215
------------ -----------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class............................... (9,112,198) (873,793)
Institutional Service Class....................... (51,313) (1,869)
From net realized gain on investments and foreign
currency transactions:
Institutional Class............................... (1,291,175) (2,420,451)
Institutional Service Class....................... (7,470) (5,192)
In excess of net investment income:
Institutional Class............................... -- (18,237)
Institutional Service Class....................... -- (39)
------------ -----------
Total dividends and distributions to
shareholders.................................... (10,462,156) (3,319,581)
------------ -----------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................... 19,867,037 23,192,754
Institutional Service Class....................... 502,618 198,438
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class............................... 10,402,553 3,312,479
Institutional Service Class....................... 58,778 7,098
------------ -----------
30,830,986 26,710,769
Cost of shares redeemed:
Institutional Class............................... (2,847,352) (197,898)
Institutional Service Class....................... (47,939) (1,689)
------------ -----------
Increase in net assets derived from capital share
transactions..................................... 27,935,695 26,511,182
------------ -----------
Net increase in net assets........................ 30,077,721 30,360,816
NET ASSETS:
Beginning of year.................................. 96,927,691 66,566,875
------------ -----------
End of year........................................ $127,005,412 $96,927,691
============ ===========
Accumulated distribution in excess of net
investment income................................. $ (2,430,733) $ (18,276)
============ ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
52
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS
------------- ------------- ------------- -------------
JANUARY 1, 1995(a)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 10.35 $ 10.33 $ 10.00 $ 10.00
-------- -------- -------- --------
Net investment income... 0.64 0.62 0.36 0.35
Net realized and
unrealized gain on
investments............ 0.09 0.09 0.17 0.16
Net realized and
unrealized gain on
foreign currency
transactions........... 0.51 0.48 0.18 0.17
-------- -------- -------- --------
Total from investment
operations............. 1.24 1.19 0.71 0.68
-------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.84) (0.82) (0.10) (0.09)
From net realized gain
on investments and
foreign currency
transactions........... (0.12) (0.12) (0.26) (0.26)
In excess of net
investment income...... -- -- (0.00)(b) (0.00)(b)
-------- -------- -------- --------
Total dividends and
distributions.......... (0.96) (0.94) (0.36) (0.35)
-------- -------- -------- --------
Net asset value at end
of year................ $ 10.63 $ 10.58 $ 10.35 $ 10.33
======== ======== ======== ========
Total investment
return................. 12.09% 11.59% 7.17% 6.86%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 0.83% 0.58% 1.05% 0.80%
Net expenses........... 1.00% 1.25% 1.00% 1.25%
Expenses (before
reimbursement)........ 1.07% 1.32% 1.07% 1.32%
Portfolio turnover
rate................... 23% 23% 26% 26%
Average commission rate
paid................... $ 0.0349 $ 0.0349 (c) (c)
Net assets at end of
year (in 000's)........ $126,280 $ 725 $ 96,714 $ 213
</TABLE>
- --------
(a) Commencement of operations.
(b) Less than one cent per share.
(c) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
53
<PAGE>
MULTI-ASSET FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. The U.S. stock market, as measured by the S&P 500 Stock Index,+ rose 22.94%
for the year ended 12/31/96
. The bond market, as represented by the Salomon Brothers Broad Investment
Grade Index(S), gained only 3.62% for the year ended 12/31/96
. Several foreign markets provided strong returns during the year
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. For the year ended 12/31/96, the MainStay Institutional Multi-Asset Fund
returned 16.16% and 15.89% for Institutional Class shares and Service Class
shares, respectively
. Through most of 1996, with a brief exception in August and September, the
Fund was primarily invested in stocks near its maximum allowable weighting
and bond and money market allocations were near their minimum levels
. The Fund used investments in Germany, the U.K., and Australia to enhance
returns and diversify the portfolio
- --------------------------------------------------------------------------------
Bull Market A bull market is a period of rising prices, and a bear market is a
period of falling prices.
Correction A shift in securities prices which bring them more in line with
historic averages.
- --------------------------------------------------------------------------------
In the United States, strong earnings, low interest rates, and the absence of
significant inflation continued to drive stocks higher during the year, with the
S&P 500 Stock Index returning 22.94% for the 12 months ended 12/31/96. While the
bull market for stocks continued through most of the year, bonds generally
provided meager results. For the year ended 12/31/96, the Salomon Brothers Broad
Investment Grade (BIG) Index returned just 3.62%. Surprisingly, the average
Lipper* institutional money market fund outperformed bonds in general, returning
5.16% over the same period.
In July and in December, the U.S. stock market underwent market corrections that
somewhat tempered the annual return of the S&P 500 Stock Index. During these
periods, however, several international markets did well, providing
opportunities for investors seeking broad geographic diversification.
Given this context, how did the MainStay Institutional Multi-Asset Fund do?
Very well. For the year ended December 31, 1996, the Fund returned 16.16% and
15.89% for Institutional Class and Service Class shares, respectively. Both
share classes outperformed the 13.59% return of the average Lipper flexible
portfolio fund over the same period.
- --------------------------------------------------------------------------------
+ The S&P 500 Stock Index is a registered trademark of Standard & Poor's
Corporation. The S&P 500 Stock Index is an unmanaged index that is
considered representative of the U.S. stock market.
(S) The Salomon Brothers Broad Investment Grade Bond Index is an unmanaged
index generally considered representative of the U.S. bond market.
* Lipper Analytical Services 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.
54
<PAGE>
================================================================================
What accounted for the strong performance of the Fund?
Successful asset allocation was a key factor. Recognizing that stocks had the
greatest return potential, the Fund's average allocation to stocks throughout
the year was 72%. This allocation was close to the Fund's maximum allowable
equity exposure of 80%, and was a primary contributor to the Fund's positive
results. Unfortunately, following the market downturn in July, bonds appeared to
be more attractive on a risk-adjusted basis and the Fund's stock allocation was
reduced to its minimum level of 30%. When stocks rebounded strongly in August
and September, our lower weighting in stocks and higher weighting in bonds
detracted from overall performance.
How did the bond portion of the portfolio perform?
Except in August and September, we kept the bond portion of the portfolio at its
minimum level of 10%. The bond portion closely tracked the Salomon Brothers
Broad Investment Grade Index, which returned 3.62% for the year. The money
market portion of the portfolio never rose above a 10% allocation, since our
quantitative allocation models consistently identified greater opportunities
elsewhere.
Where else did the Fund invest?
With several foreign markets providing double-digit returns, the Fund benefited
from small allocations to international markets. In the first four months of the
year, 5% of net assets was invested in the German stock market. During that
period, the DAX** rose 11.15% in local terms. In April, 5% was invested in the
United Kingdom, whose FTSE++ index rose 3.6% in local terms for the month. In
December, small allocations to Australia, Germany, and the U.K. enhanced
returns. These markets rose 2.24%, 1.52% and 1.77%, respectively in local terms
for the month, while the U.S. market lost 1.98%.
Don't foreign investments involve additional risks?
Foreign investing may be subject to greater risks than domestic investing. These
may include securities markets that are less efficient, less liquid and more
volatile than those in the United States, as well as foreign currency
fluctuations and different governmental regulatory concerns. On the other hand,
broad geographic diversification has the potential to enhance returns, spread
risk, and reduce the expected volatility of the Fund as a whole. We feel that
our foreign investments contributed positively to the Fund in each of these
respects in 1996.
James A. Mehling, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
** The German Stock Index (DAX) is a total rate of return index of 30 selected
German blue chip stocks traded on the Frankfurt Stock Exchange.
++ The British FTSE-100 Stock Index is a capitalization weighted index of the
100 most highly capitalized companies traded on the London Stock Exchange.
55
<PAGE>
[GRAPHS APPEARS HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS LIPPER FLEXIBLE PORTFOLIO AVERAGE
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE MULTI-ASSET FUND LIPPER FLEXIBLE PORTFOLIO AVERAGE
---- ---------------- ---------------------------------
<S> <C> <C>
1/2/91 10,000 10,000
10,560 11,123
10,650 11,150
11,130 11,723
91 11,790 12,551
11,607 12,545
11,912 12,611
12,332 13,017
92 12,626 13,560
13,098 14,162
13,244 14,388
13,548 14,940
93 13,736 15,223
13,313 14,828
13,289 14,700
13,583 15,162
94 13,618 14,981
14,473 17,096
15,379 18,132
16,349 18,804
95 17,254 19,473
18,000 19,909
18,629 19,909
18,732 19,827
12/31/96 19,995 20,842
</TABLE>
<TABLE>
<CAPTION>
[GRAPHS APPEARS HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS LIPPER FLEXIBLE PORTFOLIO AVERAGE
SERVICE CLASS SHARES
DATE MULTI-ASSET FUND LIPPER FLEXIBLE PORTFOLIO AVERAGE
---- ---------------- ---------------------------------
<S> <C> <C>
1/2/91 10,000 10,000
10,560 11,123
10,650 11,150
11,130 11,723
91 11,790 12,551
11,607 12,545
11,912 12,611
12,332 13,017
92 12,626 13,560
13,098 14,162
13,244 14,388
13,548 14,940
93 13,736 15,223
13,313 14,828
13,289 14,700
13,583 15,162
94 13,618 14,981
14,460 17,096
15,379 18,132
16,362 18,804
95 17,269 19,473
18,031 19,909
18,676 19,909
18,793 19,827
12/31/96 20,081 20,842
</TABLE>
. Multi-Asset Fund -- Lipper Flexible Portfolio Average
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- --------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Asset Fund
Institutional Class 16.16% 16.16% 11.22% 12.29%
Multi-Asset Fund Service
Class** 15.89% 15.89% 11.14% 12.23%
Average Lipper Flexible
Portfolio Fund 13.59% 13.59% 10.84% 12.96%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 17.90
1992 7.09
1993 8.79
1994 -0.86
1995 26.81
1996 16.16
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 EQUITY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. General Electric Co. 1.93%
2. Coca-Cola Co. 1.56%
3. Exxon Corp. 1.45%
4. Intel Corp. 1.28%
5. Microsoft Corp. 1.17%
6. Merck & Co., Inc. 1.13%
7. Philip Morris Cos., Inc. 1.09%
8. Royal Dutch Petroleum Co. 1.09%
9. International Business Machines Corp. 0.93%
10. Proctor & Gamble Co. 0.87%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Oil - Integrated International 4.41%
2. Major Regional Banks 3.25%
3. Telephone 2.82%
4. Drugs 2.77%
5. Healthcare-Diversified 2.66%
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
56
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
LONG-TERM BONDS (10.9%)+
CORPORATE BONDS (1.8%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
BANKS (0.5%)
First Union Corp.
8.77%, due 11/15/04.................................. $ 1,000,000 $ 1,045,000
Morgan (J.P.) & Co. Inc.
8.50%, due 8/15/03................................... 500,000 545,625
------------
1,590,625
------------
BROKERAGE (0.1%)
PaineWebber Group, Inc.
7.75%, due 9/1/02.................................... 400,000 412,500
------------
CHEMICALS (0.1%)
Rhone-Poulenc S.A.
7.75%, due 1/15/02................................... 350,000 363,563
------------
CONGLOMERATES (0.2%)
Tenneco Corp.
10.20%, due 3/15/08.................................. 500,000 606,875
------------
CONSUMER FINANCIAL SERVICES (0.1%)
Bear Stearns Cos., Inc. (The)
6.625%, due 1/15/04.................................. 500,000 489,375
------------
FOOD, BEVERAGES & TOBACCO (0.2%)
Coca-Cola Enterprises
8.50%, due 2/1/22.................................... 500,000 563,750
------------
OIL--INTEGRATED DOMESTIC (0.2%)
Occidental Petroleum Corp.
10.125%, due 11/15/01................................ 500,000 565,625
------------
UTILITIES--ELECTRIC (0.3%)
Florida Power & Light Co.
6.875%, due 4/1/04................................... 500,000 496,875
Houston Lighting & Power
7.75%, due 3/15/23................................... 500,000 501,250
------------
998,125
------------
UTILITIES--TELEPHONE (0.1%)
Pacific Bell
7.125%, due 3/15/26.................................. 500,000 490,000
------------
Total Corporate Bonds
(Cost $5,945,219).................................... 6,080,438
------------
FOREIGN GOVERNMENT (0.3%)
CANADA (0.3%)
Manitoba (Province of)
9.625%, due 3/15/99 (i).............................. 500,000 535,000
Quebec (Province of)
9.375%, due 4/1/99 (i)............................... 500,000 531,875
------------
Total Foreign Government
(Cost $1,060,440).................................... 1,066,875
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
U.S. GOVERNMENT &
FEDERAL AGENCIES (8.8%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD
(MORTGAGE PASS-THROUGH SECURITIES) (1.1%)
7.00%, due 3/1/26................................. $ 36,960 $ 36,255
7.00%, due 9/1/26................................. 919,453 901,926
7.00%, due 10/1/26................................ 31,781 31,175
7.50%, due 7/1/11................................. 451,164 457,791
7.50%, due 9/1/11................................. 519,236 526,864
7.75%, due 10/1/07................................ 771,156 778,385
8.00%, due 10/1/11................................ 254,038 261,342
8.00%, due 11/1/11................................ 731,423 752,451
------------
3,746,189
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (2.8%)
6.50%, due 11/1/03................................ 987,965 978,703
7.00%, due 10/1/03................................ 976,525 980,187
7.00%, due 5/1/26................................. 786,100 768,903
7.00%, due 6/1/26................................. 202,897 198,458
7.50%, due 7/1/11................................. 331,625 336,185
7.50%, due 8/1/11................................. 448,687 454,856
7.50%, due 10/1/11................................ 181,763 184,263
8.00%, due 7/1/09................................. 104,403 107,372
8.00%, due 4/1/10................................. 284,878 292,980
8.00%, due 10/1/10................................ 561,392 577,357
8.00%, due 8/1/11................................. 95,383 98,096
8.00%, due 10/1/11................................ 785,544 807,883
8.00%, due 11/1/11................................ 138,783 142,730
8.50%, due 6/1/26................................. 744,685 771,214
8.50%, due 8/1/26................................. 230,514 238,726
8.50%, due 10/1/26................................ 26,586 27,534
9.00%, due 6/1/26................................. 138,028 145,447
9.00%, due 7/1/26................................. 596,550 628,614
9.00%, due 8/1/26................................. 243,419 256,503
9.00%, due 9/1/26................................. 1,009,749 1,064,023
------------
9,060,034
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (1.5%)
7.00%, due 7/15/11................................ 117,158 117,634
7.00%, due 10/15/11............................... 869,574 873,107
7.50%, due 3/15/26................................ 963,356 963,657
7.50%, due 6/15/26................................ 25,473 25,481
8.00%, due 8/15/26................................ 34,185 34,880
8.00%, due 9/15/26................................ 34,237 34,932
8.00%, due 10/15/26............................... 920,914 939,620
8.50%, due 11/15/26............................... 989,373 1,024,929
9.00%, due 4/15/26................................ 364,469 383,832
9.00%, due 9/15/26................................ 487,586 513,489
9.00%, due 11/15/26............................... 137,325 144,621
------------
5,056,182
------------
RESOLUTION FUNDING CORP. (0.1%)
(zero coupon), due 10/15/10....................... 500,000 196,775
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
57
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
U.S. GOVERNMENT &
FEDERAL AGENCIES (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS (1.1%)
6.25%, due 8/15/23................................ $ 1,000,000 $ 937,850
8.125%, due 5/15/21............................... 1,000,000 1,161,210
10.625%, due 8/15/15.............................. 1,000,000 1,414,660
------------
3,513,720
------------
UNITED STATES TREASURY NOTES (2.2%)
5.00%, due 1/31/99................................ 1,000,000 982,560
6.375%, due 1/15/99............................... 1,000,000 1,009,520
7.50%, due 11/15/01............................... 1,000,000 1,052,760
7.50%, due 5/15/02................................ 1,000,000 1,057,400
7.875%, due 4/15/98............................... 1,000,000 1,025,720
7.875%, due 11/15/99.............................. 1,000,000 1,047,840
8.25%, due 7/15/98................................ 1,000,000 1,035,470
------------
7,211,270
------------
Total U.S. Government & Federal Agencies
(Cost $28,557,285)................................ 28,784,170 (c)
------------
Total Long-Term Bonds
(Cost $35,562,944)................................ 35,931,483
------------
COMMON STOCKS (67.5%)
<CAPTION>
SHARES
----------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.4%)
Boeing Co.......................................... 14,228 1,513,503
General Dynamics Corp.............................. 2,571 181,256
Lockheed Martin Corp............................... 7,520 688,080
McDonnell Douglas Corp............................. 8,343 533,952
Northrop Grumman Corp.............................. 2,269 187,760
Raytheon Co........................................ 9,242 444,771
Rockwell International Corp........................ 8,709 530,160
United Technologies Corp........................... 9,388 619,608
------------
4,699,090
------------
AIRLINES (0.2%)
AMR Corp. (a)...................................... 3,591 316,457
Delta Air Lines, Inc............................... 3,106 220,138
Southwest Airlines Co.............................. 5,812 128,590
USAir Group, Inc. (a).............................. 2,576 60,214
------------
725,399
------------
ALUMINUM (0.3%)
Alcan Aluminum Ltd................................. 8,803 296,001
Aluminum Co. of America............................ 6,786 432,607
Reynolds Metals Co................................. 2,573 145,053
------------
873,661
------------
AUTOMOBILES (1.2%)
Chrysler Corp...................................... 28,490 940,170
Ford Motor Co...................................... 46,353 1,477,502
General Motors Corp................................ 29,531 1,646,353
------------
4,064,025
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AUTOPARTS--AFTER MARKET (0.2%)
Cooper Tire & Rubber Co............................... 3,392 $ 66,992
Echlin Inc............................................ 2,446 77,355
Genuine Parts Co...................................... 4,898 217,961
Goodyear Tire & Rubber Co............................. 6,230 320,066
------------
682,374
------------
BEVERAGES--ALCOHOLIC (0.5%)
Anheuser-Busch Cos., Inc.............................. 19,544 781,760
Brown-Forman Corp. Class B............................ 2,749 125,767
Coors (Adolph) Co. Class B............................ 1,506 28,614
Seagram Company Ltd................................... 14,578 564,897
------------
1,501,038
------------
BEVERAGES--SOFT DRINKS (2.1%)
Coca-Cola Co.......................................... 97,348 5,122,939
PepsiCo, Inc.......................................... 60,761 1,777,259
------------
6,900,198
------------
BROADCAST/MEDIA (0.3%)
Comcast Corp. Class A................................. 12,809 228,160
Tele-Communications TCI Group Series A (a)............ 25,941 338,854
U.S. West Media Group (a)............................. 24,431 451,974
------------
1,018,988
------------
BUILDING MATERIALS (0.2%)
Masco Corp............................................ 6,409 230,724
Owens-Corning
Fiberglas Corp....................................... 2,116 90,195
Sherwin-Williams Co................................... 3,406 190,736
------------
511,655
------------
CHEMICALS (1.6%)
Air Products & Chemicals, Inc. 4,486 310,095
Dow Chemical Co....................................... 9,491 743,857
Du Pont (E.I.) De Nemours
& Co................................................. 22,021 2,078,232
Eastman Chemical Co................................... 3,186 176,027
Goodrich (B.F.) Co.................................... 2,157 87,358
Hercules, Inc......................................... 3,996 172,827
Monsanto Co........................................... 23,029 895,252
Praxair, Inc.......................................... 6,170 284,591
Rohm & Haas Co........................................ 2,612 213,204
Union Carbide Corp.................................... 4,987 203,844
------------
5,165,287
------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ................................. 4,030 142,561
Engelhard Corp. ...................................... 5,779 110,523
FMC Corp. (a)......................................... 1,493 104,697
PPG Industries Inc.................................... 7,183 403,146
------------
760,927
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
58
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
CHEMICALS--SPECIALTY (0.2%)
Grace (W.R.) & Co................................... 3,523 $ 182,315
Great Lakes Chemical Corp........................... 2,600 121,550
Morton International, Inc........................... 5,574 227,141
Nalco Chemical Co. ................................. 2,720 98,260
Sigma-Aldrich Corp.................................. 2,025 126,436
------------
755,702
------------
COMMUNICATION--EQUIPMENT MANUFACTURERS (1.5%)
Andrew Corp. (a).................................... 2,379 126,236
Bay Networks, Inc. (a).............................. 7,532 157,231
Cabletron Systems, Inc. (a)......................... 5,870 195,177
Cisco Systems, Inc. (a)............................. 25,423 1,617,538
DSC Communications
Corp. (a).......................................... 4,618 82,547
General Instrument Corp. (a)........................ 5,559 120,213
Lucent Technologies Inc............................. 24,923 1,152,689
Northern Telecom Ltd................................ 10,321 638,612
Scientific-Atlanta, Inc............................. 3,016 45,240
Tellabs, Inc. (a)................................... 7,070 266,009
3Com Corp. (a)...................................... 6,707 492,126
------------
4,893,618
------------
COMPUTER--SOFTWARE & SERVICES (2.2%)
Autodesk, Inc. ..................................... 1,896 53,088
Automatic Data
Processing, Inc. .................................. 11,376 487,746
Ceridian Corp. (a).................................. 2,717 110,038
Computer Associates International, Inc.............. 14,293 711,077
Computer Sciences Corp. (a)......................... 3,000 246,375
First Data Corp..................................... 17,548 640,502
Microsoft Corp. (a)................................. 46,778 3,865,032
Novell Inc. (a)..................................... 13,440 127,261
Oracle Corp. (a).................................... 25,729 1,074,186
Shared Medical Systems Corp. ....................... 946 46,590
------------
7,361,895
------------
COMPUTER SYSTEMS (2.4%)
Amdahl Corp. (a).................................... 4,659 56,490
Apple Computer, Inc. (a)............................ 4,812 100,450
Compaq Computer Corp. (a)........................... 10,735 797,074
Data General Corp. (a).............................. 1,506 21,837
Dell Computer Corp. (a)............................. 7,000 371,875
Digital Equipment Corp. (a)......................... 6,114 222,397
EMC Corp. (a)....................................... 9,190 304,419
Hewlett-Packard Co.................................. 39,786 1,999,246
Intergraph Corp. (a)................................ 1,889 19,362
International Business
Machines Corp...................................... 20,299 3,065,149
Seagate Technology (a).............................. 9,800 387,100
Silicon Graphics Inc. (a)........................... 6,813 173,732
Sun Microsystems (a)................................ 14,620 375,551
Tandem Computers Inc. (a)........................... 4,646 63,883
Unisys Corp. (a).................................... 6,825 46,069
------------
8,004,634
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
CONGLOMERATES (0.2%)
Tenneco, Inc.......................................... 6,658 $ 300,442
Textron Inc........................................... 3,213 302,825
------------
603,267
------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. ........................................... 1,220 31,720
Crown Cork & Seal Co., Inc. .......................... 5,186 281,989
------------
313,709
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ...................................... 2,156 79,503
Stone Container Corp. ................................ 3,832 57,001
Temple-Inland Inc. ................................... 2,194 118,750
------------
255,254
------------
COSMETICS (0.6%)
Alberto-Culver Co. Class B............................ 1,098 52,704
Avon Products, Inc. .................................. 5,344 305,276
Gillette Co........................................... 17,435 1,355,571
International Flavors & Fragrances Inc. .............. 4,486 201,870
------------
1,915,421
------------
DRUGS (2.8%)
Lilly (Eli) & Co. .................................... 21,624 1,578,552
Merck & Co., Inc...................................... 47,141 3,735,924
Pfizer Inc............................................ 25,235 2,091,351
Pharmacia & Upjohn, Inc............................... 19,839 786,120
Schering-Plough Corp.................................. 14,422 933,825
------------
9,125,772
------------
ELECTRIC POWER COMPANIES (1.9%)
American Electric Power
Co., Inc. ........................................... 7,481 307,656
Baltimore Gas & Electric Co. ......................... 5,923 158,440
Carolina Power & Light Co............................. 6,133 223,855
Central & South West Corp............................. 8,442 216,326
Cinergy Corp. ........................................ 6,297 210,162
Consolidated Edison Co. of New York, Inc. ............ 9,404 275,067
Dominion Resources, Inc. ............................. 7,069 272,157
DTE Energy Co......................................... 5,841 189,102
Duke Power Co......................................... 7,884 364,635
Edison International.................................. 16,958 337,040
Entergy Corp.......................................... 9,174 254,579
FPL Group, Inc........................................ 7,360 338,560
General Public Utilities Corp......................... 4,875 163,922
Houston Industries Inc. .............................. 9,201 208,173
Niagara Mohawk Power
Corp. (a)............................................ 5,639 55,685
Northern States Power Co. ............................ 2,720 124,780
Ohio Edison Co. ...................................... 6,126 139,367
Pacific Gas & Electric Co. ........................... 16,124 338,604
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
59
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
ELECTRIC POWER COMPANIES (Continued)
PacifiCorp.......................................... 11,480 $ 235,340
PECO Energy Co. .................................... 8,665 218,791
PP&L Resources, Inc. ............................... 6,260 143,980
Public Service Enterprise
Group Inc. ........................................ 9,304 253,534
Southern Co. (The).................................. 26,364 596,486
Texas Utilities Co. ................................ 8,803 358,722
Unicom Corp. ....................................... 8,587 232,922
Union Electric Co. ................................. 4,088 157,388
------------
6,375,273
------------
ELECTRICAL EQUIPMENT (2.7%)
AMP Inc. ........................................... 8,682 333,172
Emerson Electric Co. ............................... 8,983 869,105
General Electric Co. ............................... 64,435 6,371,011
General Signal Corp. ............................... 2,014 86,099
Grainger (W.W.), Inc. .............................. 2,044 164,031
Honeywell, Inc. .................................... 5,065 333,024
Raychem Corp. ...................................... 1,771 141,901
Thomas & Betts Corp................................. 2,025 89,859
Westinghouse Electric Corp. ........................ 16,462 327,182
------------
8,715,384
------------
ELECTRONIC--DEFENSE (0.0%) (b)
EG&G, Inc. ......................................... 1,942 39,083
------------
ELECTRONIC--INSTRUMENTATION (0.1%)
Perkin-Elmer Corp. ................................. 1,748 102,914
Tektronix, Inc. .................................... 1,341 68,726
------------
171,640
------------
ELECTRONIC--SEMICONDUCTORS (2.1%)
Advanced Micro Devices,
Inc. (a)........................................... 5,438 140,028
Applied Materials, Inc. (a)......................... 7,175 257,852
Intel Corp. ........................................ 32,080 4,200,475
LSI Logic Corp. (a)................................. 5,174 138,405
Micron Technology, Inc. ............................ 8,386 244,242
Motorola, Inc. ..................................... 23,226 1,425,496
National Semiconductor
Corp. (a).......................................... 5,388 131,332
Texas Instruments, Inc. ............................ 7,590 483,863
------------
7,021,693
------------
ENGINEERING & CONSTRUCTION (0.1%)
Fluor Corp. ........................................ 3,387 212,534
Foster Wheeler Corp................................. 1,611 59,809
------------
272,343
------------
ENTERTAINMENT (1.0%)
King World Productions,
Inc. (a)........................................... 1,494 55,091
Time Warner Inc. ................................... 22,239 833,963
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
ENTERTAINMENT (Continued)
Viacom, Inc. Class B (a).............................. 13,823 $ 482,077
Walt Disney Co. (The)................................. 26,573 1,850,145
------------
3,221,276
------------
FINANCIAL--MISCELLANEOUS (1.6%)
American Express Co. ................................. 18,499 1,045,193
American General Corp. ............................... 7,972 325,855
Dean Witter, Discover & Co. .......................... 6,311 418,104
Federal Home Loan
Mortgage Corp. ...................................... 7,212 794,222
Federal National Mortgage Association................. 42,743 1,592,177
Green Tree Financial Corp. ........................... 5,525 213,403
MBIA Corp. ........................................... 1,700 172,125
MBNA Corp. ........................................... 8,922 370,263
Transamerica Corp. ................................... 2,743 216,697
------------
5,148,039
------------
FOOD DISTRIBUTORS (0.1%)
Fleming Cos., Inc. ................................... 1,500 25,875
Supervalu Inc. ....................................... 2,733 77,549
Sysco Corp. .......................................... 7,040 229,680
------------
333,104
------------
FOODS (2.0%)
Archer-Daniels-Midland Co. ........................... 21,282 468,204
Campbell Soup Co. .................................... 9,155 734,689
ConAgra, Inc. ........................................ 9,416 468,446
CPC International Inc. ............................... 5,852 453,530
General Mills, Inc. .................................. 6,094 386,207
Heinz (H.J.) Co. ..................................... 14,349 512,977
Hershey Foods Corp. .................................. 6,136 268,450
Kellogg Co. .......................................... 8,216 539,175
Quaker Oats Co. ...................................... 5,445 207,591
Ralston-Ralston Purina Group.......................... 4,207 308,688
Sara Lee Corp. ....................................... 18,940 705,515
Unilever, N.V. ....................................... 6,405 1,122,476
Wrigley (Wm.) Jr. Co. ................................ 4,640 261,000
------------
6,436,948
------------
GOLD (0.3%)
Barrick Gold Corp. ................................... 13,946 400,948
Battle Mountain Gold Co. ............................. 9,000 61,875
Echo Bay Mines Ltd. .................................. 5,408 35,828
Homestake Mining Co. ................................. 5,922 84,388
Newmont Mining Corp. ................................. 3,990 178,552
Placer Dome Inc....................................... 9,345 203,254
Santa Fe Pacific Gold Corp. .......................... 5,223 80,304
------------
1,045,149
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. ................................. 3,522 106,100
Snap-On, Inc.......................................... 2,467 87,887
Stanley Works (The)................................... 3,549 95,823
------------
289,810
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
60
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
HEALTH CARE--DIVERSIFIED (2.7%)
Abbott Laboratories................................... 30,431 $ 1,544,373
Allergan, Inc. ....................................... 2,586 92,126
American Home Products Corp. 25,026 1,467,149
Bristol-Myers Squibb Co............................... 19,601 2,131,609
Johnson & Johnson..................................... 52,104 2,592,174
Mallinckrodt Group Inc. .............................. 3,100 136,788
Warner-Lambert Co..................................... 10,588 794,100
------------
8,758,319
------------
HEALTH CARE--HMOs (0.1%)
Humana Inc. (a)....................................... 6,478 123,892
United Healthcare Corp. .............................. 7,268 327,060
------------
450,952
------------
HEALTH CARE--MISCELLANEOUS (0.2%)
ALZA Corp. (a)........................................ 3,381 87,483
Amgen Inc. (a)........................................ 10,340 562,238
Beverly Enterprises, Inc. (a)......................... 3,897 49,687
Manor Care, Inc....................................... 2,561 69,147
------------
768,555
------------
HEAVY TRUCKS & PARTS (0.2%)
Cummins Engine Co., Inc. ............................. 1,629 74,934
Dana Corp. ........................................... 4,063 132,555
Eaton Corp. .......................................... 3,128 218,178
ITT Industries, Inc................................... 4,685 114,783
Navistar International
Corp. (a)............................................ 3,010 27,466
PACCAR Inc............................................ 1,539 104,652
------------
672,568
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. ......................................... 1,197 45,037
Kaufman & Broad Home Corp. 1,585 20,407
Pulte Corp............................................ 1,091 33,548
------------
98,992
------------
HOSPITAL MANAGEMENT (0.4%)
Columbia/HCA
Healthcare Corp...................................... 26,287 1,071,195
Tenet Healthcare Corp. (a)............................ 8,685 189,985
------------
1,261,180
------------
HOTEL--MOTEL (0.3%)
Harrah's Entertainment,
Inc. (a)............................................. 4,119 81,865
Hilton Hotels Corp. .................................. 9,684 252,994
ITT Corp. (a)......................................... 4,682 203,082
Marriott International Inc. .......................... 5,115 282,604
------------
820,545
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World
Industries, Inc. .................................... 1,497 $ 104,041
Maytag Corp........................................... 3,932 77,657
Whirlpool Corp. ...................................... 2,996 139,689
------------
321,387
------------
HOUSEHOLD PRODUCTS (1.4%)
Clorox Co. (The)...................................... 2,057 206,471
Colgate-Palmolive Co. ................................ 5,860 540,585
Kimberly-Clark Corp................................... 11,302 1,076,516
Procter & Gamble Co. (The)............................ 26,716 2,871,970
------------
4,695,542
------------
HOUSEWARES (0.1%)
Newell Co. ........................................... 6,386 201,159
Rubbermaid Inc. ...................................... 6,058 137,820
Tupperware Corp....................................... 2,458 131,810
------------
470,789
------------
INSURANCE BROKERS (0.2%)
Alexander & Alexander
Services Inc......................................... 1,769 30,736
Aon Corp.............................................. 4,353 270,430
Marsh & McLennan Cos., Inc. .......................... 2,879 299,416
------------
600,582
------------
INVESTMENT BANK/BROKERAGE (0.3%)
Merrill Lynch & Co., Inc. ............................ 6,477 527,876
Morgan Stanley Group Inc.............................. 5,921 338,237
Salomon Inc. ......................................... 4,216 198,679
------------
1,064,792
------------
LEISURE TIME (0.0%) (b)
Brunswick Corp. ...................................... 3,934 94,416
------------
LIFE INSURANCE (0.4%)
Aetna Inc............................................. 6,013 481,040
Jefferson-Pilot Corp.................................. 2,863 162,117
Lincoln National Corp. ............................... 4,166 218,715
Providian Corp........................................ 3,807 195,585
Torchmark Corp. ...................................... 2,861 144,480
UNUM Corp............................................. 2,904 209,814
USLIFE Corp. ......................................... 1,364 45,353
------------
1,457,104
------------
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc. ............................. 1,596 34,912
Giddings & Lewis, Inc. ............................... 1,267 16,313
------------
51,225
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
61
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
MACHINERY--DIVERSIFIED (0.6%)
Briggs & Stratton Corp................................ 1,174 $ 51,656
Case Corp. ........................................... 2,936 160,012
Caterpillar Inc....................................... 7,489 563,547
Cooper Industries Inc. ............................... 4,292 180,801
Deere & Co............................................ 10,061 408,728
Harnischfeger Industries, Inc......................... 1,935 93,122
Ingersoll-Rand Co. ................................... 4,346 193,397
NACCO Industries, Inc.
Class A.............................................. 312 16,692
Thermo Electron Corp. (a)............................. 2,800 115,500
Timken Co. (The)...................................... 1,233 56,564
------------
1,840,019
------------
MAJOR REGIONAL BANKS (3.3%)
Banc One Corp......................................... 16,672 716,896
Bank of Boston Corp................................... 6,171 396,487
Bank of New York Co., Inc. (The)...................... 15,594 526,298
Barnett Banks, Inc. .................................. 7,630 313,784
Boatmen's Bancshares, Inc. ........................... 6,081 392,224
Comerica Inc.......................................... 4,203 220,132
CoreStates Financial Corp. ........................... 8,882 460,754
Fifth Third Bancorp................................... 4,116 258,536
First Bank System, Inc. .............................. 5,250 358,312
First Union Corp. .................................... 11,046 817,404
Fleet Financial Group, Inc. .......................... 10,290 513,214
KeyCorp............................................... 8,802 444,501
Mellon Bank Corp. .................................... 5,249 372,679
National City Corp. .................................. 8,890 398,939
Nationsbank Corp. .................................... 11,285 1,103,109
Norwest Corp.......................................... 14,690 639,015
PNC Bank Corp. ....................................... 13,340 501,917
Republic New York Corp. .............................. 2,236 182,513
SunTrust Banks, Inc................................... 8,748 430,839
U.S. Bancorp.......................................... 5,924 266,210
Wachovia Corp......................................... 6,462 365,103
Wells Fargo & Co. .................................... 3,819 1,030,175
------------
10,709,041
------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises Inc. ........................... 1,389 38,198
------------
MANUFACTURING--DIVERSIFIED (0.7%)
AlliedSignal Inc. .................................... 11,314 758,038
Crane Co.............................................. 1,834 53,201
Dover Corp. .......................................... 4,616 231,954
Illinois Tool Works Inc. ............................. 4,945 394,982
Johnson Controls, Inc................................. 1,638 135,749
Millipore Corp. ...................................... 1,761 72,861
Pall Corp. ........................................... 4,532 115,566
Parker-Hannifin Corp. ................................ 3,039 117,761
TRINOVA Corp. ........................................ 1,106 40,231
Tyco International Ltd. .............................. 6,107 322,908
------------
2,243,251
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
MEDICAL PRODUCTS (0.7%)
Bard (C.R.), Inc. .................................... 2,285 $ 63,980
Bausch & Lomb Inc. ................................... 2,316 81,060
Baxter International Inc. ............................ 10,656 436,896
Becton, Dickinson & Co. .............................. 4,880 211,670
Biomet, Inc. ......................................... 4,536 68,607
Boston Scientific Corp. (a)........................... 7,143 428,580
Guidant Corp. ........................................ 2,900 165,300
Medtronic, Inc. ...................................... 9,591 652,188
St. Jude Medical, Inc. (a)............................ 3,207 136,698
United States Surgical Corp. ......................... 2,435 95,878
------------
2,340,857
------------
METALS--MISCELLANEOUS (0.2%)
ASARCO Inc............................................ 1,753 43,606
Cyprus Amax Minerals Co............................... 3,590 83,916
Freeport-McMoRan Copper & Gold Inc. Class B........... 7,774 232,248
Inco Ltd.............................................. 6,746 215,029
Phelps Dodge Corp. ................................... 2,628 177,390
------------
752,189
------------
MISCELLANEOUS (1.0%)
AirTouch Communications,
Inc. (a)............................................. 19,622 495,456
American Greetings Corp.
Class A.............................................. 3,094 87,792
Corning Inc. ......................................... 8,973 415,001
Harcourt General, Inc. ............................... 2,800 129,150
Harris Corp........................................... 1,614 110,761
Jostens, Inc. ........................................ 1,744 36,842
Minnesota Mining & Manufacturing Co. ................. 16,376 1,357,161
Pioneer Hi-Bred International, Inc. .................. 3,308 231,560
TCI Satellite Entertainment Class A................... 1 11
TRW, Inc. ............................................ 5,186 256,707
Whitman Corp. ........................................ 4,026 92,095
------------
3,212,536
------------
MONEY CENTER BANKS (2.0%)
BankAmerica Corp...................................... 14,019 1,398,395
Bankers Trust New York Corp. ......................... 3,141 270,911
Chase Manhattan Corp.................................. 17,187 1,533,940
Citicorp.............................................. 18,449 1,900,247
First Chicago Corp. .................................. 12,685 681,819
Morgan (J.P.) & Co., Inc. ............................ 7,497 731,895
------------
6,517,207
------------
MULTI-LINE INSURANCE (1.2%)
American International
Group, Inc........................................... 18,394 1,991,151
CIGNA Corp............................................ 3,096 422,991
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
62
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
MULTI-LINE INSURANCE (Continued)
ITT Hartford Group, Inc............................. 4,682 $ 316,035
Travelers Group Inc................................. 25,105 1,139,139
------------
3,869,316
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.6%)
Coastal Corp........................................ 4,220 206,252
Columbia Gas System, Inc. .......................... 2,165 137,748
Consolidated Natural Gas Co......................... 3,795 209,674
Eastern Enterprises................................. 818 28,937
Enron Corp.......................................... 10,084 434,872
ENSERCH Corp. ...................................... 2,623 60,329
NICOR Inc. ......................................... 2,144 76,648
NorAm Energy Corp. ................................. 5,380 82,718
ONEOK Inc. ......................................... 1,088 32,640
Pacific Enterprises................................. 3,273 99,417
PanEnergy Corp...................................... 6,052 272,340
Peoples Energy Corp................................. 1,373 46,510
Sonat, Inc.......................................... 3,422 176,233
Williams Cos., Inc. (The)........................... 6,291 235,913
------------
2,100,231
------------
OFFICE EQUIPMENT & SUPPLIES (0.4%)
Alco Standard Corp.................................. 5,166 266,695
Moore Corp. Ltd. ................................... 3,962 80,726
Pitney Bowes Inc. .................................. 6,019 328,035
Xerox Corp. ........................................ 12,725 669,653
------------
1,345,109
------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc.............................. 965 50,300
Rowan Cos., Inc. (a)................................ 3,403 76,993
------------
127,293
------------
OIL--EXPLORATION & PRODUCTION (0.2%)
Burlington Resources Inc. .......................... 5,032 253,487
Oryx Energy Co. (a)................................. 4,192 103,752
Santa Fe Energy Resources,
Inc. (a)........................................... 3,663 50,824
Union Pacific Resources
Group, Inc......................................... 9,725 284,456
------------
692,519
------------
OIL--INTEGRATED DOMESTIC (0.9%)
Amerada Hess Corp................................... 3,691 213,617
Ashland Inc......................................... 2,566 112,583
Atlantic Richfield Co............................... 6,514 863,105
Kerr-McGee Corp..................................... 2,038 146,736
Louisiana Land & Exploration Co. (The).............. 1,356 72,715
Occidental Petroleum Corp. ......................... 12,780 298,732
Pennzoil Co......................................... 1,890 106,785
Phillips Petroleum Co............................... 10,491 464,227
Sun Co., Inc. ...................................... 3,040 74,100
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
OIL--INTEGRATED DOMESTIC (Continued)
Unocal Corp. ....................................... 9,921 $ 403,041
USX-Marathon Group.................................. 11,464 273,703
------------
3,029,344
------------
OIL--INTEGRATED INTERNATIONAL (4.4%)
Amoco Corp. ........................................ 19,493 1,569,187
Chevron Corp........................................ 25,551 1,660,815
Exxon Corp.......................................... 48,636 4,766,328
Mobil Corp. ........................................ 15,405 1,883,261
Royal Dutch Petroleum Co............................ 21,013 3,587,970
Texaco Inc.......................................... 10,595 1,039,634
------------
14,507,195
------------
OIL--WELL EQUIPMENT & SERVICES (0.6%)
Baker Hughes Inc.................................... 5,712 197,064
Dresser Industries, Inc............................. 6,918 214,458
Halliburton Co. .................................... 5,021 302,515
McDermott International, Inc........................ 2,178 36,209
Schlumberger Ltd.................................... 9,782 976,978
Western Atlas Inc. (a).............................. 2,176 154,224
------------
1,881,448
------------
PAPER & FOREST PRODUCTS (0.7%)
Boise Cascade Corp.................................. 1,925 61,119
Champion International Corp......................... 3,809 164,739
Georgia-Pacific Corp. .............................. 3,668 264,096
International Paper Co. ............................ 11,957 482,764
James River Corp. of Virginia....................... 3,391 112,327
Louisiana-Pacific Corp.............................. 4,276 90,330
Mead Corp........................................... 2,081 120,958
Potlatch Corp. ..................................... 1,209 51,987
Union Camp Corp..................................... 2,741 130,883
Westvaco Corp....................................... 4,028 115,805
Weyerhaeuser Co..................................... 7,951 376,678
Willamette Industries, Inc.......................... 2,233 155,473
------------
2,127,159
------------
PERSONAL LOANS (0.2%)
Beneficial Corp..................................... 2,165 137,207
Household International, Inc........................ 3,932 362,727
------------
499,934
------------
PHOTOGRAPHY/IMAGING (0.3%)
Eastman Kodak Co.................................... 13,072 1,049,028
Polaroid Corp....................................... 1,888 82,128
------------
1,131,156
------------
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries Inc...................... 8,283 217,429
Laidlaw Inc. Class B................................ 12,274 141,151
WMX Technologies, Inc. ............................. 19,027 620,756
------------
979,336
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
63
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
PROPERTY--CASUALTY INSURANCE (0.9%)
Allstate Corp......................................... 17,434 $ 1,008,993
Chubb Corp. .......................................... 6,764 363,565
General Re Corp. ..................................... 3,366 530,987
Loews Corp............................................ 4,710 443,917
MGIC Investment Corp. ................................ 2,400 182,400
SAFECO Corp. ......................................... 5,041 198,804
St. Paul Cos., Inc. (The)............................. 3,393 198,915
USF&G Corp. .......................................... 4,476 93,436
------------
3,021,017
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The).......................... 4,066 187,544
Meredith Corp. ....................................... 1,144 60,346
------------
247,890
------------
PUBLISHING--NEWSPAPER (0.4%)
Dow Jones & Co., Inc.................................. 3,937 133,366
Gannett Co., Inc...................................... 5,678 425,140
Knight-Ridder Inc. ................................... 3,882 148,487
New York Times Co. (The) Class A...................... 3,912 148,656
Times Mirror Co. (The) Class A........................ 3,823 190,194
Tribune Co. .......................................... 2,478 195,452
------------
1,241,295
------------
RAILROADS (0.7%)
Burlington Northern Santa Fe Corp..................... 6,119 528,529
Conrail Inc. ......................................... 3,101 308,937
CSX Corp. ............................................ 8,444 356,759
Norfolk Southern Corp................................. 5,087 445,113
Union Pacific Corp. .................................. 9,795 588,924
------------
2,228,262
------------
RESTAURANTS (0.4%)
Darden Restaurants, Inc. ............................. 6,394 55,947
McDonald's Corp. ..................................... 27,255 1,233,289
Ryan's Family Steak Houses, Inc. (a).................. 64 440
Wendy's International, Inc............................ 5,129 105,145
------------
1,394,821
------------
RETAIL STORES--APPAREL (0.2%)
Charming Shoppes, Inc. (a)............................ 4,099 20,751
Gap, Inc. (The)....................................... 11,079 333,755
Limited, Inc. (The)................................... 10,578 194,371
TJX Cos., Inc. (The).................................. 3,071 145,488
------------
694,365
------------
RETAIL STORES--DEPARTMENT (0.5%)
Dillard Department Stores, Inc. Class A............... 4,506 139,123
Federated Department Stores, Inc. (a)................. 8,350 284,944
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
RETAIL STORES--DEPARTMENT (Continued)
May Department Stores Co. ............................ 10,055 $ 470,071
Mercantile Stores Co., Inc. .......................... 1,494 73,766
Nordstrom, Inc........................................ 3,269 115,845
Penney (J.C.) Co., Inc. .............................. 9,022 439,823
------------
1,523,572
------------
RETAIL STORES--DRUG (0.2%)
Longs Drug Stores Corp. .............................. 813 39,939
Rite-Aid Corp. ....................................... 4,588 182,373
Walgreen Co........................................... 9,623 384,920
------------
607,232
------------
RETAIL STORES--FOOD CHAIN (0.4%)
Albertson's, Inc...................................... 10,094 359,599
American Stores Co.................................... 5,700 232,987
Giant Food, Inc. Class A.............................. 2,431 83,869
Great Atlantic & Pacific Tea Co., Inc. (The).......... 1,507 48,036
Kroger Co. (a)........................................ 5,001 232,547
Winn-Dixie Stores, Inc. .............................. 6,112 193,292
------------
1,150,330
------------
RETAIL STORES--GENERAL MERCHANDISE (1.0%)
Dayton-Hudson Corp. .................................. 8,598 337,472
Kmart Corp. (a)....................................... 18,903 196,119
Sears, Roebuck & Co. ................................. 15,323 706,773
Wal-Mart Stores, Inc. ................................ 89,767 2,053,420
------------
3,293,784
------------
RETAIL STORES--SPECIALTY (0.7%)
Autozone, Inc. (a).................................... 2,900 79,750
Circuit City Stores, Inc. ............................ 3,935 118,542
CVS Corp.............................................. 4,223 174,727
Home Depot, Inc. (The)................................ 18,784 941,548
Lowe's Cos., Inc...................................... 6,906 245,163
Pep Boys-Manny, Moe & Jack............................ 2,460 75,645
Price/Costco, Inc. (a)................................ 7,896 198,387
Tandy Corp............................................ 2,423 106,612
Toys "R" Us Inc. (a).................................. 10,712 321,360
Woolworth Corp. (a)................................... 5,317 116,309
------------
2,378,043
------------
SAVINGS & LOANS (0.1%)
Ahmanson (H.F.) & Co. ................................ 4,339 141,018
Golden West Financial Corp. .......................... 2,329 147,018
Great Western Financial Corp.......................... 5,447 157,963
------------
445,999
------------
SHOES (0.2%)
Nike Inc. Class B..................................... 11,460 684,735
Reebok International Ltd. ............................ 2,219 93,198
Stride Rite Corp. .................................... 2,029 20,290
------------
798,223
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
64
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
SPECIALIZED SERVICES (0.5%)
Block (H&R), Inc...................................... 4,107 $ 119,103
Cognizant Corp........................................ 6,818 224,994
CUC International Inc. (a)............................ 15,390 365,512
Dun & Bradstreet Corp. (The).......................... 6,818 161,927
Ecolab Inc............................................ 2,609 98,164
HFS Inc. (a).......................................... 5,000 298,750
Interpublic Group of Cos., Inc........................ 3,137 149,007
National Service
Industries, Inc...................................... 1,916 71,611
Safety-Kleen Corp..................................... 2,316 37,925
Service Corp. International........................... 9,314 260,792
------------
1,787,785
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp........................................... 3,280 107,420
Donnelley (R.R.) & Sons Co............................ 5,921 185,771
Harland (John H.) Co.................................. 1,229 40,557
------------
333,748
------------
STEEL (0.2%)
Allegheny Teledyne Inc................................ 7,021 161,483
Armco Inc. (a)........................................ 4,230 17,449
Bethlehem Steel Corp. (a)............................. 4,371 39,339
Inland Steel Industries Inc........................... 2,001 40,020
Nucor Corp............................................ 3,532 180,132
USX-U.S. Steel Group.................................. 3,350 105,106
Worthington Industries, Inc........................... 3,666 66,446
------------
609,975
------------
TELECOMMUNICATIONS--LONG DISTANCE (1.4%)
AT&T Corp............................................. 63,370 2,756,595
MCI Communications Corp............................... 26,754 874,521
Sprint Corp........................................... 16,851 671,934
WorldCom, Inc. (a).................................... 23,538 613,459
------------
4,916,509
------------
TELEPHONE (2.8%)
ALLTEL Corp........................................... 7,565 237,352
Ameritech Corp........................................ 21,509 1,303,983
Bell Atlantic Corp.................................... 17,158 1,110,980
BellSouth Corp........................................ 38,886 1,570,022
Frontier Corp......................................... 3,700 83,712
GTE Corp.............................................. 37,629 1,712,120
NYNEX Corp............................................ 17,199 827,702
Pacific Telesis Group................................. 16,740 615,195
SBC Communications Inc................................ 23,647 1,223,732
US West, Inc.......................................... 18,642 601,205
------------
9,286,003
------------
TEXTILES--APPAREL MANUFACTURERS (0.2%)
Fruit of the Loom, Inc.
Class A (a).......................................... 3,058 115,822
Liz Claiborne, Inc.................................... 2,905 112,206
Russell Corp.......................................... 1,616 48,076
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
TEXTILES--APPAREL MANUFACTURERS (Continued)
Springs Industries, Inc.
Class A......................................... 802 $ 34,486
VF Corp.......................................... 2,583 174,352
------------
484,942
------------
TOBACCO (1.3%)
American Brands, Inc............................. 6,833 339,088
Philip Morris Cos., Inc.......................... 31,913 3,594,201
UST Inc.......................................... 7,246 234,589
------------
4,167,878
------------
TOYS (0.1%)
Hasbro Inc....................................... 3,580 139,172
Mattel, Inc...................................... 10,660 295,815
------------
434,987
------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
Federal Express Corp. (a)........................ 4,602 204,789
Ryder System, Inc................................ 3,144 88,425
------------
293,214
------------
TRUCKERS (0.0%) (b)
Caliber System, Inc.............................. 1,620 31,185
Consolidated Freightways Corp.................... 30 266
------------
31,451
------------
Total Common Stocks
(Cost $188,230,650)............................. 222,103,267 (d)
------------
SHORT-TERM
INVESTMENTS (21.0%)
<CAPTION>
PRINCIPAL
AMOUNT
-----------------
<S> <C> <C>
COMMERCIAL PAPER (5.9%)
Dynamic Funding Corp. 5.95%, due 1/7/97 (e)...... $10,000,000 9,990,083
Fingerhut Owner Trust
5.80%, due 1/16/97 (e).......................... 9,400,000 9,377,283
------------
Total Commercial Paper
(Cost $19,367,366).............................. 19,367,366
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
65
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
SHORT-TERM INVESTMENTS (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
U.S. GOVERNMENT (15.1%)
United States Treasury Bills
4.82%, due 3/27/97 (e).......................... $ 500,000 $ 494,111
4.83%, due 2/6/97 (e)........................... 24,800,000 24,680,216
4.96%, due 4/3/97 (e)........................... 24,900,000 24,575,155
------------
Total U.S. Government
(Cost $49,759,888).............................. 49,749,482
------------
Total Short-Term Investments (Cost $69,127,254).. 69,116,848
------------
Total Investments
(Cost $292,920,848) (f)......................... 99.4% 327,151,598 (g)
Cash and Other Assets, Less Liabilities.......... 0.6 2,146,116
----------- ------------
Net Assets....................................... 100.0% $329,297,714
=========== ============
FUTURES
CONTRACTS (0.2%)
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION
----------------------------
<S> <C> <C>
Australian All Ordinaries Index
March 1997...................................... 202 $ 209,142 (h)
German Dax Index
March 1997...................................... 89 66,848 (h)
Great Britain FTSE 100 Index March 1997.......... 94 445,567 (h)
------------
Total Contracts Long (Settlement Value
$43,183,338).................................... 721,557
------------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
SHORT APPRECIATION
---------------------------
<S> <C> <C>
Standard & Poor's 500
March 1997....................................... 3 $ 33,270 (h)
United States Treasury Note March 1997 (5 Year)... 10 9,744 (h)
United States Treasury Note March 1997 (10 Year).. 7 9,993 (h)
United States Treasury Bond March 1997 (30 Year).. 4 7,210 (h)
------------
Total Contracts Short
(Settlement Value ($3,397,063)).................. 60,217
------------
Total Futures Contracts (Settlement Value
$39,786,275)..................................... $ 781,774
============
</TABLE>
- --------
(a) Non-income producing securities.
(b) Less than one tenth of a percent.
(c) The combined market value of U.S. Government and Federal Agencies
Investments and settlement value of U.S. Treasury futures contracts
represents 8.7% of net assets.
(d) The combined market value of common stocks and settlement value of
Standard & Poor's 500 Index futures contracts represents 67.5% of net
assets.
(e) Segregated as collateral for futures contracts.
(f) The cost for Federal income tax purposes is $293,475,455.
(g) At December 31, 1996 net unrealized appreciation was $33,676,143, 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 $37,212,770 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,536,627.
(h) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1996.
(i) Yankee bonds.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
66
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $292,920,848)................................. $327,151,598
Cash............................................................ 98,503
Cash denominated in foreign currencies (identified cost
$205,795)...................................................... 205,640
Receivables:
Investment securities sold...................................... 5,164,824
Dividends and interest.......................................... 882,701
Fund shares sold................................................ 370,712
Variation margin receivable on futures contracts................ 219,545
------------
Total assets.................................................. 334,093,523
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................ 3,896,111
Investment securities purchased................................. 655,095
Administrator................................................... 124,646
Adviser......................................................... 42,258
Custodian....................................................... 16,111
Transfer agent.................................................. 5,363
Directors....................................................... 361
Accrued expenses................................................ 55,864
------------
Total liabilities............................................. 4,795,809
------------
Net assets...................................................... $329,297,714
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................. $ 24,546
Institutional Service Class..................................... 418
Additional paid-in capital...................................... 274,632,606
Accumulated undistributed net investment income................. 15,336
Accumulated undistributed net realized gain on investments...... 19,612,439
Net unrealized appreciation on investments...................... 35,012,524
Net unrealized depreciation on foreign currency transactions.... (155)
------------
Net assets...................................................... $329,297,714
============
Institutional Class
Net assets applicable to outstanding shares..................... $323,789,545
============
Shares of capital stock outstanding............................. 24,545,741
============
Net asset value per share outstanding........................... $ 13.19
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 5,508,169
============
Shares of capital stock outstanding............................. 417,742
============
Net asset value per share outstanding........................... $ 13.19
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 4,157,853
Interest......................................................... 7,207,166
-----------
Total income................................................... 11,365,019
-----------
Expenses:
Administration................................................... 1,538,025
Advisory......................................................... 461,408
Professional..................................................... 86,547
Custodian........................................................ 75,995
Shareholder communication........................................ 49,591
Registration..................................................... 39,674
Transfer agent................................................... 31,067
Service.......................................................... 13,046
Directors........................................................ 10,122
Miscellaneous.................................................... 25,326
-----------
Total expenses before
reimbursement................................................. 2,330,801
Expense reimbursement from Administrator......................... (164,519)
-----------
Net expenses................................................... 2,166,282
-----------
Net investment income............................................ 9,198,737
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) from:
Security transactions............................................ 19,623,484
Futures transactions............................................. 4,873,116
Foreign currency transactions.................................... (21,867)
-----------
Net realized gain on investments and foreign currency
transactions.................................................... 24,474,733
-----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions............................................ 14,147,595
Futures transactions............................................. (1,616,842)
Foreign currency................................................. (155)
-----------
Net unrealized gain on investments and foreign currency
transactions.................................................... 12,530,598
-----------
Net realized and unrealized gain on investments and foreign
currency transactions........................................... 37,005,331
-----------
Net increase in net assets resulting from operations............. $46,204,068
===========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $39,013.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
67
<PAGE>
MULTI-ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 9,198,737 $ 9,983,568
Net realized gain on investments.................. 24,496,600 24,645,946
Net realized loss on foreign currency
transactions..................................... (21,867) (267,722)
Net change in unrealized appreciation on
investments...................................... 12,530,753 24,447,333
Net change in unrealized depreciation on foreign
currency......................................... (155) --
------------ ------------
Net increase in net assets resulting from
operations....................................... 46,204,068 58,809,125
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (9,027,765) (9,683,938)
Institutional Service Class...................... (138,056) (122,295)
From net realized gain on investments:
Institutional Class.............................. (3,132,082) (23,783,105)
Institutional Service Class...................... (52,426) (308,316)
In excess of net realized gain on investments:
Institutional Class.............................. -- (1,672,049)
Institutional Service Class...................... -- (21,677)
------------ ------------
Total dividends and distributions to
shareholders................................... (12,350,329) (35,591,380)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 49,757,971 40,227,452
Institutional Service Class...................... 2,319,600 3,251,969
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 12,159,847 35,139,085
Institutional Service Class...................... 190,482 452,281
------------ ------------
64,427,900 79,070,787
Cost of shares redeemed:
Institutional Class.............................. (44,770,866) (54,473,647)
Institutional Service Class...................... (1,100,422) (6,140)
------------ ------------
Increase in net assets derived from capital
share transactions.............................. 18,556,612 24,591,000
------------ ------------
Net increase in net assets....................... 52,410,351 47,808,745
NET ASSETS:
Beginning of year................................. 276,887,363 229,078,618
------------ ------------
End of year....................................... $329,297,714 $276,887,363
============ ============
Accumulated undistributed net investment income... $ 15,336 $ --
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
68
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- -----------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 11.79 $ 11.79 $ 10.67 $ 10.67 $ 11.67 $ 12.02 $ 11.79
-------- -------- -------- -------- -------- -------- --------
Net investment income... 0.38 0.34 0.48 0.47 0.45 0.39 0.50
Net realized and
unrealized gain (loss)
on investments......... 1.53 1.53 2.39 2.39 (0.55) 0.59 0.29
Net realized and
unrealized loss on
foreign currency
transactions........... (0.00)(a) (0.00)(a) (0.01) (0.01) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 1.91 1.87 2.86 2.85 (0.10) 0.98 0.79
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.38) (0.34) (0.48) (0.47) (0.45) (0.88) (0.51)
From net realized gain
on investments......... (0.13) (0.13) (1.18) (1.18) (0.42) (0.44) (0.05)
In excess of net
realized gain on
investments............ -- -- (0.08) (0.08) (0.03) (0.01) --
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (0.51) (0.47) (1.74) (1.73) (0.90) (1.33) (0.56)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 13.19 $ 13.19 $ 11.79 $ 11.79 $ 10.67 $ 11.67 $ 12.02
======== ======== ======== ======== ======== ======== ========
Total investment return
....................... 16.16% 15.89% 26.81% 26.70% (0.86%) 8.79% 7.09%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 2.99% 2.74% 4.03% 3.78% 3.63% 3.55% 4.65%
Net expenses........... 0.70% 0.95% 0.70% 0.95% 0.70% 0.60% 0.60%
Expenses (before
reimbursement)........ 0.75% 1.00% 0.77% 1.02% 0.75% 0.75% 0.79%
Portfolio turnover
rate................... 103% 103% 261% 261% 128% 101% 89%
Average commission rate
paid................... $ 0.0498 $ 0.0498 (b) (b) (b) (b) (b)
Net assets at end of
year (in 000's)........ $323,790 $ 5,508 $273,351 $ 3,536 $229,079 $258,345 $190,899
</TABLE>
- --------
(a) Less than one cent per share.
(b) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
69
<PAGE>
VALUE EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. A variety of factors converged to make year-end 1996 an excellent year for
value stocks
. Corporate acquisition activity reached record levels during the year
. A stock market downturn in July brought low-valuation stocks to record low
levels, which marked a significant turning point for value equities
. Value stocks experienced exceptional returns in the fourth quarter and
outpaced growth equities for the year
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 22.41% and 22.10% for Institutional Class and
Service Class shares, respectively, as of 12/31/96
. Institutional Class shares received a five-star overall rating from
Morningstar, Inc.++ as of 12/31/96
. Both share classes outperformed the average Lipper* growth and income fund
. The Fund identified value and free cash flow in a number of companies that
also attracted acquirers
. Our focus on consumer cyclicals and basic materials benefited the portfolio
- --------------------------------------------------------------------------------
Consumer cyclicals Consumer products and services whose sales tend to rise and
fall with changes in the economic cycle.
Bottom-up investing Security selection based on the specific fundamental merits
of individual issues. The opposite of "top-down" investing, which starts with
general economic trends, compares market sectors, and uses relative security
values to narrow the range of issues to examine.
Correction A shift in security prices which brings them more in line with
historic averages.
- --------------------------------------------------------------------------------
For the first nine months of 1996, slow economic growth favored the growth
equity discipline. A severe market downturn in July, however, brought low-
valuation stocks to their lowest levels in recent history, marking a significant
turning point for the value market. When the economy picked up in the fourth
quarter, value stocks were poised for rapid advances and value stocks generally
outperformed growth equities through the end of the year.
Extremely low valuations among companies with strong fundamentals and free cash
flow also triggered a record level of merger and acquisition activity during
1996. This was very beneficial for value investors, who seek companies that are
generally undervalued by the marketplace and often make attractive acquisition
candidates.
While stock market returns for 1996 were more than twice the average annual
total return for the previous 70 years(S) the advances were primarily
- --------------------------------------------------------------------------------
++ Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect risk-adjusted performance, which does not include sales charges,
and may change monthly. Its ratings of 1 (low) and 5(high) stars are based
on a fund's 3-, 5- & 10-year average annual returns with fee adjustments,
and a risk factor that reflects fund performance relative to 3-month
Treasury bill monthly returns. A one-year rating is calculated using the
same methodology, but is not a component of the overall rating. As of
12/31/96, the individual 1, 3 and 5 year ratings for the MainStay
Institutional Value Equity Fund was 4, 4 and 5 stars, respectively. For the
one-year period, the Fund was rated among 2,959 funds in the domestic
equity category. Only 10% of the funds in an investment category may
receive 5 stars and 22.5% may receive 4 stars. Ratings reflect
Institutional Class performance only. Service Class shares, first
introduced January 1, 1995, will not be rated by Morningstar until they
have a three year operating history.
* Lipper Analytical Services 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.
(S) Source: Ibbotson Associates, Chicago. Used with permission. All rights
reserved.
70
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Recovery A market recovery refers to a rise in security prices, which were
formerly depressed. An economic recovery refers to a general improvement in
formerly weak fundamentals underlying a country's gross domestic product, which
may include factory output, sales, productivity, employment, and relative
currency values.
- --------------------------------------------------------------------------------
concentrated in a small number of issues. With 25% of the stocks in the Dow
Jones Industrial Average accounting for 90% of its gains, individual security
selection was a key factor in determining performance. For the year, the average
Lipper growth & income fund provided a total return of 20.78%.
Given this context, how did the MainStay Institutional Value Equity Fund do in
1996?
The Fund had a strong year. For the 12 months ended December 31, 1996, the
MainStay Institutional Value Equity Fund returned 22.41% and 22.10% for
Institutional Class and Service Class shares, respectively. Both share classes
outperformed the average Lipper growth and income fund, which returned 20.78%
for the same period.
The Fund earned Morningstar's highest overall ranking of five stars, placing it
among the top 10% of funds in its Morningstar universe. The Value Equity Fund's
individual Morningstar ratings for the three- and five-year periods ending
12/31/96 were 4 stars and 5 stars, respectively, out of a universe of 1,826 and
1,058 funds in the domestic equity category for their respective periods.
What were the primary reasons for the Fund's outperformance?
The Fund's bottom-up approach to value investing is based on individual security
selection and emphasizes companies with low price to earnings ratios and
substantial free cash flow. Using this approach, the Fund was able to ride out
the ups and downs of the market and achieve superior returns. In addition, this
year a number of companies selected for their fundamental value also attracted
the attention of acquirers, which helped the Fund's holdings in these stocks
appreciate significantly--and in many cases, the acquirer's securities were kept
in the Fund's portfolio after the transaction was completed.
What are some examples of these acquisitions?
In the first quarter, U.S. Healthcare was taken over by Aetna, which was highly
positive for the portfolio, and we took Aetna's securities into the portfolio.
First Interstate Bank was acquired by Wells Fargo, and the Fund also took Wells
Fargo stock into the portfolio. Also in 1996, we saw strong fundamentals and
free cash flow in Vigoro, a fertilizer company, and Varity, an auto-related
company. Consolidation efforts within these industries brought high premiums for
these stocks. In the third quarter, Boatmen's Bancshares was purchased by
NationsBank, and later in the quarter, Conrail received a bid from CSX, which
escalated into a bidding war with Norfolk Southern. In the fourth quarter, Long
Island Lighting Co. received a bid from Brooklyn Union Gas. All of these
transactions were highly positive for the Fund's shareholders.
Did everything in the portfolio do that well?
No. In the second quarter, the Fund bought AT&T, and shortly afterward, AT&T's
president left, the chairman's outlook became less robust, deregulation set in,
all resulting in a decline in stock price. The Fund sold the stock in the fourth
quarter at a 10% loss. In financial services, the Fund bought Torchmark and
Providian after the market correction in July. When these stocks didn't
participate in the uptrend that followed, we revisited our decision and decided
to sell. Although the transactions were relatively neutral, this caused the Fund
to miss some opportunities since the financial services sector advanced 20% by
year end. Another disappointment was Hanson PLC, an international conglomerate,
which was a breakup candidate. Often, companies realize value by dividing into
separate units. But in this case, the European economy went down and each
component lost earning power. The Fund ended up selling all four pieces of the
company at a loss, which took a toll on performance.
Were there other stocks sold?
Yes, the Fund had some positive sales. For example, IBM went up 50%** in six
months, which was the Fund's signal to sell--in this case at a substantial gain.
Gateway 2000 went up 100% in 6 months, so the Fund
- --------------------------------------------------------------------------------
** Returns reflect performance during the period securities were held in the
Fund.
71
<PAGE>
================================================================================
doubled its money when sold. Intel, which was purchased late in the first
quarter rose substantially within weeks. It was sold in the second quarter at a
substantial gain.
If the stocks were rising so fast, why were they sold?
Part of the Fund's value discipline is to sell stocks when their value has been
realized. The Fund's strategy is to try to buy low and sell high. Even if a
stock is shooting for the moon, it will not be held if we feel it is approaching
or has reached its fair market value.
How did the Fund perform during the market downturn in July?
Generally, the Fund seeks to perform with or ahead of the market as it rises and
significantly better than the market when it declines. During the correction in
July, value stocks were definitely hurt, but the Fund's portfolio performed
according to its disciplines and outperformed the market by year end. Since the
Fund's objective is to own undervalued issues, the decline in values actually
presented new opportunities. In fact, it made the Fund's positions even more
attractive. As we had hoped, many of the Fund's stocks showed considerable
advances during the recovery later in the year. So our decision to hold on to
these declining issues was very positive for investors by year end.
Why was there a concentration on consumer cyclicals throughout the year?
We were anticipating an upturn in the economy. While the Fund had to weather a
downturn to get there, endurance paid off by year end. When the economy picks
up, consumers go out and buy things. That's good for retailers like Sears,
Federated Department Stores, and J.C. Penney. It's also good for companies that
make the products consumers buy, like Fruit of the Loom, Reebok International,
and General Motors. The Fund held stock in all of these companies during the
year.
Were there other areas that did well?
Yes, it was a good year for energy, and Parker & Parsley, a stock in this sector
the Fund owned, was up 63% for the year. One of the Fund's railroad holdings,
Conrail, which is in the takeover process, also performed well. Financial stocks
also did well. We found value in Traveler's (+47%), Allstate (+46%), Bankers
Trust (+35%), and with the takeovers at Boatmen's Bancshare and First
Interstate. Unfortunately, the Fund reduced its exposure to financials during
the year, which negatively impacted performance. If rates rise and financials
return to lower levels, we may look for buying opportunities in 1997 in the
financial services sector.
What else do you see ahead for 1997?
Right now, our proprietary research is pointing in more conservative directions,
with utilities showing unusual strength. This may signal a return to more
typical stock performance, or simply the possibility of higher volatility. We'll
continue to seek to identify attractive value candidates, and we're hoping that
1996 has signaled that value investing will be in favor for an extended period.
Whatever the markets bring, we'll seek to realize maximum long-term total return
from a combination of capital growth and income.
Denis Laplaige
Jeffrey Simon
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
72
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
VALUE EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE VALUE EQUITY FUND S&P 500 INDEX
---- ----------------- -------------
<S> <C> <C>
1/2/91 10,000 10,000
11,550 11,453
11,830 11,427
12,870 12,038
91 13,660 13,047
14,695 12,717
14,637 12,958
14,847 13,366
92 16,489 14,040
17,465 14,654
17,670 14,726
18,680 15,105
93 18,945 15,456
18,976 14,870
19,068 14,933
20,015 15,663
94 19,177 15,660
20,866 17,185
22,191 18,826
23,632 20,323
95 24,819 21,546
26,401 22,703
26,728 23,723
27,605 24,456
12/31/96 30,380 26,493
</TABLE>
<TABLE>
<CAPTION>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
VALUE EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
DATE VALUE EQUITY FUND S&P 500 INDEX
---- ----------------- -------------
<S> <C> <C>
1/2/91 10,000 10,000
11,550 11,453
11,830 11,427
12,870 12,038
91 13,660 13,047
14,695 12,717
14,637 12,958
14,847 13,366
92 16,489 14,040
17,465 14,654
17,670 14,726
18,680 15,105
93 18,945 15,456
18,976 14,870
19,068 14,933
20,015 15,663
94 19,177 15,660
20,833 17,185
22,208 18,826
23,632 20,323
95 24,799 21,546
26,363 22,703
26,672 23,723
27,532 24,456
12/31/96 30,279 26,493
</TABLE>
. Value Equity Fund -- S&P 500 Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- -------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Equity Fund
Institutional Class 22.41% 22.41% 17.34% 20.33%
Value Equity Fund Service
Class** 22.10% 20.10% 17.26% 20.26%
Average Lipper Growth &
Income Fund 20.78% 20.78% 13.87% 16.29%
S&P 500 Stock Index 22.94% 22.94% 15.20% 17.63%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
DATE TOTAL RETURN %
---- --------------
<S> <C>
1991 36.60
1992 20.71
1993 14.90
1994 1.22
1995 29.42
1996 22.41
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Common Stocks 94.75%
Cash & Equivalents 5.25%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Xerox Corp. 2.56%
2. Philip Morris Cos., Inc. 2.47%
3. Allstate Corp. (The) 2.36%
4. Aetna Inc. 2.34%
5. Chubb Corp. 2.28%
6. IMC Global Inc. 2.27%
7. International Business Machines Corp. 2.20%
8. RJR Nabisco Holdings Corp. 2.12%
9. Goodyear Tire & Rubber Co. (The) 1.97%
10. Wells Fargo & Co. 1.90%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY
HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Chemicals 8.68%
2. Banks 8.37%
3. Insurance 6.33%
4. Food, Beverage & Tobacco 6.27%
5. Energy 5.33%
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
73
<PAGE>
VALUE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
COMMON STOCKS (94.8%)+
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AEROSPACE/DEFENSE ELECTRONICS (2.6%)
Coltec Industries Inc. (a)............................ 409,900 $ 7,736,862
Litton Industries, Inc. (a)........................... 128,600 6,124,575
Lockheed Martin Corp. ................................ 47,175 4,316,512
McDonnell Douglas Corp................................ 41,800 2,675,200
Newport News Shipbuilding Inc. (a).................... 63,940 959,100
------------
21,812,249
------------
AUTO MANUFACTURING (3.1%)
Ford Motor Co......................................... 447,800 14,273,625
General Motors Corp. ................................. 211,500 11,791,125
------------
26,064,750
------------
AUTO PARTS (2.5%)
Echlin Inc. .......................................... 321,000 10,151,625
Mark IV Industries, Inc. ............................. 479,600 10,850,950
------------
21,002,575
------------
BANKS (8.4%)
Bankers Trust New York Corp........................... 128,000 11,040,000
Boatmen's Bancshares, Inc. ........................... 226,300 14,596,350
Chase Manhattan Corp.................................. 90,000 8,032,500
National City Corp. .................................. 166,400 7,467,200
PNC Bank Corp. ....................................... 344,000 12,943,000
Wells Fargo & Co. .................................... 59,000 15,915,250
------------
69,994,300
------------
BUILDING MATERIALS (2.2%)
Armstrong World Industries, Inc. ..................... 159,500 11,085,250
Masco Corp............................................ 204,900 7,376,400
------------
18,461,650
------------
CAPITAL GOODS (3.7%)
Case Corp. ........................................... 169,000 9,210,500
Xerox Corp. .......................................... 407,100 21,423,638
------------
30,634,138
------------
CHEMICALS (8.7%)
Agrium Inc. .......................................... 588,800 8,096,000
Dow Chemical Co. ..................................... 156,900 12,297,038
FMC Corp. (a)......................................... 119,600 8,386,950
Georgia Gulf Corp..................................... 302,000 8,116,250
IMC Global Inc. ...................................... 486,160 19,021,010
International Specialty Products Inc. (a)............. 117,500 1,439,375
Lyondell Petrochemical Co. ........................... 285,800 6,287,600
PPG Industries, Inc. ................................. 159,000 8,923,875
------------
72,568,098
------------
COMPUTERS & OFFICE EQUIPMENT (0.6%)
Gateway 2000, Inc. (a)................................ 91,500 4,900,969
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
CONGLOMERATES (2.3%)
Hanson PLC ADR (b).................................... 636,000 $ 4,293,000
Tenneco Inc. ......................................... 328,700 14,832,587
------------
19,125,587
------------
DOMESTIC OIL (4.3%)
Amerada Hess Corp..................................... 164,000 9,491,500
Noble Affiliates, Inc. ............................... 136,400 6,530,150
Parker & Parsley Petroleum Co. ....................... 210,600 7,739,550
Unocal Corp. ......................................... 311,600 12,658,750
------------
36,419,950
------------
ENERGY (5.3%)
Coastal Corp.......................................... 217,900 10,649,862
MAPCO Inc. ........................................... 381,000 12,954,000
PanEnergy Corp........................................ 305,700 13,756,500
Seagull Energy Corp. (a).............................. 328,900 7,235,800
------------
44,596,162
------------
FINANCE (1.7%)
Travelers Group Inc. ................................. 305,368 13,856,073
------------
FOOD (1.9%)
Archer-Daniels-Midland Co. ........................... 318,672 7,010,784
IBP, Inc. ............................................ 362,900 8,800,325
------------
15,811,109
------------
FOOD, BEVERAGES & TOBACCO (6.3%)
American Brands, Inc. ................................ 283,300 14,058,762
Philip Morris Cos., Inc. ............................. 183,700 20,689,213
RJR Nabisco Holdings Corp. ........................... 521,400 17,727,600
------------
52,475,575
------------
HEALTH CARE (5.3%)
Aetna Inc............................................. 244,700 19,576,000
FHP International Corp. (a)........................... 48,000 1,782,000
Humana Inc. (a)....................................... 668,900 12,792,713
WellPoint Health Networks Inc. (a).................... 295,000 10,140,625
------------
44,291,338
------------
HOUSEHOLD PRODUCTS (0.5%)
Premark International, Inc. .......................... 180,000 4,005,000
------------
INSURANCE (6.3%)
Allstate Corp. (The).................................. 340,871 19,727,909
American International Group, Inc. ................... 131,075 14,188,869
Chubb Corp. .......................................... 354,700 19,065,125
------------
52,981,903
------------
INTERNATIONAL OIL (3.2%)
Elf Aquitaine ADR (b)................................. 302,500 13,688,125
Occidental Petroleum Corp. ........................... 544,000 12,716,000
------------
26,404,125
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
74
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
OIL SERVICES (0.5%)
Union Pacific Resources Group, Inc.................... 140,847 $ 4,119,775
------------
PAPER & FOREST PRODUCTS (4.2%)
Bowater Inc........................................... 240,800 9,060,100
Chesapeake Corp....................................... 222,200 6,971,525
Rayonier Inc. ........................................ 193,250 7,415,969
Stone Container Corp. ................................ 397,500 5,912,812
Temple-Inland Inc. ................................... 102,700 5,558,638
------------
34,919,044
------------
RAILROADS (4.2%)
Conrail Inc. ......................................... 127,989 12,750,904
Illinois Central Corp. ............................... 377,100 12,067,200
Union Pacific Corp. .................................. 166,300 9,998,788
------------
34,816,892
------------
RETAIL (4.7%)
Dillard Department Stores, Inc. Class A............... 198,500 6,128,687
Federated Department Stores, Inc. (a)................. 270,100 9,217,163
Kroger Co. (a)........................................ 259,800 12,080,700
Penney (J.C.) Co. Inc. ............................... 240,000 11,700,000
------------
39,126,550
------------
TECHNOLOGY (2.2%)
International Business Machines Corp.................. 122,100 18,437,100
------------
TEXTILE & APPAREL (2.8%)
Burlington Industries, Inc. (a)....................... 414,900 4,563,900
Fruit of the Loom, Inc. Class A (a)................... 235,300 8,911,988
Reebok International Ltd. ............................ 238,800 10,029,600
------------
23,505,488
------------
TIRE & RUBBER (1.9%)
Goodyear Tire & Rubber Co. (The)...................... 320,000 16,440,000
------------
TRANSPORTATION (1.1%)
Arkansas Best Corp. .................................. 305,500 1,336,562
CSX Corp. ............................................ 196,000 8,281,000
------------
9,617,562
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
UTILITIES--ELECTRIC (4.3%)
Entergy Corp. ....................................... 229,200 $ 6,360,300
Long Island Lighting Co. ............................ 544,000 12,036,000
Niagara Mohawk Power Corp. (a)....................... 454,700 4,490,162
Unicom Corp. ........................................ 488,400 13,247,850
------------
36,134,312
------------
Total Common Stocks
(Cost $635,968,087)................................. 792,522,274
------------
SHORT-TERM
INVESTMENTS (5.5%)
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (5.5%)
American Express Credit Corp.
6.30%, due 1/2/97................................... $26,386,000 26,386,000
Prudential Funding Corp. 6.50%, due 1/2/97........... 19,940,000 19,940,000
------------
Total Short-Term Investments (Cost $46,326,000)...... 46,326,000
------------
Total Investments (Cost $682,294,087) (c)............ 100.3% 838,848,274
Liabilities in Excess of Cash and Other Assets....... (0.3) (2,371,622)
----------- ------------
Net Assets........................................... 100.0% $836,476,652
=========== ============
</TABLE>
- --------
(a) Non-income producing securities.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $682,608,284.
(d) At December 31, 1996 net unrealized appreciation was $156,239,990, 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 $167,006,429 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $10,766,439.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
75
<PAGE>
VALUE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $682,294,087).................................. $838,848,274
Cash............................................................. 2,517
Receivables:
Dividends and interest........................................... 2,146,678
Investment securities sold....................................... 1,404,006
Fund shares sold................................................. 159,284
------------
Total assets................................................... 842,560,759
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................. 5,330,449
Administrator.................................................... 419,386
Adviser.......................................................... 174,744
Custodian........................................................ 10,661
Transfer agent................................................... 5,029
Directors........................................................ 837
Accrued expenses................................................. 143,001
------------
Total liabilities.............................................. 6,084,107
------------
Net assets....................................................... $836,476,652
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 51,769
Institutional Service Class...................................... 931
Additional paid-in capital....................................... 662,602,763
Accumulated undistributed net investment income.................. 68,059
Accumulated undistributed net realized gain on investments....... 17,198,943
Net unrealized appreciation on investments....................... 156,554,187
------------
Net assets....................................................... $836,476,652
============
Institutional Class
Net assets applicable to outstanding shares...................... $821,725,239
============
Shares of capital stock outstanding.............................. 51,768,954
============
Net asset value per share outstanding............................ $ 15.87
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 14,751,413
============
Shares of capital stock outstanding.............................. 930,641
============
Net asset value per share outstanding............................ $ 15.85
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 15,512,050
Interest......................................................... 3,035,681
------------
Total income................................................... 18,547,731
------------
Expenses:
Administration................................................... 4,245,206
Advisory......................................................... 1,768,836
Professional..................................................... 185,462
Shareholder communication........................................ 112,771
Registration..................................................... 87,030
Custodian........................................................ 67,785
Transfer agent................................................... 33,650
Directors........................................................ 23,475
Service.......................................................... 20,545
Miscellaneous.................................................... 12,923
------------
Total expenses................................................. 6,557,683
------------
Net investment income............................................ 11,990,048
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................. 84,508,224
Net change in unrealized appreciation on investments............. 50,724,771
------------
Net realized and unrealized gain on investments.................. 135,232,995
------------
Net increase in net assets resulting from operations............. $147,223,043
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $86,366.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
76
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
VALUE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 11,990,048 $ 8,377,559
Net realized gain on investments.................. 84,508,224 20,263,540
Net change in unrealized appreciation on
investments...................................... 50,724,771 101,419,028
------------ ------------
Net increase in net assets resulting from
operations....................................... 147,223,043 130,060,127
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (11,732,570) (8,337,828)
Institutional Service Class...................... (189,419) (41,210)
From net realized gain on investments:
Institutional Class.............................. (72,015,324) (14,061,287)
Institutional Service Class...................... (1,288,651) (73,769)
------------ ------------
Total dividends and distributions to
shareholders................................... (85,225,964) (22,514,094)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 174,875,420 141,414,162
Institutional Service Class...................... 10,412,344 3,038,197
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 83,668,524 22,375,101
Institutional Service Class...................... 1,478,062 114,977
------------ ------------
270,434,350 166,942,437
Cost of shares redeemed:
Institutional Class.............................. (101,781,417) (64,008,663)
Institutional Service Class...................... (1,135,271) (55,323)
------------ ------------
Increase in net assets derived from capital
share transactions.............................. 167,517,662 102,878,451
------------ ------------
Net increase in net assets....................... 229,514,741 210,424,484
NET ASSETS:
Beginning of year................................. 606,961,911 396,537,427
------------ ------------
End of year....................................... $836,476,652 $606,961,911
============ ============
Accumulated undistributed net investment income... $ 68,059 $ --
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
77
<PAGE>
VALUE EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ----------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 14.43 $ 14.43 $ 11.58 $ 11.58 $ 12.40 $ 14.16 $ 13.66
-------- -------- -------- -------- -------- -------- --------
Net investment income... 0.25 0.23 0.21 0.20 0.17 0.16 0.21
Net realized and
unrealized gain (loss)
on investments......... 2.98 2.96 3.20 3.20 (0.02) 1.63 2.22
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations............. 3.23 3.19 3.41 3.40 0.15 1.79 2.43
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.25) (0.23) (0.21) (0.20) (0.17) (0.37) (0.28)
From net realized gain
on investments......... (1.54) (1.54) (0.35) (0.35) (0.80) (3.18) (1.65)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (1.79) (1.77) (0.56) (0.55) (0.97) (3.55) (1.93)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 15.87 $ 15.85 $ 14.43 $ 14.43 $ 11.58 $ 12.40 $ 14.16
======== ======== ======== ======== ======== ======== ========
Total investment
return................. 22.41% 22.10% 29.42% 29.32% 1.22% 14.90% 20.71%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.70% 1.45% 1.64% 1.39% 1.50% 1.38% 1.67%
Net expenses........... 0.92% 1.17% 0.93% 1.18% 0.92% 0.90% 0.90%
Expenses (before
reimbursement)........ 0.92% 1.17% 0.93% 1.18% 0.92% 0.93% 0.95%
Portfolio turnover
rate................... 50% 50% 51% 51% 43% 83% 133%
Average commission rate
paid................... $ 0.0594 $ 0.0594 (a) (a) (a) (a) (a)
Net assets at end of
year (in 000's)........ $821,725 $ 14,752 $603,749 $ 3,213 $396,537 $305,060 $230,836
</TABLE>
- --------
(a) Disclosure of amount required for fiscal years beginning on or after
September 1, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
78
<PAGE>
BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Total returns of government securities were up slightly in 1996, with
performance determined primarily by rising interest rates
. Mortgage-backed securities were a strong relative performer in 1996,
outperforming the Treasury market each month
. Corporate and asset-backed securities also generally outperformed Treasury
securities during the year
. The addition of two 10-year Treasury auctions and one 30-year auction
affected supply, pricing, and demand within the government securities market
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. The MainStay Institutional Bond Fund returned 2.80% and 2.62% for
Institutional Class shares and Service Class shares, respectively, for the 12
months ended 12/31/96
. Duration, a major determinant of fixed-income performance helped the Fund in
the second and fourth quarters, but was offset in the first and third
quarters.
. The Fund took advantage of the strong performance of Yankee bonds and
seasoned mortgage-backed securities with specific origination years, to boost
performance throughout the year
. A variety of other mortgage-backed securities also performed well for the
Fund
- --------------------------------------------------------------------------------
Auction The competitive bidding process through which Treasury securities are
sold.
Mortgage-backed securities Securities representing interests in "pools" of
mortgages in which principal and interest payments by the holders of underlying
fixed- or adjustable-rate mortgages are, in effect, "passed through" to
investors (net of fees paid to the issuer or guarantor of the securities).
Yield spread The difference in yield between securities in different market
sectors, such as mortgage-backed securities and Treasury issues -- or between
different securities in a single sector, such as short-term and intermediate-
term Treasury issues.
- --------------------------------------------------------------------------------
While 1996 was a weak year for bonds overall, there were significant
opportunities for investors. Even with a slight reduction in rates by the
Federal Reserve Board on January 31, stalled budget talks and signs of a
strengthening economy caused rates to rise through the first half of the year.
In the second half, rates declined but began to rise again in December. The
result was considerable volatility in bond prices throughout the year.
The introduction of additional auctions for 10- and 30-year Treasuries redefined
supply dynamics within the U.S. government bond market and created additional
opportunities for selective movements among newer and older issues. Mortgage-
backed securities outperformed Treasuries most months in 1996, and Yankee bonds
did well throughout the year. Corporate and asset-backed securities also offered
attractive yield spreads to Treasuries early in the year. At year-end, the
Treasury Department announced the first issuance of inflation-indexed bonds
scheduled for a January auction. This new asset class will focus on real rates
of return and may present attractive opportunities going forward.
Given this context, how did the MainStay Institutional Bond Fund do in 1996?
For the 12 months ended 12/31/96, the MainStay Institutional Bond Fund provided
returns of 2.80% and 2.62% for Institutional Class shares and
79
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Duration A measure of average maturity, which adjusts for the time value of the
payments investors will receive and which takes into account interest payments
as well as principal payments. Duration is a better gauge of interest rate
sensitivity than average maturity alone.
Exposure The amount invested in a specific security, market, country, or
currency. Participation in positive as well as negative events affecting a
security or sector generally increases with the level of exposure.
- --------------------------------------------------------------------------------
Service Class shares, respectively. Both share classes ranked within the top 50%
of funds in the Lipper* intermediate U.S. government fund category for the year.
What were the primary factors that influenced the Fund's performance?
Interest rates, which generally rose in the first half of the year and declined
in the second, had a major impact on the Fund. We believe that duration is the
primary determinant of performance in fixed-income portfolios and our strategy
throughout the year was relatively conservative i.e., the duration of the Fund
closely tracked the duration of the Fund's benchmark, the Lehman Brothers
Government/Corporate Bond Index.+ This helped the Fund's performance in the
second and fourth quarters, with offsetting results in the first and third
quarters. We substantially increased our exposure to mortgage-backed securities
during the year, which had a positive effect on the portfolio as they increased
in value.
What types of mortgage-backed securities did the Fund buy?
There were several. In the seasoned mortgage market, we purchased securities
based on specific origination years, which was profitable as spreads narrowed
and the strategy gained broader market acceptance. The Fund also bought
securities backed by commercial mortgages, manufactured housing mortgages, and
low-loan balance mortgages. Each of these securities has features that may help
protect against prepayment risk. Late in the year, the Fund also purchased
adjustable rate mortgage securities issued by GNMA and FNMA, which we believe
will continue to benefit from low and stable prepayments. Finally, FNMA Multi-
Family Delegated Underwriting Servicers issues offered attractive yields,
prepayment protection, and call protection until six months prior to maturity.
With the exception of the most recent purchases, all of these securities have
contributed positively to performance throughout the year.
Where else did you seek to enhance yields?
The Fund owned high-quality corporate bonds that offered attractive yield
spreads to Treasuries and sold them as spreads narrowed and the bonds became
overvalued. Yankee bonds also performed well.
What exactly are Yankee bonds?
They're dollar-denominated securities issued in the United States by foreign
issuers, including banks and corporations, usually when conditions in the U.S.
market are more favorable than in those foreign markets.
Why were they a good selection?
Careful research, the Fund's security selection process and time devoted to get
to know this market, which many other bond investors are just starting to
consider, has been important. By overweighting the Fund's portfolio in carefully
selected Yankee bonds, purchases were made at attractive valuation levels, which
benefited our shareholders throughout the year.
- --------------------------------------------------------------------------------
* Lipper Analytical Services 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.
+ The Lehman Brothers Government/Corporate Bond Index is an unmanaged index
generally considered representative of the U.S. bond market.
80
<PAGE>
================================================================================
What mistakes affected the Fund's performance during the year?
Although there was no individual portfolio holding that influenced the overall
performance of the Fund, our modest duration adjustments, which added value in
the second and fourth quarters, were offset in the first and third quarters. The
fund could also have benefited from more exposure to innovative mortgage-backed
securities throughout the year.
What's your outlook for 1997?
We don't anticipate any major moves by the Federal Reserve in the early part of
the year. We think the 30-year Treasury bond is likely to trade in a range from
6.5% to 7.5% for a while, and we will continue to monitor the economy and
inflation expectations to determine when and how rates are likely to break out
of this range. Whatever develops, we'll continue to seek debt securities that
offer a combination of quality, current income, total return potential, and low
principal risk.
Ravi Akhoury
Edward Munshower
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
81
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
BOND FUND VS. LEHMAN BROTHERS
GOVERNMENT/CORPORATES BOND INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE BOND FUND INSTITUTION LEHMAN BROTHERS
---- --------------------- ---------------
<S> <C> <C>
1/91 10,000 10,000
1Q 1991 10,240 10,270
2Q 1991 10,350 10,425
3Q 1991 10,960 11,025
4Q 1991 11,400 11,613
1Q 1992 11,264 11,439
2Q 1992 11,647 11,902
3Q 1992 12,063 12,484
4Q 1992 12,128 12,494
1Q 1993 12,627 13,075
2Q 1993 12,961 13,468
3Q 1993 13,342 13,913
4Q 1993 13,310 13,873
1Q 1994 12,949 13,439
2Q 1994 12,776 13,272
3Q 1994 12,829 13,338
4Q 1994 12,870 13,388
1Q 1995 13,460 14,055
2Q 1995 14,267 14,966
3Q 1995 14,527 15,253
4Q 1995 15,170 15,963
1Q 1996 14,800 15,590
2Q 1996 14,893 15,663
3Q 1996 15,124 15,939
12/31/96 15,595 16,426
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
BOND FUND VS. LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE BOND FUND SERVICE LEHMAN BROTHERS
---- ----------------- ---------------
<S> <C> <C>
1/91 10,000 10,000
1Q 1991 10,240 10,270
2Q 1991 10,350 10,425
3Q 1991 10,960 11,025
4Q 1991 11,400 11,613
1Q 1992 11,264 11,439
2Q 1992 11,647 11,902
3Q 1992 12,063 12,484
4Q 1992 12,128 12,494
1Q 1993 12,627 13,075
2Q 1993 12,961 13,468
3Q 1993 13,342 13,913
4Q 1993 13,310 13,873
1Q 1994 12,949 13,439
2Q 1994 12,776 13,272
3Q 1994 12,829 13,338
4Q 1994 12,870 13,388
1Q 1995 13,446 14,055
2Q 1995 14,253 14,966
3Q 1995 14,512 15,253
4Q 1995 15,128 15,963
1Q 1996 14,759 15,590
2Q 1996 14,836 15,663
3Q 1996 15,052 15,939
12/31/96 15,525 16,426
</TABLE>
Bond Fund -- Lehman Brothers Gov't/Corp Bond Index
Source; Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- --------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund Institutional
Class 2.80% 2.80% 6.47% 7.68%
Bond Fund Service Class** 2.62% 2.62% 6.37% 7.60%
Average Lipper
Intermediate U.S.
Government Fund 2.68% 2.68% 5.66% 7.05%
Lehman Brothers
Gov't/Corporate Bond Index 2.90% 2.90% 7.18% 8.62%
</TABLE>
<TABLE>
<CAPTION>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 14.00
1992 6.39
1993 9.74
1994 -3.31
1995 17.88
1996 2.80
</TABLE>
QUALITY BREAKDOWN+
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Government/Agency 36.32%
2. AAA 28.31%
3. AA 6.47%
4. A 14.46%
5. BBB 14.44%
-------
100.00%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
U.S. Government & Federal Agencies 39.09%
Domestic Bonds 34.67%
Other Asset Backed Securities 29.16%
Cash & Equivalents -2.92%#
# Adjusted for liabilities
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
US Treasury Bond, 8.875%, 8/15/17 8.44%
US Treasury Note, 5.625%, 11/30/00 8.19%
US Treasury Note, 6.50%, 11/15/26 5.53%
Hydro Quebec, 8.05%, 7/7/24 2.54%
US Treasury Note, 7.75%, 11/30/99 2.36%
Norwest Asset Securities Corp., 7.0%, 9/25/11 2.10%
FNMA (TBA) ARM, 6.00%, 1/1/27 2.08%
Airplane Pass Through Trust, 8.15%, 3/15/19 1.96%
SunAmerica Inc., 6.20%, 10/31/99 1.93%
American Reinsurance, 7.45%, 12/15/26 1.86%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. US Government & Federal Agency 39.10%
2. Yankee Bonds 13.03%
3. Commercial Mortgages 10.27%
4. Finance 8.40%
5. First Mortgage Loans 7.24%
Average Maturity 8.9 years
(as of 12/31/96)
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
82
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
LONG-TERM INVESTMENTS (102.9%)+
ASSET-BACKED SECURITIES (29.2%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AIRCRAFT LEASE (3.1%)
Aircraft Lease Portfolio Securitization Limited
Series 1996-1 Class C
6.975%, due 6/15/06 (a)(b)........................... $ 2,089,244 $ 2,089,892
Airplanes Pass Through Trust Series 1-Class C
8.15%, due 3/15/19................................... 3,374,000 3,492,090
------------
5,581,982
------------
AUTO LEASE (1.2%)
World Omni Automobile Lease Securitization Trust
Series 1996-A Class A1
6.30%, due 6/25/02................................... 2,125,000 2,132,310
------------
COMMERCIAL MORTGAGES (COLLATERALIZED
MORTGAGE OBLIGATIONS) (10.3%)
Asset Securitization Corp. Series 1996-D2 Class A1
6.92%, due 2/14/29................................... 2,425,463 2,423,183
Series 1996-D3 Class A1C 7.40%, due 10/13/26......... 1,490,000 1,525,849
Blackrock Capital Finance L.P. Series 1996-C2 Class A
7.615%, due 11/15/26 (b)............................. 1,168,847 1,184,194
DLJ Mortgage Acceptance Corp. Series 1996-CF2 Class
A1A 6.86%, due 11/12/21 (b).......................... 1,943,795 1,952,911
FDIC Remic Trust
Series 1996-C1 Class 1A 6.75%, due 5/25/26........... 3,250,000 3,240,250
GMAC Commercial Mortgage Securities, Inc.
Series 1996-C1 Class A2A 6.79%, due 9/15/03.......... 1,872,089 1,875,010
Merrill Lynch Mortgage Investors, Inc.
Series 1996-C2 Class A1 6.69%, due 11/21/28.......... 1,470,084 1,471,466
Mortgage Capital Funding, Inc. Series 1996-MC1 Class
A2A 7.35%, due 7/15/05............................... 1,414,290 1,445,447
Structured Asset Securities Corp.
Series 1996-2 Class A1 7.00%, due 8/25/26............ 1,700,000 1,710,353
Wells Fargo Capital Markets Apartment Financing
Series APT Class 1
6.56%, due 12/29/05 (b).............................. 1,525,000 1,512,129
------------
18,340,792
------------
</TABLE>
- --------
+Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CREDIT CARD RECEIVABLES (1.3%)
Standard Credit Card Master Trust
Series 1995-4 Class A
5.60%, due 2/15/00 (a)............................... $ 2,375,000 $ 2,375,736
------------
EQUIPMENT (1.7%)
Newcourt Receivables Asset Trust
Series 1996-2 Class A
6.87%, due 6/20/04................................... 1,579,067 1,591,163
Series 1996-3 Class A
6.24%, due 12/20/04.................................. 1,350,000 1,346,625
------------
2,937,788
------------
FIRST MORTGAGE LOANS (COLLATERALIZED
MORTGAGE OBLIGATIONS) (7.3%)
Bear Stearns Mortgage Securities, Inc.
Series 1996-4 Class AI2
10.50%, due 9/25/27.................................. 1,525,764 1,600,145
Series 1996-5 Class A2
10.00%, due 9/25/27.................................. 1,651,637 1,718,478
Independent National Mortgage Corp.
Series 1996-D Class A2
7.00%, due 5/25/26................................... 2,875,000 2,864,679
Norwest Asset Securities Corp. Series 1996-2 Class A6
7.00%, due 9/25/11................................... 3,730,000 3,745,144
Residential Accredit Loans, Inc. Series 1996-QS4 Class
AI2
11.00%, due 8/25/26.................................. 1,685,187 1,764,711
Residential Asset Securitization Trust Series 1996-A6
Class A10
9.00%, due 9/25/26................................... 1,222,237 1,245,154
------------
12,938,311
------------
HOME EQUITY LOAN (1.0%)
Green Tree Financial Corp. Series 1996-6 Class A6
7.95%, due 9/15/27................................... 1,800,000 1,847,808
------------
MANUFACTURED HOUSING (3.3%)
Green Tree Financial Corp.
Series 1996-8 Class A7
8.05%, due 10/15/27.................................. 2,510,000 2,580,606
Series 1996-9 Class A6
7.69%, due 1/15/28................................... 1,646,000 1,660,403
Series 1996-10 Class A6
7.30%, due 11/15/28.................................. 1,725,000 1,694,278
------------
5,935,287
------------
Total Asset-Backed Securities (Cost $51,730,268)...... 52,090,014
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
83
<PAGE>
BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
CORPORATE BONDS (21.6%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
BANKS (6.7%)
Capital One Bank
7.15%, due 9/15/06.................................... $ 1,375,000 $ 1,402,060
First USA Bank
6.25%, due 10/9/98.................................... 2,650,000 2,645,310
Integra Financial
6.50%, due 4/15/00.................................... 1,800,000 1,802,916
Midland Bank PLC
5.913%, due 6/29/49 (a)............................... 1,270,000 1,098,550
SouthTrust Bank of Alabama (Birmingham)
7.69%, due 5/15/25.................................... 1,875,000 1,999,444
Standard Chartered PLC
6.088%, due 1/29/49 (a)............................... 1,370,000 1,142,237
Wachovia Corp.
7.00%, due 12/15/99................................... 1,810,000 1,842,091
------------
11,932,608
------------
BROKERAGE (5.1%)
Lehman Brothers Holdings, Inc. 7.375%, due 5/15/07..... 2,000,000 2,061,660
Merrill Lynch & Co., Inc.
6.65%, due 1/15/99.................................... 1,875,000 1,889,794
Morgan Stanley Group, Inc. 5.625%, due 3/1/99.......... 1,685,000 1,665,285
Paine Webber Group
7.75%, due 9/1/02..................................... 1,900,000 1,961,826
Salomon, Inc., Series D 7.39%, due 2/27/98............. 1,625,000 1,643,265
------------
9,221,830
------------
FINANCE (8.4%)
Aetna Services
6.97%, due 8/15/36.................................... 1,887,000 1,922,438
American Reinsurance Corp. 7.45%, due 12/15/26 (b)..... 3,325,000 3,320,844
Associates Corp. of North America
7.75%, due 2/15/05.................................... 2,905,000 3,083,948
Sears Roebuck Acceptance Corp. Series I
5.82%, due 12/7/98.................................... 3,250,000 3,232,353
SunAmerica Inc.
6.20%, due 10/31/99................................... 3,465,000 3,449,615
------------
15,009,198
------------
UTILITIES--TELEPHONE (1.4%)
BellSouth Capital Funding 6.04%, due 11/15/26.......... 2,500,000 2,483,200
------------
Total Corporate Bonds (Cost $38,606,347)............... 38,646,836
------------
</TABLE>
U.S. GOVERNMENT &
FEDERAL AGENCIES (39.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE
CORPORATION GOLD (MORTGAGE
PASS-THROUGH SECURITIES) (0.7%)
7.00%, due 12/1/01................................. $ 1,275,000 $ 1,288,145
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (MORTGAGE
PASS-THROUGH SECURITIES) (4.4%)
6.00%, due 1/1/27 TBA (c).......................... 3,725,000 3,706,375
6.625%, due 1/1/06 TBA (c)......................... 1,000,000 982,180
6.835%, due 1/1/07 TBA (c)......................... 3,075,000 3,064,115
------------
7,752,670
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (COLLATERALIZED
MORTGAGE OBLIGATIONS) (4.9%)
6.47%, due 12/1/03................................. 1,470,000 1,460,886
6.515%, due 12/1/03................................ 1,300,000 1,285,531
6.525%, due 12/1/03................................ 1,250,000 1,236,750
9.00%, due 1/1/05-12/1/10.......................... 3,039,596 3,205,011
Series 1196-M7 Class A 6.521%, due 9/17/04......... 1,562,668 1,558,277
------------
8,746,455
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (ADJUSTABLE RATE
MORTGAGE OBLIGATIONS) (2.4%)
6.50%, due 1/20/23-2/20/23......................... 2,727,246 2,781,059
7.00%, due 11/20/21-11/20/22 1,539,906 1,572,183
------------
4,353,242
------------
TENNESSEE VALLEY AUTHORITY (0.8%)
5.98%, due 4/1/36.................................. 1,475,000 1,494,942
------------
UNITED STATES TREASURY BONDS (9.7%)
6.25%, due 8/15/23................................. 1,816,000 1,702,500
8.875%, due 8/15/17 (d)............................ 12,210,000 15,081,304
11.25%, due 2/15/15................................ 373,000 550,817
------------
17,334,621
------------
UNITED STATES TREASURY NOTES (16.2%)
5.625%, due 11/30/00............................... 14,900,000 14,629,863
6.50%, due 5/15/05-11/15/26........................ 10,020,000 9,881,817
7.75%, due 11/30/99................................ 4,035,000 4,215,929
7.875%, due 11/15/99............................... 119,000 124,672
------------
28,852,281
------------
Total U.S. Government & Federal Agencies
(Cost $69,721,992)................................. 69,822,356
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
84
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
YANKEE BONDS (13.0%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
ABN Amro Bank Chicago Nevada
6.625%, due 10/31/01.................................. $ 1,445,000 $ 1,446,300
China International Trust & Investment Corp.
9.00%, due 10/15/06................................... 1,715,000 1,889,501
Deutshe Bank Financial
6.70%, due 12/13/06................................... 1,775,000 1,744,665
Enersis SA
7.40%, due 12/1/16.................................... 1,185,000 1,178,743
Guangdong International Trust & Investments
8.75%, due 10/24/16 (b)............................... 2,450,000 2,524,358
Hero Asia BVI Co. Ltd.
9.11%, due 10/15/01 (b)............................... 850,000 889,644
Hydro-Quebec (Province of) Canada
8.05%, due 7/7/24..................................... 4,125,000 4,533,334
Naples, City of
7.52%, due 7/15/06.................................... 1,750,000 1,810,025
Republic of Columbia
7.25%, due 2/15/03.................................... 825,000 798,889
8.66%, due 10/7/16 (b)................................ 1,800,000 1,879,992
Thai Farmers Bank PLC
8.25%, due 8/21/16 (b)................................ 1,000,000 1,028,530
United Mexican States 7.5625%, due 8/6/01 (a)(b)....... 1,350,000 1,353,375
Wharf Capital International Ltd.
8.875%, due 11/1/04................................... 2,050,000 2,197,969
------------
Total Yankee Bonds (Cost $22,826,040).................. 23,275,325
------------
Total Long-Term Investments (Cost $182,884,647)........ 183,834,531
------------
</TABLE>
SHORT-TERM
INVESTMENT (0.3%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
COMMERCIAL PAPER (0.3%)
American Express Credit
Corp. 6.552%, due
1/2/97................. $ 420,000 $ 420,000
------------
Total Short-Term
Investment
(Cost $420,000)........ 420,000
------------
Total Investments
(Cost $183,304,647)
(e).................... 103.2% 184,254,531 (f)
Liabilities in Excess of
Cash and Other Assets.. (3.2) (5,648,738)
----------- ------------
Net Assets.............. 100.0% $178,605,793
=========== ============
</TABLE>
- --------
(a) Floating rate. Rate shown is the rate in effect at December 31, 1996.
(b) May be sold to institutional investors only.
(c) TBA: Securities purchased on a forward commitment basis with an
approximate principal amount and maturity date. The actual principal
amount and the maturity date will be determined upon settlement.
(d) Segregated or partially segregated as collateral for TBAs.
(e) The cost for Federal income tax purposes is $183,516,511.
(f) At December 31, 1996 net unrealized appreciation was $738,020, 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 $1,494,793, and aggregate gross
unrealized depreciation for all investments on which there was an excess
of cost over market value of $756,773.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
85
<PAGE>
BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$183,304,647).................................................. $184,254,531
Cash............................................................ 2,774
Receivables:
Interest........................................................ 2,070,638
Fund shares sold................................................ 211,961
------------
Total assets.................................................. 186,539,904
------------
LIABILITIES:
Payables:
Investment securities purchased................................. 7,794,047
Administrator................................................... 64,356
Adviser......................................................... 30,186
Custodian....................................................... 4,976
Transfer agent.................................................. 4,272
Directors....................................................... 200
Accrued expenses................................................ 36,074
------------
Total liabilities............................................. 7,934,111
------------
Net assets...................................................... $178,605,793
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................. $ 18,606
Institutional Service Class..................................... 168
Additional paid-in capital...................................... 192,095,268
Accumulated net realized loss on investments.................... (14,458,133)
Net unrealized appreciation on investments...................... 949,884
------------
Net assets...................................................... $178,605,793
============
Institutional Class
Net assets applicable to outstanding shares..................... $177,009,158
============
Shares of capital stock outstanding............................. 18,605,554
============
Net asset value per share outstanding........................... $ 9.51
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 1,596,635
============
Shares of capital stock outstanding............................. 168,265
============
Net asset value per share outstanding........................... $ 9.49
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................... $12,158,059
-----------
Expenses:
Administration.................................................... 976,711
Advisory.......................................................... 355,167
Professional...................................................... 56,088
Custodian......................................................... 31,679
Transfer agent.................................................... 28,209
Shareholder communication......................................... 28,011
Registration...................................................... 26,272
Directors......................................................... 5,594
Service........................................................... 2,948
Miscellaneous..................................................... 12,617
-----------
Total expenses before
reimbursement.................................................. 1,523,296
Expense reimbursement from Administrator.......................... (188,561)
-----------
Net expenses.................................................... 1,334,735
-----------
Net investment income............................................. 10,823,324
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investments.................................. (1,408,215)
Net change in unrealized appreciation on investments.............. (4,694,584)
-----------
Net realized and unrealized loss on investments................... (6,102,799)
-----------
Net increase in net assets resulting from operations.............. $ 4,720,525
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
86
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 10,823,324 $ 12,547,360
Net realized gain (loss) on investments........... (1,408,215) 9,840,727
Net change in unrealized appreciation
(depreciation) on investments.................... (4,694,584) 8,872,585
------------ ------------
Net increase in net assets resulting from
operations....................................... 4,720,525 31,260,672
------------ ------------
Dividends to shareholders:
From net investment income:
Institutional Class.............................. (10,771,014) (12,434,009)
Institutional Service Class...................... (96,049) (47,550)
------------ ------------
Total dividends to shareholders................. (10,867,063) (12,481,559)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 13,700,996 13,089,512
Institutional Service Class...................... 1,264,903 776,469
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Institutional Class.............................. 10,770,836 12,434,009
Institutional Service Class...................... 96,049 47,418
------------ ------------
25,832,784 26,347,408
Cost of shares redeemed:
Institutional Class.............................. (34,891,092) (53,765,148)
Institutional Service Class...................... (456,729) (64,150)
------------ ------------
Decrease in net assets derived from capital
share transactions.............................. (9,515,037) (27,481,890)
------------ ------------
Net decrease in net assets....................... (15,661,575) (8,702,777)
NET ASSETS:
Beginning of year................................. 194,267,368 202,970,145
------------ ------------
End of year....................................... $178,605,793 $194,267,368
============ ============
Accumulated undistributed net investment income... $ -- $ 1,039
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
87
<PAGE>
BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- -----------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year......... $ 9.85 $ 9.83 $ 8.93 $ 8.93 $ 9.98 $ 11.08 $ 11.40
-------- ------ -------- ------ -------- -------- --------
Net investment income...... 0.62 0.60 0.68 0.67 0.72 0.74 0.61
Net realized and unrealized
gain (loss)
on investments............ (0.34) (0.34) 0.92 0.90 (1.05) 0.26 0.05
-------- ------ -------- ------ -------- -------- --------
Total from investment
operations................ 0.28 0.26 1.60 1.57 (0.33) 1.00 0.66
-------- ------ -------- ------ -------- -------- --------
Less dividends and
distributions:
From net investment
income.................... (0.62) (0.60) (0.68) (0.67) (0.72) (1.35) (0.70)
From net realized gain
on investments............ -- -- -- -- -- (0.65) (0.28)
In excess of net realized
gain on investments....... -- -- -- -- -- (0.10) --
-------- ------ -------- ------ -------- -------- --------
Total dividends and
distributions............. (0.62) (0.60) (0.68) (0.67) (0.72) (2.10) (0.98)
-------- ------ -------- ------ -------- -------- --------
Net asset value at end of
year...................... $ 9.51 $ 9.49 $ 9.85 $ 9.83 $ 8.93 $ 9.98 $ 11.08
======== ====== ======== ====== ======== ======== ========
Total investment return.... 2.80% 2.62% 17.88% 17.55% (3.31%) 9.74% 6.39%
Ratios (to average net
assets)/Supplemental Data:
Net investment income..... 6.10% 5.85% 6.62% 6.37% 7.13% 6.86% 6.02%
Net expenses.............. 0.75% 1.00% 0.75% 1.00% 0.75% 0.70% 0.70%
Expenses (before
reimbursement)........... 0.86% 1.11% 0.86% 1.11% 0.82% 0.84% 0.85%
Portfolio turnover rate.... 398% 398% 470% 470% 478% 567% 609%
Net assets at end of year
(in 000's)................ $177,009 $1,597 $193,518 $ 749 $202,970 $219,834 $203,531
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
88
<PAGE>
INDEXED BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Overall, the U.S. investment-grade bond market was relatively weak in 1996,
providing meager returns for investors
. Yields on 30-year Treasuries rose from 5.95% at the beginning of the year to
over 7% during the summer and closed the year at 6.64%
. Price volatility made the year a difficult one for bond investing
. Mortgage-backed securities were the strongest performing sector of the
Salomon Brothers Broad Investment Grade (BIG) Index,+ returning 5.37% for the
year ended 12/31/96
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. MainStay Institutional Indexed Bond Fund provided total returns of 2.55% and
2.34% for Institutional Class shares and Service Class shares, respectively,
for the year ended 12/31/96
. The Fund negatively tracked the performance of the Salomon Brothers Broad
Investment Grade Bond Index, which returned 3.62% for the year ended 12/31/96
- --------------------------------------------------------------------------------
Price volatility Fluctuations in the price of securities, which in the fixed-
income markets is often related to changes in interest rates. Typically as
interest rates rise, bond prices decline, and as interest rates lower, bond
prices rise.
Yield The income per share (or current value of a security) paid to investors
over a specified period of time as a percentage of the cost of the security.
Mutual fund yields are expressed as a percentage of the fund's current price per
share.
Basis point One hundredth of one percent in the yield of an investment, e.g.,
100 basis points equals 1%.
- --------------------------------------------------------------------------------
While stocks advanced strongly in 1996, the U.S. investment-grade bond market
suffered from high price volatility and provided only meager returns. The 30-
year Treasury bond yielded 5.95% at the beginning of the year, which is
extremely low by historical standards. Bond investors had reason to worry when
the economy showed signs of heating up and the Federal Reserve made its first
and only move of the year at the end of January, cutting rates by 25 basis
points. Throughout the rest of the year, bond yields took a somewhat wild and
meandering ride, rising to over 7% in the summer and declining to 6.64% by the
end of the year. Although yields were volatile over the course of the year, the
absolute change for the long bond was only a 0.69% rise.
Since bond prices generally move in the opposite direction of interest rates,
price volatility was also a concern for investors during the year. The best
performing sector of the Salomon Brothers Broad Investment Grade Index was
mortgage-backed securities. The mortgage-backed securities within the Index
returned 5.37% in 1996.
Other bond sectors provided superior returns, largely because they carry higher
risk than the investment-grade securities that make up the Salomon Brothers BIG
Index. For example, the average Lipper* high current yield fund returned an
impressive 13.27%, and the average Lipper emerging market debt fund returned an
incredible 41.88%. During 1996, the Salomon Brothers Broad Investment Grade
Index returned a modest 3.62%.
- --------------------------------------------------------------------------------
+ The Salomon Brothers Broad Investment Grade Bond Index is an unmanaged index
that is considered representative of the U.S. bond market.
* Lipper Analytical Services 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.
89
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Mortgage-backed securities Securities representing interest in "pools" of
mortgages in which principal and interest payments by the holders of underlying
fixed- or adjustable-rate mortgages are, in effect, "passed through" to
investors (net of fees paid to the issuer or guarantor of the securities).
Investment-grade securities Bonds rated BBB or better by Standard & Poor's, or
Baa or better by Moody's rating services.
- --------------------------------------------------------------------------------
Given this context, how did the MainStay Institutional Indexed Bond Fund do?
For the year ended 12/31/96, the MainStay Institutional Indexed Bond Fund
returned 2.55% and 2.34% for Institutional Class shares and Service Class
shares, respectively. The Fund seeks to track the performance of the Salomon
Brothers BIG Index, which provided a higher return in 1996. The difference in
returns between the Fund and the Index may be attributed to the Fund's fees and
expenses and to tracking error. Tracking error, or the Fund's ability to track
the Index, may be affected by, among other things, transaction costs, changes in
either the composition of the Index or number of bonds outstanding for the
components of the Index, and the timing and amount of contributions to and
redemptions from the Fund by shareholders. The size and timing of isolated
withdrawals contributed significantly to the Fund's tracking error in 1996.
How did the Fund compare with other broad market measures?
The average Lipper fixed income fund returned 4.69% for the year ended 12/31/96.
It's important to note, however, that this includes the performance of funds
with higher-risk investments than the Salomon Brothers Broad Investment Grade
Index, such as junk bonds, non investment-grade high yield bonds and emerging
market debt.
If other sectors are doing better, what are the potential advantages of this
Fund?
Total return is just one aspect of a portfolio. Investors must also evaluate an
investment in terms of its quality. The Salomon Brothers BIG Index invests
primarily in U.S. Treasury and agency securities, high-grade corporate debt
securities, and mortgage-backed bonds. These are among the highest quality
securities in the bond markets and may be appropriate for risk-averse investors
seeking a combination of quality and diversity across several types of
investment-grade income investments. The Fund may be an appropriate addition to
growth portfolios seeking an income component. It may also provide a sensible
way to manage the overall risk of higher-yielding income portfolios.
Why did mortgage-backed securities do so well in 1996?
Mortgage-backed securities generally have higher yields than the yields, and
ultimate safety, offered by Treasury securities. They are also less sensitive to
interest rate increases than the longer-duration corporate sector. When interest
rates rise, there's less likelihood of people prepaying their mortgages, which
tends to make the performance of mortgage-backed securities more predictable,
helping to manage investment risk. This factor may have contributed to the
higher relative performance of mortgage-backed bonds.
What factors are likely to influence the bond markets going forward?
There can be little doubt that interest rates, the rate of economic growth, and
the possibility of inflation will continue to influence bond prices and yields.
The Federal Reserve has not taken any action to directly influence interest
rates since January 31, 1996, but may step in if inflationary pressures, an
economic upsurge, or a sudden weakening in economic fundamentals should occur.
James A. Mehling, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
90
<PAGE>
[GRAPHS APEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS SALOMON BROTHERS BIG INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INDEXED BOND FUND SOLOMON BROTHERS BIG INDEX
---- ----------------- --------------------------
<S> <C> <C>
1ST POINT 10,000 10,000
1Q 1991 10,220 10,263
2Q 1991 10,380 10,448
3Q 1991 10,930 11,042
4Q 1991 11,470 11,597
1Q 1992 11,334 11,461
2Q 1992 11,756 11,927
3Q 1992 12,262 12,442
4Q 1992 12,283 12,477
1Q 1993 12,788 12,996
2Q 1993 13,128 13,355
3Q 1993 13,491 13,708
4Q 1993 13,467 13,711
1Q 1994 13,066 13,326
2Q 1994 12,908 13,197
3Q 1994 12,956 13,269
4Q 1994 13,003 13,320
1Q 1995 13,637 13,995
2Q 1995 14,451 14,853
3Q 1995 14,723 15,135
4Q 1995 15,354 15,792
1Q 1996 15,032 15,516
2Q 1996 15,074 15,592
3Q 1996 15,312 15,884
12/31/96 15,745 16,363
</TABLE>
<TABLE>
<CAPTION>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS SALOMON BROTHERS BIG INDEX
SERVICE CLASS SHARES
DATE INDEXED BOND FUND SALOMON BROTHERS BIG INDEX
---- ----------------- --------------------------
<S> <C> <C>
1ST POINT 10,000 10,000
1Q 1991 10,220 10,263
2Q 1991 10,380 10,448
3Q 1991 10,930 11,042
4Q 1991 11,470 11,597
1Q 1992 11,334 11,461
2Q 1992 11,756 11,927
3Q 1992 12,262 12,442
4Q 1992 12,283 12,477
1Q 1993 12,788 12,996
2Q 1993 13,128 13,355
3Q 1993 13,491 13,708
4Q 1993 13,467 13,711
1Q 1994 13,066 13,326
2Q 1994 12,908 13,197
3Q 1994 12,956 13,269
4Q 1994 13,003 13,320
1Q 1995 13,663 13,995
2Q 1995 14,477 14,853
3Q 1995 14,723 15,135
4Q 1995 15,341 15,792
1Q 1996 15,020 15,516
2Q 1996 15,047 15,592
3Q 1996 15,285 15,884
12/31/96 15,699 16,363
</TABLE>
. Indexed Bond Fund -- Salomon Brothers BIG Index
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- -------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Bond Fund
Institutional Class 2.55% 2.55% 6.54% 7.85%
Indexed Bond Fund Service
Class** 2.34% 2.34% 6.48% 7.80%
Average Lipper General
U.S. Government Fund 1.72% 1.72% 5.88% 7.29%
Salomon Brothers BIG Bond
Index 3.62% 3.62% 7.13% 8.55%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 14.70
1992 7.09
1993 9.64
1994 -3.44
1995 18.07
1996 2.55
</TABLE>
- --------------------------------------------------------------------------------
QUALITY BREAKDOWN/+/
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
Government/Agency 80.89%
AAA 3.51%
AA 3.64%
A 9.05%
BBB 2.91%
-------
100.00%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31,1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
. U.S. Government & Federal Agencies 80.02%
. Domestic Bonds - Non-Covertible 15.92%
. Other 0.88%
. Foreign & Other Non-Convertible Bonds 0.99%
. Cash & Equivalents 2.19%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Donaldson, Lufkin & Jenrette, 6.875%, 11/1/05 2.61%
2. US Treasury Note, 7.125%, 9/30/99 2.01%
3. US Treasury Bond, 8.75%, 8/15/20 1.98%
4. US Treasury Note, 6.375%, 5/15/99 1.80%
5. US Treasury Note, 8.25%, 7/15/98 1.66%
6. US Treasury Note, 5.125%, 2/28/98 1.64%
7. US Treasury Note, 7.50%, 10/31/99 1.48%
8. US Treasury Note, 6.875%, 3/31/00 1.46%
9. FNMA PL#348650, 8.00%, 6/1/26 1.18%
10. US Treasury Note, 9.125%, 5/15/99 1.14%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY
HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. US Government & Federal Agencies 80.02%
2. Financial 3.09%
3. Banks 2.31%
4. Electric Utilities 1.59%
5. Consumer Financial Services 1.54%
Average Maturity 11.9 years
(as of 12/31/96)
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
Unlike other funds which generally seek to "beat" the market, index funds
seek to "match" their respective indices.
+ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
91
<PAGE>
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
LONG-TERM INVESTMENTS (96.6%)+
ASSET-BACKED SECURITIES (0.9%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CREDIT CARD RECEIVABLES (0.9%)
Standard Credit Card Master Trust, Series 1993-3
Class A
5.50%, due 2/7/00................................... $ 1,000,000 $ 988,577
------------
Total Asset-Backed Securities
(Cost $995,536)..................................... 988,577
------------
CORPORATE BONDS (15.4%)
AUTOMOTIVE (0.3%)
General Motors Corp.
8.125%, due 4/15/16................................. 300,000 310,875
------------
AUTOMOTIVE RENTALS (0.6%)
Hertz Corp.
7.00%, due 7/15/03.................................. 700,000 703,500
------------
BANKS (2.3%)
ABN Amro Bank, N.V. Chicago Branch
7.55%, due 6/28/06.................................. 800,000 829,000
ANZ Banking Group, Ltd.
7.55%, due 9/15/06.................................. 700,000 724,500
First Union Corp.
8.77%, due 11/15/04................................. 1,000,000 1,045,000
------------
2,598,500
------------
CHEMICALS (0.8%)
DuPont (E.I.) de Nemours & Co.
8.125%, due 3/15/04................................. 800,000 862,000
------------
CONSUMER FINANCIAL SERVICES (1.5%)
General Motors Acceptance Corp.
8.40%, due 10/15/99................................. 500,000 525,625
Japan Financial Corp.
8.70%, due 7/30/01.................................. 600,000 649,500
KFW International Finance, Inc.
9.125%, due 5/15/01................................. 500,000 548,750
------------
1,723,875
------------
ENTERTAINMENT (0.5%)
Walt Disney Company (The)
6.75%, due 3/30/06.................................. 600,000 595,500
------------
FINANCE (3.1%)
Commercial Credit Co.
8.70%, due 6/15/10.................................. 450,000 521,438
Donaldson, Lufkin & Jenrette Securities Corp.
6.875%, due 11/1/05................................. 3,000,000 2,925,000
------------
3,446,438
------------
FOOD, BEVERAGES & TOBACCO (0.5%)
Coca-Cola Enterprises
8.50%, due 2/1/22................................... 500,000 563,750
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
MACHINERY (0.5%)
Caterpillar, Inc.
9.00%, due 4/15/06.................................... $ 500,000 $ 571,250
------------
OIL & GAS (0.4%)
Texaco Capital, Inc.
9.75%, due 3/15/20.................................... 350,000 441,875
------------
PAPER & FOREST PRODUCTS (0.6%)
Scott Paper Co.
7.00%, due 8/15/23.................................... 650,000 619,125
------------
RETAIL--GENERAL MERCHANDISE (0.7%)
Limited, Inc.
7.50%, due 3/15/23.................................... 900,000 803,250
------------
STEEL (1.0%)
USX Corp.
7.20%, due 2/15/04.................................... 1,100,000 1,095,875
------------
UTILITIES--ELECTRIC (1.6%)
Pennsylvania Power & Light Co.
7.30%, due 3/1/24..................................... 1,000,000 938,750
Texas Utility Electric Co.
8.25%, due 4/1/04..................................... 800,000 851,000
------------
1,789,750
------------
UTILITIES--TELEPHONE (1.0%)
United Telecommunication, Inc.
9.50%, due 4/1/03..................................... 1,000,000 1,136,250
------------
Total Corporate Bonds
(Cost $16,742,635).................................... 17,261,813
------------
FOREIGN GOVERNMENT (1.0%)
CANADA (1.0%)
Ontario Hydro
7.45%, due 3/31/13 (g)................................ 500,000 517,500
Quebec (Province of)
7.50%, due 7/15/23 (g)................................ 600,000 596,250
------------
Total Foreign Government
(Cost $1,027,380)..................................... 1,113,750
------------
INTERNATIONAL
CORPORATE BOND (0.5%)
BANK (0.5%)
Korea Development Bank (Eurobonds)
7.25%, due 5/15/06.................................... 600,000 606,000
------------
Total International Corporate Bond
(Cost $587,210)....................................... 606,000
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
92
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
U.S. GOVERNMENT & FEDERAL AGENCIES (78.8%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (7.9%)
6.50%, due 10/1/01-5/1/26......................... $ 2,963,704 $ 2,902,575
7.00%, due 8/1/03-7/1/26.......................... 2,960,595 2,946,751
7.50%, due 9/1/11-11/1/26......................... 1,976,205 1,991,731
8.00%, due 7/1/26................................. 979,440 998,418
------------
8,839,475
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (10.5%)
6.50%, due 7/1/03-5/1/26.......................... 3,354,040 3,290,341
7.00%, due 5/1/11-11/1/26......................... 3,454,834 3,419,918
7.50%, due 11/1/26................................ 494,660 494,351
8.00%, due 7/1/07-11/1/26......................... 4,460,244 4,561,597
------------
11,766,207
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (8.5%)
7.00%, due 3/15/07-5/15/26........................ 1,980,766 1,962,895
7.50%, due 8/15/08-11/15/26....................... 2,964,033 2,982,518
8.00%, due 6/15/26-11/15/26....................... 2,473,345 2,523,586
8.50%, due 7/15/26-11/15/26....................... 1,967,434 2,038,140
------------
9,507,139
------------
UNITED STATES TREASURY BONDS (15.1%)
6.25%, due 8/15/23................................ 700,000 656,495
6.875%, due 8/15/25............................... 500,000 509,430
7.125%, due 2/15/23............................... 600,000 626,250
7.25%, due 5/15/16................................ 500,000 528,105
7.50%, due 11/15/16-11/5/24....................... 1,200,000 1,304,052
7.625%, due 11/15/22-2/15/25...................... 800,000 885,796
8.00%, due 11/15/21............................... 1,000,000 1,147,560
8.125%, due 8/15/19-5/15/21....................... 1,100,000 1,274,373
8.75%, due 5/15/17-8/15/20........................ 2,300,000 2,828,364
8.875%, due 2/15/19............................... 600,000 744,930
9.375%, due 2/15/06............................... 530,000 638,072
9.875%, due 11/15/15.............................. 600,000 801,864
10.375%, due 11/15/12............................. 500,000 644,390
11.25%, due 2/15/15............................... 400,000 590,688
11.75%, due 2/15/01............................... 400,000 480,924
11.875%, due 11/15/03............................. 500,000 652,125
12.00%, due 8/15/13............................... 500,000 715,290
12.75%, due 11/15/10.............................. 400,000 566,200
13.125%, due 5/15/01.............................. 300,000 379,137
13.375%, due 8/15/01.............................. 500,000 642,965
14.25%, due 2/15/02............................... 300,000 404,943
------------
17,021,953
------------
UNITED STATES TREASURY NOTES (36.8%)
4.75%, due 8/31/98................................ 1,000,000 983,030
5.125%, due 2/28/98-12/31/98...................... 3,850,000 3,817,311
5.25%, due 7/31/98................................ 1,000,000 992,200
5.375%, due 5/31/98............................... 1,000,000 994,650
5.50%, due 9/30/97................................ 750,000 749,978
5.75%, due 10/31/97-10/31/00...................... 1,100,000 1,092,851
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES (Continued)
5.875%, due 8/15/98-3/31/99...................... $ 2,200,000 $ 2,199,862
6.00%, due 10/15/99.............................. 1,000,000 1,000,650
6.125%, due 9/30/00.............................. 700,000 699,566
6.25%, due 4/30/01-2/15/03....................... 1,900,000 1,901,027
6.375%, due 5/15/99-8/15/02...................... 4,600,000 4,638,425
6.75%, due 4/30/00............................... 700,000 713,223
6.875%, due 3/31/00.............................. 1,600,000 1,635,824
7.00%, due 4/15/99............................... 1,200,000 1,226,664
7.125%, due 10/15/98-9/30/99..................... 3,200,000 3,281,908
7.50%, due 10/31/99-2/15/05...................... 3,000,000 3,144,990
7.75%, due 2/15/01............................... 500,000 528,355
7.875%, due 11/15/99............................. 1,000,000 1,047,840
8.25%, due 7/15/98............................... 1,800,000 1,863,846
8.50%, due 2/15/20............................... 1,600,000 1,761,420
8.75%, due 10/15/97.............................. 3,800,000 3,891,732
8.875%, due 11/15/97............................. 1,800,000 1,848,510
9.125%, due 5/15/99.............................. 1,200,000 1,282,344
------------
41,296,206
------------
Total U.S. Government & Federal Agencies
(Cost $87,357,154)............................... 88,430,980 (c)
------------
Total Long-Term Investments
(Cost $106,709,915).............................. 108,401,120
------------
SHORT-TERM
INVESTMENTS (2.1%)
COMMERCIAL PAPER (0.9%)
Firestone Retail Credit, Inc.
6.10%, due 1/3/97 (a)............................ 1,000,000 999,661
------------
Total Commercial Paper
(Cost $999,661).................................. 999,661
------------
U.S. GOVERNMENT (1.2%)
United States Treasury Bill
4.83%, due 2/6/97 (a)............................ 300,000 298,449
4.995%, due 4/3/97 (a)........................... 1,100,000 1,085,649
------------
Total U.S. Government
(Cost $1,384,677)................................ 1,384,098
------------
Total Short-Term Investments
(Cost $2,384,338)................................ 2,383,759
------------
Total Investments
(Cost $109,094,253) (d).......................... 98.7% 110,784,879 (e)
Cash and Other Assets, Less Liabilities........... 1.3 1,461,623
----------- ------------
Net Assets........................................ 100.0% $112,246,502
=========== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
93
<PAGE>
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
FUTURES CONTRACTS (0.0%)(b)
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG DEPRECIATION
---------------------------
<S> <C> <C>
United States Treasury Note March 1997 (5 Year)..... 11 $ (11,454)(f)
United States Treasury Note March 1997 (10 Year).... 7 (10,570)(f)
United States Treasury Bond March 1997 (30 Year).... 4 (5,915)(f)
------------
Total Futures Contracts
(Settlement Value $2,386,906)...................... $ (27,939)
============
</TABLE>
- --------
(a) Segregated or partially segregated as collateral for futures contracts.
(b) Less than one tenth of a percent.
(c) The combined market value of U.S. Government and Federal Agencies
Investments and the settlement value of U.S. Treasury future contracts
represents 80.0% of net assets.
(d) The cost for Federal income tax purposes is $109,094,486.
(e) At December 31, 1996 net unrealized appreciation was $1,690,393, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $2,089,827 and aggregate unrealized depreciation
for all investments on which there was an excess of cost over market value
of $399,434.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1996.
(g) Yankee bonds.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
94
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INDEXED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$109,094,253).................................................. $110,784,879
Cash............................................................ 42,636
Receivables:
Interest........................................................ 1,616,950
Fund shares sold................................................ 30,230
------------
Total assets.................................................. 112,474,695
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................ 141,616
Administrator................................................... 16,678
Adviser......................................................... 9,613
Custodian....................................................... 6,900
Transfer agent.................................................. 4,440
Directors....................................................... 132
Accrued expenses................................................ 29,727
Variation margin payable on futures contracts................... 19,087
------------
Total liabilities............................................. 228,193
------------
Net assets...................................................... $112,246,502
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................. $ 10,403
Institutional Service Class..................................... 263
Additional paid-in capital...................................... 112,039,071
Accumulated undistributed net investment income................. 3,976
Accumulated net realized loss on investments.................... (1,469,898)
Net unrealized appreciation on investments...................... 1,662,687
------------
Net assets...................................................... $112,246,502
============
Institutional Class
Net assets applicable to outstanding shares..................... $109,482,123
============
Shares of capital stock outstanding............................. 10,402,630
============
Net asset value per share outstanding........................... $ 10.52
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 2,764,379
============
Shares of capital stock outstanding............................. 262,696
============
Net asset value per share outstanding........................... $ 10.52
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest........................................................... $8,310,727
----------
Expenses:
Administration..................................................... 495,190
Advisory........................................................... 123,798
Professional....................................................... 45,874
Custodian.......................................................... 36,991
Registration....................................................... 27,956
Transfer agent..................................................... 27,301
Shareholder communication.......................................... 20,685
Service............................................................ 5,700
Directors.......................................................... 4,042
Miscellaneous...................................................... 27,753
----------
Total expenses before
reimbursement................................................... 815,290
Expense reimbursement from Administrator........................... (189,996)
----------
Net expenses..................................................... 625,294
----------
Net investment income.............................................. 7,685,433
----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss from:
Security transactions.............................................. (127,320)
Futures transactions............................................... (83,400)
----------
Net realized loss on investments................................... (210,720)
----------
Net change in unrealized appreciation on investments:
Security transactions.............................................. (5,378,206)
Futures transactions............................................... (85,236)
----------
Net unrealized loss on investments................................. (5,463,442)
----------
Net realized and unrealized loss on investments.................... (5,674,162)
----------
Net increase in net assets resulting from operations............... $2,011,271
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
95
<PAGE>
INDEXED BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 7,685,433 $ 10,722,057
Net realized gain (loss) on investments........... (210,720) 4,130,729
Net change in unrealized appreciation (deprecia-
tion) on investments............................. (5,463,442) 13,058,011
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 2,011,271 27,910,797
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (7,431,001) (11,220,560)
Institutional Service Class...................... (179,250) (28,621)
From net realized gain on investments:
Institutional Class.............................. -- (973,373)
Institutional Service Class...................... -- (2,514)
------------ ------------
Total dividends and distributions to
shareholders................................... (7,610,251) (12,225,068)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 26,939,671 20,545,438
Institutional Service Class...................... 2,494,926 451,329
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 7,370,778 12,122,750
Institutional Service Class...................... 179,250 31,130
------------ ------------
36,984,625 33,150,647
Cost of shares redeemed:
Institutional Class.............................. (82,553,928) (54,548,971)
Institutional Service Class...................... (275,156) (1,915)
------------ ------------
Decrease in net assets derived from capital
share transactions.............................. (45,844,459) (21,400,239)
------------ ------------
Net decrease in net assets....................... (51,443,439) (5,714,510)
NET ASSETS:
Beginning of year................................. 163,689,941 169,404,451
------------ ------------
End of year....................................... $112,246,502 $163,689,941
============ ============
Accumulated undistributed net investment
income/(excess distribution)..................... $ 3,976 $ (63,855)
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
96
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INDEXED BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ----------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 10.99 $10.99 $ 10.06 $10.06 $ 11.08 $ 11.65 $ 11.47
-------- ------ -------- ------ -------- -------- --------
Net investment income... 0.76 0.74 0.82 0.81 0.65 0.67 0.79
Net realized and
unrealized gain (loss)
on investments......... (0.48) (0.48) 1.00 1.00 (1.03) 0.38 (0.02)
-------- ------ -------- ------ -------- -------- --------
Total from investment
operations............. 0.28 0.26 1.82 1.81 (0.38) 1.05 0.77
-------- ------ -------- ------ -------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.75) (0.73) (0.82) (0.81) (0.64) (1.46) (0.56)
From net realized gain
on investments......... -- -- (0.07) (0.07) -- (0.15) (0.03)
In excess of net
realized gain on
investments............ -- -- -- -- -- (0.01) --
-------- ------ -------- ------ -------- -------- --------
Total dividends and
distributions.......... (0.75) (0.73) (0.89) (0.88) (0.64) (1.62) (0.59)
-------- ------ -------- ------ -------- -------- --------
Net asset value at end
of year................ $ 10.52 $10.52 $ 10.99 $10.99 $ 10.06 $ 11.08 $ 11.65
======== ====== ======== ====== ======== ======== ========
Total investment
return................. 2.55% 2.34% 18.07% 17.97% (3.44%) 9.64% 7.09%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 6.21% 5.96% 6.38% 6.13% 6.13% 6.19% 7.30%
Net expenses........... 0.50% 0.75% 0.50% 0.75% 0.50% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.65% 0.90% 0.63% 0.88% 0.61% 0.61% 0.61%
Portfolio turnover
rate................... 312% 312% 284% 284% 274% 213% 78%
Net assets at end of
year (in 000's)........ $109,482 $2,764 $163,219 $ 471 $169,404 $159,792 $125,003
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
97
<PAGE>
INTERNATIONAL BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. The strength of the U.S. dollar relative to other currencies increased the
risk of unhedged international bond investments
. European monetary union requirements forced governments to reduce their
deficits, which led to lower European interest rates and a European bond
market rally
. Many emerging markets offered outstanding performance throughout the year
. Overall, international bonds outperformed U.S. debt securities, and on a
hedged basis, the results were even more dramatic
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 14.32% and 14.08% for Institutional Class and
Service Class shares, respectively, as of 12/31/96
. Both share classes outperformed the average Lipper* international income
fund and the Salomon Brothers Non-U.S. Dollar World Government Bond Index/+/
for the 12 months ended 12/31/96
. Risk management strategies included hedging against the U.S. dollar and the
Deutsche mark seeking to minimize unfavorable currency exposure
. The Fund had favorable results from country allocation, especially in Spain,
Italy, Sweden, and Canada
- --------------------------------------------------------------------------------
Hedging The process of managing or "hedging" the risks associated with owning
securities denominated in different currencies, the relative values of which may
change at any time. There can be no assurance that currency hedging will be
beneficial to investors.
Weighting The proportion of a portfolio allocated to a specific market sector
or country, i.e., a fund is said to be overweighted in a country when that
portion of the portfolio is larger than the country's total bonds relative to
international bond markets as a whole.
- --------------------------------------------------------------------------------
1996 was a strong year for international bonds. While some markets, such as
Japan, provided minimal returns, emerging markets provided spectacular results
of 34.6%.** Other major developed markets also turned in excellent results, with
Italy and Spain up 22% in local terms, Sweden up 18%, and Canada up 11.8%.
Although the Canadian market wasn't the top performer, it picked up
substantially at the end of the year, providing a 5% return in the fourth
quarter alone.
Signs of economic recovery in Japan gave the bond markets a scare in the first
quarter. With the suggestion that short-term rates had bottomed out in Japan,
investors started selling bonds on fears that rates would rise. While the
phenomenon was short-lived, it had an impact around the world.
In Europe, economic reform and fiscal consolidation led to dramatically lower
interest rates, which fueled a European bond market rally. The strengthening
U.S. dollar relative to most major currencies posed a risk for international
bond investors. While international bond returns were attractive on a local
basis, they were particularly strong when effectively hedged.
- --------------------------------------------------------------------------------
* Lipper Analytical Services 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.
+ The Salomon Brothers Non-U.S. Dollar World Government Bond Index is an
unmanaged index generally considered representative of the world bond
market.
** Source: Salomon Brothers Brady Bond Index.
98
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
International diversification Purchasing securities in several international
markets, which may react differently to economic, monetary, and market trends.
Diversification may provide opportunities for investors to pursue higher returns
while managing the risks of investing only domestically.
Yield curve When interest rates available from various short-, intermediate-,
and long-term securities are plotted on a graph, the resulting line is known as
a "yield curve." The "front end" of the yield curve, then, would consist of
short- to intermediate-term bonds which generally offer lower interest rates
than longer term investments.
- --------------------------------------------------------------------------------
Given this background, how did the MainStay Institutional International Bond
Fund do in 1996?
For the 12 months ended December 31, 1996, the MainStay International Bond Fund
provided total returns of 14.32% and 14.08% for Institutional Class shares and
Service Class shares, respectively. These results placed the Fund well ahead of
the average Lipper international income fund, which returned 8.75%, and the
Salomon Brothers Non-U.S. Dollar World Government Bond Index, which returned
4.08%, over the same period.
What were the major contributors to this positive performance?
There were several themes that helped the portfolio. First, the Japanese market,
where returns were much too low to compensate for the risk, was avoided
completely. Second, selective use of currency hedging against both the U.S.
dollar and the Deutsche mark, gave the Fund's performance a considerable boost.
Third, we selected strong markets and overweighted the portfolio where we felt
returns would be highest. And fourth, we adjusted duration throughout the year
in ways that benefited the portfolio.
Why was hedging so important this year?
The U.S. dollar was strengthening most of the year against many major
currencies. Hedging is a risk management strategy that helped avoid giving back
the gains made in the local markets when the returns were translated into
dollars. In some cases, the Fund benefited from remaining unhedged, as with
Australian bonds during the first half of the year when the Australian dollar
increased in value. But most of the Fund's investments were hedged for most of
the year, which enhanced the performance of the portfolio.
Can you give an example of a currency used to hedge the Fund?
We used the Deutsche mark as a hedging vehicle for the Fund's Italian, Spanish,
and Swedish government bond positions. That allowed the Fund to help protect its
foreign bond returns from dollar strength and to recoup most or all the capital
gains and interest income from them without having to take currency losses when
returns were translated back into dollars.
Which countries did you concentrate in during 1996?
While the Fund invests in a diversified array of markets, we concentrated in a
few we thought would be stellar performers. We like Canada because it's already
been through the pain of fiscal consolidation and currency weakness that Europe
is just now going through. It's an export giant, has huge surpluses with the
United States, and is the United State's largest trading partner. We felt
Canadian bonds represented excellent value and would provide attractive yields.
So there's a lot to like there.
Where else were the Fund's investments focused?
In Europe, we focused on Italy, Sweden, and Spain. Several European currencies
have rallied in 1996, including the Italian lira which increased 12% versus the
Deutsche mark and Swedish currency which rose 5%. But each of these countries
provided much higher yields than German bonds, so the Fund benefited from
returns of 22% in Italy and Spain and 18% in Sweden, as well as making money on
the currency. We believe that the vast majority of an international bond
portfolio's return will come from its country and currency selections. And they
both paid off for the Fund during the year.
99
<PAGE>
================================================================================
How and why did you adjust the duration of the portfolio in 1996?
With the Japanese bond scare, fears of U.S. rate hikes, and the threat of a bond
sell-off, we shortened our duration in Belgium, Germany, Denmark, and the dollar
block countries (Canada and Australia) in the first quarter, which was good for
the Fund by helping avoid losses when interest rates in these countries
increased. In the middle of the second quarter and throughout the rest of the
year, we increased our duration in Spain, Italy, and Sweden, which also had a
positive effect as those bond markets rallied. Duration stance, coupled with
country and currency weightings placed the Fund's investments in the right place
at the right time and helped the Fund outperform its peers.
What was the Fund's position in other European countries?
The Fund wasn't heavily invested in the U.K., which was a laggard in 1996. The
U.K. market suffered political and economic risks, which may get worse if the
U.K. doesn't converge with other European nations in its monetary policies.
Generally, France traded very much like Germany, and the Fund's underweighted
position was a positive for the Fund as other country holdings recorded higher
returns for the Fund.
Where was the Fund positioned on the yield curve throughout the year?
The Fund stayed largely at the front end of the yield curve, or in shorter-term
paper with maturities from two to ten years. We didn't find the added yield that
we may have obtained by buying longer-term bonds was worth the risks the Fund
would have to take. Yield curve decisions also contributed to the Fund's
positive performance in 1996.
Did you make any major mistakes during the year?
Looking back, I think our biggest mistake was avoiding emerging markets
entirely. The rise in oil prices helped a lot of emerging market economies, most
notably Venezuela and Mexico. We may have missed some important opportunities by
not taking advantage of these markets at least to some degree.
What do you see ahead for 1997?
We will probably continue to be overweighted in shorter-term bonds, unless the
direction of the market changes. We're continuing to look at Italy, which tends
to be very volatile from a political standpoint. We're maintaining an open mind
about small exposure in emerging markets. And naturally, we'll continue to seek
out promising countries, currencies, and securities that have the potential to
maximize current income for our shareholders, with a reasonable level of risk.
Joseph Portera
Portfolio Manager
Note: Foreign investing may be subject to greater risks than domestic investing.
These may include securities markets that are less efficient, less liquid and
more volatile than those in the United States, as well as foreign currency
fluctuations and different governmental regulatory concerns.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
100
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS
LIPPER INTERNATIONAL INCOME FUND
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INTL. BOND FUND LIPPER INTL. INCOME FUND
---- --------------- ------------------------
<S> <C> <C>
1/95 10,000 10,000
1Q 1995 10,790 11,444
2Q 1995 11,130 12,003
3Q 1995 11,270 11,712
4Q 1995 11,846 11,955
1Q 1996 12,048 11,753
2Q 1996 12,440 11,800
3Q 1996 12,992 12,184
12/31/96 13,543 12,443
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS
LIPPER INTERNATIONAL INCOME FUND
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE INTL. BOND FUND LIPPER INTL. INCOME FUND
---- --------------- ------------------------
<S> <C> <C>
1/95 10,000 10,000
1Q 1995 10,790 11,444
2Q 1995 11,130 12,003
3Q 1995 11,260 11,712
4Q 1995 11,826 11,955
1Q 1996 12,028 11,753
2Q 1996 12,399 11,800
3Q 1996 12,951 12,184
12/31/96 13,491 12,443
</TABLE>
. International Bond Fund --Lipper International Income Fund
Source: Lipper Analytical Services Inc.
The graphs assume a $10,000 investment made on 1/1/95.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Bond Fund Institutional Class 14.32% 14.32% N/A 16.32%
International Bond Fund Service Class 14.08% 14.08% N/A 16.10%
Average Lipper International Income Fund 8.75% 8.75% 8.54% 13.80%
Salomon Brothers Non-U.S. Dollar World Gov't Bond Index 4.08% 4.08% 9.73% 11.55%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Foreign & Other Non-Convertible Bonds 77.48%
Cash & Fixed Income (maturities less than or
equal to 1 year) 22.38%
Other 0.14%
- --------------------------------------------------------------------------------
QUALITY BREAKDOWN/+/
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
AAA 61.32%
AA 38.68%
-------
100.00%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Buoni Paliennali del Tesora, 8.50%, 1/1/04 3.50%
2. Buoni Paliennali del Tesora, 8.50%, 8/1/97 3.11%
3. United Kingdom Treasury, 8.50%, 7/16/07 2.90%
4. Buoni Paliennali del Tesora, 8.50%, 4/1/99 2.84%
5. Republic of Deutschland, 7.50%, 11/11/04 2.77%
6. Buoni Paliennali del Tesora, 9.50%, 2/1/01 2.75%
7. Province of Ontario, 7.25%, 9/27/05 2.72%
8. Australian Government, 10.00%, 2/15/06 2.55%
9. Kingdom of Denmark, 9.00%, 11/15/98 2.37%
10. United Kingdom Treasury, 10.00%, 9/8/03 2.31%
- --------------------------------------------------------------------------------
TOP 10 COUNTRIES
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Italy 13.96%
2. Canada 8.81%
3. Germany 7.62%
4. United Kingdom 7.47%
5. France 6.82%
6. Denmark 6.73%
7. Sweden 6.44%
8. Australia 6.34%
9. Spain 4.64%
10. Austria 3.34%
Average Maturity 6.1 years
(as of 12/31/96)
- --------------------------------------------------------------------------------
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee
of .25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
The inception date of the International Bond Fund and the date such shares
were first offered to the public was 1/1/95.
+ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
101
<PAGE>
INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
LONG-TERM GOVERNMENT
BONDS (77.5%)+
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
AUSTRALIA (6.4%)
Australian Government
Series 803
9.50%, due 8/15/03................................ A$ 530,000 $ 470,785
Series 302
9.75%, due 3/15/02................................ 770,000 682,397
Series 206
10.00%, due 2/15/06............................... 1,430,000 1,330,265
New South Wales Treasury Corp.
Series 98
7.50%, due 2/1/98................................. 800,000 644,197
Queensland Treasury Corp. Series 7
8.00%, due 9/14/07................................ 225,000 183,262
-----------
3,310,906
-----------
AUSTRIA (3.3%)
Republic of Austria
Series 94-3
5.75%, due 3/22/99................................ AS 5,500,000 527,952
Series 93-1
7.00%, due 1/20/03................................ 4,850,000 484,126
Series 95-1
7.50%, due 1/24/05................................ 7,120,000 729,767
-----------
1,741,845
-----------
CANADA (8.8%)
Canadian Government Series A76
9.00%, due 6/1/25................................. C$ 55,000 49,407
9.75%, due 6/1/01................................. 1,160,000 988,263
Series H74
10.00%, due 6/1/08................................ 210,000 194,885
Series A33
11.50%, due 9/1/00................................ 880,000 775,751
Province of British Columbia Series BCCD
8.00%, due 8/23/05................................ 1,225,000 983,564
Series EC-8
10.75%, due 2/19/01............................... 215,000 187,147
Province of Ontario
7.25%, due 9/27/05................................ 1,860,000 1,418,034
-----------
4,597,051
-----------
DENMARK (6.7%)
Kingdom of Denmark
7.00%, due 12/15/04............................... DK 6,150,000 1,086,667
7.00%, due 11/10/24............................... 1,540,000 247,490
8.00%, due 11/15/01............................... 3,910,000 735,746
9.00%, due 11/15/98............................... 6,710,000 1,238,737
9.00%, due 11/15/00............................... 1,055,000 203,796
-----------
3,512,436
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
FRANCE (6.8%)
France Bons du Tresor Negociables
5.75%, due 11/12/98............................. FF 1,500,000 $ 300,043
France Obligations Assimilables du Tresor 7.50%,
due 4/25/05..................................... 3,960,000 860,386
8.25%, due 2/27/04.............................. 2,480,000 559,089
8.50%, due 3/28/00.............................. 3,000,000 653,523
8.50%, due 11/25/02............................. 4,200,000 950,479
8.50%, due 10/25/08............................. 850,000 198,588
8.50%, due 12/26/12............................. 170,000 40,260
-----------
3,562,368
-----------
GERMANY (7.6%)
German Unity Fund 8.50%, due 2/20/01 (a)......... DM 1,050,000 781,210
International Bank of Reconstruction &
Development
7.125%, due 4/12/05 (a)......................... 400,000 281,615
Republic of Deutschland Series 94
6.25%, due 1/4/24 (a)........................... 530,000 326,403
Series 95
7.375%, due 1/3/05 (a).......................... 255,000 183,633
Series 94
7.50%, due 11/11/04 (a)......................... 1,990,000 1,443,519
Treuhandanstalt
6.50%, due 4/23/03.............................. 470,000 324,463
7.50%, due 9/9/04 (a)........................... 875,000 634,316
-----------
3,975,159
-----------
IRELAND (3.2%)
Irish Government
6.25%, due 4/1/99 (a)........................... IP 179,000 304,626
8.25%, due 8/18/15 (a).......................... 111,000 212,480
8.75%, due 7/27/97 (a).......................... 179,000 307,474
8.75%, due 9/30/12 (a).......................... 179,000 357,493
9.25%, due 7/11/03 (a).......................... 258,000 505,881
-----------
1,687,954
-----------
ITALY (14.0%)
Buoni Poliennali del Tesoro 8.50%, due 8/1/97.... IL 2,460,000,000 1,625,962
8.50%, due 4/1/99............................... 2,155,000,000 1,480,377
8.50%, due 1/1/04............................... 2,590,000,000 1,828,618
9.50%, due 2/1/01............................... 1,985,000,000 1,434,262
10.00%, due 8/1/03.............................. 1,220,000,000 919,160
-----------
7,288,379
-----------
JAPAN (2.1%)
Autobahn Schnell
6.00%, due 3/11/00.............................. (Yen) 110,000,000 1,086,481
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
102
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
LONG-TERM GOVERNMENT BONDS (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
SPAIN (4.6%)
Spanish Government 9.00%, due 2/28/97.............. SP 8,720,000 $ 67,277
10.50%, due 10/30/03.............................. 120,060,000 1,122,117
11.30%, due 1/15/02............................... 50,270,000 471,500
12.25%, due 3/25/00............................... 83,500,000 761,671
-----------
2,422,565
-----------
SWEDEN (6.5%)
Banque Nationale de Paris Series EMTN
11.00%, due 11/4/99............................... SK 6,050,000 1,011,436
Swedish Government Series 1034
9.00%, due 4/20/09................................ 4,900,000 844,018
Series 1033
10.25%, due 5/5/03................................ 5,000,000 891,164
Series 1020
10.75%, due 1/23/97............................... 1,600,000 235,638
Series 1030
13.00%, due 6/15/01............................... 2,000,000 377,652
-----------
3,359,908
-----------
UNITED KINGDOM (7.5%)
United Kingdom Treasury Bonds
8.50%, due 7/16/07 (a)............................ (Pounds) 825,000 1,511,532
9.50%, due 4/18/05 (a)............................ 305,000 585,396
10.00%, due 2/26/01 (a)........................... 320,000 601,008
10.00%, due 9/8/03 (a)............................ 620,000 1,203,579
-----------
3,901,515
-----------
Total Long-Term Government Bonds
(Cost $37,001,010)................................ 40,446,567
-----------
SHORT-TERM INVESTMENTS (5.4%)
COMMERCIAL PAPER (5.4%)
UNITED STATES (5.4%)
A.I. Credit Corp.
6.50%, due 1/2/97................................. $ 2,240,000 2,239,594
Ameritech Corp.
6.25%, due 1/2/97................................. 600,000 599,896
-----------
Total Short-Term Investments (Cost $2,839,490)..... 2,839,490
-----------
</TABLE>
OPTIONS (0.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
UNITED STATES (0.1%)
U.S. Dollar Put/Deutsche Mark Call
Strike price DM 1.5150
Expires 5/16/97............................... $ 3,868,000 $ 71,365
-----------
Total Options (Cost $52,025)................... 71,365
-----------
Total Investments (Cost $39,892,525) (b)....... 83.0% 43,357,422 (c)
Cash and Other Assets, Less Liabilities........ 17.0 8,846,957
--------------- -----------
Net Assets..................................... 100.0% $52,204,379
=============== ===========
</TABLE>
- --------
(a) Segregated as collateral for options and forward foreign currency
contracts.
(b) The cost for Federal income tax purposes is $39,919,099.
(c) At December 31, 1996 net unrealized appreciation for securities was
$3,438,323, 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 $3,839,799 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $401,476.
(d) The following abbreviations are used in the above portfolio:
A$ --Australian Dollar
AS --Austrian Schilling
C$ --Canadian Dollar
DK --Danish Krone
DM --Deutsche Mark
FF --French Franc
IP --Irish Punt
IL --Italian Lira
Y --Japanese Yen
P --Pound Sterling
SP --Spanish Peseta
SK --Swedish Krona
$ --U.S. Dollar
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
103
<PAGE>
INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $39,892,525).................................... $43,357,422
Cash denominated in foreign currencies (identified cost
$7,018,256)...................................................... 6,949,136
Cash.............................................................. 164,667
Receivables:
Interest.......................................................... 1,358,598
Fund shares sold.................................................. 11,875
Unrealized net appreciation on forward foreign currency
contracts........................................................ 477,195
Unamortized organization expense ................................. 2,278
-----------
Total assets.................................................... 52,321,171
-----------
LIABILITIES:
Payables:
Investment securities purchased................................... 52,025
Adviser........................................................... 13,011
Administrator..................................................... 12,496
Fund shares redeemed.............................................. 9,866
Transfer agent.................................................... 4,793
Custodian......................................................... 3,288
Directors......................................................... 68
Accrued expenses.................................................. 21,245
-----------
Total liabilities............................................... 116,792
-----------
Net assets........................................................ $52,204,379
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized Institutional Class................................... $ 4,682
Institutional Service Class....................................... 20
Additional paid-in capital........................................ 48,311,757
Accumulated undistributed net investment income................... 6,097
Accumulated undistributed net realized gain on investments........ 13,914
Net unrealized appreciation on investments........................ 3,464,897
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies and forward foreign currency
contracts........................................................ 403,012
-----------
Net assets........................................................ $52,204,379
===========
Institutional Class
Net assets applicable to outstanding shares....................... $51,979,847
===========
Shares of capital stock outstanding............................... 4,681,672
===========
Net asset value per share outstanding............................. $ 11.10
===========
Institutional Service Class
Net assets applicable to outstanding shares....................... $ 224,532
===========
Shares of capital stock outstanding............................... 20,286
===========
Net asset value per share outstanding............................. $ 11.07
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest (a)...................................................... $3,283,519
----------
Expenses:
Administration.................................................... 235,493
Advisory.......................................................... 141,296
Professional...................................................... 31,369
Transfer agent.................................................... 25,958
Registration...................................................... 24,420
Custodian......................................................... 20,685
Amortization of organization expense.............................. 10,884
Shareholder communication......................................... 9,242
Directors......................................................... 1,214
Service........................................................... 366
Miscellaneous..................................................... 9,389
----------
Total expenses before
reimbursement.................................................. 510,316
Expense reimbursement from Administrator.......................... (61,961)
----------
Net expenses.................................................... 448,355
----------
Net investment income............................................. 2,835,164
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain from:
Security transactions............................................. 868,042
Foreign currency transactions..................................... 2,078,040
----------
Net realized gain on investments and foreign currency
transactions..................................................... 2,946,082
----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions............................................. 179,771
Translation of assets and liabilities in foreign currencies and
forward foreign currency contracts............................... 421,727
----------
Net unrealized gain on investments and
foreign currencies............................................... 601,498
----------
Net realized and unrealized gain on investments and foreign
currency transactions............................................ 3,547,580
----------
Net increase in net assets resulting from operations.............. $6,382,744
==========
</TABLE>
- --------
(a) Interest recorded net of foreign withholding taxes of $68,282.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
104
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................... $ 2,835,164 $ 2,683,099
Net realized gain on investments.................... 868,042 781,828
Net realized gain on foreign currency transac-
tions.............................................. 2,078,040 89,561
Net change in unrealized appreciation on invest-
ments.............................................. 179,771 3,285,126
Net change in unrealized appreciation (deprecia-
tion) on translation of assets and liabilities in
foreign currencies and forward foreign currency
contracts.......................................... 421,727 (18,715)
----------- -----------
Net increase in net assets resulting from opera-
tions.............................................. 6,382,744 6,820,899
----------- -----------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Institutional Class................................ (5,580,459) (2,076,295)
Institutional Service Class........................ (22,729) (284)
From net realized gain on investments:
Institutional Class................................ (1,136,473) (494,713)
Institutional Service Class........................ (4,703) (67)
----------- -----------
Total dividends and distributions to sharehold-
ers.............................................. (6,744,364) (2,571,359)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................ 2,326,123 895,688
Institutional Service Class........................ 205,185 5,756
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................ 6,716,923 2,571,004
Institutional Service Class........................ 27,424 349
----------- -----------
9,275,655 3,472,797
Cost of shares redeemed:
Institutional Class................................ (1,096,721) --
Institutional Service Class........................ (7,271) (38)
----------- -----------
Increase in net assets derived from capital share
transactions...................................... 8,171,663 3,472,759
----------- -----------
Net increase in net assets......................... 7,810,043 7,722,299
NET ASSETS:
Beginning of year................................... 44,394,336 36,672,037
----------- -----------
End of year......................................... $52,204,379 $44,394,336
=========== ===========
Accumulated undistributed net investment income..... $ 6,097 $ 626,008
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
105
<PAGE>
INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS
------------- ------------- ------------- -------------
JANUARY 1, 1995(A)
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 11.16 $ 11.14 $ 10.00 $ 10.00
------- ------- ------- -------
Net investment income... 1.21 1.19 0.70 0.70
Net realized and
unrealized gain on
investments............ 0.11 0.11 1.12 1.10
Net realized and
unrealized gain on
foreign currency
transactions........... 0.27 0.26 0.02 0.02
------- ------- ------- -------
Total from investment
operations............. 1.59 1.56 1.84 1.82
------- ------- ------- -------
Less dividends and
distributions:
From net investment
income and net realized
gain on foreign
currency transactions.. (1.37) (1.35) (0.55) (0.55)
From net realized gain
on investments......... (0.28) (0.28) (0.13) (0.13)
------- ------- ------- -------
Total dividends and
distributions.......... (1.65) (1.63) (0.68) (0.68)
------- ------- ------- -------
Net asset value at end
of year................ $ 11.10 $ 11.07 $ 11.16 $ 11.14
======= ======= ======= =======
Total investment
return................. 14.32% 14.08% 18.46% 18.26%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 6.02% 5.77% 6.61% 6.36%
Net expenses........... 0.95% 1.20% 0.95% 1.20%
Expenses (before
reimbursement)........ 1.08% 1.33% 1.03% 1.28%
Portfolio turnover
rate................... 57% 57% 92% 92%
Net assets at end of
year (in 000's)........ $51,980 $ 225 $44,388 $ 6
</TABLE>
- --------
(a) Commencement of operations.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
106
<PAGE>
MONEY MARKET FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Primary influences on the money markets included Federal Reserve action and
perceptions of whether and when the Fed would make additional moves
. Market participants closely watched key barometers of economic and
inflationary activity, seeking to anticipate where rates would move
. The money market experienced a fair amount of volatility during the year,
with alternating weak and strong quarters.
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. The MainStay Institutional Money Market Fund returned 5.11% and 4.85% for
Institutional Class shares and Service Class shares, respectively, for the
12 months ended 12/31/96
. Duration management was a major determinant of the Fund's performance
. Duration decisions had positive effects in the first and fourth quarters,
but weakened results in the second and third quarters
- --------------------------------------------------------------------------------
Producer Price Index (PPI) A measure of the change in wholesale prices, broken
out by commodity, industry sector, and stage of processing. The Index looks at
prices of food, metals, lumber, oil and gas, and other commodities, but does not
consider the price of services.
Consumer Price Index (CPI) A standard measure of inflation, based on the
changes in price of selected consumer goods and services.
Basis point One hundredth of one percent in the yield of an investment, e.g.,
100 basis points equals 1%.
- --------------------------------------------------------------------------------
The money markets faced a see-saw year in 1996, as fixed-income securities in
general felt the ebb and flow of market anticipation of interest rate trends.
Investors paid close attention to key economic and inflationary forces they felt
might influence Federal Reserve decisions, including economic growth, the
Producer Price Index (PPI), the Consumer Price Index (CPI), and demand for
labor.
The Federal Reserve only made one move during the year, reducing the federal
funds rate by 25 basis points on January 31. Without further action, interest
rate movements continued to swing high, low, and in between, based on
anticipation of economic trends. The volatility of the markets provided a
challenge to investors who saw fewer clear signals of where the market was
headed than in previous years.
Given this context, how did the MainStay Institutional Money Market Fund do?
For the 12 months ended December 31, 1996, the MainStay Institutional Money
Market Fund returned 5.11% and 4.85% for Institutional Class shares and Service
Class shares, respectively. This compared to a 5.16% return for the average
Lipper* institutional money market fund.
Our biggest challenge was anticipating the direction of interest rates during
the year and modifying the portfolio's duration to take advantage of changes as
they occurred. In January, we expected to see easing short-term rates and
lengthened our duration accordingly. That had a positive effect when the Federal
Reserve reduced rates at the end of January. Unfortunately, as signals of a
strengthening economy began to emerge, we shortened our duration, anticipating a
tightening move which never occurred.
- --------------------------------------------------------------------------------
* Lipper Analytical Services 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.
107
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Duration A measure of average maturity, which adjusts for the time value of
the payments investors will receive and which takes into account interest
payments as well as principal payments. Duration is a better gauge of
interest-rate sensitivity than average maturity alone.
Yield The income per share (or current value of a security) paid to investors
over a specified period of time as a percentage of the cost of the security.
Mutual fund yields are expressed as a percent of the fund's current price per
share.
- --------------------------------------------------------------------------------
Why didn't the Federal Reserve take any action?
We believe that a stock market downturn, positive corporate earnings, and
investor anticipation of Fed action provided sufficient constraints to keep
inflation in line and the economy on a steady course.
How did your decision to shorten duration affect the Fund?
Basically, it hurt the Fund in the second and third quarters, as the shorter-
maturity instruments the Fund owned provided lower returns than the longer-
maturity issues the Fund could have purchased. By the beginning of the fourth
quarter, we were convinced that the Fed would not take any action and lengthened
duration, which increased the Fund's yield. While this was perhaps our best
decision during the year, it was not enough to bring the Fund in line with the
average peer fund for the year.
Did you take other steps to enhance the Fund's yield?
Yes. Throughout the year, the Fund purchased short-term corporate securities
when we felt they were cheap. Among the Fund's most significant purchases were
Citicorp, Wells Fargo, and Heller Financial Inc., all of which contributed
positively to the Fund's performance.
How would you rate the Fund's overall performance?
While falling short of the average Lipper fund can be mostly attributed to fees
and expenses, the Fund still had an excellent year in relative terms. The Fund,
as did money market funds in general, outperformed key fixed-income markets,
including long-term U.S. government securities, mortgage-backed securities and
high-grade corporate bonds in general. As a result, the MainStay Institutional
Money Market Fund was a relatively positive impact on diversified portfolios,
particularly ones invested in other domestic high-grade debt securities.
Do you think the Federal Reserve will take action again soon?
No. We believe that the economy will continue to grow within the range that is
considered to be sustainable over the long term, which is currently 2.0% to
2.5%. We don't anticipate any Federal Reserve action in the first quarter, and
possibly not in the first half of 1997. In any case, we'll continue to seek a
high level of current income, while preserving capital and maintaining liquidity
for our shareholders.
David Clement, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
108
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE MONEY MARKET FUND AVERAGE LIPPER
---- ----------------- --------------
<S> <C> <C>
1/1/91 10,000 10,000
1Q 1991 10,162 10,168
2Q 1991 10,313 10,318
3Q 1991 10,461 10,465
4Q 1991 10,595 10,599
1Q 1992 10,709 10,711
2Q 1992 10,808 10,800
3Q 1992 10,899 10,889
4Q 1992 10,983 10,972
1Q 1993 11,063 11,053
2Q 1993 11,140 11,132
3Q 1993 11,220 11,212
4Q 1993 11,300 11,294
1Q 1994 11,383 11,377
2Q 1994 11,479 11,479
3Q 1994 11,600 11,601
4Q 1994 11,738 11,745
1Q 1995 11,903 11,909
2Q 1995 12,071 12,080
3Q 1995 12,234 12,250
4Q 1995 12,399 12,419
1Q 1996 12,556 12,577
2Q 1996 12,708 12,732
3Q 1996 12,889 12,894
12/31/96 13,032 13,058
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE MONEY MARKET FUND AVERAGE LIPPER
---- ----------------- --------------
<S> <C> <C>
1/1/91 10,000 10,000
1Q 1991 10,162 10,168
2Q 1991 10,313 10,318
3Q 1991 10,461 10,465
4Q 1991 10,595 10,599
1Q 1992 10,709 10,711
2Q 1992 10,808 10,800
3Q 1992 10,899 10,889
4Q 1992 10,983 10,972
1Q 1993 11,063 11,053
2Q 1993 11,140 11,132
3Q 1993 11,220 11,212
4Q 1993 11,300 11,294
1Q 1994 11,383 11,377
2Q 1994 11,479 11,479
3Q 1994 11,600 11,601
4Q 1994 11,738 11,745
1Q 1995 11,903 11,909
2Q 1995 12,066 12,080
3Q 1995 12,222 12,250
4Q 1995 12,379 12,419
1Q 1996 12,528 12,577
2Q 1996 12,672 12,732
3Q 1996 12,826 12,894
12/31/96 12,979 13,058
</TABLE>
. Money Market Fund --Lipper Institutional Money Market Average
Source: Lipper Analytical Services Inc.
These graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund Institutional Class 5.11% 5.11% 4.23% 4.51%
Money Market Fund Service Class 4.85% 4.85% 4.14% 4.44%
Average Lipper Institutional Money Market Fund 5.16% 5.16% 4.28% 4.57%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 5.95%
1992 3.66%
1993 2.89%
1994 3.88%
1995 5.63%
1996 5.11%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
. Commercial Paper 96.17%
. Medium-Term Notes 2.06%
. Negotiable CDs 1.37%
. MM Bankers' Acceptances 0.68%
# Adjusted for liabilities -0.28%#
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Raytheon 3.83%
2. Cooperative Assn. of Tractor Dealers 3.44%
3. Household Finance Corp. 3.44%
4. Dean Witter Discover & Co. 3.43%
5. Xerox Corp. 3.42%
6. National City Corp. 3.42%
7. ARCO Chemical Co. 3.42%
8. National Rural Utilities
Cooperative Finance Corp. 3.42%
9. American General Finance Corp. 3.42%
10. General Electric Capital Corp. 3.41%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. Finance 15.10%
2. Banks 10.90%
3. Brokerage 8.65%
4. Household Products 6.50%
5. Capital Goods 6.33%
Average Maturity 42 Days
(as of 12/31/96)
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee
of .25%.
The Money Market Fund-Institutional Class had a 7- day effective yield of
5.16% and a 7-day average yield of 5.04%, both as of 12/31/96. The Money
Market Fund-Service Class had a 7-day effective yield of 4.91% with a 7-day
average yield of 4.79%, both as of 12/31/96. The Administrator has agreed to
assume a portion of the expenses for these Funds. Had certain expenses not
been assumed by the Administrator, the 7-day effective yield and the 7-day
average yield would have been 5.02% and 4.90%, respectively, for the
Institutional Class and 4.76% and 4.65%, respectively, for the Service
Class.
Investments in the Money Market Fund are neither insured nor guaranteed by
the U.S. Government, and there is no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
109
<PAGE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
SHORT-TERM INVESTMENTS (100.3%)+
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-----------------------
<S> <C> <C>
BANKERS' ACCEPTANCE (0.7%)
Wachovia Bank of North Carolina N.A.
5.25%, due 3/20/97.................................... $1,000,000 $ 988,625
------------
CERTIFICATE OF DEPOSIT (1.4%)
Mellon Bank N.A.-Pittsburg, Pennsylvania
5.50%, due 4/2/97 (b)................................. 2,000,000 2,000,000
------------
COMMERCIAL PAPER (96.2%)
American Brands Inc.
5.30%, due 3/14/97.................................... 5,000,000 4,947,000
American General Finance Corp.
5.32%, due 2/11/97.................................... 5,000,000 4,969,706
ARCO Chemical Co.
5.35%, due 2/7/97 (a)................................. 5,000,000 4,972,507
Brown-Forman Corp.
6.55%, due 1/3/97..................................... 1,822,000 1,821,337
Browning-Ferris Industries Inc.
6.40%, due 1/2/97..................................... 4,165,000 4,164,260
Caterpillar Financial Services Corp.
5.33%, due 4/22/97.................................... 5,000,000 4,917,829
Centric Funding Corp.
5.33%, due 1/10/97.................................... 4,000,000 3,994,670
Coca-Cola Enterprises Inc.
5.34%, due 3/26/97 (a)................................ 3,000,000 2,962,620
Cooperative Associations of Tractor Dealers Inc.
6.00%, due 1/3/97..................................... 5,000,000 4,998,333
Daimler-Benz North America Corp.
5.32%, due 1/15/97.................................... 3,000,000 2,993,793
Dean Witter, Discover & Co.
5.31%, due 1/22/97.................................... 5,000,000 4,984,512
Deere (John) Capital Corp.
5.30%, due 2/4/97..................................... 3,000,000 2,984,983
Deutsche Bank Financial Inc.
5.70%, due 1/6/97..................................... 2,000,000 1,998,417
Fifth Third Bancorp
5.33%, due 4/9/97..................................... 5,000,000 4,927,453
Ford Motor Credit Co.
5.32%, due 1/23/97.................................... 3,000,000 2,990,247
Frontier Corp.
5.65%, due 2/20/97 (a)................................ 3,895,000 3,864,435
General Electric Capital Corp.
5.31%, due 2/18/97.................................... 5,000,000 4,964,600
General Motors Acceptance Corp.
5.34%, due 4/14/97.................................... 5,000,000 4,923,608
Goldman, Sachs & Co.
5.32%, due 3/19/97.................................... 5,000,000 4,943,106
Heller Financial Inc.
5.37%, due 3/5/97..................................... 3,000,000 2,971,807
Household Financial Corp.
5.32%, due 1/6/97..................................... 5,000,000 4,996,306
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Illinois Tool Works Inc.
6.50%, due 1/2/97................................... $1,299,000 $ 1,298,765
Minnesota Mining & Manufacturing Co.
5.30%, due 3/20/97.................................. 3,000,000 2,965,550
Morgan Stanley Group Inc.
5.30%, due 1/21/97.................................. 3,000,000 2,991,133
6.79%, due 1/2/97................................... 4,641,000 4,640,125
National City Credit Corp.
5.27%, due 1/30/97.................................. 5,000,000 4,978,774
National Rural Utilities Cooperative Finance Corp.
5.30%, due 2/10/97.................................. 5,000,000 4,970,556
Northern States Power Co. (Minnesota)
5.32%, due 1/7/97................................... 1,919,000 1,917,298
Raytheon Co.
6.50%, due 1/2/97................................... 5,575,000 5,573,993
Rubbermaid Inc.
5.32%, due 2/4/97 (a)............................... 3,000,000 2,984,927
5.32%, due 3/10/97 (a).............................. 3,000,000 2,969,853
6.75%, due 1/2/97 (a)............................... 3,500,000 3,499,344
Sears Roebuck Acceptance Corp.
5.32%, due 2/25/97.................................. 4,000,000 3,967,489
5.43%, due 1/13/97.................................. 843,000 841,474
Texas Agricultural Finance Authority Series A
5.45%, due 1/16/97.................................. 3,000,000 2,993,188
Three Rivers Funding Corp.
5.72%, due 1/21/97 (a).............................. 3,000,000 2,990,467
Xerox Corp.
5.30%, due 1/28/97.................................. 5,000,000 4,980,189
------------
139,854,654
------------
MEDIUM-TERM NOTES (2.0%)
Citicorp
8.42%, due 2/12/97 (b).............................. 975,000 978,403
Heller Financial Inc.
7.75%, due 5/15/97 (b).............................. 2,000,000 2,015,410
------------
2,993,813
------------
Total Short-Term Investments (Amortized Cost
$145,837,092) (c)................................... 100.3% 145,837,092
Liabilities In Excess of
Cash and Other Assets............................... (0.3) (412,411)
---------- ------------
Net Assets........................................... 100.0% $145,424,681
========== ============
</TABLE>
- --------
(a) May be sold to institutional investors only.
(b) Coupon interest bearing security.
(c) 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.
110
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
The table below sets forth the diversification of Money Market Fund investments
by industry.
SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
----------------------
<S> <C> <C>
Auto Manufacturing...................................... $ 7,917,402 5.5%
Banks................................................... 15,871,671 10.9
Beverages............................................... 4,783,957 3.3
Brokerage............................................... 12,574,364 8.7
Capital Goods........................................... 9,201,578 6.3
Chemicals............................................... 4,972,507 3.4
Computers & Office Equipment............................ 4,980,189 3.4
Conglomerates........................................... 4,964,600 3.4
Consumer Financial Services............................. 7,959,952 5.5
Defense Electronics..................................... 5,573,993 3.8
Finance................................................. 21,953,172 15.1
Financial Services...................................... 2,993,188 2.1
Household Products...................................... 9,454,124 6.5
Machinery............................................... 4,998,333 3.4
Manufacturing........................................... 2,965,550 2.0
Pollution & Related..................................... 4,164,260 2.9
Retail.................................................. 4,808,963 3.3
Tobacco................................................. 4,947,000 3.4
Utilities............................................... 4,970,556 3.4
Utilities-Electric...................................... 1,917,298 1.3
Utilities-Telephone..................................... 3,864,435 2.7
------------ -----
145,837,092 100.3
Liabilities in Excess of
Cash and Other Assets.................................. (412,411) (0.3)
------------ -----
Net Assets.............................................. $145,424,681 100.0%
============ =====
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
111
<PAGE>
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (amortized cost
$145,837,092).................................................. $145,837,092
Cash............................................................ 105,935
Receivables:
Interest........................................................ 78,387
Fund shares sold................................................ 26,771
------------
Total assets.................................................. 146,048,185
------------
LIABILITIES:
Payables:
Administrator................................................... 25,852
Adviser......................................................... 10,915
Transfer agent.................................................. 4,867
Custodian....................................................... 3,000
Directors....................................................... 126
Accrued expenses................................................ 56,116
Dividend payable................................................ 522,628
------------
Total liabilities............................................. 623,504
------------
Net assets...................................................... $145,424,681
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 12 billion shares
authorized
Institutional Class............................................. $ 110,761
Institutional Service Class..................................... 34,664
Additional paid-in capital...................................... 145,280,144
Accumulated net realized loss on investments.................... (888)
------------
Net assets...................................................... $145,424,681
============
Institutional Class
Net assets applicable to outstanding shares..................... $110,760,208
============
Shares of capital stock outstanding............................. 110,761,096
============
Net asset value per share outstanding........................... $ 1.00
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 34,664,473
============
Shares of capital stock outstanding............................. 34,664,473
============
Net asset value per share outstanding........................... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest........................................................... $5,508,832
----------
Expenses:
Administration .................................................... 400,921
Advisory........................................................... 100,230
Registration....................................................... 52,754
Service............................................................ 40,206
Professional....................................................... 38,041
Transfer agent..................................................... 29,728
Shareholder communication.......................................... 22,851
Custodian.......................................................... 19,353
Directors.......................................................... 2,953
Miscellaneous...................................................... 4,542
----------
Total expenses before
reimbursement................................................... 711,579
Expense reimbursement from Administrator........................... (170,221)
----------
Net expenses..................................................... 541,358
----------
Net investment income.............................................. 4,967,474
----------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments................................... (888)
----------
Net increase in net assets resulting from operations............... $4,966,586
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
112
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income........................... $ 4,967,474 $ 3,283,517
Net realized gain (loss) on investments......... (888) 129
------------- -------------
Net increase in net assets resulting from
operations..................................... 4,966,586 3,283,646
------------- -------------
Dividends to shareholders:
From net investment income:
Institutional Class............................ (4,202,178) (3,234,067)
Institutional Service Class.................... (765,425) (51,376)
------------- -------------
Total dividends to shareholders............... (4,967,603) (3,285,443)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................ 346,674,956 193,425,248
Institutional Service Class.................... 58,869,480 4,420,373
Net asset value of shares issued to
shareholders in reinvestment of dividends:
Institutional Class............................ 4,007,693 3,150,373
Institutional Service Class.................... 650,486 40,688
------------- -------------
410,202,615 201,036,682
Cost of shares redeemed:
Institutional Class............................ (307,790,041) (193,810,740)
Institutional Service Class.................... (27,639,595) (1,677,059)
------------- -------------
Increase in net assets derived from capital
share transactions............................ 74,772,979 5,548,883
------------- -------------
Net increase in net assets..................... 74,771,962 5,547,086
NET ASSETS:
Beginning of year............................... 70,652,719 65,105,633
------------- -------------
End of year..................................... $ 145,424,681 $ 70,652,719
============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
113
<PAGE>
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ----------------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Net investment income... 0.05 0.05 0.05 0.05 0.04 0.03 0.03
-------- -------- -------- -------- -------- -------- --------
Less dividends from net
investment income...... (0.05) (0.05) (0.05) (0.05) (0.04) (0.03) (0.03)
-------- -------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total investment
return................. 5.11% 4.85% 5.63% 5.46% 3.88% 2.89% 3.66%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 5.00% 4.75% 5.48% 5.23% 3.89% 2.85% 3.64%
Net expenses........... 0.50% 0.75% 0.50% 0.75% 0.50% 0.45% 0.45%
Expenses (before
reimbursement)........ 0.67% 0.92% 0.73% 0.98% 0.68% 0.67% 0.65%
Net assets at end of
year (in 000's)........ $110,760 $ 34,664 $ 67,869 $ 2,784 $ 65,106 $ 75,832 $ 71,573
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
114
<PAGE>
SHORT-TERM BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1996 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Short-term U.S. government securities provided relatively modest returns in
an environment driven primarily by interest rates
. Mortgage-backed securities provided strong relative performance,
outperforming Treasury securities each month in 1996
. Corporate bonds also outperformed Treasury securities, providing
opportunities for investors to increase yields and total returns
. Additional auctions for 10- and 30-year Treasury securities affected supply,
pricing, and demand for government securities
- --------------------------------------------------------------------------------
1996 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. The MainStay Institutional Short-Term Bond Fund returned 4.81% and 4.46% for
Institutional Class shares and Service Class shares, respectively, for the
12 months ended 12/31/96
. These results placed our Institutional Class shares and Service Class shares
in the second and third quartiles, respectively, of all funds in the Lipper*
short investment grade debt fund category
. The Fund's Institutional Class shares received a four-star overall rating
from Morningstar Inc., ++ as of 12/31/96.
--
. The Fund pursued a yield-enhancement strategy based on innovative mortgage
products, including manufactured housing mortgages and securities backed by
low-loan balance mortgages
- --------------------------------------------------------------------------------
Basis point One hundredth of one percent in the yield of an investment, e.g.,
100 basis points equals 1%.
Yield The income per share (or current value of a security) paid to investors
over a specified period of time as a percentage of the cost of the security.
Mutual fund yields are expressed as a percent of the fund's current price per
share.
- --------------------------------------------------------------------------------
After a strong year in 1995, government securities provided weak performance in
1996. Even with a 25 basis point rate reduction by the Federal Reserve at the
end of January, interest rates began to rise when budget talks stalled early in
the year and the economy showed signs of gaining strength. In the first quarter,
rising yields on long-term securities caused the yield curve to steepen. For the
rest of the year, however, the yield curve remained stable, within a narrow
range.
Throughout 1996, mortgage-backed securities outperformed Treasuries, and
corporate bonds also provided strong relative performance. The introduction of
- --------------------------------------------------------------------------------
* Lipper Analytical Services 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.
++ Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect risk-adjusted performance, which does not include sales charges, and
may change monthly. Its ratings of 1 (low) and 5 (high) stars are based on a
fund's 3-, 5- & 10-year average annual returns with fee adjustments, and a
risk factor that reflects fund performance relative to 3-month Treasury bill
monthly returns. A one-year rating is calculated using the same methodology,
but is not a component of the overall rating. As of 12/31/96, the individual
1, 3 and 5 year ratings for the MainStay Institutional Short-Term Bond Fund
was 4, 4 and 4 stars, respectively. For the one-year period, the Fund was
rated among 1,670 funds in the taxable bond category. Only 10% of the funds
in an investment category may receive 5 stars and 22.5% may receive 4 stars.
Ratings reflect Institutional Class performance only. Service Class shares,
first introduced January 1, 1995, will not be rated by Morningstar until they
have a three year operating history.
115
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Yield curve When interest rates available from various short-, intermediate-,
and long-term securities are plotted on a graph, the resulting line is known as
a yield curve.
Mortgage-backed securities Securities representing interests in "pools" of
mortgages in which principal and interest payments by the holders of underlying
fixed- or adjustable-rate mortgages are, in effect, "passed through" to
investors (net of fees paid to the issuer or guarantor of the securities).
Auction The competitive bidding process through which Treasury securities are
sold.
Yield spread The difference in yield between securities in different market
sectors, such as mortgage-backed securities and Treasury issues -- or between
different securities in a single sector, such as short-term and intermediate-
term Treasury issues.
- --------------------------------------------------------------------------------
two new Treasury auctions for 10-year bonds and one new auction for 30-year
bonds shifted supply and demand dynamics and upset pricing in the government
securities market, which contributed to the lower returns in this sector.
Given this context, how did the MainStay Institutional Short-Term Bond Fund do?
The MainStay Institutional Short-Term Bond Fund returned 4.81% and 4.46% for
Institutional Class shares and Service Class shares, respectively, for the 12
months ended 12/31/96. This placed the two classes of shares in the second and
third quartiles, respectively, of all funds in their Lipper peer group for the
year. Both the Fund and its Lipper category peers lagged the Salomon 1-3 Year
Treasury Index,/+/ which returned 5.09% for the year.
The Fund's Institutional Class shares also received an overall four-star rating
from Morningstar Inc., placing them among the top 33% of the Morningstar
universe, which consisted of 1,140 taxable bond funds for the 3-year period and
597 taxable bond funds for the 5-year period ended 12/31/96.
How did you seek to enhance yields throughout the year?
Recognizing that Treasuries were unlikely to provide sufficient yield, the Fund
also invested in innovative mortgage products, including manufactured housing
mortgage and securities backed by low-loan balance mortgages. These securities
contributed positively to the Fund's performance throughout 1996. Later in the
year, the Fund also bought adjustable-rate mortgages, which we believe will have
a positive impact in 1997.
How did the Fund's corporate securities do during the year?
The Fund held a number of high-quality corporate bonds at the beginning of the
year, which outperformed Treasuries as yield spreads tightened. As the year
progressed, we reduced the Fund's position, feeling that the securities were
becoming overvalued and may begin to underperform other securities available to
the Fund. We also reduced the Fund's holdings in asset-backed securities, mostly
in automobile loans and credit-card debt, which outperformed during the year,
and moved the proceeds into mortgage-backed securities, so both the sales and
subsequent purchases helped the portfolio.
Did you make any mistakes during the year?
In hindsight, we can say that the Fund would have benefited from even greater
exposure to innovative mortgage-backed securities, which boosted the Fund's
performance during the year.
What makes these types of securities so attractive?
Securities backed by low-loan balance mortgages are attractive because interest
rates would have to drop substantially to entice homeowners to refinance these
small-balance mortgage loans. The manufactured housing mortgage-backed
securities tend to have stable prepayment rates in both up and down markets. So
these securities may offer attractive yields at reasonable prices, with lower
prepayment risk than other mortgage-backed securities.
- --------------------------------------------------------------------------------
+ The Salomon 1-3 Year Treasury Index is an unmanaged index generally
considered representative of the U.S. short-term bond market.
116
<PAGE>
================================================================================
How has your move into these securities affected the quality of the portfolio?
At year-end 1996, the portfolio's overall quality rating was triple-A by
Standard & Poor's,(S) the highest quality rating available. We seek to maintain
a broad mix of high-quality short-term debt securities in the portfolio to
provide liquidity and capital preservation for shareholders.
What do you see ahead for 1997?
We're not anticipating any negative news, but will keep an eye on the economy,
inflation, and interest rates. We don't believe that the Federal Reserve is
likely to make any major moves in the near future, and we feel that the economy
is growing at a sustainable rate. We'll continue to use our fundamental research
and quantitative analysis to identify opportunities for the portfolio as we seek
attractive total returns in the short-term debt market.
Ravi Akhoury
Edward Munshower
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
(S) Currently, debt rated AAA has the highest rating assigned by Standard &
Poor's. These ratings are based solely on the creditworthiness of the bonds
in the portfolio and is not meant to represent the stability of the Fund.
117
<PAGE>
[GRAPH APPEARS HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
SHORT-TERM BOND FUND VS SALOMON 1-3 YEAR TREASURY INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
SHORT-TERM SALOMON 1-3 YEAR
DATE BOND FUND TREASURY INDEX
---- ---------- ----------------
<S> <C> <C>
1/1/91 10,000 10,000
1Q 1991 10,220 10,220
2Q 1991 10,420 10,418
3Q 1991 10,760 10,768
4Q 1991 11,130 11,164
1Q 1992 11,140 11,178
2Q 1992 11,455 11,498
3Q 1992 11,749 11,841
4Q 1992 11,791 11,867
1Q 1993 12,079 12,122
2Q 1993 12,214 12,258
3Q 1993 12,383 12,431
4Q 1993 12,459 12,507
1Q 1994 12,374 12,445
2Q 1994 12,374 12,451
3Q 1994 12,495 12,570
4Q 1994 12,473 12,574
1Q 1995 12,885 12,987
2Q 1995 13,258 13,394
3Q 1995 13,444 13,588
4Q 1995 13,754 13,923
1Q 1996 13,796 13,982
2Q 1996 13,939 14,128
3Q 1996 14,152 14,362
12/31/96 14,415 14,632
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
SHORT-TERM BOND FUND VS SALOMON 1-3 YEAR TREASURY INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
SHORT-TERM SALOMON 1-3 YEAR
DATE BOND FUND TREASURY INDEX
---- ---------- ----------------
<S> <C> <C>
1/1/91 10,000 10,000
1Q 1991 10,220 10,220
2Q 1991 10,420 10,418
3Q 1991 10,760 10,768
4Q 1991 11,130 11,164
1Q 1992 11,140 11,178
2Q 1992 11,455 11,498
3Q 1992 11,749 11,841
4Q 1992 11,791 11,867
1Q 1993 12,079 12,122
2Q 1993 12,214 12,258
3Q 1993 12,383 12,431
4Q 1993 12,459 12,507
1Q 1994 12,374 12,445
2Q 1994 12,374 12,451
3Q 1994 12,495 12,570
4Q 1994 12,473 12,574
1Q 1995 12,885 12,987
2Q 1995 13,245 13,394
3Q 1995 13,418 13,588
4Q 1995 13,728 13,923
1Q 1996 13,756 13,982
2Q 1996 13,884 14,128
3Q 1996 14,083 14,362
12/31/96 14,340 14,632
</TABLE>
. Short-Term Bond Fund --Salomon 1-3 Year Treasury Index
Source: Lipper Analytical Services Inc.
The graphs assume a $10,000 investment made on 1/2/91.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1996 as of December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund Institutional Class 4.81% 4.81% 5.31% 6.28%
Short-Term Bond Fund Service Class** 4.46% 4.46% 5.20% 6.19%
Average Lipper Short-Term Investment Grade Fund 4.64% 4.64% 5.38% 6.46%
Salomon 1-3 Year Treasury Index 5.09% 5.09% 5.56% 6.55%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Class Shares
Date Total Return %
---- --------------
<S> <C>
1991 11.30
1992 5.94
1993 5.67
1994 0.11
1995 10.27
1996 4.81
</TABLE>
QUALITY BREAKDOWN+
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
Government/Agency 70.16%
AAA 19.14%
A 10.70%
------
100.00%
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
U.S. Government & Agency Bonds 69.17%
Other Asset Backed 20.25%
Domestic Bonds - Non-Convertible 6.56%
Certificates of Deposit 2.60%
Cash & Equivalents 1.42%
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. US Treasury Note, 6.125%, 5/15/98 10.03%
2. US Treasury Note, 6.375%, 5/15/99 8.83%
3. US Treasury Note, 4.75%, 8/31/98 8.19%
4. US Treasury Note, 7.875%, 11/15/99 8.11%
5. US Treasury Note, 4.75%, 10/31/98 7.47%
6. US Treasury Note, 5.00%, 2/15/99 6.44%
7. FNCI PL#313287, 9.00%, 12/1/11 5.14%
8. US Treasury Note, 7.75%, 11/30/99 4.46%
9. World Omni Automobile Lease Sec. Trust,
6.30%, 6/15/02 3.89%
10. FHLMC, 8.00%, 2/15/00 3.71%
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1996)
- --------------------------------------------------------------------------------
1. US Government & Federal Agency 69.17%
2. First Mortgage Loans 9.82%
3. Banks 5.42%
4. Auto Lease 3.89%
5. Financial 3.75%
Average Maturity 1.9 years
(as of 12/31/96)
- --------------------------------------------------------------------------------
** Performance figures for the Service Class, first offered to the public on
1/1/95, include the historical performance of the Institutional Class from
the Fund's inception (1/2/91) up to December 31, 1994. Performance figures
for these two Classes after this date will vary based on differences in
their expense structures.
* The total return reflects the annual return on an investment including
appreciation and dividends or interest. Total returns shown herein include
the change in share price and reinvestment of capital gains distributions
and dividends, and, for the Service Class shares, include the service fee of
.25%.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that upon redemption, shares may be worth
more or less than their original cost.
The Institutional Class shares are sold with no sales charge. The Service
Class shares, first offered 1/1/95, are sold with no initial or contingent
deferred sales charge, but are subject to an annual shareholder service fee
of .25%.
+ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
118
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1996
LONG-TERM INVESTMENTS (98.6%)+
ASSET-BACKED SECURITIES (20.2%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
AUTO LEASE (3.9%)
World Omni Automobile Lease Securitization Trust
Series 1996-A Class A1
6.30%, due 6/25/02.................................... $ 2,290,000 $ 2,297,878
-----------
BOAT LOAN (0.6%)
Chrysler Financial Corp.
Grantor Trust
Series 11-A Class A
8.90%, due 8/15/97 (a)................................ 376,142 376,142
-----------
COMMERCIAL MORTGAGES (1.4%)
Resolution Trust Corp. Series 1992-C4 Class A1
8.15%, due 6/25/24.................................... 813,490 813,490
-----------
EQUIPMENT (2.3%)
Newcourt Receivables Asset Trust
Series 1996-2 Class A 6.87%, due 6/20/04.............. 1,373,102 1,383,620
-----------
FIRST MORTGAGE LOANS (COLLATERALIZED
(MORTGAGE OBLIGATIONS) (9.8%)
Bear Stearns Mortgage
Securities, Inc.
Series 1996-5 Class A2 10.00%, due 9/25/27............ 2,087,743 2,172,234
Series 1996-4 Class AI2 10.50%, due 9/25/27........... 1,953,916 2,049,170
Residential Accredit Loans, Inc. Series 1996-QS4 Class
AI2 11.00%, due 8/25/26............................... 1,511,173 1,582,485
-----------
5,803,889
-----------
RECREATIONAL VEHICLES (2.2%)
Fleetwood Credit Corp.
Grantor Trust
Series 1996-A Class A 6.75%, due 10/17/11............. 1,290,027 1,295,677
-----------
Total Asset-Backed Securities (Cost $11,932,053)....... 11,970,696
-----------
CERTIFICATE OF DEPOSIT (2.6%)
BANK (2.6%)
Mercantile Safe Deposit & Trust Co., Baltimore, MD
5.16%, due 3/2/98..................................... 1,550,000 1,537,987
-----------
Total Certificate of Deposit (Cost $1,550,000)......... 1,537,987
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
CORPORATE BONDS (6.6%)
BANK (2.8%)
First Fidelity Bancorp
8.50%, due 4/1/98....................................... $ 1,616,000 $ 1,666,241
-------------
FINANCE (3.8%)
SunAmerica, Inc.
6.20%, due 10/31/99..................................... 500,000 497,780
Travelers/Aetna P&C
6.75%, due 9/1/99....................................... 1,700,000 1,717,034
-------------
2,214,814
-------------
Total Corporate Bonds (Cost $3,899,858).................. 3,881,055
-------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (69.2%)
FEDERAL HOME LOAN MORTGAGE CORPORATION
(COLLATERALIZED MORTGAGE OBLIGATION) (3.7%)
Series 1783-A Class A
8.00%, due 2/15/00...................................... 2,143,158 2,190,715
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(COLLATERALIZED MORTGAGE OBLIGATIONS) (2.5%)
Series 1993-93 Class C
5.50%, due 2/25/06...................................... 1,496,686 1,478,441
-------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (7.1%)
6.00%, due 11/21/26 TBA ARM (b)(c)...................... 1,125,000 1,119,375
9.00%, due 12/1/11...................................... 2,878,500 3,036,357
-------------
4,155,732
-------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (2.4%)
6.50%, due 1/20/23-2/20/23 (c).......................... 894,960 912,618
7.00%, due 11/20/21 (c)................................. 205,038 209,716
7.00%, due 11/20/22 (c)................................. 298,650 304,531
-------------
1,426,865
-------------
UNITED STATES TREASURY NOTES (53.5%)
4.75%, due 8/31/98-10/31/98............................. 9,425,000 9,255,357
5.00%, due 2/15/99...................................... 3,875,000 3,804,746
6.125%, due 5/15/98..................................... 5,900,000 5,928,556
6.375%, due 5/15/99..................................... 5,175,000 5,219,453
7.75%, due 11/30/99..................................... 2,525,000 2,638,221
7.875%, due 11/15/99 (d)................................ 4,575,000 4,793,045
-------------
31,639,378
-------------
Total U.S. Government &
Federal Agencies
(Cost $40,872,637)...................................... 40,891,131
-------------
Total Long-Term Investments (Cost $58,254,548)........... 58,280,869
-------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
119
<PAGE>
SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1996
SHORT-TERM INVESTMENT (2.4%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
COMMERCIAL PAPER (2.4%)
American Express Credit Corp. 6.552%, due
1/2/97....................................... $ 1,420,000 $ 1,420,000
-----------
Total Short-Term Investment (Cost $1,420,000). 1,420,000
-----------
Total Investments (Cost $59,674,548) (e)...... 101.0% 59,700,869 (f)
Liabilities in Excess of
Cash and Other Assets........................ (1.0) (580,312)
----------- -----------
Net Assets.................................... 100.0% $59,120,557
=========== ===========
</TABLE>
- --------
(a) Long-term security maturing within the twelve month period.
(b) TBA: Security purchased on a forward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and the
maturity date will be determined upon settlement.
(c) ARM--Adjustable Rate Mortgage. Resets monthly.
(d) Segregated or partially segregated as collateral for TBA.
(e) The cost for Federal income tax purposes is $59,676,210.
(f) At December 31, 1996 net unrealized appreciation was $24,659, 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 $146,336 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $121,677.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
120
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$59,674,548).................................................... $59,700,869
Cash............................................................. 3,201
Receivables:
Interest......................................................... 574,909
Fund shares sold................................................. 21,384
-----------
Total assets................................................... 60,300,363
-----------
LIABILITIES:
Payables:
Investment securities purchased.................................. 1,119,609
Administrator.................................................... 11,713
Adviser.......................................................... 7,403
Transfer agent................................................... 5,836
Fund shares redeemed............................................. 4,790
Custodian........................................................ 1,907
Directors........................................................ 68
Accrued expenses................................................. 28,480
-----------
Total liabilities.............................................. 1,179,806
-----------
Net assets....................................................... $59,120,557
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 6,100
Institutional Service Class...................................... 139
Additional paid-in capital....................................... 65,959,701
Accumulated undistributed net investment income.................. 31,925
Accumulated net realized loss on investments..................... (6,903,629)
Net unrealized appreciation on investments....................... 26,321
-----------
Net assets....................................................... $59,120,557
===========
Institutional Class
Net assets applicable to outstanding shares...................... $57,804,518
===========
Shares of capital stock outstanding.............................. 6,099,579
===========
Net asset value per share outstanding............................ $ 9.48
===========
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 1,316,039
===========
Shares of capital stock outstanding.............................. 139,107
===========
Net asset value per share outstanding............................ $ 9.46
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................... $ 4,227,519
-----------
Expenses:
Administration.................................................... 294,794
Advisory.......................................................... 98,265
Professional...................................................... 31,957
Transfer agent.................................................... 28,107
Registration...................................................... 27,683
Custodian......................................................... 15,328
Shareholder communication......................................... 11,385
Service........................................................... 3,317
Directors......................................................... 2,036
Miscellaneous..................................................... 5,839
-----------
Total expenses before
reimbursement.................................................. 518,711
Expense reimbursement from Administrator.......................... (122,335)
-----------
Net expenses.................................................... 396,376
-----------
Net investment income............................................. 3,831,143
-----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments.................................. (490,723)
Net change in unrealized appreciation on investments.............. (637,312)
-----------
Net realized and unrealized loss on investments................... (1,128,035)
-----------
Net increase in net assets resulting from operations.............. $ 2,703,108
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
121
<PAGE>
SHORT-TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................. $ 3,831,143 $ 3,364,918
Net realized loss on investments................... (490,723) (33,269)
Net change in unrealized appreciation
(depreciation) on investments..................... (637,312) 1,869,072
----------- ------------
Net increase in net assets resulting from
operations........................................ 2,703,108 5,200,721
----------- ------------
Dividends to shareholders:
From net investment income:
Institutional Class............................... (3,734,256) (3,241,928)
Institutional Service Class....................... (90,257) (70,366)
----------- ------------
Total dividends to shareholders.................. (3,824,513) (3,312,294)
----------- ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................... 61,352,652 25,700,541
Institutional Service Class....................... 806,649 1,404,973
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Institutional Class............................... 3,734,256 3,215,966
Institutional Service Class....................... 90,257 70,083
----------- ------------
65,983,814 30,391,563
Cost of shares redeemed:
Institutional Class............................... (57,100,440) (42,279,444)
Institutional Service Class....................... (671,716) (310,374)
----------- ------------
Increase (decrease) in net assets derived from
capital share transactions....................... 8,211,658 (12,198,255)
----------- ------------
Net increase (decrease) in net assets............. 7,090,253 (10,309,828)
NET ASSETS:
Beginning of year.................................. 52,030,304 62,340,132
----------- ------------
End of year........................................ $59,120,557 $ 52,030,304
=========== ============
Accumulated undistributed net investment income.... $ 31,925 $ 26,086
=========== ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
122
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ---------------------------
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------------- --------------------------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 9.68 $ 9.67 $ 9.37 $ 9.37 $ 10.33 $ 11.23 $ 11.13
------- ------ ------- ------ ------- -------- --------
Net investment income... 0.66 0.64 0.65 0.64 0.97 0.72 0.66
Net realized and
unrealized gain (loss)
on investments......... (0.20) (0.21) 0.31 0.30 (0.96) (0.12) (0.03)
------- ------ ------- ------ ------- -------- --------
Total from investment
operations............. 0.46 0.43 0.96 0.94 0.01 0.60 0.63
------- ------ ------- ------ ------- -------- --------
Less dividends and
distributions:
From net investment
income................. (0.66) (0.64) (0.65) (0.64) (0.97) (1.36) (0.48)
From net realized gain
on investments......... -- -- -- -- -- (0.04) (0.05)
In excess of net
investment income...... -- -- -- -- -- (0.02) --
In excess of net
realized gain on
investments............ -- -- -- -- -- (0.08) --
------- ------ ------- ------ ------- -------- --------
Total dividends and
distributions.......... (0.66) (0.64) (0.65) (0.64) (0.97) (1.50) (0.53)
------- ------ ------- ------ ------- -------- --------
Net asset value at end
of year................ $ 9.48 $ 9.46 $ 9.68 $ 9.67 $ 9.37 $ 10.33 $ 11.23
======= ====== ======= ====== ======= ======== ========
Total investment
return................. 4.81% 4.46% 10.27% 10.07% 0.11% 5.67% 5.94%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 5.85% 5.60% 6.38% 6.13% 5.90% 6.32% 6.64%
Net expenses........... 0.60% 0.85% 0.60% 0.85% 0.60% 0.55% 0.55%
Expenses (before
reimbursement)........ 0.79% 1.04% 0.82% 1.07% 0.72% 0.68% 0.72%
Portfolio turnover
rate................... 195% 195% 171% 171% 269% 232% 270%
Net assets at end of
year (in 000's)........ $57,805 $1,316 $50,902 $1,128 $62,340 $148,846 $161,499
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
123
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1--Organization and Business:
- -------------------------------------------------------------------------------
MainStay Institutional Funds Inc. (the "Company") was incorporated in the state
of Maryland on September 21, 1990 and commenced operations on January 2, 1991.
The Company is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended, ("Investment Company Act"). As
of December 31, 1996 the Company has eleven separate investment portfolios:
EAFE Index Fund, Growth Equity Fund, Indexed Equity Fund, International Equity
Fund, Multi-Asset Fund, Value Equity Fund, Bond Fund, Indexed Bond Fund,
International Bond Fund, Money Market Fund and Short-Term Bond Fund
(individually or collectively referred to as a "Fund" or the "Funds").
The International Bond Fund and the International Equity Fund commenced
operations on January 1, 1995.
Each Fund currently offers two classes of shares as follows: Institutional
Class shares and Institutional Service Class shares. The Company has adopted a
Shareholder Services Plan with respect to the Institutional Service Class of
each Fund. The Institutional Class shares and Institutional Service Class
shares are substantially the same, except that the Institutional Service Class
shares bear the fees payable under the Shareholder Services Plan at an annual
rate of 0.25% of the average daily net assets of the outstanding Institutional
Service Class shares ("Shareholder Service Fee"). The distribution of
Institutional Service Class shares commenced on January 1, 1995.
The investment objectives for each of the Funds of the Company are as
follows:
The EAFE Index Fund seeks to provide investment results that correspond to
the total return performance (reflecting reinvestment of dividends) of common
stocks in the aggregate, as represented by the Morgan Stanley Capital
International Europe, Australia and Far East ("EAFE") Index.
The Growth Equity Fund seeks long-term growth of capital. Dividend income,
if any, is a consideration incidental to the Fund's objective of growth of
capital.
The Indexed Equity Fund seeks to provide investment results that correspond
to the total return performance (reflecting reinvestment of dividends) of
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index.
The International Equity Fund seeks long-term growth of capital by investing
in a portfolio consisting primarily of non-U.S. equity securities. Current
income is a secondary objective.
The Multi-Asset Fund seeks to maximize total return, consistent with certain
percentage constraints on amounts allocated to each asset class, from a
combination of common stocks, fixed income securities, and money market
investments.
The Value Equity Fund seeks maximum long-term total return from a
combination of capital growth and income. The Fund is not designed or managed
primarily to produce current income.
The Bond Fund seeks to maximize total return, consistent with liquidity, low
risk to principal and investment in debt securities.
The Indexed Bond Fund seeks to provide investment results that correspond to
the total return performance of fixed income securities in the aggregate, as
represented by the Salomon Brothers Broad Investment Grade Bond Index.
The International Bond Fund seeks to provide total return by investing
primarily in a portfolio of non-U.S. (primarily government) debt securities.
The Money Market Fund seeks to provide a high level of current income while
preserving capital and maintaining liquidity.
The Short-Term Bond Fund seeks to maximize total return, consistent with
liquidity, preservation of capital and investment in short-term debt
securities.
124
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
- -------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- -------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
Company:
(A)
VALUATION OF FUND SHARES. The net asset value per share of each Class of
shares of each Fund 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 that Class, subtracting the liabilities
attributable to that Class, and dividing the result by the outstanding shares
of that Class.
The Money Market 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.
(B)
SECURITIES VALUATION. Portfolio securities of the Money Market Fund are valued
at their 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.
Portfolio securities of each of the other Funds are stated at value
determined (a) by appraising common and preferred stocks which are traded on
the New York Stock Exchange at the last sale price on that day or, if no sale
occurs, the mean between the closing bid price and asked price; (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 and
securities listed or traded on certain foreign exchanges whose operations are
similar to the U.S. over-the-counter market at prices supplied by a pricing
agent selected by a Fund's investment adviser if such prices are deemed to be
representative of market values at the regular close of business of the New
York Stock Exchange; (e) by appraising debt securities at prices supplied by a
pricing agent selected by a Fund's investment adviser, whose prices reflect
broker/dealer supplied valuations and electronic data processing techniques if
those prices are deemed by a Fund's investment adviser to be representative of
market values at the regular close of business of the New York Stock Exchange;
(f) by appraising options and futures contracts at the last sale price on the
market where any such option or futures are principally traded; and (g) by
appraising all other securities and other assets, including over-the-counter
common and preferred stocks not quoted on the NASDAQ system, securities not
listed or traded on foreign exchanges whose operations are similar to the U.S.
over-the-counter market and debt securities for which prices are supplied by a
pricing agent but are not deemed by a Fund's investment adviser 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 Board of Directors. Money Market
instruments held by the Funds with a remaining maturity of sixty days or less
are valued by the amortized cost method which 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.
Events affecting the values of portfolio securities that occur between the
time their prices are determined and the close of the New York Stock Exchange
will not be reflected in the Funds' calculation of net asset values' unless a
Fund's investment adviser deems that the particular event would materially
affect such Fund's net asset value, in which case an adjustment will be made.
(C)
FEDERAL INCOME TAXES. Each of the Funds is treated as a separate entity for
Federal income tax purposes. The Company's policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income to the shareholders of
each Fund within the allowable time limits. Therefore, no Federal income or
excise tax provision is required.
Investment income received by a Fund from foreign sources may be subject to
foreign income taxes withheld at the source.
125
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(D)
STATEMENT OF POSITION 93-2: Permanent book-tax differences relating to
shareholder distributions have been reclassified. Net investment income
(loss), net realized gain (loss), and net assets are not affected. The
following table discloses the current year reclassifications between
accumulated undistributed net investment income (loss) and accumulated
undistributed net realized gain (loss) on investments.
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED
ACCUMULATED NET REALIZED
ACCUMULATED UNDISTRIBUTED GAIN (LOSS) ON
UNDISTRIBUTED NET REALIZED FOREIGN ADDITIONAL
NET INVESTMENT GAIN (LOSS) CURRENCY PAID-IN
INCOME (LOSS) ON INVESTMENTS TRANSACTIONS CAPITAL
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
EAFE Index Fund......... $ (2,371) $ 0 $ 2,371 $ 0
Growth Equity Fund...... 1,307,807 (2,542) 0 (1,305,265)
Indexed Equity Fund..... 2,169 (2,169) 0 0
International Equity
Fund................... 5,813,166 (24,878) (5,788,288) 0
Multi-Asset Fund........ (17,580) (5,928) 23,508 0
Value Equity Fund....... 0 0 0 0
Bond Fund............... 42,700 2,653 0 (45,353)
Indexed Bond Fund....... (7,351) 7,351 0 0
International Bond Fund. 2,148,113 0 (2,148,113) 0
Money Market Fund....... 129 (129) 0 0
Short-Term Bond Fund.... (791) 791 0 0
</TABLE>
(E)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends are recorded on the ex-
dividend date. For the Money Market Fund, dividends are declared daily and
paid monthly. Each of the other Funds intends to declare and pay substantially
all of their net investment income and net realized gains no less frequently
than once a year. Income distributions and capital gain distributions are
determined in accordance with Federal income tax regulations which may differ
from generally accepted accounting principles.
(F)
SECURITY TRANSACTIONS AND INVESTMENT INCOME. The Company 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 related and other asset-
backed securities. Dividend income is recognized on the ex-dividend date and
interest income is accrued daily. Discounts on securities, other than short-
term securities, purchased for all Funds are amortized on the constant yield
method over the life of the respective securities or, in the case of a
callable security, over the period to the first date of call.
(G)
ORGANIZATION COSTS. Organization costs incurred for the International Bond
Fund and the International Equity Fund are being amortized over a maximum
period of 60 months beginning January 1, 1995, the date such Funds commenced
operations. In the event that any of the initial shares purchased by
affiliates of the Administrator are redeemed, proceeds of such redemption will
be reduced by the proportionate amount of the unamortized deferred
organizational expenses which the number of shares redeemed bears to the total
number of initial shares purchased.
(H)
EXPENSES. Expenses with respect to any two or more Funds are allocated in
proportion to the net assets of the respective Funds when the expenses are
incurred except where allocations of direct expenses can otherwise fairly be
made.
The investment income and expenses (other than expenses incurred under the
Shareholder Services Plan), and realized and unrealized gains and losses on
investments of a Fund are allocated to separate classes of shares based upon
their relative net assets on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred.
126
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
(I)
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.
(J)
FOREIGN CURRENCY TRANSACTIONS. The books and records of the Company are kept
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) income and expenses--at the date of such transactions.
The assets and liabilities are presented at the exchange rates and market
values at the close of the period. The changes in net assets arising from
changes in exchange rates and the changes in net assets resulting from changes
in market prices are not separately presented. However, gains and losses from
certain foreign currency transactions are treated as ordinary income for
Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net
gains and losses on forward currency transactions, net currency gains and
losses realized as a result of differences between the amounts of security
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 at period-end exchange rates are
reflected in unrealized foreign exchange gains or losses.
There are certain risks involved in investing in foreign securities that are
in addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic
developments and possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions.
EAFE INDEX FUND
Foreign cash held at December 31, 1996:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
--------------------------------------- ---------- ----------
<S> <C> <C> <C>
Japanese Yen (Yen) 3,902,000 $ 39,965 $ 31,648
Pound Sterling (Pounds) 18,260 26,371 28,364
---------- ----------
$ 66,336 $ 60,012
========== ==========
INTERNATIONAL EQUITY FUND
Foreign cash held at December 31, 1996:
<CAPTION>
CURRENCY COST VALUE
--------------------------------------- ---------- ----------
<S> <C> <C> <C>
Australian Dollar A$ 900,986 $ 710,090 $ 715,653
Austrian Schilling AS 2,792 262 257
Belgian Franc BF 47,191 1,505 1,486
Danish Krone DK 9,214 1,561 1,562
Deutsche Mark DM 12,395 8,095 8,043
French Franc FF 19,676 3,776 3,785
Hong Kong Dollar HK 270,164 34,928 34,927
Italian Lira IL 7,463,000 4,928 4,911
Japanese Yen (Yen) 13,468,444 118,914 116,031
Malaysian Ringgit MK 19,901 7,893 7,880
Netherland Guilder NG 4,170 2,392 2,411
Pound Sterling (Pounds) 2,514,102 3,886,207 4,302,390
Singapore Dollar S$ 4,045 2,887 2,891
Spanish Peseta SP 14,829,078 115,560 114,006
---------- ----------
$4,898,998 $5,316,233
========== ==========
</TABLE>
127
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
MULTI-ASSET FUND
Foreign cash held at December 31, 1996:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
------------------------------------- ---------- ----------
<S> <C> <C> <C>
Australian Dollar A$ 237,925 $ 189,505 $ 188,979
Pound Sterling (Pounds) 9,735 16,290 16,661
---------- ----------
$ 205,795 $ 205,640
========== ==========
INTERNATIONAL BOND FUND
Foreign cash held at December 31, 1996:
<CAPTION>
CURRENCY COST VALUE
------------------------------------------ ---------- ----------
<S> <C> <C> <C> <C>
Australian Dollar A$ 635,010 $ 497,615 $ 504,388
Austrian Schilling AS 2,668,329 265,685 246,167
Canadian Dollar C$ 886,104 650,218 646,461
Danish Krone DK 2,172,821 372,538 368,343
Deutsche Mark DM 4,080,357 2,711,503 2,647,691
French Franc FF 2,209,586 428,425 425,018
Irish Punt IP 76,554 121,825 129,568
Italian Lira IL 859,542,457 564,059 565,579
Pound Sterling (Pounds) 201,683 314,609 345,141
Spanish Peseta SP 91,297,407 717,818 701,894
Swedish Krona SK 2,518,751 373,961 368,886
---------- ----------
$7,018,256 $6,949,136
========== ==========
</TABLE>
(K)
FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. During the period the forward contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by "marking
to market" such contract on a daily basis to reflect the market value of the
contract at the end of each day's trading. When the forward contract is
closed, the Fund records a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract. Forward currency contracts are used for hedging
purposes. (see Note 5).
INTERNATIONAL EQUITY FUND
Forward foreign currency contracts open at December 31, 1996:
<TABLE>
<CAPTION>
VALUE ON UNREALIZED
CONTRACT TRADE CURRENT APPRECIATION/
AMOUNT DATE VALUE (DEPRECIATION)
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY SALE
CONTRACTS
- ---------------------
Australian Dollar, ex-
piring 3/3/97.......... A$ 1,125,000 $ 910,125 $ 892,942 $ 17,183
Austrian Schilling, ex-
piring 1/15/97......... AS 13,530,000 1,258,610 1,249,347 9,263
Deutsche Mark, expiring
1/6/97-6/20/97......... DM 56,875,145 37,967,378 37,124,045 843,333
French Franc, expiring
1/29/97-2/4/97......... FF 15,270,000 2,984,989 2,943,314 41,675
Italian Lira, expiring
1/23/97................ IL 6,785,000,000 4,372,666 4,457,745 (85,079)
Japanese Yen, expiring
1/6/97-7/7/97.......... (Yen) 4,828,291,750 45,454,333 41,894,906 3,559,427
Spanish Peseta, expiring
1/22/97................ SP 291,500,000 2,221,553 2,239,594 (18,041)
----------
4,367,761
----------
FOREIGN CURRENCY BUY
CONTRACTS
- --------------------
Australian Dollar, ex-
piring 1/7/97.......... A$ 2,065,000 1,633,415 1,640,060 6,645
Deutsche Mark, expiring
1/22/97-2/5/97......... DM 21,271,967 13,953,919 13,830,147 (123,772)
Japanese Yen, expiring
1/6/97-2/5/97.......... (Yen) 2,043,562,730 17,764,556 17,670,710 (93,846)
Pound Sterling, expiring
1/7/97-3/10/97......... (Pounds) 4,823,750 7,720,483 8,248,041 527,558
----------
316,585
----------
Net Appreciation........ $4,684,346
==========
</TABLE>
128
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
Forward foreign currency contracts open at December 31, 1996:
<TABLE>
<CAPTION>
VALUE ON UNREALIZED
CONTRACT TRADE CURRENT APPRECIATION/
AMOUNT DATE VALUE (DEPRECIATION)
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY SALE
CONTRACTS
- ---------------------
Australian Dollar, ex-
piring 2/24/97-3/3/97.. A$ 2,490,000 $ 2,006,324 $ 1,976,398 $ 29,926
Canadian Dollar, expir-
ing 6/16/97............ C$ 1,840,000 1,371,088 1,355,902 15,186
Danish Krone, expiring
2/12/97................ DK 14,150,000 2,437,161 2,404,240 32,921
Deutsche Mark, expiring
1/6/97-6/20/97......... DM 39,740,347 26,377,054 25,895,393 481,661
Irish Punt, expiring
1/7/97................. IP 945,000 1,513,159 1,599,337 (86,178)
Italian Lira, expiring
1/23/97................ IL 1,570,000,000 1,011,803 1,031,490 (19,687)
Japanese Yen, expiring
1/6/97-7/7/97.......... (Yen) 243,638,825 2,238,097 2,128,592 109,505
Pound Sterling, expiring
1/7/97-2/14/97......... (Pounds) 837,400 1,307,107 1,432,739 (125,632)
Spanish Peseta, expiring
1/22/97................ SP 101,500,000 773,543 779,825 (6,282)
Swedish Krona, expiring
1/27/97................ SK 635,000 95,441 93,109 2,332
---------
433,752
---------
FOREIGN CURRENCY BUY
CONTRACTS
- --------------------
Australian Dollar, ex-
piring 1/7/97.......... A$ 1,620,000 1,281,420 1,286,633 5,213
Deutsche Mark, expiring
1/7/97-2/24/97......... DM 11,151,379 7,340,087 7,250,742 (89,345)
French Franc, expiring
2/4/97................. FF 2,750,000 541,279 530,076 (11,203)
Japanese Yen, expiring
1/6/97................. (Yen) 121,638,825 1,052,694 1,048,891 (3,803)
Pound Sterling, expiring
1/7/97................. (Pounds) 967,680 1,513,158 1,655,739 142,581
---------
43,443
---------
Net Appreciation........ $ 477,195
=========
</TABLE>
(L)
REPURCHASE AGREEMENTS. At the time the Funds enter into a repurchase
agreement, the value of the underlying security, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of
repurchase agreements exceeding one day, the value of the underlying security,
including accrued interest, is required during the term of the agreement to be
equal to or exceed the value of the repurchase agreement. The underlying
securities for all repurchase agreements are held in a segregated account of
the Funds' custodian. In the case of repurchase agreements exceeding one day,
the market value of the underlying securities is monitored by pricing the
underlying securities daily.
In the event of the bankruptcy of a counterparty, realization of the
collateral may be delayed or limited.
(M)
FUTURES CONTRACTS. A futures contract is an agreement to purchase or sell a
specified quantity of an underlying instrument at a specified future date, 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. Futures contracts are used for hedging
purposes. (see Note 5).
(N)
MORTGAGE DOLLAR ROLLS. A mortgage dollar roll ("MDR") is a transaction in
which a Fund 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 a Fund are classified as
purchase and sale transactions. The securities sold in connection with the MDR
are removed from the portfolio and a realized gain or loss is recognized. The
129
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
securities the Funds have agreed to acquire are included at market value in
the portfolio of investments and liability for such purchase commitments is
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.
(O)
SECURITIES LENDING. The Fund may lend its securities to broker-dealers and
financial institutions. The loans are secured by collateral 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. The
Fund did not engage in security lending during the year.
- -------------------------------------------------------------------------------
NOTE 3--Fees and Related Party Policies:
- -------------------------------------------------------------------------------
(A)
INVESTMENT ADVISORY AND ADMINISTRATION FEES. MacKay-Shields Financial
Corporation ("MacKay-Shields") serves as the investment adviser to the Growth
Equity Fund, International Equity Fund, Value Equity Fund, Bond Fund,
International Bond Fund and Short-Term Bond Fund under an Investment Advisory
Agreement. MacKay-Shields is a registered investment adviser and an indirect
wholly-owned subsidiary of New York Life Insurance Company ("New York Life").
New York Life serves as the investment adviser to the Money Market Fund under
an Investment Advisory Agreement. Monitor Capital Advisors Inc. ("Monitor
Capital"), is a registered investment adviser and a wholly-owned subsidiary of
NYLIFE Inc., an indirect wholly-owned subsidiary of New York Life and serves
as investment adviser to the EAFE Index Fund, Indexed Equity Fund, Multi-Asset
Fund and Indexed Bond Fund under an Investment Advisory Agreement.
New York Life is the Administrator for the Funds.
The Company, on behalf of each Fund, pays the Advisers and Administrator a
monthly fee for the services performed and the facilities furnished at an
annual rate of the average daily net assets of that Fund as follows:
<TABLE>
<CAPTION>
ADVISER ADMINISTRATOR
------- -------------
<S> <C> <C>
EAFE Index Fund........................................ .15% .80%
Growth Equity Fund..................................... .25% .60%
Indexed Equity Fund.................................... .10% .40%
International Equity Fund.............................. .35% .50%
Multi-Asset Fund....................................... .15% .50%
Value Equity Fund...................................... .25% .60%
Bond Fund.............................................. .20% .55%
Indexed Bond Fund...................................... .10% .40%
International Bond Fund................................ .30% .50%
Money Market Fund...................................... .10% .40%
Short-Term Bond Fund................................... .15% .45%
</TABLE>
The Administrator has voluntarily agreed to assume the portion of the Funds'
operating expenses for the nine months ended September 30, 1996 for the
Indexed Equity Fund and for the year ended December 31, 1996, for the
following Funds to the extent the expenses (excluding service fees) on an
annualized basis exceeded the indicated percentages:
<TABLE>
<S> <C>
EAFE Index Fund........................................... .94%
Indexed Equity Fund....................................... .50%
International Equity Fund................................. 1.00%
Multi-Asset............................................... .70%
Bond Fund................................................. .75%
Indexed Bond Fund......................................... .50%
International Bond Fund................................... .95%
Money Market Fund......................................... .50%
Short-Term Bond Fund...................................... .60%
</TABLE>
130
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
The Administrator, and Monitor Capital Advisors, Inc., as Adviser, for the
Indexed Equity Fund, have voluntarily agreed to assume a portion of the Fund's
operating expenses to the extent that the expenses (excluding service fees)
will not exceed .30% of the value of the average daily net assets starting
October 1, 1996.
In connection with the voluntary expense limitations, the Administrator
assumed the following expenses for the year ended December 31, 1996:
<TABLE>
<S> <C>
EAFE Index Fund....................................... $238,764
Indexed Equity Fund................................... 753,575*
International Equity Fund............................. 82,203
Multi-Asset Fund...................................... 164,519
Bond Fund............................................. 188,561
Indexed Bond Fund..................................... 189,996
International Bond Fund............................... 61,961
Money Market Fund..................................... 170,221
Short-Term Bond Fund.................................. 122,335
</TABLE>
- --------
* For the Indexed Equity Fund the Administrator assumed $676,954, the Adviser
assumed $76,621.
The Growth Equity Fund and the Value Equity Fund do not have a voluntary
expense limitation. The Multi-Asset Fund will not have an expense limitation
in 1997.
These voluntary expense limitations will continue through December 31, 1997
(December 31, 1998 for the Indexed Equity Fund), after which the voluntary
expense limitations may be terminated or revised at anytime at the discretion
of the Administrator (and Adviser in the case of the Indexed Equity Fund).
(B)
SERVICE FEES. In accordance with the Shareholder Services Plan, New York Life
has agreed to provide, through its affiliates or independent third parties,
various shareholder and administrative support services to Institutional
Service Class shareholders. For its services, New York Life is entitled to a
Shareholder Service Fee accrued daily and paid monthly at an annual rate of
0.25% of the average daily net assets attributable to the Institutional
Service Class of each Fund.
(C)
DISTRIBUTOR. NYLIFE Distributors Inc. ("NYLIFE Distributors"), an indirect
wholly-owned subsidiary of New York Life serves as the Company's distributor
and principal underwriter (the "Distributor") pursuant to a Distribution
Agreement. The Distributor is not obligated to sell any specific amount of the
Company's shares, and receives no compensation from the Company pursuant to
the Distribution Agreement.
(D)
DIRECTORS FEES. Directors, other than those affiliated with New York Life,
MacKay-Shields, Monitor Capital or NYLIFE Distributors, are paid an annual fee
of $24,000 and $1,000 for each Board of Directors and Committee meeting
attended plus reimbursement for travel and out-of-pocket expenses.
(E)
CAPITAL. The Funds have been advised that at December 31, 1996 affiliates of
New York Life owned a significant number of shares of the Funds with the
following market values:
<TABLE>
<S> <C>
EAFE Index Fund....................................... $ 70,813,532
Growth Equity Fund.................................... 448,670,515
Indexed Equity Fund................................... 503,869,256
International Equity Fund............................. 100,899,209
Multi-Asset Fund...................................... 196,339,387
Value Equity Fund..................................... 612,612,727
Bond Fund............................................. 124,257,179
Indexed Bond Fund..................................... 79,630,953
International Bond Fund............................... 49,664,091
Money Market Fund..................................... 43,021,715
Short-Term Bond Fund.................................. 11,657,499
</TABLE>
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities
of these shareholders could have a material impact on the Fund.
131
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(F)
OTHER. Fees for the cost of legal services provided to the Company by the
Office of General Counsel of New York Life are charged to the Funds. For the
year ended December 31, 1996 these fees were as follows:
<TABLE>
<S> <C>
EAFE Index Fund.............................................. $ 8,528
Growth Equity Fund........................................... 45,511
Indexed Equity Fund.......................................... 41,649
International Equity Fund.................................... 10,661
Multi-Asset Fund............................................. 29,972
Value Equity Fund............................................ 66,193
Bond Fund.................................................... 19,691
Indexed Bond Fund............................................ 16,118
International Bond Fund...................................... 4,735
Money Market Fund............................................ 8,096
Short-Term Bond Fund......................................... 6,069
</TABLE>
- -------------------------------------------------------------------------------
NOTE 4--Federal Income Tax:
- -------------------------------------------------------------------------------
At December 31, 1996, for Federal income tax purposes, capital loss
carryforwards, as shown in the table below, are available to the extent
provided by regulations to offset future realized gains of each respective
Fund through the years indicated. 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. Additionally, as shown in
the table below, certain Funds intend to elect, to the extent provided by
regulations, to treat certain qualifying capital losses that arose during the
year ended December 31, 1996 as if they arose on January 1, 1997.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
----------------- -------------- ----------------
<S> <C> <C> <C>
EAFE Index Fund........... $ 0 $ 55
======= ======
International Equity
Fund..................... $ 0 $1,040
======= ======
Bond Fund................. 2002 $12,622
2004 1,624
-------
$14,246 $ 0
======= ======
Indexed Bond Fund......... 2004 $ 1,439 $ 59
======= ======
Short-Term Bond Fund...... 2001 $ 164
2002 4,478
2003 1,770
2004 485
------- ------
$ 6,897 $ 5
======= ======
</TABLE>
The Multi-Asset Fund intends to elect to treat for Federal income tax purposes
approximately $4,674 of qualifying foreign exchange losses that arose during
the year ended December 31, 1996 as if they arose January 1, 1997. The Growth
Equity Fund utilized $96,809 of capital loss carryforwards during the current
year.
132
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
- -------------------------------------------------------------------------------
NOTE 5--Financial Investments:
- -------------------------------------------------------------------------------
The EAFE Index Fund's, International Equity Fund's, Multi-Asset Fund's and
International Bond Fund's use of 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 each 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 each Fund's exposure at period end to credit loss in the event of a
counterparty's failure to perform its obligations.
The EAFE Index Fund's and Multi-Asset Fund's use of forward foreign currency
exchange contracts are intended to minimize the risk of loss to the Fund from
adverse changes in the relationship between U.S. dollar and foreign
currencies. The International Equity Fund and International Bond Fund enter
into forward currency exchange contracts in order to protect against
uncertainty in the level of future foreign currency exchange rates.
The EAFE Index Fund's, Indexed Equity Fund's, Multi-Asset Fund's and
Indexed Bond Fund's 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 each Fund's involvement in open futures positions. Risks
arise from 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,
each Fund's activities in futures contracts are conducted through regulated
exchanges which minimize counterparty credit risks.
The EAFE Index Fund and Indexed Equity Fund invests in stock index futures
contracts to maintain cash reserves while remaining fully invested, to
facilitate trading, or to reduce transaction costs. The Multi-Asset Fund has
entered into contracts for the future delivery of debt securities and invests
in stock index futures contracts to rebalance the Fund's portfolio composition
and risk profile to meet asset class constraints. The Indexed Bond Fund
invests in contracts for the future delivery of debt securities in order to
attempt to maintain cash reserves while remaining fully invested, to
facilitate trading, or to reduce transaction costs.
133
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1996, purchases and sales of securities,
other than securities subject to repurchase transactions and short-term
securities, were as follows:
<TABLE>
<CAPTION>
EAFE Index Growth Equity Indexed Equity International Equity
Fund Fund Fund Fund
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securi-
ties $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
All others 7,673 2,983 132,470 103,710 225,037 37,417 46,098 24,658
------------------------------------------------------------------------------
Total $7,673 $2,983 $132,470 $103,710 $225,037 $37,417 $ 46,098 $ 24,658
==============================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 7--Capital Share Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
EAFE Index Growth Equity
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 1,451 17 1,843 19 8,895 183 9,698 146
Shares issued in
reinvestment of
dividends and
distributions 190 1 90 -- * 983 13 32 -- *
---------------------------------------------------------------------------------------------------------------
1,641 18 1,933 19 9,878 196 9,730 146
Shares redeemed 1,192 9 1,749 -- 7,148 28 8,640 1
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 449 9 184 19 2,730 168 1,090 145
===============================================================================================================
<CAPTION>
Multi-Asset Value Equity
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,939 188 3,333 262 11,047 686 10,840 219
Shares issued in
reinvestment of
dividends and
distributions 917 14 2,980 38 5,285 93 1,551 8
---------------------------------------------------------------------------------------------------------------
4,856 202 6,313 300 16,332 779 12,391 227
Shares redeemed 3,494 84 4,595 -- * 6,392 71 4,818 4
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 1,362 118 1,718 300 9,940 708 7,573 223
===============================================================================================================
<CAPTION>
International Bond Money Market
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
1996 1995 1996 1995
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 187 18 81 1 346,675 58,869 193,425 4,420
Shares issued in
reinvestment of
dividends and
distributions 609 3 230 -- * 4,008 651 3,150 41
---------------------------------------------------------------------------------------------------------------
796 21 311 1 350,683 59,520 196,575 4,461
Shares redeemed 93 1 -- -- * 307,790 27,640 193,811 1,677
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 703 20 311 1 42,893 31,880 2,764 2,784
===============================================================================================================
</TABLE>
*Less than one thousand shares.
134
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Multi-Asset Value Equity Bond Indexed Bond International Bond Short-Term Bond
Fund Fund Fund Fund Fund Fund
PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES PURCHASES SALES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$172,209 $187,042 $ -- $ -- $470,849 $525,174 $365,507 $393,034 $ -- $ -- $ 97,953 $ 79,874
89,088 67,539 416,584 329,005 228,249 191,494 8,611 23,540 22,414 23,238 46,983 44,816
- --------------------------------------------------------------------------------------------------------------------
$261,297 $254,581 $416,584 $329,005 $699,098 $716,668 $374,118 $416,574 $ 22,414 $ 23,238 $144,936 $124,690
====================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Indexed Equity International Equity
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class Class Service Class
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12,964 232 4,814 53 1,803 47 2,383 20
1,075 10 750 2 994 5 320 1
- ----------------------------------------------------------------------------------------------------------------
14,039 242 5,564 55 2,797 52 2,703 21
4,575 17 3,763 1 260 4 19 -- *
- ----------------------------------------------------------------------------------------------------------------
9,464 225 1,801 54 2,537 48 2,684 21
================================================================================================================
<CAPTION>
Bond Indexed Bond
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class Class Service Class
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Year Ended Year Ended Year Ended Year Ended
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,404 129 1,326 78 2,467 228 1,876 40
1,130 10 1,262 5 699 17 1,103 3
- ----------------------------------------------------------------------------------------------------------------
2,534 139 2,588 83 3,166 245 2,979 43
3,576 47 5,680 7 7,620 25 4,960 -- *
- ----------------------------------------------------------------------------------------------------------------
(1,042) 92 (3,092) 76 (4,454) 220 (1,981) 43
================================================================================================================
<CAPTION>
Short-Term Bond
Fund
Institutional Institutional Institutional Institutional
Class Service Class Class Service Class
- ------------- ------------- ------------- -------------
Year Ended Year Ended
1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
6,225 82 2,617 140
394 10 332 7
- --------------------------------------------------------
6,619 92 2,949 147
5,775 70 4,347 30
- --------------------------------------------------------
844 22 (1,398) 117
========================================================
</TABLE>
135
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
MainStay Institutional Funds Inc.
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of EAFE Index Fund,
Growth Equity Fund, Indexed Equity Fund, International Equity Fund, Multi-
Asset Fund, Value Equity Fund, Bond Fund, Indexed Bond Fund, International
Bond Fund, Money Market Fund, and Short-Term Bond Fund (constituting MainStay
Institutional Funds Inc., hereafter referred to as the "Funds") at
December 31, 1996, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years then
ended and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 21, 1997
136
<PAGE>
OFFICERS AND DIRECTORS
Alice T. Kane
Chairperson and Director
Patrick G. Boyle
Director
Lawrence Glacken
Director
Robert P. Mulhearn
Director
Susan B. Kerley
Director
Linda M. Livornese
President
Jefferson C. Boyce
Senior Vice President
Robert Fenster
Vice President
Michael J. Harrington
Vice President
Richard Zuccaro
Tax Vice President
Anthony W. Polis
Treasurer
A. Thomas Smith III
Secretary
INVESTMENT ADVISORS
New York Life Insurance Company
MacKay-Shields Financial Corporation
Monitor Capital Advisors, Inc.
ADMINISTRATOR
New York Life Insurance Company
DISTRIBUTOR
NYLIFE Distributors Inc.
TRANSFER AGENT
Boston Financial Data Services
CUSTODIAN
The Bank of New York
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
LEGAL COUNSEL
Dechert Price & Rhoads
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF MAINSTAY INSTITUTIONAL FUNDS INC. APPEARS HERE]
MAINSTAY (R)
INSTITUTIONAL
FUNDS INC.
This is a copy of a report by MainStay Institutional Funds Inc. to the
shareholders. Distribution of this report to persons other than these
shareholders is authorized only when accompanied or preceded by a current
prospectus. This report does not offer for sale or solicit orders to buy
any securities.
Advisers:
New York Life Insurance Company
MacKay-Shields Financial Corporation
Monitor Capital Advisors, Inc.
http://www.mainstayfunds.com
DON'T MISS THE BOAT
Distributed by NYLIFE Distributors Inc., Member NASD
260 Cherry Hill Road, Parsippany, NJ 07054
NYLIFE Distributors Inc. is an indirect wholly owned
subsidiary of New York Life Insurance Company.
[LOGO OF NEW YORK LIFE APPEARS HERE]
02-009-0297
- --------------------------------------------------------------------------------
