<PAGE>
[LOGO OF MAINSTAY INSTITUTIONAL FUNDS INC. APPEARS HERE]
MAINSTAY(R)
INSTITUTIONAL
FUNDS INC.
1997
ANNUAL REPORT
December 31, 1997
<PAGE>
Performance Highlights--Total Returns*
Year Ended December 31, 1997
<TABLE>
<CAPTION>
---------------------------------
SEC Average Annual
Total Returns
as of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Funds 1991 1992 1993 1994 1995 1996 1997 1 Year 5 Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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% 0.40% 0.40% 9.93% 6.47%
- ------------------------------------------------------------------------------------------------------------------------------------
EAFE Index (Serv. Class)++ 10.10 -12.22 28.97 6.83 8.63 6.37 0.08 0.08 9.76 6.35
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Equity (Instl. Class)+ 67.00 5.63 9.59 -2.23 37.88 21.62 24.73 24.73 17.52 21.68
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Equity (Serv. Class)++ 67.00 5.63 9.59 -2.23 37.50 21.29 24.50 24.50 17.34 21.55
- ------------------------------------------------------------------------------------------------------------------------------------
Indexed Equity (Instl. Class)+ 29.80 7.19 9.41 0.90 36.88 22.57 32.88 32.88 19.74 19.21
- ------------------------------------------------------------------------------------------------------------------------------------
Indexed Equity (Serv. Class)++ 29.80 7.19 9.41 0.90 36.70 22.21 32.60 32.60 19.58 19.10
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity (Instl. Class)(S) N/A -5.37 25.03 8.36 7.17 12.09 5.44 5.44 11.41 9.35
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity (Serv. Class)(S) N/A -5.37 25.03 8.36 6.86 11.59 4.88 4.88 11.12 9.10
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Asset (Instl. Class)+ 17.90 7.09 8.79 -0.86 26.81 16.16 26.69 26.69 15.02 14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Multi-Asset (Serv. Class)++ 17.90 7.09 8.79 -0.86 26.70 15.89 26.30 26.30 14.87 14.14
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity (Instl. Class)+ 36.60 20.71 14.90 1.22 29.42 22.41 22.63 22.63 17.71 20.65
- ------------------------------------------------------------------------------------------------------------------------------------
Value Equity (Serv. Class)++ 36.60 20.71 14.90 1.22 29.32 22.10 22.28 22.28 17.56 20.54
- ------------------------------------------------------------------------------------------------------------------------------------
Income Funds
- ------------------------------------------------------------------------------------------------------------------------------------
Bond (Instl. Class)+ 14.00% 6.39% 9.74% -3.31% 17.88% 2.80% 8.57% 8.57% 6.90% 7.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Bond (Serv. Class)++ 14.00 6.39 9.74 -3.31 17.55 2.62 8.21 8.21 6.73 7.69
- ------------------------------------------------------------------------------------------------------------------------------------
Indexed Bond (Instl. Class)+ 14.70 7.09 9.64 -3.44 18.07 2.55 9.01 9.01 6.92 8.02
- ------------------------------------------------------------------------------------------------------------------------------------
Indexed Bond (Serv. Class)++ 14.70 7.09 9.64 -3.44 17.97 2.34 8.75 8.75 6.81 7.93
- ------------------------------------------------------------------------------------------------------------------------------------
International Bond (Instl. Class)(S) 18.73 7.68 14.56 3.11 18.46 14.32 2.62 2.62 10.42 9.80
- ------------------------------------------------------------------------------------------------------------------------------------
International Bond (Serv. Class)(S) 18.73 7.68 14.56 3.11 18.26 14.08 2.27 2.27 10.26 9.70
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market+++ (Instl. Class)+ 5.95 3.66 2.89 3.88 5.63 5.11 5.27 5.27 4.55 4.62
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market+++ (Serv. Class)++ 5.95 3.66 2.89 3.88 5.46 4.85 5.01 5.01 4.41 4.52
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond (Instl. Class)+ 11.30 5.94 5.67 0.11 10.27 4.81 6.13 6.13 5.35 6.26
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond (Serv. Class)++ 11.30 5.94 5.67 0.11 10.07 4.46 5.98 5.98 5.21 6.16
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ The inception date of these Institutional Class shares and the date such
shares were first offered to the public is 1/2/91.
++ 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 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.
(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 inception dates of the International Equity Fund and
International Bond Fund's predecessor separate accounts (Separate Accounts)
are 7/31/92 and 1/31/90, respectively. Performance figures include the
historical performance of the respective Separate Account for the period
prior to the Fund's commencement of operations on January 1, 1995. MacKay
Shields Financial Corporation, the Funds' investment sub-adviser, served as
investment adviser to the Separate Accounts, and the investment objectives,
policies, restrictions, guidelines, and management style of the Separate
Accounts were substantially similar to those of the respective Funds.
Performance figures for the period prior to January 1, 1995 have been
calculated using the Separate Accounts' expense structures, which generally
was higher than the expense structure of the Funds. The Separate Accounts
were not registered under the Investment Company Act of 1940 ("1940 Act")
and therefore were not subject to certain investment restrictions imposed
under the 1940 Act. If the Separate Accounts had been registered under the
1940 Act, the Separate Accounts' performance may have been adversely
affected.
+++ The Money Market Fund-Institutional Class had an effective 7-day yield of
5.45% with a current 7-day yield of 5.31%, both as of 12/31/97. The Money
Market Fund-Service Class had an effective 7-day yield of 5.19% with a
current 7-day yield of 5.06%, both as of 12/31/97. These yields reflect
certain expense limitations. Had these expenses not been limited, the
effective 7-day yield and the current 7-day yield would have been 5.28% and
5.15%, respectively, for the Institutional Class and 5.02% and 4.90%,
respectively, for the Service Class. These expense limitations are voluntary
and may be terminated or revised at any time.
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 (through 1993 for the Value Equity Fund and Growth
Equity Fund and 1996 for the Multi-Asset Fund) reflect certain fee waivers
and/or expense limitations. As a result, total return figures, which take
into account these fee waivers and/or expense limitations may have been
lower had they not been in effect. The fee waivers and expense limitations
are voluntary and may be terminated at any time. Please read the
prospectuses carefully before you invest or send money.
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 prospectuses for more detailed information. The Funds' prospectuses
contain more information about advisory fees, other expenses and share
classes. Please read them 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
Chairman's Letter 2
Shareholder Proxy Results 4
PORTFOLIO MANAGERS' INTERVIEWS & COMMENTS
&
FINANCIAL STATEMENTS
EQUITY FUNDS
EAFE Index Fund 8
Growth Equity Fund 24
Indexed Equity Fund 34
International Equity Fund 49
Multi-Asset Fund 65
Value Equity Fund 83
INCOME FUNDS
Bond Fund 93
Indexed Bond Fund 104
International Bond Fund 114
Money Market Fund 125
Short-Term Bond Fund 134
Note 1 Organization and Business 142
Note 2 Significant Accounting Policies 143
Note 3 Fees and Related Party Policies 148
Note 4 Federal Income Tax 151
Note 5 Financial Investments 151
Note 6 Portfolio Securities Loaned 152
Note 7 Line of Credit 152
Note 8 Purchases and Sales of Securities 154
Note 9 Capital Share Transactions 154
Report of Independent Accountants 156
<PAGE>
CHAIRMAN'S LETTER
================================================================================
REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997
Investors will likely remember 1997 with mixed emotions. After a promising first
quarter rise, the U.S. stock market took a disappointing turn in April. Before
long, however, a recovery became apparent, and the momentum created by investor
enthusiasm drove prices to record highs in early August. Then, in October,
financial problems brewing in Asia culminated in a frenzy of short-term
volatility. Yet, while the choppy seas which often characterized last year's
financial markets left many investors feeling somewhat uncertain, overall, 1997
was a positive year.
[PHOTO APPEARS HERE]
Stephen C. Roussin, Chairman
The Dow Jones Industrial Average, a price-weighted average of 30 actively traded
blue chip stocks, swung over 100 points up or down on numerous occasions. Most
notable was a 554 point decline on October 27, 1997, and a 337 point rise the
following day--the Dow's largest single day point rise in history. Despite this
emotional roller coaster, in the end optimism reigned, with the Dow up 24.91%
and the S&P 500 Index* up 33.36% at year end.
Domestic bond markets also had a good year. After the Federal Reserve Board
moved to raise interest rates at the end of March, slowing economic growth and
continued low inflation caused yields to decline throughout the rest of the
year. The resulting bond rally caused domestic government bonds, mortgage-backed
securities, and investment grade bonds+ to collectively return 9.64% in 1997.
As MainStay(R) has often noted, investments in foreign securities may be subject
to greater risks than domestic investments. In 1997, several international
markets experienced downturns as a result of these risks. Most western European
stock markets provided double-digit returns both in local currency and U.S.
dollar terms. In the third and fourth quarters, however, Asian markets suffered
from currency problems and difficulties at some Japanese financial firms, which
sent shock waves into stock and bond markets around the globe. A strong U.S.
dollar compounded the hazards for many investors in Asian markets.
Concerned about volatility?
Just as experienced sailors know to stay focused on their direction and
destination during rough seas, in turbulent markets investors who stay focused
on their goals may be more likely to keep their investments on course.
After seven years of relatively steady stock price increases, sudden declines
may seem somewhat unfamiliar, but they may not be unexpected. Indeed, despite a
strong economy, tame inflation, and rising corporate earnings, many financial
"experts" are anticipating some kind of market correction.
Should you expect further market setbacks? Only time will tell. But it may help
to bear in mind that downward shifts are not necessarily bad. When the market
rises beyond its sustainable level, adjustments that move it to more realistic
levels may be viewed as positive, despite any short-term setbacks they may
cause.
- --------------------------------------------------------------------------------
* "Standard & Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of Standard & Poor's. The S&P 500 is an unmanaged index
and is considered to be generally representative of the U.S. stock market.
Results assume the reinvestment of all income and capital gain distributions.
+ As measured by the Salomon Brothers Broad Investment Grade Bond Index, an
unmanaged index considered representative of the U.S. bond market.
2
<PAGE>
================================================================================
Good news from Congress
While both domestic and European stock markets did well in 1997, some of the
best investment news came from Congress. Lower long-term capital gains tax rates
may provide you with more investment opportunities. And with the new IRA
provisions, including the introduction of Roth IRAs and Education IRAs, you may
have additional ways to save for retirement and your children's education in the
years ahead.
These new IRA provisions place additional emphasis on the value of saving and
investing for the long term. Fortunately, these are priorities that MainStay
investors have shared for many years. Overall, MainStay investors redeem shares
at a rate that is substantially lower than the mutual fund industry as a
whole.++
MainStay means opportunity
At MainStay, we believe investors choose our Institutional Funds for the
opportunities they provide. Whether you are seeking long-term growth, income, or
a combination of the two, we have Institutional Funds that may reflect your
objectives and your attitudes about risk and reward. Whether you prefer tracking
an index or individual security selection, we offer a variety of Funds suited to
your needs.
As the newly elected Chairman of the MainStay Institutional Funds, I am proud
that we are providing not only the Funds, but also the information and support
you need to help keep your investments working toward your long-range goals. In
addition to regular statements and periodic shareholder reports, we offer
customized reports and services for plan sponsors, corporate investors, and
other institutional clients. Our marketing representatives are just a phone call
away, with direct access to MainStay sub-advisers, administrative information,
and advanced systems support to help address your day-to-day investment needs.
We appreciate your confidence in MainStay and hope that the information on the
following pages will help you make the most productive use of the opportunities
that may lie ahead.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
Chairman
January 1998
- --------------------------------------------------------------------------------
++ Source: Investment Company Institute, 1997.
3
<PAGE>
RESULTS OF PROXY VOTE
================================================================================
A Special Meeting of Shareholders of the Company was held on November 17, 1997
to: elect Patrick G. Boyle, Lawrence Glacken, Alice T. Kane, Susan B. Kerley,
and Robert P. Mulhern as Directors of the Company; approve a Management
Agreement between the Company on behalf of each Fund and MainStay Management,
Inc.; approve Sub-Advisory Agreements between MainStay Management, Inc. and each
of MacKay Shields Financial Corporation, Monitor Capital Advisors, Inc. and New
York Life Insurance Company; eliminate or revise certain of the Funds'
fundamental investment restrictions, including the elimination of certain state-
imposed fundamental investment restrictions and the change of certain
fundamental investment restrictions to nonfundamental, and the elimination of
certain fundamental restrictions pertaining to industry concentration, borrowing
money and issuing senior securities, commodities transactions, and maintaining
short positions and; to ratify the selection of Price Waterhouse LLP as
independent certified public accountants of the Company.
A summary of the proposals and the voting is presented below. As indicated, some
proposals did not pertain to all of the Funds.
<TABLE>
<CAPTION>
PROPOSAL 1--Election of Directors--Passed
For Withhold Authority Result
--------- ------------------ ------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund
Patrick G. Boyle...................................... 5,395,732 0 Passed
Lawrence Glacken...................................... 5,395,732 0 Passed
Alice T. Kane......................................... 5,394,764 968 Passed
Susan B. Kerley....................................... 5,394,764 968 Passed
Robert P. Mulhern..................................... 5,395,732 0 Passed
MainStay Institutional Growth Equity Fund
Patrick G. Boyle...................................... 22,359,924 277 Passed
Lawrence Glacken...................................... 22,360,068 133 Passed
Alice T. Kane......................................... 22,332,263 27,938 Passed
Susan B. Kerley....................................... 22,360,068 133 Passed
Robert P. Mulhern..................................... 22,359,924 277 Passed
MainStay Institutional Indexed Equity Fund
Patrick G. Boyle...................................... 26,969,636 3,492 Passed
Lawrence Glacken...................................... 26,969,777 3,351 Passed
Alice T. Kane......................................... 26,968,112 5,016 Passed
Susan B. Kerley....................................... 26,968,112 5,016 Passed
Robert P. Mulhern..................................... 26,969,636 3,492 Passed
MainStay Institutional International Equity Fund
Patrick G. Boyle...................................... 9,826,279 0 Passed
Lawrence Glacken...................................... 9,826,279 0 Passed
Alice T. Kane......................................... 9,748,994 77,285 Passed
Susan B. Kerley....................................... 9,826,279 0 Passed
Robert P. Mulhern..................................... 9,826,279 0 Passed
MainStay Institutional Multi-Asset Fund
Patrick G. Boyle...................................... 17,586,433 149,181 Passed
Lawrence Glacken...................................... 17,586,433 149,181 Passed
Alice T. Kane......................................... 17,466,925 268,689 Passed
Susan B. Kerley....................................... 17,586,433 149,181 Passed
Robert P. Mulhern..................................... 17,586,433 149,181 Passed
MainStay Institutional Value Equity Fund
Patrick G. Boyle...................................... 41,759,810 47,869 Passed
Lawrence Glacken...................................... 41,760,037 47,642 Passed
Alice T. Kane......................................... 41,598,823 208,856 Passed
Susan B. Kerley....................................... 41,759,070 48,609 Passed
Robert P. Mulhern..................................... 41,759,810 47,869 Passed
MainStay Institutional Bond Fund
Patrick G. Boyle...................................... 13,665,261 2,883 Passed
Lawrence Glacken...................................... 13,665,261 2,883 Passed
Alice T. Kane......................................... 13,665,261 2,883 Passed
Susan B. Kerley....................................... 13,665,261 2,883 Passed
Robert P. Mulhern..................................... 13,665,261 2,883 Passed
MainStay Institutional Indexed Bond Fund
Patrick G. Boyle...................................... 8,034,455 24,958 Passed
Lawrence Glacken...................................... 8,034,455 24,958 Passed
Alice T. Kane......................................... 8,034,455 24,958 Passed
Susan B. Kerley....................................... 8,034,455 24,958 Passed
Robert P. Mulhern..................................... 8,034,455 24,958 Passed
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSAL 1--Election of Directors--(continued)
For Withhold Authority Result
--------------- ------------------ ------
<S> <C> <C> <C>
MainStay Institutional International Bond Fund
Patrick G. Boyle......................................... 4,500,964 0 Passed
Lawrence Glacken......................................... 4,500,964 0 Passed
Alice T. Kane............................................ 4,500,964 0 Passed
Susan B. Kerley.......................................... 4,500,964 0 Passed
Robert P. Mulhern........................................ 4,500,964 0 Passed
MainStay Institutional Money Market Fund
Patrick G. Boyle......................................... 162,789,868 292,414 Passed
Lawrence Glacken......................................... 162,784,625 297,657 Passed
Alice T. Kane............................................ 162,800,828 281,454 Passed
Susan B. Kerley.......................................... 162,735,027 347,255 Passed
Robert P. Mulhern........................................ 162,783,096 299,186 Passed
MainStay Institutional Short-Term Bond Fund
Patrick G. Boyle......................................... 2,939,487 84,186 Passed
Lawrence Glacken......................................... 2,939,487 84,186 Passed
Alice T. Kane............................................ 2,891,489 132,185 Passed
Susan B. Kerley.......................................... 2,939,487 84,186 Passed
Robert P. Mulhern........................................ 2,939,487 84,186 Passed
<CAPTION>
PROPOSAL 2--Approval of Management Agreement--Passed
Fund Name For Against Abstain Result
--------- -------------- ------------ ------------ ------
<S> <C> <C> <C> <C>
MainStay Institutional EAFE Index Fund................... 5,394,301.34 250.00 1,181.00 Passed
MainStay Institutional Growth Equity Fund................ 21,921,096.18 386,624.79 52,480.02 Passed
MainStay Institutional Indexed Equity Fund............... 26,904,894.61 46,112.01 22,121.31 Passed
MainStay Institutional International Equity Fund......... 9,824,078.02 2,201.01 0.00 Passed
MainStay Institutional Multi-Asset Fund.................. 17,394,122.75 5,947.00 335,543.21 Passed
MainStay Institutional Value Equity Fund................ 41,685,309.32 15,172.00 107,197.03 Passed
MainStay Institutional Bond Fund......................... 13,666,468.11 0.00 1,676.00 Passed
MainStay Institutional Indexed Bond Fund................. 8,009,713.51 26,238.43 23,460.03 Passed
MainStay Institutional International Bond Fund........... 4,500,963.74 0.00 0.00 Passed
MainStay Institutional Money Market Fund................. 162,077,565.32 450,180.31 554,535.38 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,939,486.32 0.00 84,186.34 Passed
PROPOSAL 3A--Approval of Sub-Advisory Agreement between
the Manager and MacKay Shields
Financial Corporation--Passed
Fund Name For Against Abstain Result
--------- -------------- ------------ ------------ ------
MainStay Institutional Growth Equity Fund................ 21,922,898.18 385,751.79 51,550.02 Passed
MainStay Institutional International Equity Fund......... 9,826,279.02 0.00 0.00 Passed
MainStay Institutional Value Equity Fund................ 41,687,498.32 12,149.00 108,030.03 Passed
MainStay Institutional Bond Fund......................... 13,663,487.11 1,556.00 3,101.00 Passed
MainStay Institutional International Bond Fund........... 4,500,963.74 0.00 0.00 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,939,486.32 0.00 84,186.34 Passed
PROPOSAL 3B--Approval of Sub-Advisory Agreement between
the Manager and Monitor Capital
Advisors, Inc.--Passed
Fund Name For Against Abstain Result
--------- -------------- ------------ ------------ ------
MainStay Institutional EAFE Index Fund................... 5,394,301.34 250.00 1,181.00 Passed
MainStay Institutional Indexed Equity Fund............... 26,947,194.62 4,503.00 21,429.31 Passed
MainStay Institutional Multi-Asset Fund.................. 17,395,958.75 4,111.00 335,543.21 Passed
MainStay Institutional Indexed Bond Fund................. 8,007,868.51 28,083.43 23,460.03 Passed
PROPOSAL 3C--Approval of Sub-Advisory Agreement between
the Manager and New York Life
Insurance Company--Passed
Fund Name For Against Abstain Result
--------- -------------- ------------ ------------ ------
MainStay Institutional Money Market Fund................. 162,194,969.41 360,910.25 526,401.36 Passed
<CAPTION>
PROPOSAL 4--Elimination of Certain State-Imposed Fundamental Investment Restrictions--Passed
Fund Name For Against Abstain Broker Non-Vote Result
--------- -------------- ------------ ------------ --------------- ------
<S> <C> <C> <C> <C> <C>
MainStay Institutional EAFE Index Fund................... 5,344,847.32 250.00 11,129.02 39,506.00 Passed
MainStay Institutional Growth Equity Fund................ 22,041,090.91 13,497.00 226,974.08 78,639.00 Passed
MainStay Institutional Indexed Equity Fund............... 26,831,202.62 932.00 28,467.31 112,526.00 Passed
MainStay Institutional International Equity Fund......... 9,705,985.81 2,201.01 90,010.21 28,082.00 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 441,654.28 90,850.00 Passed
MainStay Institutional Value Equity Fund................ 40,784,228.19 131,260.03 519,627.12 372,564.00 Passed
MainStay Institutional Bond Fund......................... 13,628,893.10 0.00 8,844.01 30,407.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,870,902.72 0.00 184,376.26 4,134.00 Passed
MainStay Institutional International Bond Fund........... 4,496,321.74 0.00 0.00 4,642.00 Passed
MainStay Institutional Money Market Fund................. 118,791,093.96 2,665,608.42 2,903,807.64 38,721,772.00 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,734,957.50 0.00 287,243.15 1,473.00 Passed
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSAL 4--Elimination or Revision of Certain Fundamental Investment Restrictions--Passed
Investment Restriction A1--Asset pledges, mortgages, or hypothecation
Fund Name For Against Result
--------- -------------- ------------ ------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund................... 5,344,847.32 250.00 Passed
MainStay Institutional Growth Equity Fund................ 22,041,090.91 13,497.00 Passed
MainStay Institutional Indexed Equity Fund............... 26,831,202.62 932.00 Passed
MainStay Institutional International Equity Fund......... 9,705,985.81 2,201.01 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund................. 40,784,228.19 131,260.03 Passed
MainStay Institutional Bond Fund......................... 13,628,893.10 0.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,870,902.72 0.00 Passed
MainStay Institutional International Bond Fund........... 4,496,321.74 0.00 Passed
MainStay Institutional Money Market Fund................. 118,760,650.94 2,696,051.44 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,734,957.50 0.00 Passed
Investment Restriction A2--Oil, gas, or mineral programs
or lease interests
Fund Name For Against Result
--------- -------------- ------------ ------
MainStay Institutional EAFE Index Fund................... 5,344,416.32 681.00 Passed
MainStay Institutional Growth Equity Fund................ 22,040,590.91 13,997.00 Passed
MainStay Institutional Indexed Equity Fund............... 26,823,888.62 8,246.00 Passed
MainStay Institutional International Equity Fund......... 9,702,065.80 6,121.01 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund................. 40,783,110.19 132,378.03 Passed
MainStay Institutional Bond Fund......................... 13,626,804.10 2,089.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,869,404.71 1,498.00 Passed
MainStay Institutional International Bond Fund........... 4,495,739.73 582.00 Passed
MainStay Institutional Money Market Fund................. 118,760,650.94 2,696,051.44 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,734,957.50 0.00 Passed
Investment Restriction A3--Limited partnership interests
Fund Name For Against Result
--------- -------------- ------------ ------
MainStay Institutional EAFE Index Fund................... 5,344,416.32 681.00 Passed
MainStay Institutional Growth Equity Fund................ 22,040,590.91 13,997.00 Passed
MainStay Institutional Indexed Equity Fund............... 26,823,888.62 8,246.00 Passed
MainStay Institutional International Equity Fund......... 9,702,065.80 6,121.01 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund................. 40,783,110.19 132,378.03 Passed
MainStay Institutional Bond Fund......................... 13,626,804.10 2,089.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,869,404.71 1,498.00 Passed
MainStay Institutional International Bond Fund........... 4,495,739.73 582.00 Passed
MainStay Institutional Money Market Fund................. 118,760,650.94 2,696,051.44 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,734,957.50 0.00 Passed
Investment Restriction B1--Margin purchases
Fund Name For Against Result
--------- -------------- ------------ ------
MainStay Institutional EAFE Index Fund................... 5,344,847.32 250.00 Passed
MainStay Institutional Growth Equity Fund................ 22,008,478.90 46,109.02 Passed
MainStay Institutional Indexed Equity Fund............... 26,831,061.62 1,073.00 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund................. 40,743,086.18 172,402.04 Passed
MainStay Institutional Bond Fund......................... 13,628,893.10 0.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,870,902.72 0.00 Passed
MainStay Institutional Money Market Fund................. 118,756,705.94 2,699,996.45 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,709,856.40 25,101.10 Passed
Investment Restriction B2--Short sales
Fund Name For Against Result
--------- -------------- ------------ ------
MainStay Institutional EAFE Index Fund................... 5,344,416.32 681.00 Passed
MainStay Institutional Growth Equity Fund................ 22,007,978.90 46,609.02 Passed
MainStay Institutional Indexed Equity Fund............... 26,823,747.62 8,387.00 Passed
MainStay Institutional Multi-Asset Fund.................. 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund................. 40,741,968.18 173,520.04 Passed
MainStay Institutional Bond Fund......................... 13,626,804.10 2,089.00 Passed
MainStay Institutional Indexed Bond Fund................. 7,869,404.71 1,498.00 Passed
MainStay Institutional Money Market Fund................. 118,756,705.94 2,699,996.45 Passed
MainStay Institutional Short-Term Bond Fund.............. 2,709,856.40 25,101.10 Passed
</TABLE>
6
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Investment Restriction C1--Industry concentration
Fund Name For Against Result
--------- -------------- ------------- --------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund....................... 5,336,434.31 8,663.01 Passed
MainStay Institutional Growth Equity Fund.................... 22,008,478.90 46,109.02 Passed
MainStay Institutional Indexed Equity Fund................... 26,831,061.62 1,073.00 Passed
MainStay Institutional International Equity Fund............. 9,705,985.81 2,201.01 Passed
MainStay Institutional Multi-Asset Fund...................... 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund..................... 40,743,086.18 172,402.04 Passed
MainStay Institutional Bond Fund............................. 13,628,893.10 0.00 Passed
MainStay Institutional Indexed Bond Fund..................... 7,870,902.72 0.00 Passed
MainStay Institutional International Bond Fund............... 4,496,321.74 0.00 Passed
MainStay Institutional Money Market Fund..................... 118,760,754.94 2,695,947.44 Passed
MainStay Institutional Short-Term Bond Fund.................. 2,709,856.40 25,101.10 Passed
<CAPTION>
Investment Restriction C2--Borrowing money and issuing senior securities
Fund Name For Against Result
--------- -------------- ----------- --------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund....................... 5,336,003.31 9,094.01 Passed
MainStay Institutional Growth Equity Fund.................... 22,007,978.90 46,609.02 Passed
MainStay Institutional Indexed Equity Fund................... 26,823,747.62 8,387.00 Passed
MainStay Institutional International Equity Fund............. 9,702,065.80 6,121.01 Passed
MainStay Institutional Multi-Asset Fund...................... 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund..................... 40,741,968.18 173,520.04 Passed
MainStay Institutional Bond Fund............................. 13,628,893.10 0.00 Passed
MainStay Institutional Indexed Bond Fund..................... 7,869,404.71 1,498.00 Passed
MainStay Institutional International Bond Fund............... 4,495,739.73 582.00 Passed
MainStay Institutional Money Market Fund..................... 118,760,754.94 2,695,947.44 Passed
MainStay Institutional Short-Term Bond Fund.................. 2,709,856.40 25,101.10 Passed
<CAPTION>
Investment Restriction C3--Commodities transactions
Fund Name For Against Result
--------- -------------- ----------- --------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund....................... 5,336,003.31 9,094.01 Passed
MainStay Institutional Growth Equity Fund.................... 22,007,978.90 46,609.02 Passed
MainStay Institutional Indexed Equity Fund................... 26,823,747.62 8,387.00 Passed
MainStay Institutional International Equity Fund............. 9,702,065.80 6,121.01 Passed
MainStay Institutional Multi-Asset Fund...................... 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund..................... 40,741,968.18 173,520.04 Passed
MainStay Institutional Bond Fund............................. 13,626,804.10 2,089.00 Passed
MainStay Institutional Indexed Bond Fund..................... 7,869,404.71 1,498.00 Passed
MainStay Institutional International Bond Fund............... 4,495,739.73 582.00 Passed
MainStay Institutional Money Market Fund..................... 118,760,754.94 2,695,947.44 Passed
MainStay Institutional Short-Term Bond Fund.................. 2,709,856.40 25,101.10 Passed
<CAPTION>
Investment Restriction C4--Maintaining short positions
Fund Name For Against Result
--------- -------------- ----------- --------
<S> <C> <C> <C>
MainStay Institutional EAFE Index Fund....................... 5,336,003.31 9,094.01 Passed
MainStay Institutional Growth Equity Fund.................... 22,007,978.90 46,609.02 Passed
MainStay Institutional Indexed Equity Fund................... 26,823,747.62 8,387.00 Passed
MainStay Institutional Multi-Asset Fund...................... 17,195,604.68 7,505.00 Passed
MainStay Institutional Value Equity Fund..................... 40,741,968.18 173,520.04 Passed
MainStay Institutional Bond Fund............................. 13,626,804.10 2,089.00 Passed
MainStay Institutional Indexed Bond Fund..................... 7,869,404.71 1,498.00 Passed
MainStay Institutional Money Market Fund..................... 118,760,639.94 2,696,062.44 Passed
MainStay Institutional Short-Term Bond Fund.................. 2,709,856.40 25,101.10 Passed
</TABLE>
<TABLE>
<CAPTION>
Proposal 5--Ratification of the selection of Price Waterhouse LLP as independent certified public accountants--Passed
Fund Name For Against Abstain Result
--------- -------------- ----------- ---------- --------
<S> <C> <C> <C> <C>
MainStay Institutional EAFE Index Fund....................... 5,394,111.34 0.00 1,621.00 Passed
MainStay Institutional Growth Equity Fund.................... 22,355,339.99 3,817.00 1,043.00 Passed
MainStay Institutional Indexed Equity Fund................... 26,961,035.62 5,203.00 6,889.31 Passed
MainStay Institutional International Equity Fund............. 9,826,279.02 0.00 0.00 Passed
MainStay Institutional Multi-Asset Fund...................... 17,584,697.87 802.00 150,113.09 Passed
MainStay Institutional Value Equity Fund..................... 41,753,011.34 6,077.00 48,590.01 Passed
MainStay Institutional Bond Fund............................. 13,666,518.11 0.00 1,626.00 Passed
MainStay Institutional Indexed Bond Fund..................... 8,033,468.94 1,845.00 24,098.03 Passed
MainStay Institutional International Bond Fund............... 4,500,963.74 0.00 0.00 Passed
MainStay Institutional Money Market Fund..................... 162,664,146.73 152,407.11 265,726.18 Passed
MainStay Institutional Short-Term Bond Fund.................. 2,939,486.32 0.00 84,186.34 Passed
</TABLE>
7
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
EAFE INDEX FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Strong economies, low inflation, and efforts to meet European Monetary
Union criteria helped European markets record substantial gains in both
local currencies and U.S. dollars.
. In the second half of the year, political instability and weakening
economic conditions in Asian markets led to currency devaluation and stock
market declines throughout the region.
. Japanese stocks declined 21% in local terms and 30% in U.S. dollar terms,
causing the Japanese weighting in the Morgan Stanley Capital International
(MSCI) Europe, Far East, Australia (EAFE) Index* to decline to about 25% of
the Index as of year end.
. The strength of the U.S. dollar negatively impacted returns in most foreign
markets.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year returns of 0.40% and 0.08% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Although the Fund closely tracked its benchmark throughout the year, both
share classes underperformed the MSCI EAFE Index, which returned 1.78% in
1997, and underperformed the average Lipper+ international fund, which
returned 5.44% for the year.
In the international equity markets, 1997 provided a tale of two worlds. Europe
continued to benefit from corporate restructuring, relatively low interest
rates, low inflation, and efforts toward European Monetary Union. As a group,
the European component of the MSCI EAFE Index was up about 23.8% in U.S. dollar
terms. Asia was another story entirely, with Japan down 30.17% in 1997, and the
Far East including Japan down 26.7% for the year in U.S. dollar terms.
The problems in Asia began with currency difficulties in Thailand and quickly
spread to other currencies, economies, and financial markets. The
- -------------------------------------------------------------------------------
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 plant and equipment, engaging in
mergers and acquisitions, or taking other action to increase output or lower
costs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* The Morgan Stanley Capital International Europe, Australia, Far East (Free)
Index--The EAFE Index--is an unmanaged index generally considered to be
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.
8
<PAGE>
==============================================================================
Asian stock market declines were exacerbated by widespread cross-ownership of
Asian companies by investors in various Far Eastern markets. Severe pressure
from hedge fund managers contributed to substantial declines in many Asian
currencies.
With the combined impact of European strength and Asian weakness, the MSCI EAFE
Index was up 1.78% for the year. But there were considerable variations over
time, with the Index down 1.57% in the first quarter, up 12.98% in the second,
down 0.70% in the third quarter, and down 7.83% in the fourth.
Given this context, how did the MainStay Institutional EAFE Index Fund do in
1997?
The MainStay Institutional EAFE Index Fund returned 0.40% and 0.08% for
Institutional Class shares and Service Class shares, respectively, for the year
ended 12/31/97. Over the same period, the MSCI EAFE Index returned 1.78%. Since
the Fund incurs fees and expenses that the Index does not, shareholders should
expect the Fund to underperform its benchmark in both up and down markets. Due
to changes in the makeup of the Index and allowances for contributions to and
redemptions from the Fund, the Fund will not track the Index exactly.
How did the Fund do relative to other international funds?
Since the Fund seeks to track the MSCI EAFE Index, regardless of investment
conditions, it underperformed the average Lipper international fund, which
returned 5.44% for 1997. Seeing the difficulties in Asian markets, many
international fund managers moved their assets to more lucrative markets during
the year, but that option was not available to the Fund.
Were there significant changes in the EAFE Index over the course of the year?
Yes there were. Portugal joined the EAFE Index in December, with an initial
weighting of 0.55%. Japanese stocks declined so severely that Japan's weighting
in the Index dropped from almost 32% at the end of 1996 to about 25% at the end
of 1997.
Which markets were the best performers?
Switzerland, as measured by the Swiss Market Index, was up 46% in U.S. dollars,
with Swiss stocks representing a 7.5% weighting in the EAFE Index at year end.
Italy, as measured by the Milan MIB 30, was up 36.9%, and Italian stocks
accounted for 4% of the EAFE Index at year end. The German DAX was up 26%, with
German equities accounting for 9.5% of the EAFE Index at year end. The U.K., as
measured by the FTSE-100, was the best performing market, up 19.6% in U.S.
dollars, with British stocks accounting for 20.82% of the EAFE Index at year
end.++
- -------------------------------------------------------------------------------
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
European Monetary Union A proposed system that would allow participating
European countries to operate with a common currency or monetary unit.
Local currency/U.S. dollar terms Returns expressed in local currency terms
show what an investor using that currency would have earned, without any
adjustment for differences in currency values. Returns expressed in U.S. dollar
terms reflect any differences in the relative value of the local currency and
the U.S. dollar.
Hedge fund A private investment partnership or off-shore investment company
that may take both long and short positions, use leverage and derivatives, and
invest in many markets. Hedge funds may take large risks on speculative
strategies and may move in and out of markets quickly, having a significant
impact on day-to-day trading developments in the stock, bond, and futures
markets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++ All of the country-specific indices mentioned are unmanaged and are
considered to be representative of the stock markets of their respective
countries.
9
<PAGE>
================================================================================
Which markets were the worst performers?
Malaysia, represented by the Kuala Lampoor Comp Index, was down 68.7% and
Singapore, represented by the SES All Index, was down 33.7%. Each of these
markets represented less than 1% of the EAFE Index at year end. Japan's Nikkei
225 was down 30.2% in 1997, and as we mentioned earlier, Japanese stocks
represented 25.6% of the EAFE Index. At year end Hong Kong's Hang Seng Index was
down 20.4%, with Hong Kong stocks representing 2.9% of the EAFE Index at year
end.++
How was the Fund affected by the strength of the U.S. dollar?
When the dollar gains value relative to foreign currencies, returns are
generally lower in U.S. dollar terms than in local currency terms. In 1997, the
U.S. dollar was strong relative to most foreign currencies, which had a negative
impact for U.S. investors in foreign countries around the globe. Britain was a
notable exception, with investment returns improving when translated into U.S.
dollars. The Fund does not employ currency hedging to help protect investors
from currency risk. Although the impact of the dollar was generally negative in
1997, the Fund may benefit in years when the U.S. dollar is weak relative to
foreign currencies.
What is the outlook for the future?
Europe may remain relatively strong as the deadline for European Monetary Union
approaches. The full effects of European fiscal reform have not yet been felt.
The same can be said regarding the impact of the financial difficulties in Asian
markets. Regardless of where various foreign markets may move, the Fund will
seek to track the MSCI EAFE Index, seeking to provide broad geographic
diversification and total return potential for long-term equity investors.
James A. Mehling, CFA
Portfolio Manager
- -------------------------------------------------------------------------------
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 greater than the country's total equities relative
to the international equity markets as a whole.
Hedging/currency management 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
++ All of the country-specific indices mentioned are unmanaged and are
considered to be representative of the stock markets of their respective
countries.
10
<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
1991 11,010 11,249
1992 9,665 9,916
1993 12,464 13,183
1994 13,315 14,246
1995 14,518 15,891
1996 15,453 16,591
12/31/97 15,515 16,887
</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
1991 11,010 11,249
1992 9,665 9,916
1993 12,464 13,183
1994 13,315 14,246
1995 14,465 15,891
1996 15,385 16,591
12/31/97 15,397 16,887
</TABLE>
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, 1997 as of December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EAFE Index Fund Institutional Class 0.40% 0.40% 9.93% 6.47%
EAFE Index Fund Service Class+ 0.08% 0.08% 9.76% 6.35%
Average Lipper International Fund 5.44% 5.44% 12.10% 9.88%
MSCI EAFE Index 1.78% 1.78% 11.39% 7.77%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date Total Return %*
---- --------------
<S> <C>
1991 10.10
1992 (12.22)
1993 28.97
1994 6.83
1995 9.03
1996 6.45
1997 0.40
</TABLE>
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- -------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Common Stock 97.41%
Cash, Equivalents & Other Assets 2.06%++
Other 0.53%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- -------------------------------------------------------------------------------
<S> <C> <C>
1. Royal Dutch Petroleum Co. 1.90%
2. Toyota Motor Corp. 1.87%
3. Novartis S.A. Registered 1.83%
4. Nippon Telegraph & Telephone Corp. 1.78%
5. Glaxo Wellcome PLC 1.35%
6. Nestle S.A. Registered 1.28%
7. Roche Holdings AG Genusscheine 1.23%
8. Lloyds TSB Group PLC 1.17%
9. British Petroleum Co. PLC 1.16%
10. Allianz AG Registered 1.09%
- -------------------------------------------------------------------------------
<CAPTION>
TOP 10 COUNTRIES
(% of net assets as of December 31, 1997)
- -------------------------------------------------------------------------------
<S> <C> <C>
1. Japan 25.55%
2. United Kingdom 20.82%
3. Germany 9.55%
4. Switzerland 7.49%
5. France 7.43%
6. Netherlands 5.25%
7. United States 4.62%
8. Italy 4.04%
9. Hong Kong 2.92%
10. Spain 2.69%
</TABLE>
- -------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee
of .25%.
+ 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.
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 track their respective indices.
++ Adjusted for liabilities.
11
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
COMMON STOCKS (97.4%)+
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
AUSTRALIA (2.4%)
Boral, Ltd. (building materials
& components)......................................... 32,200 $ 81,405
Broken Hill Proprietary Co., Ltd. (energy sources)..... 15,684 145,623
Coles Myer, Ltd. (merchandising)....................... 25,658 123,210
National Australia Bank, Ltd. (banking)................ 14,790 206,514
News Corp., Ltd.
(broadcasting & publishing)........................... 27,350 150,939
Pacific Dunlop, Ltd.
(multi-industry)...................................... 26,300 55,693
Pioneer International, Ltd. (building materials &
components)........................................... 25,231 68,883
Plutonic Resources, Ltd.
(metals-nonferrous)................................... 13,505 37,661
Rio Tinto, Ltd.
(metals-nonferrous)................................... 8,677 101,217
Smith (Howard), Ltd.
(multi-industry)...................................... 12,641 104,933
Sydney Harbour Casino Holdings, Ltd. (leisure &
tourism) (a).......................................... 37,214 35,279
Westpac Banking Corp., Ltd. (banking).................. 22,071 141,162
WMC, Ltd. (metals-nonferrous).......................... 19,846 69,181
-----------
1,321,700
-----------
AUSTRIA (0.4%)
Bank Austria AG (banking).............................. 1,039 52,563
Creditanstalt-Bankverein Stamm AG (banking)............ 700 44,819
EA-Generali AG (insurance)............................. 311 81,592
Flughafen Wien AG (transportation-airlines)............ 1,794 71,188
-----------
250,162
-----------
BELGIUM (1.0%)
Electrabel, S.A.
(utilities-electrical & gas).......................... 509 117,737
Fortis AG (insurance).................................. 1,145 238,890
PetroFina, S.A. (energy sources)....................... 477 176,059
-----------
532,686
-----------
DENMARK (1.0%)
Dampskibsselskabet AF 1912 Class B (transportation-
shipping)............................................. 2 131,440
Dampskibsselskabet Svendborg AS Class B
(transportation-shipping) 3 138,451
Den Danske Bank (banking).............................. 889 118,538
FLS Industries AS Class B (machinery & engineering).... 1,335 31,858
Novo Nordisk AS Class B
(health & personal care).............................. 965 138,115
-----------
558,402
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
FINLAND (0.8%)
Kesko
(food & household products)............................ 3,900 $ 61,735
Kone Corp. Class B
(transportation-shipping).............................. 574 69,570
Metra Oy Class B
(machinery & engineering).............................. 2,139 50,279
Nokia AB Class A (electronic components & instruments).. 3,081 218,961
Pohjola Insurance Group Class B (insurance)............. 1,729 64,137
-----------
464,682
-----------
FRANCE (7.4%)
Alcatel Alsthom, S.A.
(electrical & electronics)............................. 2,340 297,563
AXA-UAP, S.A. (insurance)............................... 3,990 308,874
Carrefour, S.A.
(food & household products)............................ 454 236,967
Compagnie de Saint Gobain, S.A. (miscellaneous-materials
& components).......................................... 1,343 190,873
Compagnie Financiere de Paribas, S.A. Class A (banking). 1,964 170,744
Compagnie Generale de Geophysique, S.A. (energy
equipment & service) (a)............................... 175 22,399
Compagnie Generale des Eaux, S.A. (business & public
services).............................................. 1,974 275,631
Credit National Natexis, S.A. (banking)................. 1,038 60,563
Dollfus-Mieg & Cie, S.A.
(textile & apparel) (a)................................ 2,082 37,031
Elf Aquitaine, S.A. (energy sources) 3,084 358,851
Etablissements Economiques du Casino Guichard-Perrachon,
S.A. (merchandising)................................... 2,277 126,797
Groupe Danone, S.A.
(food & household products)............................ 1,189 212,468
L'Air Liquide, S.A. (chemicals)......................... 1,767 276,688
L'Oreal, S.A.
(health & personal care)............................... 807 315,912
LVMH (Moet Hennessy Louis Vuitton), S.A.
(beverages & tobacco).................................. 980 162,740
Michelin (CGDE), S.A. Class B (industrial components)... 2,776 139,818
PSA Peugeot, S.A. (automobiles)......................... 938 118,344
Sanofi, S.A.
(health & personal care)............................... 1,554 173,072
Schneider, S.A.
(electrical & electronics)............................. 2,418 131,353
Societe Generale, S.A. Class A (banking)................ 1,531 208,685
Total, S.A. Class B
(oil/gas-exploration).................................. 2,822 307,256
-----------
4,132,629
-----------
</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.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
GERMANY (9.3%)
AGIV AG fuer Industrie und Verkehrswesen
(multi-industry) (a)................................... 2,754 $ 53,455
Allianz AG Registered (insurance)....................... 2,356 607,985
BASF AG (chemicals)..................................... 8,134 290,429
Bayer AG (chemicals).................................... 8,817 327,320
Bayerische Hypotheken-und Wechsel-Bank AG (banking)..... 4,007 194,440
Bayerische Vereinsbank AG (banking)..................... 3,857 248,833
Beiersdorf AG
(health & personal care)............................... 1,896 80,668
Daimler-Benz AG (automobiles)........................... 6,258 442,017
Deutsche Bank AG (banking).............................. 5,100 356,821
Deutsche Telekom AG (telecommunications)................ 22,128 409,813
Dresdner Bank AG (banking).............................. 5,050 229,744
Heidelberger Zement AG (building materials &
components)............................................ 1,215 85,210
Hochtief AG
(construction & housing)............................... 1,636 67,331
Mannesmann AG
(machinery & engineering).............................. 510 256,128
Muenchener Rueckversicherungs-Gesellschaft AG Registered
(insurance)............................................ 858 326,395
RWE AG (utilities-electrical & gas)..................... 4,039 216,771
Siemens AG
(electrical & electronics)............................. 7,058 425,904
STRABAG AG
(construction & housing) (a)........................... 616 42,550
VEBA AG (utilities-electrical & gas).................... 4,829 328,998
Viag AG (multi-industry)................................ 344 188,449
-----------
5,179,261
-----------
HONG KONG (2.9%)
Cathay Pacific Airways, Ltd. (transportation-airlines).. 88,409 71,885
China Light & Power Co., Ltd. (utilities-electrical &
gas)................................................... 29,932 166,111
Chinese Estates Holdings, Ltd. (multi-industry)......... 68,854 30,433
Hang Lung Development Co. (multi-industry).............. 80,946 113,875
Hang Seng Bank, Ltd. (banking).......................... 19,630 189,377
Hong Kong & China Gas Co., Ltd. (utilities-electrical &
gas)................................................... 66,953 129,614
Hong Kong Telecommunications, Ltd. (telecommunications). 144,858 298,190
Hopewell Holdings, Ltd. (construction & housing)........ 93,531 23,299
Hutchison Whampoa, Ltd.
(multi-industry)....................................... 45,381 284,648
Miramar Hotel & Investment, Ltd. (leisure & tourism).... 36,028 60,913
New World Development Co., Ltd. (multi-industry)........ 31,772 109,893
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
HONG KONG (Continued)
Shangri-La Asia, Ltd.
(multi-industry)....................................... 67,464 $ 57,034
Swire Pacific, Ltd. Class A
(multi-industry)....................................... 16,385 89,873
-----------
1,625,145
-----------
IRELAND (0.6%)
Allied Irish Banks PLC (banking)........................ 16,000 155,075
Independent Newspapers PLC (broadcasting & publishing).. 17,493 94,265
Irish Life PLC (insurance).............................. 15,000 86,161
-----------
335,501
-----------
ITALY (4.0%)
Alleanza Assicurazioni S.p.A. di Risp (insurance)....... 63 408
Assicurazioni Generali S.p.A. (insurance)............... 6,312 155,122
Autogrill S.p.A. (food & household products) (a)........ 30,600 163,731
Banca Commerciale Italiana S.p.A. (banking)............. 24,820 86,336
Bulgari S.p.A. (recreation & other consumer goods)...... 5,548 28,242
Cementir S.p.A. (building materials & components)....... 31,373 29,811
Credito Italiano S.p.A. (banking)....................... 35,119 108,356
Edison S.p.A. (energy sources).......................... 6,421 38,860
Ente Nazionale Idrocarburi S.p.A. (energy sources)...... 66,248 375,831
Fiat S.p.A. (automobiles)............................... 39,566 115,141
Istituto Mobiliare Italiano S.p.A. (banking)............ 8,485 100,784
Istituto Nazionale delle Assicurazioni S.p.A.
(insurance)............................................ 39,698 80,496
Magneti Marelli S.p.A. (automobiles).................... 23,389 40,019
Mediobanca S.p.A.
(financial services)................................... 10,523 82,673
Montedison S.p.A.
(multi-industry)....................................... 75,868 68,190
Pirelli S.p.A.
(industrial components)................................ 35,468 94,888
Snia BPD S.p.A. (multi-industry)........................ 42,373 43,619
Telecom Italia S.p.A. (telecommunications).............. 40,920 261,536
Telecom Italia Mobile S.p.A. (telecommunications)....... 74,196 342,652
-----------
2,216,695
-----------
JAPAN (25.6%)
Acom Co., Ltd. (financial services)..................... 4,000 221,502
Ajinomoto Co., Inc.
(food & household products)............................ 4,567 44,609
Arabian Oil Co., Ltd.
(energy sources)....................................... 987 15,030
</TABLE>
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, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
JAPAN (Continued)
Asahi Bank, Ltd. (banking).............................. 21,986 $ 89,622
Asahi Breweries, Ltd.
(beverages & tobacco).................................. 11,098 162,175
Asahi Chemical Industry Co., Ltd. (chemicals)........... 18,649 63,395
Asahi Glass Co., Ltd. (miscellaneous-materials &
components)............................................ 17,000 81,065
Ashikaga Bank, Ltd. (banking)........................... 18,043 29,141
Bank of Tokyo-Mitsubishi, Ltd. (banking) (c)............ 43,375 600,479
Bank of Yokohama, Ltd. (banking)........................ 11,000 29,103
Bridgestone Corp.
(industrial components)................................ 8,935 194,477
Brother Industries, Ltd. (appliances & household
durables).............................................. 13,601 31,172
Canon, Inc. (recreation & other consumer goods)......... 9,288 217,161
Chiba Bank, Ltd. (banking).............................. 11,600 36,133
Chichibu Onoda Cement Corp. (building materials &
components)............................................ 12,783 23,596
Chiyoda Corp.
(machinery & engineering).............................. 5,000 5,384
Chugai Pharmaceutical Co., Ltd. (health & personal
care).................................................. 5,974 30,784
Citizen Watch Co., Ltd. (recreation & other consumer
goods)................................................. 9,678 65,130
Dai Nippon Printing Co., Ltd. (business & public
services).............................................. 9,133 172,094
Daiei, Inc. (merchandising)............................. 11,467 47,625
Daikin Industries, Ltd.
(machinery & engineering).............................. 6,000 22,704
Dainippon Ink & Chemical, Inc. (chemicals).............. 18,203 46,199
Daiwa House Industry Co., Ltd. (construction & housing). 6,667 35,380
Daiwa Securities Co., Ltd. (financial services)......... 10,287 35,603
Denso Corp.
(industrial components) (c)............................ 9,331 168,648
East Japan Railway Co. (transportation-road & rail)..... 42 190,261
Ebara Corp.
(machinery & engineering).............................. 5,660 60,074
Eisai Co., Ltd.
(health & personal care)............................... 3,677 56,277
Fanuc, Ltd. (electronic components & instruments)....... 3,823 145,250
Fuji Bank, Ltd. (banking) (c)........................... 25,432 103,277
Fuji Photo Film, Ltd. (recreation & other consumer
goods) (c)............................................. 5,394 207,428
Fujitsu, Ltd. (data processing & reproduction).......... 20,107 216,502
Furukawa Electric Co., Ltd. (industrial components)..... 11,558 49,691
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
JAPAN (Continued)
Gakken Co., Ltd.
(broadcasting & publishing)............................ 13,000 $ 18,298
Gunma Bank, Ltd. (banking).............................. 9,766 63,844
Hitachi Corp., Ltd.
(electrical & electronics) (c)......................... 31,857 227,864
Hitachi Zosen Corp. (metals-steel)...................... 19,634 31,560
Hokuriku Bank (banking)................................. 15,952 20,857
Honda Motor Co., Ltd. (automobiles) (c)................. 10,345 381,112
Industrial Bank of Japan, Ltd. (banking)................ 22,283 159,384
Ito-Yokado Co., Ltd. (merchandising).................... 4,375 223,762
Japan Airlines Co.
(transportation-airlines) (a).......................... 31,138 85,016
Japan Energy Corp.
(energy sources)....................................... 5,637 5,333
Japan Steel Works (metals-steel) (a) 25,176 19,169
Joyo Bank (banking)..................................... 13,550 47,939
Kajima Corp.
(construction & housing)............................... 12,910 32,667
Kamigumi Co., Ltd.
(business & public services)........................... 13,456 39,947
Kansai Electric Power Co., Inc. (utilities-electrical &
gas)................................................... 5,228 88,861
Kao Corp.
(food & household products)............................ 9,000 130,133
Kawasaki Heavy Industries (construction & housing)...... 19,050 29,596
Kawasaki Steel Corp.
(metals-steel)......................................... 34,815 47,662
Keihin Electric Express Railway (transportation-road &
rail).................................................. 18,000 62,989
Kinki Nippon Railway Co., Ltd. (transportation-road &
rail).................................................. 40,124 215,093
Kirin Brewery Co., Ltd.
(beverages & tobacco).................................. 14,154 103,416
Komatsu, Ltd.
(machinery & engineering).............................. 12,162 61,267
Kubota Corp.
(machinery & engineering).............................. 17,806 47,109
Kumagai Gumi Co., Ltd. (construction & housing)......... 29,812 16,280
Kurabo Industries
(textile & apparel).................................... 15,000 16,151
Kyocera Corp. (electronic components & instruments)..... 2,490 113,372
Kyowa Hakko Kogyo
(health & personal care)............................... 4,234 18,398
Makita Corp.
(electrical & electronics)............................. 5,448 52,376
Marubeni Corp. (wholesale & international trade)........ 13,723 24,170
Marui Co., Ltd. (merchandising)......................... 5,378 83,966
Matsushita Electric Industrial Co., Ltd. (appliances &
household durables).................................... 19,247 282,737
</TABLE>
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.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
JAPAN (Continued)
Mitsubishi Chemical Corp. (chemicals)................... 29,833 $ 42,906
Mitsubishi Corp.
(multi-industry)....................................... 13,531 107,190
Mitsubishi Estate Co., Ltd. (construction & housing).... 15,191 165,905
Mitsubishi Heavy Industries, Ltd. (machinery &
engineering)........................................... 27,059 113,212
Mitsubishi Oil Co., Ltd.
(energy sources)....................................... 8,000 11,875
Mitsubishi Trust & Banking Corp. (financial services)... 12,031 121,216
Mitsui & Co. (wholesale & international trade).......... 10,822 64,256
Mitsui Fudosan Co., Ltd. (construction & housing)....... 12,129 117,539
Mitsui Marine & Fire Insurance Co., Ltd. (insurance).... 8,359 42,816
Mitsui O.S.K. Lines, Ltd. (transportation-shipping) (a). 25,266 35,173
Mitsui Trust & Banking Co., Ltd. (financial services)... 8,000 15,566
Mitsukoshi, Ltd.
(merchandising)........................................ 14,758 39,386
NEC Corp.
(electrical & electronics)............................. 15,416 164,806
NGK Insulators, Ltd.
(industrial components)................................ 10,800 96,353
Niigata Engineering Co., Ltd. (machinery & engineering)
(a).................................................... 11,000 4,822
Nikon Corp. (multi-industry)............................ 6,407 63,567
Nippon Express Co., Ltd. (transportation-road & rail)... 14,446 72,218
Nippon Fire & Marine Insurance (insurance).............. 9,686 36,428
Nippon Light Metal Co.
(metals-nonferrous).................................... 18,577 27,147
Nippon Meat Packers, Inc.
(food & household products)............................ 6,357 87,028
Nippon Oil Co., Ltd.
(energy sources)....................................... 8,936 23,161
Nippon Steel Corp. (metals-steel)....................... 60,313 89,529
Nippon Telegraph & Telephone Corp. (telecommunications). 115 990,609
Nissan Motor Co., Ltd. (automobiles).................... 25,121 104,333
Nisshinbo Industries, Inc.
(textile & apparel).................................... 7,363 31,146
Nissin Food Products Co., Ltd. (food & household
products).............................................. 2,384 43,455
NKK Corp. (metals-steel)................................ 35,919 28,732
Nomura Securities Co., Ltd. (financial services)........ 14,955 200,134
Obayashi Corp.
(construction & housing)............................... 10,799 36,876
Oji Paper Co., Ltd.
(forest products & paper).............................. 17,490 69,815
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
JAPAN (Continued)
Olympus Optical Co., Ltd. (recreation & other consumer
goods)................................................. 20,000 $ 138,592
Orient Corp. (financial services)....................... 13,483 21,880
Osaka Gas Co., Ltd.
(utilities-electrical & gas)........................... 10,126 23,208
Penta-Ocean Construction (construction & housing)....... 10,000 14,075
Pioneer Electronic Corp. (appliances & household
durables).............................................. 3,078 47,583
Sakura Bank, Ltd. (banking)............................. 30,834 88,457
Sankyo Co., Ltd.
(health & personal care)............................... 4,654 105,593
Sanrio Co., Ltd. (business & public services) (a)....... 4,861 25,610
Sanyo Electric Co., Ltd. (appliances & household
durables).............................................. 22,684 59,319
Sapporo Breweries, Ltd.
(beverages & tobacco).................................. 16,692 52,635
Sato Kogyo Co., Ltd.
(construction & housing)............................... 12,000 7,476
Sharp Corp. (appliances & household durables)........... 10,279 70,993
Shimizu Corp.
(construction & housing)............................... 11,055 25,677
Shin-Etsu Chemical Co., Ltd. (chemicals)................ 4,830 92,498
Shionogi & Co., Ltd.
(health & personal care)............................... 5,396 24,818
Shiseido Co., Ltd.
(health & personal care)............................... 5,739 78,567
Shizuoka Bank (banking)................................. 9,494 102,227
Sony Corp. (appliances & household durables)............ 3,741 333,758
Sumitomo Bank, Ltd.
(banking) (c).......................................... 34,242 392,403
Sumitomo Chemical Co., Ltd. (chemicals)................. 23,403 53,998
Sumitomo Corp. (wholesale & international trade)........ 11,864 66,610
Sumitomo Electric Industries (industrial components).... 8,982 122,964
Sumitomo Marine & Fire Insurance Co. (insurance)........ 8,126 43,123
Sumitomo Metal Industries, Ltd. (metals-steel).......... 34,343 44,110
Sumitomo Metal Mining Co. (metals-nonferrous)........... 11,298 37,365
Taisei Corp.
(construction & housing)............................... 14,713 24,216
Taisho Pharmaceutical Co., Ltd. (health & personal
care).................................................. 4,066 104,135
Taiyo Yuden Co., Ltd. (electronic components &
instruments)........................................... 5,127 35,686
Takashimaya Co., Ltd. (merchandising)................... 6,574 39,943
</TABLE>
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
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
JAPAN (Continued)
Takeda Chemical Industries, Ltd. (health & personal
care).................................................. 9,318 $ 266,595
Teikoku Oil Co., Ltd.
(energy sources)....................................... 5,646 14,764
Tobu Railway Co., Ltd. (transportation-road & rail)..... 16,000 50,208
Tohoku Electric Power Co., Inc. (utilities-electrical &
gas)................................................... 1,168 17,787
Tokai Bank, Ltd. (banking).............................. 18,989 88,796
Tokio Marine & Fire Insurance Co. (insurance)........... 12,540 142,740
Tokyo Dome Corp.
(leisure & tourism).................................... 6,000 40,055
Tokyo Electric Power Co., Inc. (utilities-electrical &
gas)................................................... 10,951 200,455
Tokyo Electron, Ltd. (electronic components &
instruments)........................................... 2,192 70,470
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)........................... 12,091 27,526
Tokyo Steel Manufacturing Co., Ltd. (machinery &
engineering) 5,394 18,295
Tokyu Corp. (transportation-road & rail)................ 15,451 59,893
Toppan Printing Co., Ltd. (business & public services).. 10,076 131,742
Tostem Corp. (building materials & components).......... 2,935 31,603
Toto, Ltd. (building materials & components)............ 5,467 35,067
Toyo Seikan Kaisha (miscellaneous-materials &
components)............................................ 4,445 63,588
Toyoda Automatic Loom Works, Ltd. (machinery &
engineering) 5,000 92,292
Toyota Motor Corp.
(automobiles) (c)...................................... 36,152 1,039,898
Ube Industries, Ltd. (miscellaneous-materials &
components)............................................ 28,768 36,728
Uny Co., Ltd.
(food & household products)............................ 4,346 59,831
Yamaha Corp. (recreation & other consumer goods)........ 4,188 47,671
Yamaichi Securities Co., Ltd. (financial services)...... 10,000 77
Yamanouchi Pharmaceutical Co., Ltd. (health & personal
care).................................................. 4,000 86,140
Yasuda Trust & Banking
(financial services)................................... 15,000 14,997
-----------
14,209,235
-----------
MALAYSIA (0.8%)
Golden Hope Plantations Berhad (food & household
products).............................................. 39,056 45,153
Hong Leong Properties Berhad (construction & housing)... 56,625 10,329
Kuala Lumpur Kepong Berhad (forest products & paper).... 21,044 45,144
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
MALAYSIA (Continued)
Leader Universal Holdings Berhad (electrical &
electronics)........................................... 30,000 $ 9,249
Malayan Banking Berhad (banking)........................ 10,794 31,336
Malaysia International Shipping Berhad Foreign
Registered (transportation-shipping)................... 14,236 20,847
Malaysian Airline System Berhad (transportation-
airlines).............................................. 31,856 25,536
Malaysian Helicopter Services Berhad (transportation-
airlines) 39,600 5,089
Malaysian Resources Corp. Berhad (construction &
housing)............................................... 25,333 5,857
Metroplex Berhad
(construction & housing)............................... 57,434 14,680
Multi-Purpose Holdings Berhad (multi-industry).......... 27,000 6,936
Perlis Plantations Berhad
(multi-industry)....................................... 13,560 19,160
PPB Oil Palms Berhad
(food & household products)............................ 10,000 7,707
Resorts World Berhad
(leisure & tourism).................................... 19,000 31,973
Sime Darby Berhad (multi-industry) 25,464 24,468
Technology Resources Industries Berhad (multi-industry). 25,409 15,014
Telekom Malaysia Berhad (telecommunications)............ 28,700 84,794
Tenaga Nasional Berhad
(utilities-electrical & gas)........................... 23,117 49,295
-----------
452,567
-----------
NETHERLANDS (5.3%)
ABN Amro Holding N.V. (banking)......................... 16,276 317,133
Elsevier N.V.
(broadcasting & publishing)............................ 12,921 209,058
Hollandsche Beton Groep N.V. (construction & housing)... 4,118 76,582
ING Groep N.V. (insurance).............................. 9,114 383,941
Koninklijke Hoogovens CVA N.V. (metals-steel)........... 1,081 44,312
Koninklijke KNP BT N.V.
(forest products & paper).............................. 2,839 65,400
Koninklijke Nedlloyd Groep N.V. (transportation-
shipping).............................................. 1,165 26,435
Koninklijke Pakhoed N.V. (transportation-shipping)...... 921 26,577
Philips Electronics N.V. (appliances & household
durables).............................................. 3,869 232,076
Royal Dutch Petroleum Co. (energy sources).............. 19,284 1,058,742
Stork N.V. (multi-industry)............................. 1,864 64,364
Unilever CVA N.V.
(food & household products)............................ 6,744 415,839
-----------
2,920,459
-----------
</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.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
NEW ZEALAND (0.6%)
Carter Holt Harvey Ltd.
(forest products & paper).............................. 21,197 $ 32,739
Fletcher Challenge Building (building materials &
components)............................................ 33,475 68,419
Fletcher Challenge Energy
(oil/gas-exploration).................................. 13,475 47,180
Fletcher Challenge Forest
(forest products & paper).............................. 20,290 16,847
Fletcher Challenge Paper
(forest products & paper).............................. 59,050 77,149
Telecom Corp. of New Zealand Ltd. (telecommunications).. 20,270 98,279
-----------
340,613
-----------
NORWAY (0.5%)
Christiania Bank Og Kreditkasse (banking)............... 23,553 95,206
Elkem ASA Class A
(metals-nonferrous).................................... 4,033 53,611
Norsk Hydro ASA (energy sources)........................ 2,759 134,541
-----------
283,358
-----------
PORTUGAL (0.6%)
Banco Comercial Portugues, S.A. Registered (banking).... 2,100 42,995
Banco Espirito Santo e Comercial de Lisboa, S.A.
Registered (banking)................................... 1,200 35,750
Cimpor-Cementos de Portugal SGPS, S.A. (building
materials & components)................................ 1,200 31,488
Electricidade de Portugal, S.A. (utilities-electrical &
gas)................................................... 4,875 92,411
Portugal Telecom, S.A. Registered (telecommunications).. 2,550 118,453
-----------
321,097
-----------
SINGAPORE (0.8%)
City Developments, Ltd.
(real estate).......................................... 18,348 84,937
Development Bank of Singapore, Ltd. Foreign Registered
(banking).............................................. 5,648 48,269
First Capital Corp., Ltd.
(multi-industry)....................................... 30,000 27,774
Goldtron, Ltd. (electronic components & instruments).... 102,092 20,296
Singapore Airlines, Ltd. Foreign Registered
(transportation-airlines).............................. 7,273 47,481
Singapore Technologies Industrial Corp. (multi-
industry).............................................. 20,000 19,110
Singapore Telecommunications, Ltd. (telecommunications). 83,258 155,160
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
SINGAPORE (Continued)
United Overseas Bank, Ltd. Foreign Registered (banking). 9,898 $ 54,926
Van der Horst, Ltd.
(machinery & engineering).............................. 14,000 5,359
-----------
463,312
-----------
SPAIN (2.7%)
Banco de Bilbao Vizcaya, S.A. Registered (banking)...... 9,532 308,320
Banco de Santander, S.A. (banking)...................... 6,965 232,600
Compania Sevillana de Electricidad, S.A.
(utilities-electrical & gas)........................... 2,906 27,169
Empresa Nacional de Celulosas, S.A. (forest products &
paper)................................................. 1,466 19,958
Endesa, S.A.
(utilities-electrical & gas)........................... 10,867 192,863
Gas Natural SDG, S.A.
(utilities-electrical & gas)........................... 1,846 95,682
Iberdrola, S.A.
(utilities-electrical & gas)........................... 10,558 138,889
Repsol, S.A. (energy sources)........................... 3,227 137,621
Telefonica de Espana, S.A. (telecommunications)......... 11,942 340,830
-----------
1,493,932
-----------
SWEDEN (2.4%)
ABB AB Series B
(utilities-electrical & gas)........................... 11,280 132,926
Astra AB Series A
(health & personal care)............................... 17,922 310,583
Svenska Cellulosa AB Series B (forest products & paper). 8,150 183,351
Swedish Match AB
(beverages & tobacco).................................. 19,483 65,071
Telefonaktiebolaget LM Ericsson Series B
(telecommunications)................................... 11,492 432,343
Volvo AB Series B (automobiles)......................... 7,525 202,011
-----------
1,326,285
-----------
SWITZERLAND (7.5%)
Credit Suisse Group Registered (financial services)..... 2,947 456,633
Holderbank Financiere Glarus AG Bearer (building
materials & components)................................ 184 150,374
Holderbank Financiere Glarus AG Registered (building
materials & components)................................ 792 129,235
Jelmoli Holdings, Ltd. Bearer (merchandising)........... 77 66,518
Nestle S.A. Registered (food & household products)...... 475 712,882
Novartis S.A. Bearer
(health & personal care)............................... 97 157,948
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
17
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
SWITZERLAND (Continued)
Novartis S.A. Registered
(health & personal care)............................... 628 $ 1,020,437
Roche Holdings AG Genusscheine (health & personal care). 69 686,191
Schindler Holding AG Participating Certificates
(miscellaneous-materials & components)................. 51 53,218
Schindler Holding AG Registered (miscellaneous-materials
& components).......................................... 56 60,241
Schweizerische Bankverein Registered (banking) (a)...... 836 260,220
Sika Finanz AG Registered (building materials &
components)............................................ 1,359 73,375
Societe Generale de Surveillance Holding S.A. Bearer
(business & public services)........................... 55 105,584
Societe Generale de Surveillance Holding S.A. Registered
(business & public services)........................... 234 85,832
Societe Suisse pour la Microelectronique et l'Horlogerie
AG Registered (recreation & other consumer goods)...... 500 67,533
Sulzer AG Registered
(industrial components)................................ 124 78,725
-----------
4,164,946
-----------
UNITED KINGDOM (20.8%)
Abbey National PLC (banking)............................ 16,400 283,067
Associated British Foods PLC (food & household
products).............................................. 13,859 118,806
Barclays PLC (banking).................................. 15,590 414,276
Bass PLC (beverages & tobacco).......................... 15,245 234,787
B.A.T Industries PLC
(beverages & tobacco).................................. 31,004 282,871
BG PLC (energy sources)................................. 42,822 193,058
BG PLC Class B (energy sources)......................... 47,738 23,955
Boots Co. PLC (merchandising)........................... 15,773 229,164
British Petroleum Co. PLC
(energy sources)....................................... 48,817 642,988
British Sky Broadcasting Group PLC (broadcasting &
publishing)............................................ 20,963 156,596
British Steel PLC (metals-steel)........................ 26,277 56,963
British Telecommunications PLC (telecommunications)..... 65,511 517,131
BTR PLC (multi-industry)................................ 43,065 132,154
Cable & Wireless PLC (telecommunications)............... 25,128 220,993
Centrica PLC (energy sources)........................... 71,434 103,436
Coats Viyella PLC
(textile & apparel).................................... 31,711 47,741
Courtaulds PLC (chemicals).............................. 12,663 61,987
De La Rue PLC
(forest products & paper).............................. 8,210 53,495
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Diageo PLC (beverages & tobacco)........................ 47,064 $ 432,499
Energy Group PLC (multi-industry)....................... 3,550 39,399
General Accident PLC (insurance)........................ 3,439 60,207
General Electric Co. PLC (electrical & electronics)..... 28,416 186,554
Glaxo Wellcome PLC
(health & personal care)............................... 31,766 751,612
Granada Group PLC
(leisure & tourism).................................... 11,120 171,441
Guardian Royal Exchange PLC (insurance)................. 17,626 94,257
Hanson PLC (multi-industry)............................. 15,456 69,300
Harrisons & Crosfield PLC (miscellaneous-materials &
components)............................................ 36,989 85,208
HSBC Holdings PLC (HK par) (financial services) (i)..... 17,246 427,351
Imperial Chemical Industries PLC (chemicals)............ 9,046 139,913
Imperial Tobacco Group PLC (beverages & tobacco)........ 6,247 39,470
Kingfisher PLC (merchandising).......................... 12,291 171,496
Ladbroke Group PLC
(leisure & tourism).................................... 26,213 113,867
LASMO PLC (energy sources).............................. 15,779 70,229
Lloyds TSB Group PLC (banking).......................... 50,367 651,386
Marks & Spencer PLC (merchandising)..................... 34,406 339,102
National Grid Group PLC (utilities-electrical & gas).... 21,547 102,904
National Power PLC
(utilities-electrical & gas)........................... 13,457 133,406
Next PLC (merchandising)................................ 11,249 128,083
Prudential Corp. PLC (insurance)........................ 22,066 256,513
Racal Electronic PLC
(multi-industry)....................................... 14,870 64,838
Rank Group PLC
(leisure & tourism).................................... 21,522 123,500
Reuters Holdings PLC (broadcasting & publishing)........ 19,854 218,384
Rio Tinto PLC Registered
(metals-nonferrous).................................... 12,231 141,981
Rolls-Royce PLC (aerospace & military technology)....... 22,990 87,003
Royal & Sun Alliance Insurance Group PLC (insurance).... 18,266 183,334
Royal Bank of Scotland Group PLC (banking).............. 11,329 145,025
Sainsbury (J.) PLC (merchandising)...................... 22,313 187,057
SmithKline Beecham PLC
(health & personal care)............................... 50,504 519,787
Tarmac PLC (building materials & components)............ 31,746 59,810
Tesco PLC (merchandising)............................... 30,169 243,238
Thames Water PLC
(utilities-electrical & gas)........................... 14,000 209,854
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
----------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Unilever PLC
(food & household products)......................... 30,220 $ 259,312
United Biscuits (Holdings) PLC (food & household
products)........................................... 20,683 76,231
Vodafone Group PLC
(multi-industry).................................... 37,461 273,364
Williams PLC (building materials & components)....... 34,612 191,352
Wilson Connolly Holdings PLC (construction &
housing)............................................ 19,720 50,617
Zeneca Group PLC (chemicals)......................... 8,753 308,207
-----------
11,580,559
-----------
Total Common Stocks (Cost $45,866,893)............... 54,173,226 (f)
-----------
PREFERRED STOCKS (0.6%)
AUSTRALIA (0.2%)
News Corp., Ltd.
A$ 0.075
(broadcasting &
publishing) (d)(i).................................. 26,200 129,638
-----------
GERMANY (0.3%)
RWE AG
DM 1.60
(utilities-electrical & gas) (d)(i)................. 3,104 132,927
-----------
ITALY (0.1%)
Fiat S.p.A.
IL 100
(automobiles) (d)(i)................................ 19,688 30,067
-----------
Total Preferred Stocks
(Cost $218,472)..................................... 292,632
-----------
WARRANTS (0.0%) (b)
FRANCE (0.0%) (b)
Compagnie Generale des Eaux, S.A.
Call Warrants
Strike price FF 900
Expire 5/2/01
(business & public
services) (a)(i).................................... 2,572 1,749
-----------
UNITED KINGDOM (0.0%) (b)
BTR PLC
Call Warrants
Strike price (Pounds) 4.05
Expire 10/26/98
(multi-industry) (a)(i)............................. 1,227 15
-----------
Total Warrants....................................... 1,764
-----------
</TABLE>
SHORT-TERM INVESTMENTS (4.6%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
U.S. GOVERNMENT (4.6%)
United States Treasury Bills
4.80%, due 3/26/98 (c).......................... $ 600,000 $ 592,862
5.14%, due 4/2/98 (c)........................... 2,000,000 1,973,950
-----------
Total Short-Term Investments (Cost $2,567,294)... 2,566,812
-----------
Total Investments
(Cost $48,652,659) (g).......................... 102.6% 57,034,434 (h)
Liabilities in Excess of
Cash and Other Assets........................... (2.6) (1,418,327)
---------- -----------
Net Assets....................................... 100.0% $55,616,107
========== ===========
FUTURES
CONTRACTS (0.0%) (b)
<CAPTION>
CONTRACTS UNREALIZED
LONG DEPRECIATION (E)
-----------------------------
<S> <C> <C>
JAPAN (0.0%) (b)
Japanese Yen, TOPIX Index,
March 1998...................................... 2 $ (9,921)
-----------
UNITED KINGDOM (0.0%) (b)
Pound Sterling, FTSE 100 Index, March 1998....... 3 (7,257)
-----------
Total Futures Contracts (Settlement Value
$822,867)....................................... $ (17,178)
===========
</TABLE>
- --------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated or partially segregated as collateral for futures contracts.
(d) Dividend rate shown represents the most recent annual payment.
(e) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1997.
(f) The combined market value of common stocks and settlement value of Index
futures contracts represents 98.9% of net assets.
(g) The cost for Federal income tax purposes is $49,156,812.
(h) At December 31, 1997 net unrealized appreciation for securities was
$7,877,622, 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 $16,679,109 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $8,801,487.
(i) A$--Australian Dollar
DM--Deutsche Mark
FF--French Franc
HK--Hong Kong Dollar
IL--Italian Lira
(Pounds)--Pound Sterling
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE>
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
The table below sets forth the diversification of EAFE Index Fund investments
by industry.
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT +
----------------------
<S> <C> <C>
Aerospace & Military Technology.......................... $ 87,003 0.2%
Appliances & Household Durables.......................... 1,057,637 1.9
Automobiles.............................................. 2,472,941 4.4
Banking.................................................. 7,445,525 13.4
Beverages & Tobacco...................................... 1,535,665 2.8
Broadcasting & Publishing................................ 977,177 1.8
Building Materials & Components.......................... 1,059,627 1.9
Business & Public Services............................... 838,188 1.5
Chemicals................................................ 1,703,538 3.1
Construction & Housing................................... 796,934 1.4
Data Processing & Reproduction........................... 216,502 0.4
Electrical & Electronics................................. 1,495,669 2.7
Electronic Components & Instruments...................... 604,035 1.1
Energy Equipment & Service............................... 22,399 0.0#
Energy Sources........................................... 3,529,958 6.3
Financial Services....................................... 1,597,632 2.9
Food & Household Products................................ 2,675,887 4.8
Forest Products & Paper.................................. 563,897 1.0
Health & Personal Care................................... 4,925,633 8.9
Industrial Components.................................... 945,565 1.7
Insurance................................................ 3,193,421 5.7
Leisure & Tourism........................................ 577,027 1.0
Machinery & Engineering.................................. 768,784 1.4
Merchandising............................................ 2,049,347 3.7
Metals-Nonferrous........................................ 468,164 0.8
Metals-Steel............................................. 362,037 0.7
Miscellaneous-Materials & Components..................... 570,920 1.0
Multi-Industry........................................... 2,126,749 3.8
Oil/Gas-Exploration...................................... 354,436 0.6
Real Estate.............................................. 84,937 0.2
Recreation & Other Consumer Goods........................ 771,757 1.4
Telecommunications....................................... 4,270,782 7.7
Textile & Apparel........................................ 132,069 0.2
Transportation-Airlines.................................. 306,195 0.6
Transportation-Road & Rail............................... 650,663 1.2
Transportation-Shipping.................................. 448,493 0.8
U.S. Government.......................................... 2,566,812 4.6
Utilities-Electrical & Gas............................... 2,625,393 4.7
Wholesale & International Trade.......................... 155,036 0.3
----------- -----
57,034,434 102.6
Liabilities in Excess of
Cash and Other Assets................................... (1,418,327) (2.6)
----------- -----
Net Assets............................................... $55,616,107 100.0%
=========== =====
</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.
20
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
EAFE INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $48,652,659)................................... $57,034,434
Cash denominated in foreign currencies (identified cost
$339,391)....................................................... 340,659
Cash............................................................. 473,321
Receivables:
Dividends and interest........................................... 230,610
Investment securities sold....................................... 12,512
Fund shares sold................................................. 367
-----------
Total assets................................................... 58,091,903
-----------
LIABILITIES:
Payables:
Investment securities purchased.................................. 2,376,842
Custodian........................................................ 22,282
MainStay Management.............................................. 11,129
Fund shares redeemed............................................. 5,432
Transfer agent................................................... 4,246
Accrued expenses................................................. 38,687
Variation margin payable on futures
contracts....................................................... 17,178
-----------
Total liabilities.............................................. 2,475,796
-----------
Net assets....................................................... $55,616,107
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized
Institutional Class.............................................. $ 5,388
Institutional Service Class...................................... 43
Additional paid-in capital....................................... 47,790,389
Accumulated distribution in excess of net investment income...... (487,364)
Accumulated net realized loss on investments..................... (43,195)
Net unrealized appreciation on investments....................... 8,364,597
Net unrealized depreciation on translation of assets and
liabilities in foreign currencies............................... (13,751)
-----------
Net assets....................................................... $55,616,107
===========
Institutional Class
Net assets applicable to outstanding shares...................... $55,177,128
===========
Shares of capital stock outstanding.............................. 5,388,284
===========
Net asset value per share outstanding............................ $ 10.24
===========
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 438,979
===========
Shares of capital stock outstanding.............................. 43,045
===========
Net asset value per share outstanding............................ $ 10.20
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................. $ 1,614,157
Interest....................................................... 72,611
------------
Total income................................................. 1,686,768
------------
Expenses:
Administration................................................. 632,652
Advisory....................................................... 118,622
Portfolio pricing.............................................. 70,414
Custodian...................................................... 64,568
Management..................................................... 57,337
Professional................................................... 46,159
Transfer agent................................................. 26,347
Registration................................................... 24,859
Shareholder communication...................................... 14,578
Directors...................................................... 2,941
Service........................................................ 1,088
Miscellaneous.................................................. 14,130
------------
Total expenses before
reimbursement............................................... 1,073,695
Expense reimbursement from Administrator or Manager............ (272,507)
------------
Net expenses................................................. 801,188
------------
Net investment income.......................................... 885,580
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.......................................... 13,901,610
Futures transactions........................................... (232,610)
Foreign currency transactions.................................. (12,176)
------------
Net realized gain on investments and foreign currency
transactions.................................................. 13,656,824
------------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions.......................................... (11,615,524)
Futures transactions........................................... (3,177)
Translation of assets and liabilities in foreign currencies.... (7,995)
------------
Net unrealized loss on investments and foreign currencies...... (11,626,696)
------------
Net realized and unrealized gain on investments and foreign
currency transactions......................................... 2,030,128
------------
Net increase in net assets resulting from operations........... $ 2,915,708
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $243,276.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE>
EAFE INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 885,580 $ 915,784
Net realized gain on investments.................. 13,669,000 566,565
Net realized loss on foreign currency
transactions..................................... (12,176) (2,371)
Net change in unrealized appreciation
(depreciation) on investments.................... (11,618,701) 3,803,611
Net change in unrealized depreciation on
translation of assets and liabilities in foreign
currencies....................................... (7,995) (20,453)
------------ ------------
Net increase in net assets resulting from
operations....................................... 2,915,708 5,263,136
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (878,664) (912,611)
Institutional Service Class...................... (6,916) (3,173)
From net realized gain on investments and foreign
currency transactions:
Institutional Class.............................. (13,337,599) (1,555,065)
Institutional Service Class...................... (106,298) (7,001)
In excess of net investment income:
Institutional Class.............................. (353,710) (161,899)
Institutional Service Class...................... (1,817) (731)
------------ ------------
Total dividends and distributions to
shareholders................................... (14,685,004) (2,640,480)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 10,993,310 20,042,853
Institutional Service Class...................... 140,022 246,922
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 14,564,746 2,628,297
Institutional Service Class...................... 115,016 10,905
------------ ------------
25,813,094 22,928,977
Cost of shares redeemed:
Institutional Class.............................. (47,761,439) (16,341,457)
Institutional Service Class...................... (91,780) (129,092)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... (22,040,125) 6,458,428
------------ ------------
Net increase (decrease) in net assets............ (33,809,421) 9,081,084
NET ASSETS:
Beginning of year................................. 89,425,528 80,344,444
------------ ------------
End of year....................................... $ 55,616,107 $ 89,425,528
============ ============
Accumulated distribution in excess of net
investment income................................ $ (487,364) $ (347,089)
============ ============
</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.
EAFE INDEX FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 14.00 $ 13.97 $ 13.56 $ 13.51 $ 12.63 $ 12.63
------- ------- ------- ------- ------- -------
Net investment
income.......... 0.22 0.19 0.16 0.12 0.13 0.14
Net realized and
unrealized gain
(loss) on
investments..... (0.28) (0.29) 0.71 0.73 1.11 1.05
Net realized and
unrealized gain
(loss) on
foreign currency
transactions.... (0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.10) (0.10)
------- ------- ------- ------- ------- -------
Total from
investment
operations...... (0.06) (0.10) 0.87 0.85 1.14 1.09
------- ------- ------- ------- ------- -------
Less dividends
and
distributions:
From net
investment
income.......... (0.22) (0.19) (0.16) (0.12) (0.04) (0.04)
From net realized
gain on
investments and
foreign currency
transactions.... (3.39) (3.39) (0.25) (0.25) (0.14) (0.14)
In excess of net
investment
income.......... (0.09) (0.09) (0.02) (0.02) (0.03) (0.03)
------- ------- ------- ------- ------- -------
Total dividends
and
distributions... (3.70) (3.67) (0.43) (0.39) (0.21) (0.21)
------- ------- ------- ------- ------- -------
Net asset value
at end of year.. $ 10.24 $ 10.20 $ 14.00 $ 13.97 $ 13.56 $ 13.51
======= ======= ======= ======= ======= =======
Total investment
return ........ 0.40% 0.08% 6.45% 6.37% 9.03% 8.63%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 1.04% 0.79% 1.11% 0.86% 1.01% 0.76%
Net expenses.... 0.94% 1.19% 0.94% 1.19% 1.03% 1.28%
Expenses (before
reimbursement).. 1.26% 1.51% 1.23% 1.48% 1.24% 1.49%
Portfolio
turnover rate... 6% 6% 4% 4% 6% 6%
Average
commission
rate paid....... $0.0205 $0.0205 $0.0097 $0.0097 (b) (b)
Net assets at end
of year
(in 000's)...... $55,177 $ 439 $89,029 $ 396 $80,087 $ 257
<CAPTION>
INSTITUTIONAL CLASS
---------------------
1994 1993
---------- ----------
<S> <C> <C>
Net asset value
at beginning
of year......... $ 12.03 $ 9.60
---------- ----------
Net investment
income.......... 0.10 0.06
Net realized and
unrealized gain
(loss) on
investments..... 0.70 2.71
Net realized and
unrealized gain
(loss) on
foreign currency
transactions.... 0.03 (0.01)
---------- ----------
Total from
investment
operations...... 0.83 2.76
---------- ----------
Less dividends
and
distributions:
From net
investment
income.......... (0.09) (0.14)
From net realized
gain on
investments and
foreign currency
transactions.... (0.14) (0.19)
In excess of net
investment
income.......... -- --
---------- ----------
Total dividends
and
distributions... (0.23) (0.33)
---------- ----------
Net asset value
at end of year.. $ 12.63 $ 12.03
========== ==========
Total investment
return ........ 6.83% 28.97%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 0.57% 0.53%
Net expenses.... 1.26% 1.27%
Expenses (before
reimbursement).. 1.26% 1.27%
Portfolio
turnover rate... 7% 16%
Average
commission
rate paid....... (b) (b)
Net assets at end
of year
(in 000's)...... $72,265 $53,714
</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.
23
<PAGE>
GROWTH EQUITY FUNd
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Following the Federal Reserve Board's rate hike in March, the equity markets,
in general, benefited from low inflation and declining domestic interest
rates.
. The Asian financial crisis precipitated a flight to quality which proved
beneficial for some of the largest capitalization issues and stocks with
dependable earnings.
. Over the course of the year, stock market volatility increased substantially,
creating both opportunities and pitfalls.
. Despite gains earlier in the year, energy and energy services stocks were
hurt in the fourth quarter by declining oil prices.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. For the year ended 12/31/97, the MainStay Institutional Growth Equity Fund
returned 24.73% and 24.50% for Institutional Class shares and Service Class
shares, respectively.
. The Fund benefited from an overweighted position in the financial services
industry, which performed well through most of the year and provided
substantial returns.
. Several of the Fund's technology holdings suffered from setbacks in Asian
economies, while domestic retail companies appeared to benefit.
. The portfolio benefited from the flight to quality with several defensive
holdings that performed well for investors.
In late March, signs of rapid growth led the Federal Reserve Board to move to
raise interest rates by 25 basis points. Throughout the rest of the year,
however, the growth rate was more moderate and inflation remained at low levels,
which was generally positive for the stock market and particularly good for the
financial industry.
Volatility increased as the year progressed, with the Dow Jones Industrial
Average* dropping 554.26 points or 7.18% on October 27th, 1997, then recording
its largest single-day gain in history the next day. In the third and fourth
quarters, weakening currencies and other financial problems in Asian markets
took a severe toll on many technology stocks. This, however, stimulated
increased interest in purely domestic issues or high-quality defensive companies
with dependable earnings, including health care and pharmaceutical stocks.
Late in the year, declining oil prices hurt energy-related stocks, despite their
earlier gains. Overall, however, the stock market had another outstanding year,
with the S&P 500+ Index up more than 33%.
Given this context, how did the MainStay Institutional Growth Equity Fund do in
1997?
For the year ended 12/31/97, the Growth Equity Fund returned 24.73% and 24.50%
for Institutional Class shares and Service Class shares, respectively. That
placed both share classes behind the average Lipper++ growth fund, which
returned 25.30% for the year.
- --------------------------------------------------------------------------------
Basis point One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
Volatility Fluctuations in the price of securities or markets, up or down,
over a short period of time.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks, primarily industrials, but also including financial,
leisure, and other service-oriented firms.
+ "Standard & Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of Standard & Poor's. The S&P 500 is an unmanaged index
and is considered to be generally representative of the U.S. stock market.
Results assume the reinvestment of all income and capital gain distributions.
++ 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.
24
<PAGE>
===============================================================================
Why did the Fund underperform the average Lipper growth fund?
Although we identified strong potential in oil and energy stocks, they were
negatively impacted by mild weather and declining oil prices. In addition,
several of the Fund's technology holdings were hurt by the Asian financial
turmoil. Rising costs in the health maintenance organization market also
impacted some of the Fund's health care issues.
Which areas contributed most significantly to the Fund's performance?
One of our best decisions during the year was to keep the Fund overweighted in
the financial sector. You may recall that this sector had a sudden setback when
short-term interest rates increased at the end of the first quarter. However,
we felt that the individual stocks the Fund held were strong, and many were
stellar performers for the year, particularly as long-term interest rates
declined in the third and fourth quarters.
Can you provide some examples of financial stocks that performed well?
Sure. Travelers was up 79% and had a major impact on the Fund. SunAmerica was up
45% for the year, MGIC was up 76%, and AIG rose 51%. Although each stock had a
different weighting, all were strong contributors to the Fund's overall
performance. We purchased Norwest Corp. in July, which was up 27% by the end of
the year--an impressive gain in a short period.
Why did financial stocks do so well?
Lower interest rates are generally good for financial issues. In addition, when
investors started to look beyond rates and focused on company fundamentals, the
group as a whole had very attractive price-to-earnings ratios and growth rates.
When the Asian difficulties caused a flight to quality, the Fund's financial
stocks provided strong returns. One negative performer was Green Tree Financial,
which was down 31% for the year, after their accounting practices were
questioned.
How was the Fund affected by the fallout in Asia?
In a variety of ways. Technology stocks, many of which have close ties with
Asian markets, were hit relatively hard. Since many investors were heavily
weighted in technology, they needed to find alternatives, and many may have
turned to high-quality, dependable stocks, such as pharmaceuticals and strong
health care companies, solid domestic financial issues, and other large
capitalization companies. That turned out to be positive for the Fund.
How hard was the Fund hit in the technology area?
The negative investor psychology led us to sell a number of holdings that had
formerly looked attractive. Since the market was relatively forgiving of larger,
well-known companies, we continued to hold Oracle, but it lost 19.8% for the
year and we may trim the Fund's position in the future. Intel, which had
previously been a strong performer, returned just 7% in a market that was up
33%, so we reduced the Fund's position. When we saw declining interest in
commodity-type technology names, we also sold Seagate, a disk drive
manufacturer, and Lam Research, a company that makes chip-testing equipment.
Given the further declines these stocks experienced, the decision to sell was
- --------------------------------------------------------------------------------
Weighting/overweighted 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.
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
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.
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.
- --------------------------------------------------------------------------------
25
<PAGE>
================================================================================
a positive step in containing risk. We also held 3Com, a networking company that
had problems integrating its acquisitions. The stock was down 52% for the year
and had the worst overall impact on the Fund of any of its holdings. Of course,
not all technology stocks were negative stories. Computer Associates, which was
up 60% for the year, was one of the Fund's largest holdings, and was among the
leading contributors to the Fund's performance. Also, two other software
companies, Microsoft and Compuware, contributed positively to the Fund's
performance.
Which stocks did you feel benefited from the difficulties in Asia?
Actually, there were several. As difficulties arose in Asia, many investors
moved to well-known companies which they felt were more dependable. Although we
pick stocks one-by-one, in the general flight to high-quality, companies such as
the pharmaceuticals performed very well. The Fund owned Schering-Plough, which
was up 95% for the year and had a very positive impact on the Fund's investment
portfolio. We purchased Eli Lilly during the year, and the stock benefited from
dependable growth and strong new product flow, gaining over 75%. Since Eli Lilly
was a sizeable holding, it had a very positive impact on performance. The Fund
also had success with other health care related stocks, such as Guidant and
Medtronic, both of which produce devices used in cardiovascular care. These two
stocks recorded substantial gains and ranked among the top contributors to the
Fund's performance.
Were there other areas that you feel performed well as a result of the Asian
difficulties?
Yes. Many purely domestic retailers did well. The Fund held Home Depot, which
was up 76% for the year, and Kohl's, a specialty retailer largely in the
Midwest, that gained 69%. In addition, the Fund added CVS, another entirely
domestic retailer in the third quarter. The stock performed well throughout the
fourth quarter.
How was the Fund affected by the volatility of the stock market in 1997?
We held a number of defensive companies that benefited from the market's
volatility. Merck was a major new purchase, with relatively steady earnings-per-
share growth. We bought the stock in the second quarter and it did very well.
Other defensive holdings, like Johnson & Johnson, Eli Lilly, and Schering-Plough
also helped us weather the market volatility, as investors sought out stocks
that had a more dependable growth profile.
With oil prices declining late in the year, how was the Fund affected?
The impact was generally negative. Diamond Offshore, Halliburton, and ENSCO are
offshore drilling and oil services companies we bought during the year. All
three declined in price after purchase and hurt the Fund's overall performance.
The Fund has continued to hold these stocks, however, because they appear to
have strong earnings potential for 1998. Of course, we will reevaluate that
decision as things progress. Basically, though, we believe that buying energy
stocks late in the cycle was one of our weaker decisions during 1997.
Besides technology stocks, did the Fund have other major sales during the year?
Yes. The Fund sold Amgen, a leading biotechnology stock, because its
fundamentals weakened. Earnings per share slowed and the sale was basically
neutral for the Fund. Black & Decker appeared to be an attractive buy, but just
a few weeks later, its earnings estimates were reduced and we sold the stock,
which had a negative impact on performance. NIKE, on the other hand, was a stock
we sold based on reduced earnings and weaker fundamentals. But given the
performance after the sale, we believe it was a good move for the Fund. We also
sold Triton, an "opportunistic" stock with oil reserves in Columbia and natural
gas holdings in Thailand. When Thailand's economy weakened, that project went on
hold. We sold the stock at a loss, but protected investors from even bigger
losses as the stock continued to decline.
Were there other significant sales?
Yes. We saw medical costs rising out of control for Humana. A new president
stepped in and tried to turn things around, but we later sold the stock. That
turned out to be a wise decision given the stock's subsequent performance.
Although we did not sell Aetna until year end, it was also an underperformer,
losing 65% for the year due to the company's inability to
26
<PAGE>
================================================================================
cope with rising costs. We based our decision to sell Columbia/HCA on its
involvement in a federal investigation. We sold the stock for about the same
price at which we purchased it, with a neutral impact for the Fund.
It sounds like it was a year of ups and downs.
Yes it was. That's why we use a bottom-up approach, evaluating securities on
their individual merits, seeking stocks with strong growth potential. But
shifting economic, market, and industry factors can have a dramatic impact, even
on stocks with strong fundamentals. This year Tyco International, a diversified
industrial company that exceeded earnings expectations, was one of the Fund's
strongest performers as investors looked for quality, dependability, and
strength. On the other hand, Danka Business Systems, which distributes copiers
and fax machines, suffered a setback integrating a recent acquisition and
earnings visibility seemed to have disappeared. The stock was down 62% for the
year, which had a negative impact on performance.
How was the Fund weighted at year end?
As we mentioned earlier, the Fund was overweighted in financials, which was
positive for performance. The Fund remained slightly overweighted in technology,
which hurt the Fund in 1997. It was underweighted in energy, which helped
performance and underweighted in utilities, which was essentially neutral. Being
underweighted in consumer staples and communications also hurt the Fund,
particularly with the strength of megacapitalization stocks like AT&T. Being
underweighted in capital goods helped the Fund and being somewhat underweighted
in basic materials was good for the Fund on a relative basis.
What do you foresee for 1998?
We believe the catalysts that moved the market in 1997 may still be in place.
Moderate growth, low inflation, and low interest rates may continue, and may
support the long-term case for a bull market. Nevertheless, the market is much
more cautious, and for good reason. We feel that the Asian situation may slow
economic growth in the United States and demand for exports may decline. While
that may be negative for corporate earnings, it may have a beneficial impact on
inflation. If foreign influence on domestic stocks is stronger than we
anticipate, however, the bull market may well be challenged. Nevertheless, we
will continue to seek to identify stocks that offer long-term growth potential,
with dividend income, if any, as an incidental consideration.
Edmund Spelman
Rudy Carryl
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
27
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
DATE GROWTH EQUITY FUND S&P 500
- ---- ------------------ -------
1/2/91 10,000 10,000
1991 16,700 13,047
1992 17,640 14,040
1993 19,333 15,456
1994 18,901 15,660
1995 26,062 21,546
1996 31,696 26,493
1997 39,535 35,331
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
DATE GROWTH EQUITY FUND S&P 500
- ---- ------------------ -------
1/2/91 10,000 10,000
1991 16,700 13,047
1992 17,640 14,040
1993 19,333 15,456
1994 18,901 15,660
1995 25,990 21,546
1996 31,529 26,493
1997 39,245 35,331
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, 1997 as of December 31, 1997
- --------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Equity Fund
Institutional Class 24.73% 24.73% 17.52% 21.68%
Growth Equity Fund Service
Class+ 24.50% 24.50% 17.34% 21.55%
Average Lipper Growth Fund 25.30% 25.30% 16.47% 17.92%
S&P 500 Stock Index 33.36% 33.36% 20.27% 19.76%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
YEAR END TOTAL RETURN %*
-------- ---------------
1991 67.00
1992 5.63
1993 9.59
1994 -2.23
1995 37.88
1996 21.62
1997 24.73
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Common Stocks 95.38%
Cash, Equivalents & Other Assets 4.62%++
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
1. Tyco International Ltd. 3.43%
2. Cendant Corp. 3.42%
3. Travelers Group Inc. 3.08%
4. SunAmerica Inc. 2.84%
5. Computer Associates International, Inc. 2.73%
6. Medtronic, Inc. 2.72%
7. Lilly (Eli) and Co. 2.65%
8. Schering-Plough Corp. 2.52%
9. Safeway Inc. 2.17%
10. MGIC Investment Corp. 2.13%
TOP 5 INDUSTRY
Holdings
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
1. Financial Services 15.82%
2. Retail 12.13%
3. Drugs 8.36%
4. Computer Software 7.28%
5. Medical Equipment 6.23%
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ 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.
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%.
++ Adjusted for liabilities.
28
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
COMMON STOCKS (95.4%)+
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
AUTO PARTS (0.2%)
Lear Seating Corp. (a)................................ 34,600 $ 1,643,500
------------
BANKS (4.2%)
NationsBank Corp. .................................... 175,000 10,642,188
Norwest Corp. ........................................ 306,100 11,823,113
Washington Mutual Inc. ............................... 110,800 7,070,425
------------
29,535,726
------------
BUILDINGS (1.2%)
Oakwood Homes Corp. .................................. 250,000 8,296,875
------------
COMPUTER SOFTWARE (7.3%)
Computer Associates International, Inc. .............. 367,500 19,431,562
Compuware Corp. (a)................................... 338,000 10,816,000
Microsoft Corp. (a)................................... 100,000 12,925,000
Oracle Corp. (a)...................................... 383,625 8,559,633
------------
51,732,195
------------
COMPUTERS & OFFICE EQUIPMENT (3.4%)
EMC Corp. (a)......................................... 104,700 2,872,706
Hewlett-Packard Co. .................................. 136,000 8,500,000
Sun Microsystems (a).................................. 316,000 12,600,500
------------
23,973,206
------------
CONSUMER DURABLES (1.5%)
Harley-Davidson, Inc. ................................ 398,000 10,895,250
------------
CONSUMER SERVICES (4.6%)
Cendant Corp. (a)..................................... 706,910 24,300,031
Service Corp. International........................... 229,000 8,458,688
------------
32,758,719
------------
COSMETICS (1.3%)
Gillette Co. ......................................... 95,000 9,541,563
------------
DRUGS (8.4%)
Elan Corp. PLC ADR (a)(b)............................. 203,000 10,391,063
Lilly (Eli) and Co. .................................. 271,000 18,868,375
Merck & Co., Inc. .................................... 115,000 12,218,750
Schering-Plough Corp. ................................ 288,500 17,923,062
------------
59,401,250
------------
ENERGY (0.7%)
Abacan Resource Corp. (a)(b).......................... 475,000 742,188
British Petroleum Co.,
PLC ADR (b).......................................... 50,636 4,035,056
------------
4,777,244
------------
FINANCIAL SERVICES (15.8%)
Associates First Capital Corp. Class A................ 156,300 11,116,838
Equifax Inc. ......................................... 241,000 8,540,437
Fannie Mae............................................ 224,000 12,782,000
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
FINANCIAL SERVICES (Continued)
Green Tree Financial Corp. ............................ 336,500 $ 8,812,094
Household International, Inc. ......................... 109,800 14,006,362
MGIC Investment Corp. ................................. 227,200 15,108,800
SunAmerica Inc. ....................................... 472,500 20,199,375
Travelers Group Inc. .................................. 405,697 21,856,926
------------
112,422,832
------------
HEALTH CARE (5.2%)
Cardinal Health Inc. .................................. 100,000 7,512,500
HEALTHSOUTH Corp. (a).................................. 414,000 11,488,500
Tenet Healthcare Corp. (a)............................. 302,475 10,019,484
United Healthcare Corp. ............................... 165,500 8,223,281
------------
37,243,765
------------
INDUSTRIAL (4.7%)
Illinois Tool Works Inc. .............................. 154,000 9,259,250
Tyco International Ltd. ............................... 540,900 24,374,306
------------
33,633,556
------------
INSURANCE (3.3%)
American International
Group, Inc. .......................................... 138,825 15,097,219
Conseco, Inc. ......................................... 191,200 8,687,650
------------
23,784,869
------------
LEISURE (0.7%)
Mirage Resorts Inc. (a)................................ 222,400 5,059,600
------------
MATERIALS/PROCESSING (1.1%)
Monsanto Co. .......................................... 177,700 7,463,400
------------
MEDICAL EQUIPMENT (6.2%)
Guidant Corp. ......................................... 215,400 13,408,650
Johnson & Johnson...................................... 175,504 11,561,326
Medtronic, Inc. ....................................... 369,600 19,334,700
------------
44,304,676
------------
OIL SERVICES (2.2%)
Diamond Offshore
Drilling, Inc. ....................................... 117,400 5,649,875
ENSCO International Inc. .............................. 182,500 6,113,750
Halliburton Co. ....................................... 68,000 3,531,750
------------
15,295,375
------------
POLLUTION CONTROL (1.1%)
USA Waste Services Inc. (a)............................ 192,000 7,536,000
------------
RETAIL (12.1%)
Bed Bath & Beyond, Inc. (a)............................ 204,700 7,880,950
CVS Corp. ............................................. 159,200 10,198,750
Dollar General Corp. .................................. 218,750 7,929,687
Home Depot, Inc. (The)................................. 229,450 13,508,869
Kohl's Corp. (a)....................................... 190,000 12,943,750
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
29
<PAGE>
GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
RETAIL (Continued)
Kroger Co. (a)........................................ 278,000 $ 10,268,625
Safeway Inc. (a)...................................... 244,100 15,439,325
Staples, Inc. (a)..................................... 289,100 8,022,525
------------
86,192,481
------------
TECHNOLOGY (5.8%)
Adaptec, Inc. (a)..................................... 195,500 7,257,938
Cisco Systems, Inc. (a)............................... 227,250 12,669,187
Intel Corp. .......................................... 175,300 12,314,825
3Com Corp. (a)........................................ 259,000 9,048,812
------------
41,290,762
------------
TELECOMMUNICATION EQUIPMENT (2.0%)
Lucent Technologies Inc. ............................. 174,000 13,898,250
------------
TELECOMMUNICATION SERVICES (1.6%)
Worldcom, Inc. (a).................................... 379,088 11,467,412
------------
TOYS (0.8%)
Mattel, Inc. ......................................... 155,000 5,773,750
------------
Total Common Stocks
(Cost $379,192,498).................................. 677,922,256
------------
</TABLE>
SHORT-TERM INVESTMENTS (5.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
COMMERCIAL PAPER (5.1%)
American Express Credit Corp.
6.11%, due 1/2/98................................ $10,000,000 $ 10,000,000
6.21%, due 1/5/98................................ 11,034,000 11,034,000
American General
Finance Corp.
6.65%, due 1/2/98................................ 10,000,000 10,000,000
Ford Motor Credit Co.
6.02%, due 1/5/98................................ 5,000,000 5,000,000
------------
Total Short-Term Investments (Cost $36,034,000)... 36,034,000
------------
Total Investments
(Cost $415,226,498) (c).......................... 100.5% 713,956,256 (d)
Liabilities in Excess of
Cash and Other Assets............................ (0.5) (3,218,213)
----------- ------------
Net Assets........................................ 100.0% $710,738,043
=========== ============
</TABLE>
- --------
(a) Non-income producing security.
(b) ADR--American Depository Receipts.
(c) The cost for Federal income tax purposes is $415,229,319.
(d) At December 31, 1997, net unrealized appreciation was $298,726,937, 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 $306,163,162 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $7,436,225.
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.
GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $415,226,498).................................. $713,956,256
Cash............................................................. 1,611
Receivables:
Investment securities sold....................................... 7,970,782
Fund shares sold................................................. 261,213
Dividends and interest........................................... 264,540
------------
Total assets................................................... 722,454,402
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 7,354,222
Fund shares redeemed............................................. 3,729,544
Mainstay Management.............................................. 505,957
Transfer agent................................................... 35,699
Custodian........................................................ 16,565
Accrued expenses................................................. 74,372
------------
Total liabilities.............................................. 11,716,359
------------
Net assets....................................................... $710,738,043
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 27,526
Institutional Service Class...................................... 423
Additional paid-in capital....................................... 403,136,748
Accumulated undistributed net realized gain on investments....... 8,843,588
Net unrealized appreciation on investments....................... 298,729,758
------------
Net assets....................................................... $710,738,043
============
Institutional Class
Net assets applicable to outstanding shares...................... $700,069,960
============
Shares of capital stock outstanding.............................. 27,526,451
============
Net asset value per share outstanding............................ $ 25.43
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 10,668,083
============
Shares of capital stock outstanding.............................. 422,638
============
Net asset value per share outstanding............................ $ 25.24
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 3,273,021
Interest......................................................... 703,695
------------
Total income................................................... 3,976,716
------------
Expenses:
Administration................................................... 3,394,512
Advisory......................................................... 1,414,379
Management....................................................... 670,493
Transfer agent................................................... 165,353
Shareholder communication........................................ 94,954
Professional..................................................... 94,198
Custodian........................................................ 64,790
Registration..................................................... 47,229
Service.......................................................... 22,723
Directors........................................................ 19,333
Miscellaneous.................................................... 24,444
------------
Total expenses................................................. 6,012,408
------------
Net investment loss.............................................. (2,035,692)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 58,052,272
Net change in unrealized appreciation on investments............. 84,067,993
------------
Net realized and unrealized gain on investments.................. 142,120,265
------------
Net increase in net assets resulting from operations............. $140,084,573
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $11,725.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
31
<PAGE>
GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss............................. $ (2,035,692) $ (1,305,265)
Net realized gain on investments................ 58,052,272 25,602,618
Net change in unrealized appreciation on
investments.................................... 84,067,993 67,459,450
------------- -------------
Net increase in net assets resulting from
operations..................................... 140,084,573 91,756,803
------------- -------------
Distributions to shareholders:
From net realized gain on investments:
Institutional Class............................ (49,601,396) (21,861,690)
Institutional Service Class.................... (761,884) (276,715)
------------- -------------
Total distributions to shareholders........... (50,363,280) (22,138,405)
------------- -------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................ 191,569,771 184,940,316
Institutional Service Class.................... 3,838,239 3,762,904
Net asset value of shares issued to
shareholders in reinvestment of distributions:
Institutional Class............................ 49,596,146 21,861,690
Institutional Service Class.................... 691,022 276,715
------------- -------------
245,695,178 210,841,625
Cost of shares redeemed:
Institutional Class............................ (170,865,746) (146,673,191)
Institutional Service Class.................... (1,866,670) (590,510)
------------- -------------
Increase in net assets derived from capital
share transactions............................ 72,962,762 63,577,924
------------- -------------
Net increase in net assets..................... 162,684,055 133,196,322
NET ASSETS:
Beginning of year............................... 548,053,988 414,857,666
------------- -------------
End of year..................................... $ 710,738,043 $ 548,053,988
============= =============
</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.
GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 21.99 $ 21.88 $ 18.84 $ 18.80 $ 13.68 $ 13.68
-------- -------- -------- -------- -------- --------
Net investment
income (loss)... (0.08)(a) (0.14)(a) (0.06)(a) (0.11)(a) 0.02 (0.01)
Net realized and
unrealized gain
(loss) on
investments..... 5.45 5.43 4.14 4.12 5.16 5.14
-------- -------- -------- -------- -------- --------
Total from
investment
operations...... 5.37 5.29 4.08 4.01 5.18 5.13
-------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
From net
investment
income.......... -- -- -- -- (0.02) (0.01)
From net realized
gain on
investments..... (1.93) (1.93) (0.93) (0.93) -- --
In excess of net
investment
income.......... -- -- -- -- (0.00)(b) (0.00)(b)
In excess of net
realized gain on
investments..... -- -- -- -- (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------- --------
Total dividends
and
distributions... (1.93) (1.93) (0.93) (0.93) (0.02) (0.01)
-------- -------- -------- -------- -------- --------
Net asset value
at end of year.. $ 25.43 $ 25.24 $ 21.99 $ 21.88 $ 18.84 $ 18.80
======== ======== ======== ======== ======== ========
Total investment
return.......... 24.73% 24.50% 21.62% 21.29% 37.88% 37.50%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income (loss).. (0.31%) (0.56%) (0.27%) (0.52%) 0.12% (0.13%)
Net expenses.... 0.93% 1.18% 0.92% 1.17% 0.93% 1.18%
Expenses (before
reimbursement).. 0.93% 1.18% 0.92% 1.17% 0.93% 1.18%
Portfolio
turnover rate... 36% 36% 22% 22% 33% 33%
Average
commission rate
paid............ $ 0.0596 $ 0.0596 $ 0.0604 $ 0.0604 (c) (c)
Net assets at end
of year
(in 000's)...... $700,070 $ 10,668 $541,212 $ 6,842 $412,129 $ 2,729
<CAPTION>
INSTITUTIONAL CLASS
-------------------------
1994 1993
------------- -----------
<S> <C> <C>
Net asset value
at beginning
of year......... $ 14.40 $ 14.71
------------- -----------
Net investment
income (loss)... 0.01 (0.01)
Net realized and
unrealized gain
(loss) on
investments..... (0.33) 1.41
------------- -----------
Total from
investment
operations...... (0.32) 1.40
------------- -----------
Less dividends
and
distributions:
From net
investment
income.......... (0.01) --
From net realized
gain on
investments..... (0.39) (1.68)
In excess of net
investment
income.......... -- --
In excess of net
realized gain on
investments..... (0.00)(b) (0.03)
------------- -----------
Total dividends
and
distributions... (0.40) (1.71)
------------- -----------
Net asset value
at end of year.. $ 13.68 $ 14.40
============= ===========
Total investment
return.......... (2.23%) 9.59%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income (loss).. 0.04% (0.07%)
Net expenses.... 0.92% 0.90%
Expenses (before
reimbursement).. 0.92% 0.93%
Portfolio
turnover rate... 37% 81%
Average
commission rate
paid............ (c) (c)
Net assets at end
of year
(in 000's)...... $ 284,388 $ 258,751
</TABLE>
- --------
(a) Per share data based on average shares outstanding during the year.
(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.
33
<PAGE>
INDEXED EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. The S&P 500 Index* experienced its third consecutive year with returns over
20% and earned more than half of the year's total return in the second
quarter of 1997.
. Political and economic problems in several Asian markets caused wide swings
in the S&P 500 Index throughout the second half of the year.
. Large mergers and acquisitions continued to affect the market and landmark
litigation in the technology and tobacco industries may have an impact on
future profit potential.
. In an earnings-oriented environment, some stocks were severely punished for
not meeting the market's earnings estimates.
. Overall, the stock market experienced a high degree of volatility, with one
hundred point swings in the Dow Jones Industrial Average+ more the norm
than the exception by year end. Even when measured in percentage terms, the
daily swings in market value have been much higher than was observed in
recent years.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. For the year ended 12/31/97, the MainStay Indexed Equity Fund returned 32.88%
and 32.60% for Institutional Class shares and Service Class shares,
respectively.
. The Fund benefited from its orientation toward large-capitalization stocks,
which tended to outperform smaller-capitalization issues throughout much of
the year.
. The MainStay Indexed Equity Fund lagged the S&P 500 Index during 1997 which
returned 33.36%. However, the Institutional Class shares outperformed and the
Service Class shares matched the average Lipper++ S&P 500 Index objective
fund, which returned 32.60% for the year ended 12/31/97.
. The Fund outperformed the Lipper general equity average, which returned
24.36% for the year.
. Institutional Class shares received a four-star overall rating, and Service
Class shares received a five-star overall rating from Morningstar, Inc.,(S)
as of 12/31/97.
For the year ended 12/31/97, the Standard & Poor's 500 Composite Stock Price
Index returned 33.36%--another outstanding year for equity investors. In fact,
this was the third consecutive year that the stock market provided returns over
20%.
The stock market benefited from strong domestic and foreign capital inflows,
combined with merger mania that continued unabated throughout the year. Among
the largest acquisition offers were WorldCom's $37.0
- --------------------------------------------------------------------------------
* "Standard & Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of Standard & Poor's. The S&P 500 is an unmanaged
index and is considered to be generally representative of the U.S. stock
market. Results assume reinvestment of all income and capital gain
distributions.
+ The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks, primarily industrials, but also including
financial, leisure, and other service-oriented firms.
++ 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) Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking into account fees and
other sales charges and may change monthly. Its ratings of 1 (low) to 5
(high) stars based on a fund's 3-, 5-, and 10-year average annual returns
with fee adjustments in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day Treasury bill monthly
returns. The top 10% of the funds in a rating group may receive 5 stars, the
next 22.5% receive 4 stars, the midde 35% receive 3 stars, the next 22.5%
receive 2 stars, and the bottom 10% receive 1 star. As of 12/31/97, the
individual 3- and 5-year rating for the MainStay Institutional Indexed
Equity Fund Institutional Class shares were 5 stars and 4 stars,
respectively, out of 2,332 and 1,292 domestic equity funds for the
respective period. The Fund's Service Class shares, introduced 1/1/95,
received a 3-year rating of 5 stars out of 2,332 domestic equity funds for
the period.
34
<PAGE>
===============================================================================
billion bid for MCI, First Union's proposed offer for CoreStates, and Starwood
Lodging's proposed rescue of ITT Sheraton from Hilton. Adding to the market
excitement was major antitrust litigation against Microsoft, a contract dispute
between Microsoft and Sun Microsystems, an out-of-court settlement of an
Intel/DEC patent infringement suit, and a major settlement with tobacco
companies.
Yet all of this paled in comparison to the impact of the smaller Asian
countries. Hong Kong took the lead in October's global market correction,
declining over 13% on October 28th, and more than 33% in a span of seven days.
South Korea, the world's 11th largest economy, appealed to the International
Monetary Fund for a $55 billion bailout. And Japan's stock market declined 30%
for the year.
The effects were felt throughout the U.S. stock market, with the Dow Jones
Industrial Average dropping 554 points on October 27th, and recording its
largest single-day gain in history the following day. By the end of the year,
100 point moves in the Dow were more the norm than the exception.
Given this context, how did the MainStay Institutional Indexed Equity Fund do in
1997?
Very well. For the year ended 12/31/97, the MainStay Institutional Indexed
Equity Fund returned 32.88% and 32.60% for Institutional Class shares and
Service Class shares, respectively. The Fund trailed the S&P 500 Index return of
33.36%, but was slightly ahead of the Lipper S&P 500 Index objective fund for
the Institutional Class shares and the Service Class shares met the average
Lipper S&P 500 Index objective fund, which returned 32.60% for the year. The
Fund outperformed the Lipper general equity average, which returned 24.36% in
1997.
Which sectors were the best performers in 1997?
Trucking, which had done poorly for the previous two years, was the leading
sector in 1997, with a return of 152.9%. With only one stock, however, the
sector accounts for just 0.03% of the Index. Investment bank/brokerage firms
were up 80.7%, savings & loans rose 74.2%, airlines advanced 66.2%, and
broadcast/media returned 64.3%. Each of these sectors accounted for less than 1%
of the Index.
Which securities had the greatest positive impact?
As of year end, General Electric, the largest capitalization stock in the Index,
represented 3.17% of the total, and returned 50.9% for the year. Despite the
litigation Microsoft faced, its stock gained 56.4%, and it represented 2.06% of
the Index. Pfizer returned 82.2%, with a 1.27% weighting. Bristol-Myers Squibb
and Eli Lilly earned 77.5% and 93.5%, respectively, and both represent slightly
over 1% of the Index.
Which sectors did poorly in 1997?
Engineering and construction was the worst sector in terms of performance,
returning -37.5%, but had little impact, with just a 0.06% weighting in the
Index. Gold lost 35.9%, metals-miscellaneous was down 34.5%, and shoes slid
33.1%. Of these poorly performing sectors, only gold, with a weighting of 0.23%,
represented more than 0.20% of the Index.
- --------------------------------------------------------------------------------
Capitalization The dollar value 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, stock repurchases, or price
movement.
Weighting The proportion of an index represented by the capitalization of an
individual company or sector. Companies or sectors with larger relative amounts
of capital will thus have greater weightings in an index in which they are
represented.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
- --------------------------------------------------------------------------------
35
<PAGE>
================================================================================
Did any individual stocks have a significant negative impact on the Index?
While several stocks had substantially negative returns, their weighting in the
Index was small enough to make their impact relatively insignificant. The worst
performers in terms of overall impact were 3Com, which returned -52.4% and
represented 0.16% of the Index; Columbia/HCA Healthcare, which returned -27.1%
and had a 0.25% weighting; NIKE, which fell 33.8% and represented 0.15% of the
Index; Eastman Kodak returned -22.4% with a 0.26% weighting; and Oracle, which
dropped 19.8%, accounted for 0.29% of the Index.
Were there any changes in the Index during the reporting period?
While there were no changes in the way the Standard & Poor's 500 Index committee
constructs the Index, there were many additions and deletions to the Index that
resulted from corporate actions and committee decisions. For example, prior to
their merger, both Travelers and Salomon Brothers were separately listed as S&P
500 companies. Since the merger, however, only Travelers appears. With the
deletion of Salomon Brothers, the Standard & Poor's 500 Index committee assigned
Synovus, a southeastern commercial bank, to the Index to maintain 500 stocks
that reflect the overall makeup of the stock market.
What is the outlook for 1998?
The Fund seeks to track the performance of the Index regardless of the
investment outlook. While the Asian crisis may cause domestic inflation to
decline and may reduce demand for domestic goods overseas, there are a number of
other factors that may also influence the stock market, many of which are
difficult to forecast.
Rather than try to predict where markets will move, investors in the Fund should
note that returns for the last three years have been more than twice the average
annual total return of the S&P 500 Index since 1926.+++ Although past
performance is no guarantee of future results, in the past, markets have tended
to move closer to their mean returns over time. While we cannot say whether or
when this may occur, the Fund will continue to track the S&P 500 Index, whether
the market continues to climb, slows to more moderate levels, or dips into
negative territory in 1998.
James A. Mehling, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
+++ Source: Ibbotson Associates. Used with permission. All rights reserved.
36
<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
91 12,980 13,047
92 13,913 14,040
93 15,222 15,456
94 15,359 15,660
95 21,024 21,546
96 25,769 26,493
12/31/97 34,241 35,331
</TABLE>
$10,000 INVESTED IN MAINSTAY 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
91 12,980 13,047
92 13,913 14,040
93 15,222 15,456
94 15,359 15,660
95 20,995 21,546
96 25,659 26,493
12/31/97 34,024 35,331
</TABLE>
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, 1997 as of December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Equity Fund Institutional Class 32.88% 32.88% 19.74% 19.21%
Indexed Equity Fund Service Class+ 32.60% 32.60% 19.58% 19.10%
Average Lipper S&P 500 Index Fund 32.60% 32.60% 23.08% 19.22%
S&P 500 Stock Index 33.36% 33.36% 20.27% 19.76%
</TABLE>
<TABLE>
<CAPTION>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
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
1997 32.88
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Common Stocks 100%
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. General Electric Co. 3.18%
2. Coca-Cola Co. (The) 2.18%
3. Microsoft Corp. 2.06%
4. Exxon Corp. 2.00%
5. Merck & Co., Inc. 1.69%
6. Royal Dutch Petroleum Co. 1.54%
7. Intel Corp. 1.52%
8. Philip Morris Cos., Inc. 1.45%
9. Procter & Gamble Co. (The) 1.42%
10. International Business Machines Corp. 1.35%
</TABLE>
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Oil-Integrated International 5.90%
2. Major Regional Banks 5.69%
3. Drugs 4.83%
4. Health Care-Diversified 4.25%
5. Telephone 4.25%
</TABLE>
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ 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.
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 track their respective indices.
37
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
COMMON STOCKS (100.0%)+
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.7%)
Boeing Co. (The)....................................... 129,676 $ 6,346,019
General Dynamics Corp. ................................ 8,216 710,171
Lockheed Martin Corp. ................................. 25,162 2,478,457
Northrop Grumman Corp. ................................ 8,644 994,060
Raytheon Co. Class B................................... 43,983 2,221,142
Rockwell International Corp. .......................... 27,065 1,414,146
United Technologies Corp. ............................. 30,249 2,202,505
------------
16,366,500
------------
AIRLINES (0.4%)
AMR Corp. (a).......................................... 11,896 1,528,636
Delta Air Lines, Inc. ................................. 9,529 1,133,951
Southwest Airlines Co. ................................ 28,361 698,390
US Airways Group, Inc. (a)............................. 11,736 733,500
------------
4,094,477
------------
ALUMINUM (0.3%)
Alcan Aluminum Ltd..................................... 29,448 813,501
Aluminum Co. of America................................ 22,338 1,572,037
Reynolds Metals Co. ................................... 9,536 572,160
------------
2,957,698
------------
AUTO PARTS & EQUIPMENT (0.3%)
Cooper Tire & Rubber Co. .............................. 10,176 248,040
Echlin Inc. ........................................... 8,050 291,309
Genuine Parts Co....................................... 23,140 785,314
Goodyear Tire & Rubber
Co. (The)............................................. 20,244 1,288,025
------------
2,612,688
------------
AUTOMOBILES (1.6%)
Chrysler Corp.......................................... 85,982 3,025,492
Ford Motor Co. ........................................ 155,684 7,579,865
General Motors Corp. .................................. 91,780 5,564,162
------------
16,169,519
------------
BEVERAGES--ALCOHOLIC (0.5%)
Anheuser-Busch Cos., Inc............................... 63,513 2,794,572
Brown-Forman Corp. Class B............................. 8,975 495,869
Coors (Adolph) Co. Class B............................. 4,773 158,702
Seagram Co. Ltd. (The)................................. 46,258 1,494,712
------------
4,943,855
------------
BEVERAGES--SOFT DRINKS (2.9%)
Coca-Cola Co. (The).................................... 320,845 21,376,298
PepsiCo, Inc........................................... 196,842 7,172,430
------------
28,548,728
------------
BROADCAST/MEDIA (0.9%)
CBS Corp. ............................................. 91,362 2,689,469
Clear Channel
Communications, Inc. (a).............................. 12,756 1,013,305
Comcast Corp. Special Class A.......................... 45,258 1,428,455
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
BROADCAST/MEDIA (Continued)
Tele-Communications, Inc.
Series A TCI Group (a)................................ 65,696 $ 1,835,382
US West Media Group (a)................................ 78,742 2,273,675
------------
9,240,286
------------
BUILDING MATERIALS (0.2%)
Masco Corp............................................. 21,433 1,090,404
Owens Corning.......................................... 6,921 236,179
Sherwin-Williams Co. (The)............................. 22,327 619,574
------------
1,946,157
------------
CHEMICALS (2.1%)
Air Products & Chemicals, Inc. ........................ 14,134 1,162,521
Dow Chemical Co. (The)................................. 29,424 2,986,536
Du Pont (E.I.) De Nemours
& Co.................................................. 146,797 8,816,995
Eastman Chemical Co.................................... 10,276 612,064
Goodrich (B.F.) Co. (The).............................. 9,433 390,880
Hercules Inc........................................... 12,537 627,634
Monsanto Co............................................ 76,931 3,231,102
Praxair, Inc. ......................................... 20,387 917,415
Rohm & Haas Co......................................... 8,014 767,340
Union Carbide Corp. ................................... 16,023 687,988
------------
20,200,475
------------
CHEMICALS--DIVERSIFIED (0.3%)
Avery Dennison Corp. .................................. 13,372 598,397
Engelhard Corp......................................... 18,719 325,243
FMC Corp. (a).......................................... 4,734 318,657
PPG Industries, Inc. .................................. 23,255 1,328,442
------------
2,570,739
------------
CHEMICALS--SPECIALTY (0.3%)
Grace (W.R.) & Co. .................................... 9,662 777,187
Great Lakes Chemical Corp. ............................ 7,781 349,172
Morton International, Inc.............................. 17,220 591,938
Nalco Chemical Co. .................................... 8,751 346,212
Sigma-Aldrich Corp..................................... 12,959 515,120
------------
2,579,629
------------
COMMUNICATION--EQUIPMENT MANUFACTURERS (2.2%)
Andrew Corp. (a)....................................... 11,687 280,488
Bay Networks, Inc. (a)................................. 27,313 698,189
Cabletron Systems, Inc. (a)............................ 20,359 305,385
Cisco Systems, Inc. (a)................................ 130,490 7,274,790
DSC Communications Corp. (a) 15,303 367,272
Lucent Technologies Inc................................ 83,294 6,653,108
NextLevel Systems, Inc. (a)............................ 19,188 342,985
Northern Telecom Ltd................................... 34,053 3,030,717
Scientific-Atlanta, Inc................................ 10,192 170,716
Tellabs, Inc. (a)...................................... 23,529 1,244,096
3Com Corp. (a)......................................... 44,750 1,563,453
------------
21,931,199
------------
</TABLE>
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.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
COMPUTER--SOFTWARE & SERVICES (3.7%)
Adobe Systems Inc...................................... 9,449 $ 389,771
Autodesk, Inc. ........................................ 6,300 233,100
Automatic Data Processing, Inc......................... 37,971 2,330,470
Ceridian Corp. (a)..................................... 9,937 455,239
Computer Associates International, Inc. ............... 70,893 3,748,467
Computer Sciences Corp. (a)............................ 10,021 836,754
Equifax Inc............................................ 19,610 694,929
First Data Corp........................................ 55,501 1,623,404
HBO & Co............................................... 25,946 1,245,408
Microsoft Corp. (a).................................... 156,524 20,230,727
Novell, Inc. (a)....................................... 45,294 339,705
Oracle Corp. (a)....................................... 127,179 2,837,682
Parametric Technology
Corp. (a)............................................. 16,519 782,588
Shared Medical Systems Corp. .......................... 3,165 208,890
------------
35,957,134
------------
COMPUTER SYSTEMS (3.7%)
Apple Computer, Inc. (a)............................... 16,533 216,996
Compaq Computer Corp. (a).............................. 98,152 5,539,453
Data General Corp. (a)................................. 6,273 109,385
Dell Computer Corp. (a)................................ 42,311 3,554,124
Digital Equipment Corp. (a)............................ 19,128 707,736
EMC Corp. (a).......................................... 64,361 1,765,905
Hewlett-Packard Co..................................... 135,021 8,438,812
International Business
Machines Corp......................................... 126,142 13,189,723
Seagate Technology, Inc. (a)........................... 31,695 610,129
Silicon Graphics, Inc. (a)............................. 24,270 301,858
Sun Microsystems, Inc. (a)............................. 48,646 1,939,759
Unisys Corp. (a)....................................... 22,844 316,961
------------
36,690,841
------------
CONGLOMERATES (0.2%)
Tenneco Inc............................................ 22,164 875,478
Textron Inc. .......................................... 21,408 1,338,000
------------
2,213,478
------------
CONTAINERS--METAL & GLASS (0.2%)
Ball Corp. ............................................ 3,891 137,401
Crown Cork & Seal Co., Inc. ........................... 16,704 837,288
Owens-Illinois, Inc. (a)............................... 18,236 691,828
------------
1,666,517
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc......................................... 6,897 303,899
Stone Container Corp. ................................. 12,910 134,748
Temple-Inland Inc. .................................... 7,257 379,632
------------
818,279
------------
COSMETICS (1.0%)
Alberto-Culver Co. Class B............................. 7,175 230,048
Avon Products, Inc. ................................... 17,179 1,054,361
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
COSMETICS (Continued)
Gillette Co. (The)..................................... 72,658 $ 7,297,588
International Flavors & Fragrances Inc. ............... 14,287 735,781
------------
9,317,778
------------
DRUGS (4.8%)
Lilly (Eli) & Co. ..................................... 143,931 10,021,196
Merck & Co., Inc....................................... 155,469 16,518,581
Pfizer Inc. ........................................... 167,767 12,509,127
Pharmacia & Upjohn, Inc................................ 65,863 2,412,232
Schering-Plough Corp................................... 95,094 5,907,715
------------
47,368,851
------------
ELECTRIC POWER COMPANIES (2.8%)
American Electric Power
Co., Inc. ............................................ 24,571 1,268,478
Baltimore Gas & Electric Co. .......................... 19,295 657,236
Carolina Power & Light Co.............................. 19,577 830,799
Central & South West Corp.............................. 27,496 744,110
Cinergy Corp........................................... 20,564 787,858
Consolidated Edison Co. of
New York, Inc. ....................................... 30,339 1,243,899
Dominion Resources, Inc. .............................. 24,272 1,033,077
DTE Energy Co.......................................... 18,703 648,760
Duke Energy Corp....................................... 46,612 2,581,139
Edison International................................... 49,450 1,344,422
Entergy Corp........................................... 31,632 946,983
FirstEnergy Corp. (a).................................. 29,792 863,968
FPL Group, Inc......................................... 23,589 1,396,174
GPU, Inc. ............................................. 15,709 661,742
Houston Industries Inc. ............................... 37,057 988,959
Niagara Mohawk Power
Corp. (a)............................................. 18,637 195,688
Northern States Power Co............................... 9,607 559,608
PacifiCorp............................................. 38,473 1,050,794
PECO Energy Co. ....................................... 28,916 701,213
PG&E Corp.............................................. 56,894 1,731,711
PP&L Resources, Inc.................................... 21,478 514,130
Public Service Enterprise
Group Inc. ........................................... 30,057 952,431
Southern Co. (The)..................................... 89,479 2,315,269
Texas Utilities Co..................................... 31,966 1,328,587
Unicom Corp. .......................................... 28,068 863,091
Union Electric Co...................................... 17,464 755,318
------------
26,965,444
------------
ELECTRICAL EQUIPMENT (3.9%)
AMP Inc................................................ 28,589 1,200,738
Emerson Electric Co. .................................. 57,576 3,249,446
General Electric Co. (d)............................... 424,567 31,152,604
General Signal Corp.................................... 6,541 275,948
Grainger (W.W.), Inc................................... 6,465 628,317
Honeywell Inc.......................................... 16,587 1,136,209
Raychem Corp. ......................................... 11,261 484,927
Thomas & Betts Corp. .................................. 7,017 331,553
------------
38,459,742
------------
</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
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
ELECTRONIC--DEFENSE (0.0%) (b)
EG&G, Inc. ............................................ 5,998 $ 124,833
------------
ELECTRONIC--INSTRUMENTATION (0.1%)
Perkin-Elmer Corp. (The)............................... 5,754 408,893
Tektronix, Inc......................................... 6,618 262,652
------------
671,545
------------
ELECTRONIC--SEMICONDUCTORS (2.6%)
Advanced Micro
Devices, Inc. (a)..................................... 18,376 329,619
Applied Materials, Inc. (a)............................ 47,387 1,427,533
Intel Corp. ........................................... 212,211 14,907,823
KLA-Tencor Corp. (a)................................... 10,861 419,506
LSI Logic Corp. (a).................................... 18,289 361,208
Micron Technology, Inc. ............................... 27,427 713,102
Motorola, Inc.......................................... 77,421 4,417,836
National Semiconductor
Corp. (a)............................................. 21,198 549,823
Texas Instruments Inc.................................. 50,632 2,278,440
------------
25,404,890
------------
ENGINEERING & CONSTRUCTION (0.1%)
Fluor Corp............................................. 10,841 405,182
Foster Wheeler Corp.................................... 5,278 142,836
------------
548,018
------------
ENTERTAINMENT (1.6%)
King World
Productions, Inc. (a)................................. 4,850 280,088
Time Warner Inc. ...................................... 72,656 4,504,672
Viacom Inc. Class B (a)................................ 45,712 1,894,191
Walt Disney Co. (The).................................. 87,475 8,665,492
------------
15,344,443
------------
FINANCIAL--MISCELLANEOUS (2.9%)
American Express Co.................................... 60,299 5,381,686
American General Corp.................................. 31,586 1,707,618
Fannie Mae............................................. 137,675 7,856,080
Freddie Mac............................................ 90,219 3,783,559
Green Tree Financial Corp.............................. 17,517 458,726
MBIA Inc. ............................................. 11,585 774,023
MBNA Corp.............................................. 65,045 1,776,542
Morgan Stanley, Dean Witter, Discover & Co. ........... 76,848 4,543,638
SunAmerica Inc......................................... 25,306 1,081,831
Transamerica Corp...................................... 8,261 879,797
------------
28,243,500
------------
FOOD DISTRIBUTORS (0.2%)
Cardinal Health, Inc................................... 14,224 1,068,578
SUPERVALU Inc.......................................... 7,818 327,378
Sysco Corp............................................. 22,204 1,011,670
------------
2,407,626
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
FOODS (2.9%)
Archer-Daniels-Midland Co. ............................ 72,284 $ 1,567,659
Campbell Soup Co....................................... 59,307 3,447,219
ConAgra, Inc........................................... 61,340 2,012,719
CPC International Inc. ................................ 18,789 2,024,515
General Mills, Inc..................................... 20,535 1,470,819
Heinz (H.J.) Co........................................ 47,644 2,420,911
Hershey Foods Corp. ................................... 18,511 1,146,525
Kellogg Co............................................. 53,291 2,644,566
Quaker Oats Co. (The).................................. 17,868 942,537
Ralston-Ralston Purina Group........................... 13,841 1,286,348
Sara Lee Corp. ........................................ 62,205 3,502,919
Unilever, N.V. ........................................ 83,031 5,184,248
Wrigley (Wm.) Jr. Co. ................................. 15,160 1,206,168
------------
28,857,153
------------
GOLD (0.2%)
Barrick Gold Corp. .................................... 48,333 900,202
Battle Mountain Gold Co. .............................. 29,691 174,435
Echo Bay Mines Ltd. (a)................................ 17,994 43,860
Homestake Mining Co.................................... 19,109 169,592
Newmont Mining Corp.................................... 20,346 597,664
Placer Dome Inc........................................ 30,946 392,628
------------
2,278,381
------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)............................. 12,349 482,383
Snap-on Inc............................................ 8,002 349,087
Stanley Works (The).................................... 11,516 543,411
------------
1,374,881
------------
HEALTH CARE--DIVERSIFIED (4.3%)
Abbott Laboratories.................................... 99,257 6,507,537
Allergan, Inc. ........................................ 8,424 282,730
American Home Products Corp............................ 84,170 6,439,005
Bristol-Myers Squibb Co................................ 129,014 12,207,950
Johnson & Johnson...................................... 174,513 11,496,044
Mallinckrodt Inc....................................... 9,485 360,430
Warner-Lambert Co...................................... 35,236 4,369,264
------------
41,662,960
------------
HEALTH CARE--HMOs (0.2%)
Humana Inc. (a)........................................ 21,231 440,543
United Healthcare Corp................................. 24,357 1,210,239
------------
1,650,782
------------
HEALTH CARE--MISCELLANEOUS (0.4%)
ALZA Corp. (a)......................................... 11,145 354,550
Amgen Inc. (a)......................................... 34,273 1,855,026
HEALTHSOUTH Corp. (a).................................. 51,028 1,416,027
Manor Care, Inc........................................ 8,242 288,470
------------
3,914,073
------------
HEAVY DUTY TRUCKS & PARTS (0.3%)
Cummins Engine Co., Inc................................ 4,952 292,477
Dana Corp.............................................. 13,518 642,105
Eaton Corp............................................. 10,100 901,425
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
40
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
HEAVY DUTY TRUCKS & PARTS (Continued)
ITT Industries, Inc.................................... 15,344 $ 481,418
Navistar International Corp. (a)....................... 9,755 242,046
PACCAR Inc............................................. 10,077 529,043
------------
3,088,514
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. .......................................... 3,737 235,197
Kaufman & Broad Home Corp.............................. 5,044 113,175
Pulte Corp............................................. 2,719 113,688
------------
462,060
------------
HOSPITAL MANAGEMENT (0.4%)
Columbia/HCA
Healthcare Corp....................................... 83,979 2,487,878
Tenet Healthcare Corp. (a)............................. 39,592 1,311,485
------------
3,799,363
------------
HOTEL--MOTEL (0.4%)
Harrah's Entertainment, Inc. (a)....................... 13,034 246,017
Hilton Hotels Corp..................................... 32,487 966,488
ITT Corp. (a).......................................... 14,988 1,242,131
Marriott International, Inc. .......................... 16,421 1,137,154
------------
3,591,790
------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World
Industries, Inc....................................... 5,234 391,241
Maytag Corp. .......................................... 12,288 458,496
Whirlpool Corp. ....................................... 9,663 531,465
------------
1,381,202
------------
HOUSEHOLD PRODUCTS (2.2%)
Clorox Co. (The)....................................... 13,365 1,056,670
Colgate-Palmolive Co. ................................. 38,369 2,820,121
Fort James Corp........................................ 27,106 1,036,805
Kimberly-Clark Corp.................................... 72,212 3,560,954
Procter & Gamble Co. (The)............................. 174,385 13,918,103
------------
22,392,653
------------
HOUSEWARES (0.2%)
Fortune Brands, Inc.................................... 22,272 825,456
Newell Co. ............................................ 20,568 874,140
Rubbermaid Inc. ....................................... 19,531 488,275
Tupperware Corp........................................ 7,874 219,488
------------
2,407,359
------------
INSURANCE BROKERS (0.3%)
Aon Corp............................................... 21,705 1,272,456
Marsh & McLennan Cos., Inc. ........................... 22,018 1,641,717
------------
2,914,173
------------
INVESTMENT BANK/BROKERAGE (0.5%)
Merrill Lynch & Co., Inc. ............................. 43,171 3,148,785
Schwab (Charles) Corp. (The)........................... 34,329 1,439,672
------------
4,588,457
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
LEISURE TIME (0.1%)
Brunswick Corp. ....................................... 12,807 $ 388,212
Mirage Resorts, Inc. (a)............................... 23,194 527,664
------------
915,876
------------
LIFE INSURANCE (0.6%)
Aetna Inc.............................................. 19,317 1,363,056
Conseco, Inc. ......................................... 24,431 1,110,084
Jefferson-Pilot Corp................................... 9,299 724,160
Lincoln National Corp. ................................ 13,188 1,030,312
Torchmark Corp......................................... 18,153 763,561
UNUM Corp. ............................................ 18,036 980,707
------------
5,971,880
------------
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc. .............................. 5,229 135,627
------------
MACHINERY--DIVERSIFIED (0.8%)
Briggs & Stratton Corp................................. 3,308 160,645
Case Corp. ............................................ 9,761 589,930
Caterpillar Inc........................................ 48,283 2,344,743
Cooper Industries, Inc................................. 15,821 775,229
Deere & Co............................................. 32,705 1,907,110
Harnischfeger Industries, Inc.......................... 6,353 224,340
Ingersoll-Rand Co...................................... 21,546 872,613
NACCO Industries, Inc. Class A......................... 1,123 120,372
Thermo Electron Corp. (a).............................. 19,584 871,488
Timken Co. (The)....................................... 8,197 281,772
------------
8,148,242
------------
MAJOR REGIONAL BANKS (5.7%)
Banc One Corp.......................................... 76,126 4,134,593
Bank of New York
Co., Inc. (The)....................................... 48,822 2,822,522
BankBoston Corp. ...................................... 18,885 1,774,010
Barnett Banks, Inc. ................................... 25,027 1,798,816
BB&T Corp.............................................. 17,693 1,133,458
Comerica Inc........................................... 13,697 1,236,154
CoreStates Financial Corp.............................. 25,688 2,056,646
Fifth Third Bancorp.................................... 20,039 1,638,188
First Union Corp. ..................................... 81,360 4,169,700
Fleet Financial Group, Inc. ........................... 32,407 2,428,500
Huntington Bancshares Inc.............................. 24,851 894,636
KeyCorp................................................ 28,497 2,017,944
Mellon Bank Corp. ..................................... 33,066 2,004,626
National City Corp..................................... 27,749 1,824,497
NationsBank Corp. ..................................... 92,357 5,616,460
Norwest Corp. ......................................... 97,988 3,784,787
PNC Bank Corp. ........................................ 39,521 2,255,167
Republic New York Corp. ............................... 6,993 798,513
State Street Corp. .................................... 20,776 1,208,903
SunTrust Banks, Inc.................................... 27,324 1,950,250
Synovus Financial Corp................................. 22,613 740,576
U.S. Bancorp........................................... 31,726 3,551,329
Wachovia Corp.......................................... 26,436 2,144,620
Wells Fargo & Co. ..................................... 11,202 3,802,379
------------
55,787,274
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
41
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc............................. 4,685 $ 198,820
------------
MANUFACTURING--DIVERSIFIED (1.1%)
Aeroquip-Vickers, Inc. ................................ 3,702 181,629
AlliedSignal Inc....................................... 73,144 2,848,044
Crane Co. ............................................. 6,085 263,937
Dover Corp. ........................................... 28,814 1,040,906
Illinois Tool Works Inc................................ 32,368 1,946,126
Johnson Controls, Inc. ................................ 10,887 519,854
Millipore Corp. ....................................... 5,646 191,611
Pall Corp. ............................................ 16,561 342,606
Parker-Hannifin Corp. ................................. 14,596 669,592
Tyco International Ltd................................. 69,125 3,114,945
------------
11,119,250
------------
MEDICAL PRODUCTS (1.0%)
Bard (C.R.), Inc. ..................................... 7,400 231,713
Bausch & Lomb Inc...................................... 7,298 289,183
Baxter International Inc............................... 36,293 1,830,528
Becton, Dickinson & Co................................. 15,861 793,050
Biomet, Inc. .......................................... 14,381 368,513
Boston Scientific Corp. (a)............................ 25,257 1,158,665
Guidant Corp. ......................................... 19,250 1,198,313
Medtronic, Inc. ....................................... 60,836 3,182,483
St. Jude Medical, Inc. (a)............................. 11,845 361,272
United States Surgical Corp. .......................... 9,847 288,640
------------
9,702,360
------------
METALS--MISCELLANEOUS (0.2%)
ASARCO Inc. ........................................... 5,202 116,720
Cyprus Amax Minerals Co. .............................. 12,161 186,975
Freeport-McMoRan Copper & Gold Inc. Class B............ 25,119 395,624
Inco Ltd............................................... 21,690 368,730
Phelps Dodge Corp. .................................... 7,656 476,586
------------
1,544,635
------------
MISCELLANEOUS (1.2%)
AirTouch Communications, Inc. (a)...................... 65,519 2,723,133
American Greetings Corp.
Class A............................................... 9,598 375,522
Corning Inc............................................ 29,934 1,111,300
Harcourt General, Inc. ................................ 9,302 509,285
Harris Corp............................................ 10,367 475,586
Jostens, Inc. ......................................... 5,065 116,812
Minnesota Mining & Manufacturing Co. .................. 53,001 4,349,395
Pioneer Hi-Bred
International, Inc. .................................. 8,493 910,874
TRW, Inc............................................... 16,038 856,028
Whitman Corp. ......................................... 13,176 343,399
------------
11,771,334
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MONEY CENTER BANKS (2.8%)
BankAmerica Corp....................................... 89,918 $ 6,564,014
Bankers Trust New York Corp............................ 12,728 1,431,104
Chase Manhattan Corp. (The)............................ 54,699 5,989,540
Citicorp............................................... 59,234 7,489,399
First Chicago NBD Corp................................. 37,717 3,149,370
Morgan (J.P.) & Co., Inc............................... 23,044 2,601,092
------------
27,224,519
------------
MULTI-LINE INSURANCE (2.1%)
American International
Group, Inc. .......................................... 90,965 9,892,444
CIGNA Corp............................................. 9,525 1,648,420
Hartford Financial Services Group, Inc. ............... 15,319 1,433,284
Travelers Group Inc. .................................. 148,792 8,016,169
------------
20,990,317
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.7%)
Coastal Corp. (The).................................... 13,773 853,065
Columbia Gas System, Inc. ............................. 7,207 566,200
Consolidated Natural Gas Co............................ 12,263 741,911
Eastern Enterprises.................................... 2,618 117,810
Enron Corp............................................. 41,212 1,712,874
NICOR Inc.............................................. 6,296 265,613
ONEOK, Inc. ........................................... 4,070 164,326
Pacific Enterprises.................................... 10,732 403,791
Peoples Energy Corp.................................... 4,431 174,471
Sonat, Inc............................................. 11,080 506,910
Williams Cos., Inc. (The).............................. 41,440 1,175,860
------------
6,682,831
------------
OFFICE EQUIPMENT & SUPPLIES (0.5%)
Moore Corp. Ltd........................................ 11,418 172,697
Pitney Bowes Inc....................................... 18,815 1,692,174
Xerox Corp. ........................................... 42,244 3,118,136
------------
4,983,007
------------
OIL & GAS DRILLING (0.1%)
Helmerich & Payne, Inc. ............................... 3,233 219,440
Rowan Cos., Inc. (a)................................... 11,114 338,977
------------
558,417
------------
OIL--EXPLORATION & PRODUCTION (0.3%)
Anadarko Petroleum Corp. .............................. 7,700 467,294
Apache Corp............................................ 11,704 410,371
Burlington Resources Inc. ............................. 22,844 1,023,697
Oryx Energy Co. (a).................................... 13,640 347,820
Union Pacific Resources
Group, Inc............................................ 32,980 799,765
------------
3,048,947
------------
OIL--INTEGRATED DOMESTIC (1.1%)
Amerada Hess Corp...................................... 11,899 652,958
Ashland Inc............................................ 9,761 524,044
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
42
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
OIL--INTEGRATED DOMESTIC (Continued)
Atlantic Richfield Co. ................................ 41,638 $ 3,336,245
Kerr-McGee Corp........................................ 6,136 388,485
Occidental Petroleum Corp. ............................ 43,902 1,286,877
Pennzoil Co............................................ 6,080 406,220
Phillips Petroleum Co. ................................ 34,157 1,660,884
Sun Co., Inc........................................... 9,246 388,910
Unocal Corp. .......................................... 31,981 1,241,263
USX-Marathon Group..................................... 37,443 1,263,701
------------
11,149,587
------------
OIL--INTEGRATED INTERNATIONAL (5.9%)
Amoco Corp. ........................................... 63,189 5,378,964
Chevron Corp........................................... 85,186 6,559,322
Exxon Corp. ........................................... 319,851 19,570,883
Mobil Corp. ........................................... 101,806 7,349,121
Royal Dutch Petroleum Co............................... 278,179 15,073,824
Texaco Inc............................................. 71,124 3,867,367
------------
57,799,481
------------
OIL--WELL EQUIPMENT & SERVICES (1.0%)
Baker Hughes Inc....................................... 21,867 953,948
Dresser Industries, Inc................................ 22,680 951,143
Halliburton Co. ....................................... 33,994 1,765,563
McDermott International, Inc........................... 7,205 263,883
Schlumberger Ltd....................................... 64,269 5,173,654
Western Atlas Inc. (a)................................. 7,007 518,518
------------
9,626,709
------------
PAPER & FOREST PRODUCTS (0.7%)
Boise Cascade Corp. ................................... 7,175 217,044
Champion International Corp. .......................... 12,519 567,267
Georgia-Pacific Corp. ................................. 11,914 723,775
International Paper Co. ............................... 39,209 1,690,888
Louisiana-Pacific Corp................................. 14,192 269,648
Mead Corp. (The)....................................... 13,680 383,040
Potlatch Corp. ........................................ 3,732 160,476
Union Camp Corp. ...................................... 9,035 485,067
Westvaco Corp.......................................... 13,327 418,968
Weyerhaeuser Co........................................ 25,936 1,272,485
Willamette Industries, Inc. ........................... 14,379 462,824
------------
6,651,482
------------
PERSONAL LOANS (0.4%)
Beneficial Corp. ...................................... 6,949 577,636
Countrywide Credit
Industries, Inc....................................... 13,914 596,563
Household International, Inc. ......................... 13,748 1,753,729
Providian Financial Corp. ............................. 12,268 554,360
------------
3,482,288
------------
PHOTOGRAPHY/IMAGING (0.3%)
Eastman Kodak Co....................................... 42,125 2,561,726
IKON Office Solutions, Inc............................. 17,197 483,666
Polaroid Corp. ........................................ 5,929 288,668
------------
3,334,060
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries, Inc. .................... 25,647 $ 948,939
Waste Management, Inc. .............................. 59,022 1,623,105
------------
2,572,044
------------
PROPERTY--CASUALTY INSURANCE (1.6%)
Allstate Corp. (The)................................. 55,593 5,052,014
Chubb Corp. (The).................................... 22,051 1,667,607
Cincinnati Financial Corp............................ 7,100 999,325
General Re Corp...................................... 10,153 2,152,436
Loews Corp........................................... 14,821 1,572,879
MGIC Investment Corp................................. 14,761 981,606
Progressive Corp. (The).............................. 9,282 1,112,680
SAFECO Corp.......................................... 18,320 893,100
St. Paul Cos., Inc. (The)............................ 10,932 897,107
USF&G Corp. ......................................... 14,571 321,473
------------
15,650,227
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The)......................... 12,945 957,930
Meredith Corp. ...................................... 6,940 247,671
------------
1,205,601
------------
PUBLISHING--NEWSPAPER (0.6%)
Dow Jones & Co., Inc................................. 12,425 667,067
Gannett Co., Inc..................................... 36,843 2,277,358
Knight-Ridder, Inc................................... 10,976 570,752
New York Times Co. (The) Class A..................... 12,459 823,851
Times Mirror Co. (The) Class A....................... 12,359 760,079
Tribune Co. ......................................... 15,955 993,199
------------
6,092,306
------------
RAILROADS (0.7%)
Burlington Northern Santa
Fe Corp. ........................................... 20,136 1,871,390
CSX Corp............................................. 28,308 1,528,632
Norfolk Southern Corp................................ 48,992 1,509,566
Union Pacific Corp................................... 32,088 2,003,494
------------
6,913,082
------------
RESTAURANTS (0.6%)
Darden Restaurants, Inc. ............................ 19,771 247,138
McDonald's Corp. .................................... 89,283 4,263,263
Tricon Global
Restaurants, Inc. (a)............................... 19,644 570,904
Wendy's International, Inc. ......................... 16,997 408,990
------------
5,490,295
------------
RETAIL STORES--APPAREL (0.4%)
Charming Shoppes, Inc. (a)........................... 13,771 64,551
Gap, Inc. (The)...................................... 52,227 1,850,794
Limited, Inc. (The).................................. 35,302 900,201
TJX Cos., Inc. (The)................................. 21,207 728,991
------------
3,544,537
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
43
<PAGE>
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
RETAIL STORES--DEPARTMENT (0.6%)
Dillard's, Inc. Class A................................ 14,307 $ 504,322
Federated Department
Stores, Inc. (a)...................................... 27,084 1,166,305
May Department Stores
Co. (The)............................................. 30,000 1,580,625
Mercantile Stores Co., Inc............................. 4,825 293,722
Nordstrom, Inc......................................... 9,992 603,267
Penney (J.C.) Co., Inc................................. 32,283 1,947,068
------------
6,095,309
------------
RETAIL STORES--DRUGS (0.3%)
Longs Drug Stores Corp. ............................... 4,968 159,597
Rite Aid Corp. ........................................ 16,147 947,627
Walgreen Co............................................ 63,780 2,001,098
------------
3,108,322
------------
RETAIL STORES--FOOD CHAIN (0.5%)
Albertson's, Inc....................................... 31,865 1,509,605
American Stores Co..................................... 35,339 726,658
Giant Food Inc. Class A................................ 7,785 262,257
Great Atlantic & Pacific
Tea Co., Inc. (The)................................... 4,991 148,170
Kroger Co. (The) (a)................................... 32,998 1,218,864
Winn-Dixie Stores, Inc. ............................... 19,286 842,557
------------
4,708,111
------------
RETAIL STORES--GENERAL MERCHANDISE (1.7%)
Dayton Hudson Corp..................................... 28,334 1,912,545
Kmart Corp. (a)........................................ 63,182 730,542
Sears, Roebuck & Co.................................... 50,746 2,296,256
Wal-Mart Stores, Inc. ................................. 292,331 11,528,804
------------
16,468,147
------------
RETAIL STORES--SPECIALTY (1.3%)
AutoZone, Inc. (a)..................................... 19,603 568,487
Circuit City Stores-
Circuit City Group.................................... 12,733 452,817
Costco Cos., Inc. (a).................................. 27,625 1,232,766
CVS Corp............................................... 22,290 1,427,953
Home Depot, Inc. (The)................................. 94,934 5,589,239
Lowe's Cos., Inc. ..................................... 22,561 1,075,878
Pep Boys-Manny, Moe &
Jack (The)............................................ 8,156 194,724
Tandy Corp............................................. 13,454 518,820
Toys "R" Us, Inc. (a).................................. 36,943 1,161,396
Woolworth Corp. (a).................................... 17,415 354,831
------------
12,576,911
------------
SAVINGS & LOANS (0.4%)
Ahmanson (H.F.) & Co................................... 12,231 818,713
Golden West Financial Corp. ........................... 7,397 723,519
Washington Mutual, Inc................................. 33,428 2,133,124
------------
3,675,356
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
SHOES (0.2%)
NIKE, Inc. Class B..................................... 37,647 $ 1,477,645
Reebok International Ltd............................... 7,329 211,167
------------
1,688,812
------------
SPECIALIZED SERVICES (1.0%)
Block (H&R), Inc....................................... 13,562 607,747
Cendant Corp. (a)...................................... 102,589 3,526,497
Cognizant Corp. ....................................... 21,007 936,125
Dun & Bradstreet Corp. (The)........................... 21,942 678,831
Ecolab Inc. ........................................... 8,385 464,843
Interpublic Group of
Cos., Inc. (The)...................................... 16,194 806,664
Laidlaw Inc. .......................................... 42,659 581,229
National Service Industries, Inc....................... 5,636 279,334
Omnicom Group Inc...................................... 21,000 889,875
Safety-Kleen Corp...................................... 7,575 207,839
Service Corp. International............................ 32,634 1,205,418
------------
10,184,402
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. .......................................... 10,591 365,389
Donnelley (R.R.) & Sons Co. ........................... 18,942 705,590
Harland (John H.) Co. ................................. 3,939 82,719
------------
1,153,698
------------
STEEL (0.2%)
Allegheny Teledyne Inc................................. 22,656 586,224
Armco Inc. (a)......................................... 13,873 68,498
Bethlehem Steel Corp. (a).............................. 14,536 125,373
Inland Steel Industries, Inc........................... 6,354 108,812
Nucor Corp............................................. 11,449 553,130
USX-U.S. Steel Group Inc............................... 11,124 347,625
Worthington Industries, Inc............................ 12,483 205,970
------------
1,995,632
------------
TELECOMMUNICATIONS--LONG DISTANCE (2.4%)
AT&T Corp. ............................................ 210,696 12,905,130
MCI Communications Corp................................ 90,316 3,866,654
Sprint Corp. .......................................... 55,629 3,261,250
WorldCom, Inc. (a)..................................... 117,240 3,546,510
------------
23,579,544
------------
TELEPHONE (4.3%)
ALLTEL Corp. .......................................... 24,141 991,290
Ameritech Corp. ....................................... 71,019 5,717,029
Bell Atlantic Corp..................................... 100,693 9,163,063
BellSouth Corp. ....................................... 128,684 7,246,518
Frontier Corp. ........................................ 21,268 511,761
GTE Corp. ............................................. 124,261 6,492,637
SBC Communications Inc................................. 118,956 8,713,527
US West Communications Group........................... 62,645 2,826,856
------------
41,662,681
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
44
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
TEXTILES--APPAREL MANUFACTURERS (0.2%)
Fruit of the Loom, Inc.
Class A (a)....................................... 9,485 $ 243,053
Liz Claiborne, Inc................................. 8,630 360,842
Russell Corp. ..................................... 4,707 125,030
Springs Industries, Inc. Class A................... 2,587 134,524
VF Corp............................................ 15,805 726,042
------------
1,589,491
------------
TOBACCO (1.5%)
Philip Morris Cos. Inc............................. 314,517 14,251,551
UST Inc. .......................................... 23,795 878,928
------------
15,130,479
------------
TOYS (0.2%)
Hasbro, Inc. ...................................... 16,426 517,419
Mattel, Inc........................................ 37,704 1,404,474
------------
1,921,893
------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
Federal Express Corp. (a).......................... 14,824 905,191
Ryder System, Inc.................................. 9,927 325,109
------------
1,230,300
------------
TRUCKERS (0.0%) (b)
Caliber System, Inc. .............................. 4,935 240,273
------------
Total Common Stocks
(Cost $593,717,414)............................... 980,033,066 (c)
------------
SHORT-TERM
INVESTMENTS (0.2%)
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
U.S. GOVERNMENT (0.2%)
United States Treasury Bills
5.12%, due 4/2/98 (d)............................. $1,500,000 1,480,462
5.14%, due 3/26/98 (d)............................ 600,000 592,862
------------
Total Short-Term Investments
(Cost $2,073,051)................................. 2,073,324
------------
Total Investments
(Cost $595,790,465) (e)........................... 100.2% 982,106,390 (f)
Liabilities in Excess of
Cash and Other Assets............................. (0.2) (2,061,568)
---------- ------------
Net Assets......................................... 100.0% $980,044,822
========== ============
</TABLE>
FUTURES CONTRACTS (0.0%) (b)
<TABLE>
<CAPTION>
CONTRACTS UNREALIZED
LONG APPRECIATION(G)
--------------------------
<S> <C> <C>
Standard & Poor's 500
March 1998......................................... 8 $ 38,435
Mini March 1998.................................... 2 800
------------
Total Futures Contracts (Settlement Value
$2,056,110)(c)..................................... $ 39,235
============
</TABLE>
- --------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) The combined market value of common stocks and settlement value of
Standard & Poor's 500 Index futures contracts represents 100.2% of net
assets.
(d) Segregated or partially segregated as collateral for futures contracts.
(e) The cost for Federal income tax purposes is $596,148,753.
(f) At December 31, 1997 net unrealized appreciation was $385,957,637, 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 $394,069,123 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $8,111,486.
(g) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1997.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
45
<PAGE>
INDEXED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $595,790,465).................................. $982,106,390
Cash............................................................. 32,875
Receivables:
Investment securities sold....................................... 3,341,213
Fund shares sold................................................. 1,455,017
Dividends and interest........................................... 1,327,434
------------
Total assets................................................... 988,262,929
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................. 4,571,428
Investment securities purchased.................................. 3,315,181
MainStay Management.............................................. 189,965
Custodian........................................................ 29,003
Transfer agent................................................... 5,153
Accrued expenses................................................. 106,107
Variation margin payable on futures contracts.................... 1,270
------------
Total liabilities.............................................. 8,218,107
------------
Net assets....................................................... $980,044,822
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 35,714
Institutional Service Class...................................... 512
Additional paid-in capital....................................... 590,013,128
Accumulated undistributed net investment income.................. 16,667
Accumulated undistributed net realized gain on investments....... 3,623,641
Net unrealized appreciation on investments....................... 386,355,160
------------
Net assets....................................................... $980,044,822
============
Institutional Class
Net assets applicable to outstanding shares...................... $966,217,093
============
Shares of capital stock outstanding.............................. 35,714,243
============
Net asset value per share outstanding............................ $ 27.05
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 13,827,729
============
Shares of capital stock outstanding.............................. 512,405
============
Net asset value per share outstanding............................ $ 26.99
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)................................................... $ 14,241,001
Interest........................................................ 1,194,190
------------
Total income.................................................. 15,435,191
------------
Expenses:
Administration.................................................. 2,878,403
Advisory........................................................ 719,601
Management...................................................... 541,630
Custodian....................................................... 127,414
Shareholder communication....................................... 121,072
Professional.................................................... 115,224
Registration.................................................... 62,621
Transfer agent.................................................. 26,665
Service......................................................... 25,349
Directors....................................................... 24,239
Miscellaneous................................................... 35,373
------------
Total expenses before
reimbursement................................................ 4,677,591
Expense reimbursement from Administrator and Adviser or
Manager........................................................ (2,168,462)
------------
Net expenses.................................................. 2,509,129
------------
Net investment income........................................... 12,926,062
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions........................................... 10,553,194
Futures transactions............................................ 3,271,008
------------
Net realized gain on investments................................ 13,824,202
------------
Net change in unrealized appreciation on investments:
Security transactions........................................... 199,301,881
Futures transactions............................................ 39,235
------------
Net unrealized gain on investments.............................. 199,341,116
------------
Net realized and unrealized gain on investments................. 213,165,318
------------
Net increase in net assets resulting from operations............ $226,091,380
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $88,514.
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.
INDEXED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................ $ 12,926,062 $ 9,860,784
Net realized gain on investments................. 13,824,202 21,095,410
Net change in unrealized appreciation on invest-
ments........................................... 199,341,116 71,692,530
------------- ------------
Net increase in net assets resulting from opera-
tions........................................... 226,091,380 102,648,724
------------- ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class............................. (12,753,262) (9,781,685)
Institutional Service Class..................... (156,133) (81,268)
From net realized gain on investments:
Institutional Class............................. (18,598,652) (13,063,037)
Institutional Service Class..................... (264,603) (121,038)
------------- ------------
Total dividends and distributions to sharehold-
ers........................................... (31,772,650) (23,047,028)
------------- ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................. 295,739,975 252,112,038
Institutional Service Class..................... 10,256,956 4,498,994
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class............................. 31,351,914 22,844,722
Institutional Service Class..................... 420,736 202,306
------------- ------------
337,769,581 279,658,060
Cost of shares redeemed:
Institutional Class............................. (170,645,271) (90,730,104)
Institutional Service Class..................... (4,979,101) (337,651)
------------- ------------
Increase in net assets derived from capital
share transactions............................. 162,145,209 188,590,305
------------- ------------
Net increase in net assets...................... 356,463,939 268,192,001
NET ASSETS:
Beginning of year................................ 623,580,883 355,388,882
------------- ------------
End of year...................................... $ 980,044,822 $623,580,883
============= ============
Accumulated undistributed net investment income.. $ 16,667 $ --
============= ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
47
<PAGE>
INDEXED EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------- ------------- ----------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 21.05 $ 21.01 $ 17.82 $ 17.81 $ 13.53 $ 13.53 $ 13.86 $ 13.50
-------- -------- -------- -------- -------- -------- --------- ---------
Net investment
income.......... 0.37 0.32 0.34 0.31 0.35 0.33 0.33 0.30
Net realized and
unrealized gain
(loss) on
investments..... 6.54 6.52 3.69 3.66 4.64 4.64 (0.20) 0.93
-------- -------- -------- -------- -------- -------- --------- ---------
Total from
investment
operations...... 6.91 6.84 4.03 3.97 4.99 4.97 0.13 1.23
-------- -------- -------- -------- -------- -------- --------- ---------
Less dividends
and
distributions:
From net
investment
income.......... (0.37) (0.32) (0.34) (0.31) (0.34) (0.33) (0.33) (0.61)
From net realized
gain on
investments..... (0.54) (0.54) (0.46) (0.46) (0.36) (0.36) (0.13) (0.25)
In excess of net
realized gain on
investments..... -- -- -- -- -- -- 0.00(a) (0.01)
-------- -------- -------- -------- -------- -------- --------- ---------
Total dividends
and
distributions... (0.91) (0.86) (0.80) (0.77) (0.70) (0.69) (0.46) (0.87)
-------- -------- -------- -------- -------- -------- --------- ---------
Net asset value
at end of year.. $ 27.05 $ 26.99 $ 21.05 $ 21.01 $ 17.82 $ 17.81 $ 13.53 $ 13.86
======== ======== ======== ======== ======== ======== ========= =========
Total investment
return ......... 32.88% 32.60% 22.57% 22.21% 36.88% 36.70% 0.90% 9.41%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 1.56% 1.31% 1.96% 1.71% 2.21% 1.96% 2.43% 2.39%
Net expenses.... 0.30% 0.55% 0.44% 0.69% 0.50% 0.75% 0.50% 0.45%
Expenses (before
reimbursement).. 0.56% 0.81% 0.59% 0.84% 0.59% 0.84% 0.58% 0.60%
Portfolio
turnover rate... 3% 3% 8% 8% 4% 4% 5% 5%
Average
commission rate
paid............ $ 0.0500 $ 0.0500 $ 0.0498 $ 0.0498 (b) (b) (b) (b)
Net assets at end
of year
(in 000's)...... $966,217 $ 13,828 $617,716 $ 5,865 $354,420 $ 969 $ 244,685 $ 219,351
</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.
48
<PAGE>
INTERNATIONAL EQUITY FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. In the first quarter, the Federal Reserve Board's move to raise domestic
interest rates may have impacted international markets. Many investors
refocused on local growth prospects and foreign markets rebounded in the
second quarter of 1997.
. Continued movement toward European Monetary Union, including fiscal reforms
and corporate restructurings, improved the general financial backdrop for
many European markets.
. In the second half of the year, the Southeast Asian financial markets
suffered severe setbacks that affected currencies, real estate, and equities
and led to problems in the banking and securities industries.
. Analysts around the world reacted with lower earnings estimates and a more
pessimistic investment outlook for Asian as well as other world markets.
. In the fourth quarter, all of the factors mentioned above caused the Morgan
Stanley Capital International (MSCI) EAFE Index* to decline 7.83%, and the
Index was up 1.78% for the year.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 5.44% and 4.88% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Starting in the first half of 1997, the Fund overweighted European
investments and decreased Southeast Asian holdings, which was positive for
the Fund when Asian markets began to experience financial difficulties.
. Although the Fund managers had been bullish on Hong Kong in the first half of
the year, continuing negative signals led them to eliminate all exposure to
emerging Southeast Asian markets and substantially reduce the Fund's Japanese
exposure in the fourth quarter.
. Throughout the year, and particularly in the fourth quarter, the Fund
increased its exposure in Switzerland, Belgium, the United Kingdom, and
Portugal, which proved beneficial for the Fund's performance.
. Sensing the dollar's strength, the Fund managers used substantial currency
hedges throughout most of the year to help protect investors when local
returns were translated into U.S. dollars.
The international equity markets were influenced by a number of important
factors throughout 1997. In the first quarter, a Federal Reserve Board move to
raise interest rates had a negative impact on investor psychology around the
globe. The mood became more positive in the second quarter of the year, however,
as many investors focused on positive local market fundamentals, European
Monetary Union, and other positive factors.
By the end of the first half of the year, weaknesses had begun to emerge in
certain Southeast Asian markets, and by October, several Asian economies were
experiencing severe difficulties. Many currencies, real estate, and stocks were
affected--and as the value of Asian loan collateral dropped, banks and
- --------------------------------------------------------------------------------
Fundamentals Key economic factors such as interest rates, gross national
product, inflation, unemployment, and currency stability, which may affect the
direction of a country's economy--or issuer-specific factors such as assets,
earnings, sales, products, and management, which may affect the performance of a
company's securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index generally considered representative of the international stock market.
49
<PAGE>
===============================================================================
other financial institutions came under pressure. Corporate earnings estimates
were revised for many companies and several Asian markets experienced extreme
volatility and major setbacks. Problems spilled over into Australia, where
declining demand for basic commodities led to negative market returns in the
fourth quarter.
Europe, on the other hand, had a strong year. Continuing work toward European
Monetary Union may have helped keep interest rates and inflation at relatively
low levels and strengthened many European economies. With borders becoming less
of a business barrier, many major companies began to look for international
partners, increasing merger and acquisition activity. Portugal was added to the
MSCI EAFE Index in December, attracting international investors, while declining
bond yields and increased availability of mutual funds increased Portugal's
domestic equity participation. Overall, Portuguese stocks returned 73.8% for the
year, outperforming all other major world markets in local currency terms.
Throughout the year, a strong U.S. dollar posed additional risks for
international investors whose currency exposure was not sufficiently hedged.
How did the MainStay Institutional International Equity Fund do in this
environment?
For the year ended 12/31/97, the MainStay Institutional International Equity
Fund provided total returns of 5.44% and 4.88% for Institutional Class shares
and Service Class shares, respectively. The average Lipper+ international fund
returned 5.44% for the same period. In 1997, the MCSI EAFE Index returned 1.78%.
What strategies worked well for the Fund during the year?
Certainly, our decision to reduce the Fund's exposure in Southeast Asian markets
and Japan was positive for the Fund, as was our decision to invest most of the
proceeds from those sales in Europe. There, we invested primarily in
Switzerland, Belgium, the United Kingdom, and Portugal, all of which were
positive performers and contributed significantly to the Fund's positive
returns.
Can you tell us about the Fund's investments prior to the fallout in Southeast
Asia?
Early in the year, we believed Europe would offer strong investment
opportunities. The Fund was overweighted in France, which suffered a bit after
its elections--and underweighted in Japan, which had shown continuing weakness
over time. Throughout the first half of the year, we continued to reduce the
Fund's Japanese exposure and European holdings in France and Germany to increase
diversification across other European markets. We also detected problems in
Malaysia, where slowing technology, rising interest rates, and property
speculation had severely weakened its market fundamentals. The Fund was not
invested in Malaysia by the end of the second quarter, which was clearly a smart
move, given subsequent developments in Southeast Asia.
- --------------------------------------------------------------------------------
European Monetary Union A proposed system that would allow participating
European countries to operate with a common currency or monetary unit.
Volatility Fluctuations in the price of securities or markets, up or down, over
a short period of time.
Commodities Bulk goods, such as grains, precious metals, industrial metals, and
foods traded on a commodities exchange.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
Hedging/Currency management 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/Overweighted 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 greater than the country's total equities
relative to the international equity markets as a whole.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ 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.
50
<PAGE>
================================================================================
Which European markets provided the best performance in 1997?
Portugal was by far the Fund's strongest performing market, both in local
currency and U.S. dollar terms. Portugal benefited from strong fiscal
consolidation and its government's efforts to bring its deficit and inflation
under control. The country reduced unemployment, increased its savings rates,
and raised wages, which are all part of its efforts to meet the criteria for
European Monetary Union. Since the country was added to the MSCI EAFE Index this
year, many international investors were pouring money into its stocks. But
Portugal also benefited from domestic investors, many of whom saw declining bond
yields and the increased availability of mutual fund shares as a reason to
invest in equities. Recognizing these trends, over the course of the year, we
increased the Fund's Portuguese position from 0% to over 1.3% of the Fund's
portfolio.
What about Switzerland?
The Fund was invested in Switzerland as part of its European diversification
strategy. The Swiss market benefited from world-class companies, low interest
rates, good monetary conditions, and a number of profitable mergers and
acquisitions. The market was up 56.7% for the year, and the Fund benefited from
holdings like Novartis, a pharmaceutical giant, that resulted from a merger
between Sandoz and Ciba Geigy--and from a pending financial merger between Swiss
Bankcorp and Schweizerische Bankverein Registered, both of which had been
significant holdings and provided positive returns for the Fund.
What was attractive about Belgium?
Again, our primary decision was to diversify the Fund's European holdings. The
Fund invested in Belgium in the first half of the year, then pared back its
holdings when interest rates started to rise. Later, as problems started to
develop in Asia, however, we felt that rates would not continue to climb, so
Belgium again looked attractive. This market also benefited from restructuring,
low interest rates, improving retail performance, and positive economic
indicators. The Fund was invested heavily in Belgium in the fourth quarter,
increasing its position to about 3% of the portfolio.
Can you mention some companies that performed well in Belgium?
Belgium has a number of utilities and financial firms. In utilities, the Fund
invested in Reunies Electrobel & Tractebel. In the financial services area, the
Fund invested in Generale de Banque and Fortis. While some of the Fund's
investments were made later in the year, the market as a whole was up 32.4% in
local currency terms in 1997.
You also mentioned the United Kingdom. What happened there?
The U.K. was booming throughout 1997 and we increased the Fund's exposure as we
saw increasing investor interest in the British market. Although earlier in the
year, we thought the U.K.'s interest rates might continue to rise, during the
Asian difficulties, the U.K. interest rate pressure abated and we felt the time
was right to add to the Fund's positions for several reasons. Among our key
considerations was the fact that unemployment in the U.K. was at its lowest
level since 1980, and investors were pouring money into British mutual funds,
which helped keep the stock market strong. The demutualization of building
societies also increased investor wealth and helped the market.
One of the Fund's strong performers in the U.K. was Vodafone Group, whose mobile
telephone operations seemed to be taking off, with higher subscriber rates than
analysts predicted. The company has about a 33% market share and has done quite
well for the Fund.
- --------------------------------------------------------------------------------
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 plant and equipment, engaging in
mergers and acquisitions, or taking other action to increase output or lower
costs.
- --------------------------------------------------------------------------------
51
<PAGE>
================================================================================
Were there European countries that did not perform as well?
The Fund was overweighted in Austria, which was not as strong a performer as
most other European countries, but still provided an 18.5% return in local
terms. Fortunately, the Fund was invested in some of the market's better
performers, such as Verbund--short for Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts Class A. While the name may be hard to say, this
electric utility company was easy to like. It benefited from privatization and
European Monetary Union, and was up about 50% in the fourth quarter in local
terms.
Obviously, the big story for the year was the Asian crisis. How did it affect
the Fund?
We sold the Fund's Malaysian holdings early, which was a big plus for the Fund's
portfolio. We also eliminated the Fund's exposure to Singapore before the
October declines. Although some of the sales were not profitable, they were
clearly wise. Fortunately, the Fund did not have any holdings in Thailand,
Korea, Indonesia, or other emerging markets in Southeast Asia--which was a
decided plus for the Fund's investors.
Why wasn't the Fund invested in those markets?
We are basically risk-averse managers. While emerging markets may look terrific
when they are rising, the pain they may cause when they fall may not be worth
the risk. So while other funds may have had substantial exposure to Asian
emerging markets, the Fund was invested in the more established markets, which
we felt would offer investors greater strength and stability. As the
difficulties in Asia developed, however, even some of the established Asian
markets in which we had invested had severe setbacks.
What happened in the more developed Asian markets?
By far, the largest Asian market is Japan. We trimmed the Fund's position
substantially in the first half of the year, based on the impact of an
increasing Japanese sales tax and other signs of weakness. We invested most of
the proceeds in Europe, which was positive for the Fund's performance.
Among Japanese companies, there were strong performers and weak ones.
Fortunately, we sought diversified company exposure and well-established
businesses and used disciplined fundamental research in an effort to help avoid
high-risk investments. As a result, the Fund was invested in multinational
Japanese holdings, such as Toyota Motor and Honda Motor, which performed well.
Japan's domestic construction, retail, and banking firms, on the other hand,
performed poorly. Fortunately, the Fund had no exposure to any of the Japanese
banks and financial firms that failed during the year, largely due to our
careful research and focus on solid companies with strong balance sheets and
earnings prospects.
In Hong Kong, the celebration of the return to a unified country helped make the
market a strong performer for the Fund in the first half of the year. However,
as the year progressed, the problems of the Southeast Asian markets broadened in
depth and scope. We reduced the Fund's position from neutral to underweight in
October, and after we did, the market fell 22%. Fortunately, we did not sell
immediately, but waited for the right opportunity. When the market came back
14%, we sold the Fund's remaining exposure to Hong Kong, which had a negative
overall impact on performance. The decision to reinvest the proceeds in European
stocks, however, was strongly positive and helped offset losses the Fund
incurred in Hong Kong stocks.
- --------------------------------------------------------------------------------
Privatization The process of converting state-run or publicly operated
companies into privately owned and operated entities. In theory, enterprises may
run more efficiently and offer better service to customers when owned by
shareholders rather than the government.
Emerging markets Countries with smaller or more recently established capital
markets.
- --------------------------------------------------------------------------------
52
<PAGE>
================================================================================
Was Australia affected by the fallout in Asia?
Absolutely. We had added to the Fund's Australian holdings in the first half of
the year expecting stellar performance due to robust growth and lower interest
rates in Australia. But when problems started to emerge in Southeast Asian
markets, the demand for commodities, which are a large part of the Australian
economy, started to decline. We reduced the Fund's Australian position from
overweight, to neutral, to underweight over the course of the second half of
1997. Some of the Fund's Australian holdings, such as the National Australia
Bank and News Corp., have done well. But some of the Fund's natural resources
holdings, such as Broken Hill Proprietary Co., have done poorly. So, instead of
a star performer, the Australian market was up a modest 9.2% for the year in
local currency terms.
How did you position the Fund to help protect against currency risk?
Basically, we were bullish on the dollar, which proved correct throughout the
year. We did manage to gain a little bit through yen exposure in the first half
of 1997. But the strength of the U.S. dollar brought substantial risk to U.S.
investors in foreign securities. Recognizing this, most of the Fund's positions
were strongly hedged, which helped to protect investors from currency risk. Of
course, currency risk cannot be entirely eliminated. The Fund had some currency
exposure, which had a negative impact on performance, as virtually all foreign
currencies declined relative to the U.S. dollar in 1997.
Did the Fund have any exposure to Latin America?
No. While Mexico and certain South American markets had excellent returns, we
felt that Europe was stronger and more stable. In an effort to minimize risk, we
avoided emerging markets in Central and South America entirely. In addition,
although the Fund is permitted to invest in emerging markets, during the second
half of the year it was only invested in developed countries with high-quality
stocks.
What do you see going forward?
We feel that the Asian situation may not go away quickly. But we will continue
to monitor the situation, because we believe that eventually, there may be
buying opportunities in the stronger markets there. We still feel that Europe
will offer strong returns as long as interest rates and inflation remain low and
companies seek partners that can assist them with the challenges of European
Monetary Union. Overall, we think foreign equities will continue to offer
opportunities for investors and will continue to seek to provide long-term
growth of capital commensurate with an acceptable level of risk, with current
income as a secondary objective.
Shigemi Takagi
Portfolio Manager
Investments in foreign securities may be subject to greater risks than domestic
investments. These risks include currency fluctuations, changes in U.S. or
foreign tax or currency laws, and changes in monetary policies and economic and
political conditions in foreign countries.
- -------------------------------------------------------------------------------
Past performance is no guarantee of future results.
53
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS MSCI EAFE INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INTERNATIONAL EQUITY FUND MSCI EAFE INDEX
---- ------------------------- ---------------
<S> <C> <C>
7/31/92 10,000 10,000
92 9,463 10,014
93 11,831 13,275
94 12,820 14,309
95 13,739 15,913
96 15,400 16,874
12/31/97 16,238 17,175
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS MSCI EAFE INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE INTERNATIONAL EQUITY FUND MSCI EAFE INDEX
---- ------------------------- ---------------
<S> <C> <C>
7/31/92 10,000 10,000
92 9,463 10,014
93 11,831 13,275
94 12,820 14,309
95 13,699 15,913
96 15,287 16,874
12/31/97 16,032 17,175
</TABLE>
Source: Lipper Analytical Services, Inc.
These graphs assume a $10,000 investment made on 7/31/92.+
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1997 as of December 31, 1997
- -----------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund Institutional Class+ 5.44% 5.44% 11.41% 9.35%
International Equity Fund Service Class+ 4.88% 4.88% 11.12% 9.10%
Average Lipper International Fund 5.44% 5.44% 12.10% 10.73%
MSCI EAFE Index 1.78% 1.78% 11.39% 10.50%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Common Stock 84.07%
Cash, Equivalents & Other Assets 15.84%++
Other 0.09%
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Novartis S.A. Registered 2.13%
2. Roche Holdings AG Genusscheine 1.74%
3. Nestle S.A. Registered 1.71%
4. Glaxo Wellcome PLC 1.41%
5. British Petroleum Co. PLC 1.36%
6. Royal Dutch Petroleum Co. 1.35%
7. Toyota Motor Corp. 1.26%
8. Ente Nazionale Idrocarburi S.p.A. 1.22%
9. Allianz AG Registered 1.16%
10. Deutsche Telekom AG 1.08%
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 COUNTRIES
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. United Kingdom 17.77%
2. Japan 14.04%
3. Germany 10.08%
4. Switzerland 9.14%
5. France 8.07%
6. Italy 6.35%
7. Spain 5.28%
8. Netherlands 3.19%
9. Belgium 2.87%
10. Austria 1.66%
</TABLE>
- --------------------------------------------------------------------------------
* 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 gain 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.
+ The inception date of the International Equity Fund's predecessor separate
account is 7/31/92 ("Separate Account"). Performance figures, and in the case
of the graphs reflecting the investment of $10,000, investment results
include the historical performance of the Separate Account for the period
prior to the International Equity Fund's commencement of operations on
January 1, 1995. MacKay Shields Financial Corporation, the International
Equity Fund's sub-adviser, served as investment adviser to the Separate
Account, and the investment objective, policies, restrictions, guidelines,
and management style of the Separate Account were substantially similar to
those of the International Equity Fund. Performance figures and investment
results for the period prior to January 1, 1995 have been calculated using
the Separate Account's expense structure, which generally was higher than the
expense structure of the International Equity Fund. The Separate Account was
not registered under the Investment Company Act of 1940 ("1940 Act") and
therefore was not subject to certain investment restrictions imposed under
the 1940 Act. If the Separate Account had been registered under the 1940 Act,
the Separate Account's performance and investment results may have been
adversely affected.
++ Adjusted for liabilities.
54
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
COMMON STOCKS (84.1%)+
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
AUSTRALIA (1.6%)
Amcor, Ltd.
(forest products & paper)............................... 8,366 $ 36,794
Boral, Ltd. (building materials & components)............ 12,000 30,337
Brambles Industries, Ltd.
(business & public services)............................ 2,000 39,680
Broken Hill Proprietary Co., Ltd. (energy sources)....... 11,979 111,223
Coles Myer, Ltd.
(merchandising)......................................... 9,436 45,312
CSR, Ltd. (multi-industry)............................... 11,200 37,947
Foster's Brewing Group, Ltd. (beverages & tobacco)....... 19,327 36,771
National Australia Bank, Ltd. (banking).................. 11,605 162,041
News Corp., Ltd.
(broadcasting & publishing)............................. 11,172 61,656
Pacific Dunlop, Ltd.
(multi-industry)........................................ 10,430 22,086
Santos, Ltd. (energy sources)............................ 6,100 25,119
Telstra Corp., Ltd. (telecommunications) (a)............. 522,000 1,101,981
Westpac Banking Corp., Ltd. (banking).................... 14,470 92,547
WMC, Ltd. (metals-nonferrous)............................ 8,125 28,323
-----------
1,831,817
-----------
AUSTRIA (1.6%)
Austrian Airlines Oesterreichische Luftverkehrs AG
(transportation-airlines) (a)........................... 2,850 60,601
Bank Austria AG (banking)................................ 4,750 240,300
Creditanstalt-Bankverein Stamm AG (banking).............. 2,750 176,075
EA-Generali AG (insurance)............................... 700 183,647
Flughafen Wien AG
(transportation-airlines)............................... 1,750 69,442
Oesterreichische Brau-Beteiligungs AG (beverages &
tobacco)................................................ 1,150 57,360
OMV AG (energy sources).................................. 2,350 325,077
Verbundgesellschaft-Oesterreichische
Elektrizitatswirtschafts AG Class A (utilities-
electrical & gas)....................................... 2,800 296,580
Voest-Alpine Technologie AG (machinery & engineering).... 1,250 189,513
Wienerberger Baustoffindustrie AG (building materials &
components)............................................. 1,050 201,271
-----------
1,799,866
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
BELGIUM (2.9%)
Electrabel, S.A.
(utilities-electrical & gas)............................ 2,470 $ 571,343
Fortis AG (insurance).................................... 3,650 761,537
Generale de Banque, S.A. (banking)....................... 970 422,173
Kredietbank N.V. (banking)............................... 960 402,922
PetroFina, S.A. (energy sources)......................... 1,590 586,872
Reunies Electrobel & Tractebel, S.A. (multi-industry).... 1,100 95,899
Solvay, S.A. Class A (chemicals)......................... 7,040 442,739
-----------
3,283,485
-----------
FRANCE (8.1%)
Alcatel Alsthom, S.A.
(electrical & electronics).............................. 3,914 497,719
AXA-UAP, S.A. (insurance)................................ 10,134 784,492
Carrefour, S.A. (merchandising).......................... 985 514,123
Compagnie de Saint Gobain, S.A. (miscellaneous-materials
& commodities).......................................... 2,657 377,624
Compagnie de Suez, S.A. (banking)........................ 27 72
Compagnie Financiere de Paribas, S.A. Class A (banking).. 2,444 212,473
Compagnie Generale des Eaux, S.A. (business & public
services)............................................... 5,112 713,792
Elf Aquitaine, S.A.
(energy sources)........................................ 7,095 825,566
Eridania Beghin-Say, S.A.
(food & household products)............................. 1,970 308,147
Groupe Danone, S.A.
(food & household products)............................. 2,527 451,560
Havas, S.A.
(business & public services)............................ 5,050 363,480
Lafarge, S.A. (building materials & components).......... 1,233 80,938
L'Air Liquide, S.A. (chemicals).......................... 4,240 663,924
L'Oreal, S.A.
(health & personal care)................................ 1,348 527,694
LVMH (Moet Hennessy Louis Vuitton), S.A.
(beverages & tobacco)................................... 2,780 461,649
Michelin (CGDE), S.A. Class B
(tire & rubber)......................................... 5,045 254,100
Pernod-Ricard, S.A.
(beverages & tobacco)................................... 2,680 157,703
Pinault-Printemps-Redoute, S.A. (building materials &
components)............................................. 450 240,190
PSA Peugeot, S.A. (automobiles).......................... 1,620 204,389
Rhone-Poulenc, S.A. Class A (chemicals).................. 4,692 210,271
Schneider, S.A.
(machinery & engineering)............................... 3,096 168,184
Societe Generale, S.A. Class A (banking)................. 2,054 279,973
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
55
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
FRANCE (Continued)
Suez Lyonnaise des Eaux, S.A. (multi-industry)........... 1,554 $ 172,039
Thomson CSF, S.A. (aerospace & military technology)...... 9,085 286,480
Total, S.A. Class B
(energy sources)........................................ 4,280 466,001
-----------
9,222,583
-----------
GERMANY (10.1%)
Allianz AG Registered (insurance)........................ 5,100 1,321,770
BASF AG (chemicals)...................................... 16,150 572,601
Bayer AG (chemicals)..................................... 18,100 676,469
Daimler-Benz AG (automobiles)............................ 12,050 845,758
Deutsche Bank AG (banking)............................... 16,350 1,154,838
Deutsche Telekom AG (telecommunications)................. 65,500 1,233,104
Dresdner Bank AG (banking)............................... 14,600 673,955
Karstadt AG (merchandising).............................. 450 153,692
Linde AG
(machinery & engineering)............................... 650 396,931
Mannesmann AG
(machinery & engineering)............................... 1,000 505,549
Muenchener Rueckversicherungs-Gesellschaft AG Registered
(insurance)............................................. 340 128,206
Preussag AG (multi-industry)............................. 200 61,066
RWE AG
(utilities-electrical & gas)............................ 11,600 622,566
Siemens AG
(electrical & electronics).............................. 16,550 980,274
Thyssen AG (metals-steel)................................ 1,150 246,240
VEBA AG
(utilities-electrical & gas)............................ 15,050 1,025,351
Viag AG (multi-industry)................................. 1,000 538,919
Volkswagen AG (automobiles).............................. 700 393,984
-----------
11,531,273
-----------
ITALY (6.3%)
Assicurazioni Generali S.p.A. (insurance)................ 14,015 344,667
Banca Commerciale Italiana S.p.A. (banking).............. 97,000 337,647
Benetton Group S.p.A.
(textile & apparel)..................................... 11,440 187,452
Credito Italiano S.p.A. (banking)........................ 119,000 367,416
Edison S.p.A. (energy sources)........................... 33,000 199,855
Ente Nazionale Idrocarburi S.p.A. (energy sources)....... 246,000 1,396,537
Fiat S.p.A. (automobiles)................................ 55,300 161,037
Fiat S.p.A. di Risp (automobiles)........................ 61,600 101,982
Istituto Bancario San Paolo di Torino S.p.A. (banking)... 3,000 28,696
Istituto Nazionale delle Assicurazioni S.p.A.
(insurance)............................................. 192,000 389,589
Italgas S.p.A.
(utilities-electrical & gas)............................ 43,000 177,667
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
ITALY (Continued)
Mediobanca S.p.A.
(financial services).................................... 37,900 $ 297,960
Montedison S.p.A. (multi-industry)....................... 276,900 249,037
Olivetti Group S.p.A. (data processing & reproduction)
(a)..................................................... 152,000 91,968
Parmalat Finanziaria S.p.A.
(food & household products)............................. 117,000 167,542
Pirelli S.p.A.
(industrial components)................................. 80,000 214,174
Riunione Adriatica di Sicurta S.p.A. (insurance)......... 19,600 192,474
Sirti S.p.A. (telecommunications)........................ 28,000 169,574
Telecom Italia S.p.A. (telecommunications)............... 156,111 998,455
Telecom Italia S.p.A. di Risp (telecommunications)....... 47,093 207,906
Telecom Italia Mobile S.p.A. (telecommunications)........ 170,000 785,636
Telecom Italia Mobile S.p.A. di Risp
(telecommunications).................................... 69,000 196,442
-----------
7,263,713
-----------
JAPAN (14.0%)
Ajinomoto Co., Inc.
(food & household products) (d)......................... 26,000 253,957
Asahi Chemical Industry Co., Ltd. (chemicals) (d)........ 1,000 3,399
Asahi Glass Co., Ltd. (miscellaneous-materials &
components) (d)......................................... 50,000 238,421
Bridgestone Corp.
(industrial components) (d)............................. 14,000 304,717
Canon, Inc. (recreation & other consumer goods) (d)...... 13,000 303,948
Dai Nippon Printing Co., Ltd. (business & public
services) (d)........................................... 8,000 150,744
Daiei, Inc. (merchandising) (d).......................... 37,000 153,666
Denso Corp.
(industrial components) (d)............................. 12,000 216,886
Fanuc, Ltd. (electronic components & instruments) (d).... 9,000 341,942
Fuji Bank, Ltd. (banking) (d)............................ 14,000 56,852
Fuji Photo Film, Ltd. (recreation & other consumer goods)
(d)..................................................... 14,000 538,370
Fujitsu, Ltd. (data processing & reproduction) (d)....... 63,000 678,346
Furukawa Electric Co., Ltd.
(industrial components) (d)............................. 51,000 219,263
Hankyu Corp.
(transportation-road & rail) (d)........................ 21,000 98,683
Hitachi Corp., Ltd.
(electrical & electronics) (d).......................... 84,000 600,821
Honda Motor Co., Ltd. (automobiles) (d).................. 13,000 478,919
Industrial Bank of Japan, Ltd. (banking) (d)............. 32,000 228,884
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
56
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Ito-Yokado Co., Ltd. (merchandising) (d)................. 5,000 $ 255,726
Itochu Corp. (wholesale & international trade) (d)....... 98,000 154,512
Japan Airlines Co.
(transportation-airlines) (a)(d)........................ 47,000 128,324
Japan Energy Corp.
(energy sources) (d).................................... 86,000 81,355
Kajima Corp.
(construction & housing) (d)............................ 26,000 65,789
Kansai Electric Power Co., Inc. (utilities-electrical &
gas) (d)................................................ 26,200 445,324
Kao Corp.
(food & household products) (d)......................... 6,000 86,754
Kawasaki Steel Corp.
(metals-steel) (d)...................................... 45,000 61,605
Kirin Brewery Co., Ltd.
(beverages & tobacco) (d)............................... 37,000 270,339
Komatsu, Ltd.
(machinery & engineering) (d)........................... 48,000 241,805
Kubota Corp.
(machinery & engineering) (d)........................... 10,000 26,457
Marubeni Corp. (wholesale & international trade) (d)..... 96,000 169,079
Marui Co., Ltd.
(merchandising) (d)..................................... 14,000 218,578
Matsushita Electric Industrial Co., Ltd. (appliances &
household durables) (d)................................. 22,000 323,176
Mitsubishi Chemical Corp. (chemicals) (d)................ 19,471 28,003
Mitsubishi Corp.
(multi-industry) (d).................................... 33,000 261,417
Mitsubishi Electric Corp.
(electrical & electronics) (d).......................... 104,000 267,155
Mitsubishi Estate Co., Ltd. (construction & housing) (d). 22,000 240,267
Mitsubishi Heavy Industries, Ltd. (machinery &
engineering) (d)........................................ 29,000 121,333
Mitsubishi Trust & Banking Corp. (financial services).... 17,000 171,279
Mitsui Engineering & Shipbuilding Co., Ltd.
(machinery & engineering) (a)........................... 56,000 35,748
Mitsui Fudosan Co., Ltd. (construction & housing)........ 21,000 203,504
Mitsui Marine & Fire Insurance Co., Ltd. (insurance)..... 2,000 10,244
Mitsui Trust & Banking Co., Ltd. (financial services).... 28,000 54,483
Mitsukoshi, Ltd. (merchandising)......................... 26,000 69,388
NEC Corp.
(electrical & electronics).............................. 40,000 427,620
Nippon Express Co., Ltd. (transportation-road & rail).... 15,000 74,987
Nippon Oil Co., Ltd.
(energy sources)........................................ 56,000 145,145
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Nippon Paper Industries Co.
(forest products & paper)............................... 13,000 $ 51,191
Nippon Steel Corp. (metals-steel)........................ 75,000 111,327
Nippon Yusen Kabushiki Kaisha (transportation-shipping).. 1,000 2,753
Nissan Motor Co., Ltd. (automobiles)..................... 60,000 249,188
NKK Corp. (metals-steel)................................. 106,000 84,786
Nomura Securities Co., Ltd. (financial services)......... 31,000 414,853
Obayashi Corp.
(construction & housing)................................ 14,000 47,807
Oji Paper Co., Ltd.
(forest products & paper)............................... 1,000 3,992
Osaka Gas Co., Ltd.
(utilities-electrical & gas)............................ 46,000 105,428
Sakura Bank, Ltd. (banking).............................. 12,000 34,425
Sankyo Co., Ltd.
(health & personal care)................................ 12,000 272,261
Sanyo Electric Co., Ltd. (appliances & household
durables)............................................... 55,000 143,822
Sekisui Chemical Co., Ltd. (chemicals)................... 6,000 30,595
Sekisui House, Ltd.
(construction & housing)................................ 1,000 6,453
Sharp Corp. (appliances & household durables)............ 23,000 158,850
Shimizu Corp.
(construction & housing)................................ 53,000 123,102
Sony Corp. (appliances & household durables)............. 5,200 463,921
Sumitomo Bank, Ltd. (banking)............................ 40,000 458,384
Sumitomo Chemical Co., Ltd. (chemicals).................. 8,000 18,458
Sumitomo Electric Industries (industrial components)..... 1,000 13,690
Sumitomo Marine & Fire Insurance Co. (insurance)......... 2,000 10,614
Sumitomo Metal Industries, Ltd. (metals-steel)........... 5,000 6,422
Sumitomo Metal Mining Co. (metals-nonferrous)............ 1,000 3,307
Takeda Chemical Industries, Ltd. (health & personal
care)................................................... 6,000 171,663
Teijin, Ltd. (chemicals)................................. 4,000 8,399
Tobu Railway Co., Ltd. (transportation-road & rail)...... 48,000 150,621
Tohoku Electric Power Co., Inc.
(utilities-electrical & gas)............................ 9,000 137,054
Tokai Bank, Ltd. (banking)............................... 52,000 243,159
Tokio Marine & Fire Insurance Co. (insurance)............ 1,000 11,383
Tokyo Dome Corp.
(leisure & tourism)..................................... 9,000 60,082
Tokyo Electric Power Co., Inc. (utilities-electrical &
gas).................................................... 26,300 481,410
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
57
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
JAPAN (Continued)
Tokyo Gas Co., Ltd.
(utilities-electrical & gas)............................ 151,000 $ 343,757
Tokyu Corp.
(transportation-road & rail)............................ 27,000 104,659
Toppan Printing Co., Ltd.
(business & public services)............................ 10,000 130,747
Tostem Corp. (building materials & components)........... 3,000 32,302
Toto, Ltd. (building materials & components)............. 1,000 6,414
Toyoda Automatic Loom Works, Ltd. (machinery &
engineering)............................................ 5,000 92,292
Toyota Motor Corp. (automobiles)......................... 50,000 1,438,217
Yamanouchi Pharmaceutical Co., Ltd. (health & personal
care)................................................... 15,000 323,022
-----------
16,058,024
-----------
NETHERLANDS (3.2%)
Elsevier N.V.
(broadcasting & publishing)............................. 10,900 176,359
ING Groep N.V. (insurance)............................... 13,805 581,557
Koninklijke PTT Nederland N.V. (forest products & paper). 8,686 362,483
Philips Electronics N.V. (appliances & household
durables)............................................... 4,400 263,927
Royal Dutch Petroleum Co.
(energy sources)........................................ 28,200 1,548,254
Unilever CVA N.V.
(food & household products)............................. 8,800 542,614
Wolters Kluwer CVA N.V. (broadcasting & publishing)...... 1,310 169,241
-----------
3,644,435
-----------
NEW ZEALAND (1.6%)
Brierley Investments Ltd.
(multi-industry)........................................ 354,600 253,257
Carter Holt Harvey Ltd.
(forest products & paper)............................... 215,900 333,466
Fletcher Challenge Building (building materials &
components)............................................. 45,100 92,180
Fletcher Challenge Energy
(energy sources)........................................ 45,700 160,011
Fletcher Challenge Forest
(forest products & paper)............................... 7,440 6,178
Fletcher Challenge Paper
(forest products & paper)............................... 95,200 124,376
Telecom Corp. of New Zealand Ltd. (telecommunications)... 173,100 839,269
-----------
1,808,737
-----------
NORWAY (1.2%)
Bergesen d.y. ASA Class A (transportation-shipping)...... 6,200 146,334
Bergesen d.y. ASA Class B (transportation-shipping)...... 3,900 90,991
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
NORWAY (Continued)
Dyno Industrier ASA (chemicals).......................... 3,800 $ 73,194
Hafslund ASA Class A
(energy sources)........................................ 6,600 40,286
Hafslund ASA Class B
(energy sources)........................................ 4,900 23,396
Kvaerner ASA Class B
(machinery & engineering)............................... 1,500 69,789
Norsk Hydro ASA (energy sources)......................... 10,800 526,655
Norske Skogindustrier ASA Class A (forest products &
paper).................................................. 2,700 78,376
Nycomed Amersham PLC
(health & personal care) (a)............................ 1,951 73,306
Nycomed Amersham PLC Class B
(health & personal care) (a)............................ 1,496 54,384
Orkla ASA Class A
(multi-industry)........................................ 2,600 223,950
-----------
1,400,661
-----------
PORTUGAL (1.3%)
Banco Comercial Portugues, S.A. Registered (banking)..... 10,200 208,818
Banco Espirito Santo e Comercial de Lisboa, S.A.
Registered (banking).................................... 6,100 181,715
Electricidade de Portugal, S.A. (utilities-electrical &
gas).................................................... 23,500 445,441
Jeronimo Martins & Filho SGPS, S.A. (food & household
products)............................................... 4,000 127,055
Portugal Telecom, S.A. Registered (telecommunications)... 11,600 538,809
-----------
1,501,838
-----------
SPAIN (5.3%)
Acerinox, S.A. (metals-steel)............................ 924 136,828
Autopistas Concesionares Espanola, S.A. (business &
public services)........................................ 11,893 159,571
Banco de Bilbao Vizcaya, S.A. Registered (banking)....... 26,810 867,189
Banco de Central Hispanoamericano, S.A. (banking)........ 13,460 327,634
Banco de Santander, S.A. (banking)....................... 19,030 635,516
Corporacion Bancaria de Espana, S.A. (banking)........... 5,020 305,319
Corporacion Mapfre, S.A. (insurance)..................... 3,780 100,194
Endesa, S.A.
(utilities-electrical & gas)............................ 41,190 731,020
Fomento de Construcciones y Contratas, S.A.
(construction & housing)................................ 8,000 304,430
Gas Natural SDG, S.A.
(utilities-electrical & gas)............................ 7,320 379,410
Iberdrola, S.A.
(utilities-electrical & gas)............................ 36,370 478,440
</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>
SPAIN (Continued)
Repsol, S.A. (energy sources)............................ 13,550 $ 577,860
Telefonica de Espana, S.A. (telecommunications).......... 36,110 1,030,592
-----------
6,034,003
-----------
SWITZERLAND (9.1%)
Credit Suisse Group Registered (banking)................. 5,200 805,731
Nestle S.A. Registered (food & household products)....... 1,300 1,951,046
Novartis S.A. Registered (health & personal care)........ 1,500 2,437,351
Roche Holdings AG Genusscheine (health & personal care).. 200 1,988,960
Schweizerische Bankverein Registered (banking) (a)....... 2,400 747,043
Schweizerische Rueckversicherungs Gesellschaft Registered
(insurance)............................................. 400 749,237
UBS-Union Bank of Switzerland Bearer (banking)........... 700 1,013,609
Zurich Versicherungs Gesellschaft Registered (insurance). 1,600 763,497
-----------
10,456,474
-----------
UNITED KINGDOM (17.8%)
Abbey National PLC (banking) (d)......................... 20,208 348,796
Barclays PLC (banking) (d)............................... 33,801 898,203
Bass PLC
(beverages & tobacco) (d)............................... 30,278 466,311
B.A.T Industries PLC
(beverages & tobacco) (d)............................... 37,057 338,099
BG PLC (energy sources) (d).............................. 120,167 541,761
BG PLC Class B (energy sources).......................... 35,940 18,037
BOC Group PLC (chemicals) (d)............................ 27,167 449,912
Boots Co. PLC
(merchandising) (d)..................................... 39,324 571,335
British Airways PLC (transportation-airlines) (d)........ 39,694 389,590
British Petroleum Co. PLC
(energy sources) (d).................................... 118,530 1,561,212
British Telecommunications PLC (telecommunications) (d).. 142,236 1,122,786
BTR PLC (multi-industry) (d)............................. 90,384 277,359
Cable & Wireless PLC (telecommunications) (d)............ 41,978 369,183
Centrica PLC
(energy sources) (d).................................... 52,514 76,038
Commercial Union PLC
(insurance) (d)......................................... 38,124 563,309
Diageo PLC
(beverages & tobacco) (d)............................... 76,116 699,474
EMI Group PLC (recreation & other consumer goods) (d).... 15,190 131,029
Energy Group PLC
(energy sources) (d).................................... 17,420 193,331
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
General Electric Co. PLC (electrical & electronics) (d).. 100,912 $ 662,503
GKN PLC
(machinery & engineering) (d)........................... 16,565 339,884
Glaxo Wellcome PLC (health & personal care) (d).......... 68,122 1,611,827
Granada Group PLC (leisure & tourism) (d)................ 20,166 310,908
Great Universal Stores PLC
(The) (merchandising) (d)............................... 8,956 110,522
Hanson PLC (multi-industry) (d).......................... 21,775 97,633
HSBC Holdings PLC (HK par) (financial services) (d)(h)... 14,700 364,263
HSBC Holdings PLC ((Pounds) par) (financial services)
(d)(h).................................................. 14,052 363,234
Imperial Chemical Industries PLC (chemicals) (d)......... 24,720 382,339
Imperial Tobacco Group PLC (beverages & tobacco) (d)..... 17,420 110,066
Kingfisher PLC
(merchandising) (d)..................................... 21,778 303,869
Lloyds TSB Group PLC
(banking) (d)........................................... 87,168 1,127,332
Marks & Spencer PLC (merchandising) (d).................. 82,288 811,028
MEPC PLC (real estate) (d)............................... 34,944 292,947
National Power PLC (utilities-electrical & gas) (d)...... 28,450 282,041
Peninsular & Oriental Steam Navigation Co. Deferred
Stock (The)
(transportation-shipping) (d)........................... 22,626 258,555
Prudential Corp. PLC
(insurance) (d)......................................... 42,229 490,902
Rank Group PLC (leisure & tourism) (d)................... 27,627 158,533
Reed International PLC (broadcasting & publishing) (d)... 47,962 467,582
Reuters Holdings PLC (broadcasting & publishing) (d)..... 31,560 347,145
Rio Tinto PLC Registered
(metals-nonferrous) (d)................................. 34,448 399,883
RMC Group PLC (building materials & components) (d)...... 14,163 199,947
Sainsbury (J.) PLC
(merchandising) (d)..................................... 56,459 473,314
Scottish Power PLC (utilities-electrical & gas) (d)...... 47,860 422,488
Thorn PLC (appliances & household durables) (d).......... 6,529 16,866
Thorn PLC Class B (appliances & household durables)
(a)(d).................................................. 7,618 2,382
Unilever PLC (food & household products) (d)............. 57,444 492,914
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
59
<PAGE>
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Vodafone Group PLC
(multi-industry) (d).................................... 56,202 $ 410,126
-----------
20,326,798
-----------
Total Common Stocks
(Cost $89,152,338)...................................... 96,163,707
-----------
PREFERRED STOCK (0.1%)
AUSTRIA (0.1%)
Creditanstalt-Bankverein Vorzug AG AS 12.00
(banking) (e)(h) ....................................... 1,750 97,938
-----------
Total Preferred Stock
(Cost $102,614)......................................... 97,938
-----------
WARRANTS (0.0%) (b)
FRANCE (0.0%) (b)
Compagnie Generale des Eaux, S.A.
Call Warrants
Strike price FF 900
Expire 5/2/01
(business & public
services) (a)(h)........................................ 5,112 3,475
-----------
Total Warrants........................................... 3,475
-----------
</TABLE>
SHORT-TERM INVESTMENTS (12.5%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (12.5%)
UNITED STATES (12.5%)
Ford Motor Credit Co.
6.25%, due 1/2/98
(financial services).............................. $5,000,000 $ 4,999,130
Marsh & McLennan Cos.
6.05%, due 1/5/98
(insurance) (c)................................... 5,000,000 4,996,640
Merrill Lynch & Co. Inc.
6.00%, due 1/2/98
(financial services).............................. 4,400,000 4,399,266
------------
Total Short-Term Investments (Cost $14,395,036).... 14,395,036
------------
Total Investments
(Cost $103,649,988) (f)........................... 96.7% 110,660,156 (g)
Cash and Other Assets,
Less Liabilities.................................. 3.3 3,721,120
---------- ------------
Net Assets......................................... 100.0% $114,381,276
========== ============
</TABLE>
- --------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) May be sold to institutional investors only.
(d) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(e) Dividend rate shown represents the most recent annual payment.
(f) The cost for Federal income tax purposes is $105,109,968.
(g) At December 31, 1997 net unrealized appreciation for securities was
$5,550,188, 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 $17,521,220 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $11,971,032.
(h) AS--Austrian Schilling
FF--French Franc
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.
60
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
The table below sets forth the diversification of International Equity Fund
investments by industry.
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
VALUE PERCENT +
----------------------
<S> <C> <C>
Aerospace & Military Technology.......................... $ 286,480 0.2%
Appliances & Household Durables.......................... 1,503,973 1.3
Automobiles.............................................. 3,873,475 3.4
Banking.................................................. 13,137,674 11.5
Beverages & Tobacco...................................... 2,597,770 2.3
Broadcasting & Publishing................................ 1,221,983 1.1
Building Materials & Components.......................... 883,579 0.8
Business & Public Services............................... 1,561,490 1.4
Chemicals................................................ 3,560,304 3.1
Construction & Housing................................... 991,352 0.9
Data Processing & Reproduction........................... 770,314 0.7
Electrical & Electronics................................. 3,436,091 3.0
Electronic Components & Instruments...................... 341,942 0.3
Energy Sources........................................... 9,429,592 8.2
Financial Services....................................... 11,064,466 9.7
Food & Household Products................................ 4,381,588 3.8
Forest Products & Paper.................................. 996,856 0.9
Health & Personal Care................................... 7,460,470 6.5
Industrial Components.................................... 968,731 0.8
Insurance................................................ 12,383,961 10.8
Leisure & Tourism........................................ 529,523 0.4
Machinery & Engineering.................................. 2,187,486 1.9
Merchandising............................................ 3,680,553 3.2
Metals-Nonferrous........................................ 431,513 0.4
Metals-Steel............................................. 647,207 0.6
Miscellaneous-Materials & Commodities.................... 377,624 0.3
Miscellaneous-Materials & Components..................... 238,421 0.2
Multi-Industry........................................... 2,700,736 2.4
Real Estate.............................................. 292,947 0.2
Recreation & Other Consumer Goods........................ 842,318 0.7
Telecommunications....................................... 8,593,735 7.5
Textile & Apparel........................................ 187,452 0.2
Tire & Rubber............................................ 254,100 0.2
Transportation-Airlines.................................. 647,957 0.6
Transportation-Road & Rail............................... 428,950 0.4
Transportation-Shipping.................................. 498,633 0.4
Utilities-Electrical & Gas............................... 6,945,319 6.1
Wholesale & International Trade.......................... 323,591 0.3
------------ -----
110,660,156 96.7
Cash and Other Assets,
Less Liabilities........................................ 3,721,120 3.3
------------ -----
Net Assets............................................... $114,381,276 100.0%
============ =====
</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.
61
<PAGE>
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $103,649,988)................................. $110,660,156
Cash denominated in foreign currencies (identified cost
$159,630)...................................................... 164,479
Cash............................................................ 41,484
Receivables:
Investment securities sold...................................... 3,054,275
Dividends and interest.......................................... 345,047
Fund shares sold................................................ 57,489
Unrealized appreciation on forward foreign currency contracts... 933,158
Unamortized organization expense................................ 4,532
------------
Total assets.................................................. 115,260,620
------------
LIABILITIES:
Payables:
MainStay Management............................................. 72,121
Investment securities purchased................................. 50,368
Custodian....................................................... 17,500
Transfer agent.................................................. 4,093
Accrued expenses................................................ 40,460
Unrealized depreciation on forward foreign currency contracts... 694,802
------------
Total liabilities............................................. 879,344
------------
Net assets...................................................... $114,381,276
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share)
1 billion shares authorized
Institutional Class............................................. $ 11,454
Institutional Service Class..................................... 62
Additional paid-in capital...................................... 113,025,847
Accumulated distribution in excess of net investment income..... (236,887)
Accumulated distribution in excess of net realized gain on
investments.................................................... (5,649,713)
Net unrealized appreciation on investments...................... 7,010,168
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies and forward foreign currency
contracts...................................................... 220,345
------------
Net assets...................................................... $114,381,276
============
Institutional Class
Net assets applicable to outstanding shares..................... $113,774,285
============
Shares of capital stock outstanding............................. 11,454,097
============
Net asset value per share outstanding........................... $ 9.93
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 606,991
============
Shares of capital stock outstanding............................. 61,648
============
Net asset value per share outstanding........................... $ 9.85
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 2,354,618
Interest......................................................... 523,035
-----------
Total income................................................... 2,877,653
-----------
Expenses:
Administration................................................... 580,451
Advisory......................................................... 406,316
Management....................................................... 108,499
Custodian........................................................ 71,200
Professional..................................................... 50,434
Registration..................................................... 31,519
Transfer agent................................................... 25,408
Shareholder communication........................................ 20,388
Directors........................................................ 4,235
Amortization of organization expense............................. 2,266
Service.......................................................... 1,757
Miscellaneous.................................................... 37,313
-----------
Total expenses before
reimbursement................................................. 1,339,786
Expense reimbursement from Administrator or Manager.............. (49,481)
-----------
Net expenses................................................... 1,290,305
-----------
Net investment income............................................ 1,587,348
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions............................................ (1,080,939)
Foreign currency transactions.................................... 10,328,021
-----------
Net realized gain on investments and foreign currency
transactions.................................................... 9,247,082
-----------
Net change in unrealized appreciation on investments:
Security transactions............................................ 2,187,439
Translation of assets and liabilities in foreign currencies and
forward foreign currency contracts.............................. (4,839,110)
-----------
Net unrealized loss on investments and foreign currencies........ (2,651,671)
-----------
Net realized and unrealized gain on investments and foreign
currency transactions........................................... 6,595,411
-----------
Net increase in net assets resulting from operations............. $ 8,182,759
===========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $354,811.
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.
INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 1,587,348 $ 937,888
Net realized gain (loss) on investments........... (1,080,939) 460,599
Net realized gain on foreign currency
transactions..................................... 10,328,021 4,894,535
Net change in unrealized appreciation on
investments...................................... 2,187,439 1,369,142
Net change in unrealized appreciation on
translation of assets and liabilities in foreign
currencies and forward foreign currency
contracts........................................ (4,839,110) 4,942,018
------------ ------------
Net increase in net assets resulting from
operations....................................... 8,182,759 12,604,182
------------ ------------
Dividends and distributions to shareholders:
From net investment income and net realized gain
on foreign currency transactions:
Institutional Class.............................. (9,819,650) (9,112,198)
Institutional Service Class...................... (50,906) (51,313)
From net realized gain on investments:
Institutional Class.............................. (2,944,160) (1,291,175)
Institutional Service Class...................... (15,790) (7,470)
------------ ------------
Total dividends and distributions to
shareholders................................... (12,830,506) (10,462,156)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 11,849,479 19,867,037
Institutional Service Class...................... 163,090 502,618
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 12,104,179 10,402,553
Institutional Service Class...................... 66,689 58,778
------------ ------------
24,183,437 30,830,986
Cost of shares redeemed:
Institutional Class.............................. (31,841,602) (2,847,352)
Institutional Service Class...................... (318,224) (47,939)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... (7,976,389) 27,935,695
------------ ------------
Net increase (decrease) in net assets............ (12,624,136) 30,077,721
NET ASSETS:
Beginning of year................................. 127,005,412 96,927,691
------------ ------------
End of year....................................... $114,381,276 $127,005,412
============ ============
Accumulated distribution in excess of net
investment income................................ $ (236,887) $ (2,430,733)
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
63
<PAGE>
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31, JANUARY 1, 1995(a)
------------------------------------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
--------------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 10.63 $ 10.58 $ 10.35 $ 10.33 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- --------
Net investment income... 1.14 1.11 0.64 0.62 0.36 0.35
Net realized and
unrealized gain on
investments............ (0.10) (0.10) 0.09 0.09 0.17 0.16
Net realized and
unrealized gain on
foreign currency
transactions........... (0.49) (0.52) 0.51 0.48 0.18 0.17
-------- -------- -------- -------- -------- --------
Total from investment
operations............. 0.55 0.49 1.24 1.19 0.71 0.68
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net investment
income and net realized
gain on foreign
currency transactions.. (0.96) (0.93) (0.84) (0.82) (0.10) (0.09)
From net realized gain
on investments......... (0.29) (0.29) (0.12) (0.12) (0.26) (0.26)
In excess of net
investment income...... -- -- -- -- (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions.......... (1.25) (1.22) (0.96) (0.94) (0.36) (0.35)
-------- -------- -------- -------- -------- --------
Net asset value at end
of year................ $ 9.93 $ 9.85 $ 10.63 $ 10.58 $ 10.35 $ 10.33
======== ======== ======== ======== ======== ========
Total investment return
....................... 5.44% 4.88% 12.09% 11.59% 7.17% 6.86%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 1.23% 0.98% 0.83% 0.58% 1.05% 0.80%
Net expenses........... 1.00% 1.25% 1.00% 1.25% 1.00% 1.25%
Expenses (before
reimbursement)........ 1.04% 1.29% 1.07% 1.32% 1.07% 1.32%
Portfolio turnover
rate................... 37% 37% 23% 23% 26% 26%
Average commission rate
paid................... $ 0.0302 $ 0.0302 $ 0.0349 $ 0.0349 (c) (c)
Net assets at end of
year (in 000's)........ $113,774 $ 607 $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.
64
<PAGE>
MULTI-ASSET FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Relatively low inflation and moderate economic growth in the United States
helped the S&P 500* return 33.36% in 1997, which was its third consecutive
year with returns over 20%.
. Strength in Europe, weakness throughout Asia, and a strong U.S. dollar
combined to give the Morgan Stanley Capital International (MSCI) Europe,
Australia, Far East (EAFE) Index+ a meager 1.78% return in U.S. dollar
terms.
. After the Federal Reserve Board moved to raise interest rates slightly at the
end of March, moderate growth and low inflation contributed to a decline in
interest rates and a rally in U.S. bonds throughout the rest of the year,
with the Salomon Brothers Broad Investment Grade (BIG) Index++ returning
9.64% for the year.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year returns of 26.69% and 26.30% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Both share classes substantially outperformed the average Lipper(S)
flexible portfolio fund, which returned 18.69% for the year ended 12/31/97.
. The Fund benefited from overweighting in U.S. stocks and underweighting in
U.S. bonds throughout the year.
. Equity investments in Germany and France helped overall performance, and the
Fund benefited from the decision to underweight Japanese stocks.
Despite increasing volatility as the year progressed, the U.S. stock market as
measured by the S&P 500 returned 33.36% in 1997, its third consecutive year with
returns over 20%. Fueled by low inflation, moderate economic growth, and
widespread merger and acquisition activity, the market continued to advance. In
the second half of the year, major setbacks in Asian currencies, economies, and
financial markets triggered large daily swings, including a 554 point drop in
the Dow Jones Industrial Average+++ on October 27, 1997, and the Dow's largest
single-day rise in its history in the following trading session.
Foreign markets were split, with European stock markets generally providing
positive returns and Asian markets negative ones. Europe continued its
restructuring and fiscal reforms as it moved toward European Monetary Union.
Asian
- --------------------------------------------------------------------------------
Volatility Fluctuations in the price of securities or markets, up or down, over
a short period of time.
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 plant and equipment, engaging in
mergers and acquisitions, or taking other action to increase output or lower
costs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* "Standard & Poor's 500 Composite Stock Price Index" and "S&P 500" are
registered trademarks of Standard & Poor's. The S&P 500 is an unmanaged
index and is considered to be generally representative of the U.S. stock
market. Results assume the reinvestment of all income and capital gain
distributions.
+ The Morgan Stanley Capital International Europe, Australia, Far East
(Free) Index--The EAFE Index--is an unmanaged index generally considered
to be representative of the international stock market.
++ The Salomon Brothers Broad Investment Grade (BIG) Bond Index is an
unmanaged index that is considered representative of the U.S. bond market.
(S) 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 Dow Jones Industrial Average is a price-weighted average of 30
actively traded blue chip stocks, primarily industrials, but also
including financial, leisure, and other service-oriented firms.
65
<PAGE>
================================================================================
markets were hard hit, not only by currency problems and sliding stock prices,
but also by the collapse of some major banks and securities firms. These
difficulties prompted a global flight to quality and as of year end the impact
was still being felt in stock and bond markets around the world. Asian
difficulties were compounded by a strong dollar, which reduced unhedged returns
in most foreign nations when translated into U.S. dollars. Britain and Canada
were notable exceptions. Overall, the MSCI EAFE Index returned 1.78% for the
year.
In the United States, government and corporate bonds performed well ahead of
their averages for the previous 71 years,# with the Salomon Brothers (BIG)
Index returning 9.64% for the year. Despite these outstanding results, however,
U.S. bonds provided less than one-third of the total return of U.S. stocks in
1997.
Given this context, how did the MainStay Institutional Multi-Asset Fund do in
1997?
The MainStay Institutional Multi-Asset Fund returned 26.69% and 26.30% for
Institutional Class shares and Service Class shares, respectively, for the year
ended 12/31/97. Both share classes substantially outperformed the average Lipper
flexible portfolio fund, which returned 18.69% for the year. Institutional Class
shares ranked in the top 10% and Service Class shares in the top 11% of all peer
funds for the year. Both share classes performed in the top 20% of all peer
funds for the 3-year period ended 12/31/97 and Institutional Class shares ranked
in the top 20% for the 5-year period ended 12/31/97.
What factors contributed most to the Fund's outperformance?
The asset allocation within the Fund. Our multifactor asset allocation model
called for overweighting U.S. stocks and underweighting U.S. bonds throughout
the year. Although domestic bonds outperformed their historical averages for the
previous 71 years, their overall returns were less than a third the returns of
domestic stocks. So our allocation strongly influenced performance positively.
We also emphasized the Fund's exposure to German and French equities through
investments in stock index futures contracts. This proved beneficial,
particularly since our positions were substantially hedged, which helped to
minimize the negative impact of a strong U.S. dollar on investment returns. Our
decision to avoid Japanese stocks also helped the Fund's performance, since
Japanese equities declined 20.89% in local currency terms for the year.
How did you invest the Fund's equity component?
The Fund's domestic equities seek to track the makeup and performance of the S&P
500. Throughout the year, we allocated from 30% to 77% of the Fund to domestic
equities, and the S&P 500 returned 33.36% for the year.
Although the Fund was not directly invested in foreign equities, it obtained
exposure to several foreign stock markets including Germany, France, Australia,
and the U.K. by purchasing stock index futures contracts in the respective
market indexes of these countries. In 1997, the Fund allocated between 0% and 5%
of its assets in
- --------------------------------------------------------------------------------
European Monetary Union A proposed system that would allow participating
European countries to operate with a common currency or monetary unit.
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
Hedging/currency management 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/Overweighting 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 greater than the country's total equities
relative to the international equity markets as a whole.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
# Source: Ibbotson Associates, Chicago. Used with permission. All rights
reserved.
66
<PAGE>
================================================================================
stock index futures contracts in the German Stock Index (DAX), a total rate of
return index of 30 selected German blue chip stocks traded on the Frankfurt
Stock Exchange. The DAX rose about 49% in local terms in 1997. The CAC-40 Index,
a narrow based capitalization-weighted index of 40 companies listed on the Paris
stock exchange returned about 33% in local terms in 1997. Approximately 3% of
the Fund's assets were invested in stock index futures contracts of the CAC-40.
What allocations did the Fund have in other foreign stock index futures
contracts?
In May, we invested 3% of the Fund's portfolio in stock index futures contracts
of the Australian All Ordinaries Index. This Index returned 13% in local terms
for the year. In the same month, we also invested 5% of the Fund's assets in
stock index futures contracts of the FTSE-100, which is generally representative
of the stock market in the U.K. The FTSE-100 returned about 28% in local terms
in 1997.**
Why did the Fund's foreign equity investments do so well?
European stocks were benefiting from corporate restructuring and fiscal reforms
aimed at European Monetary Union. Low inflation and low interest rates were also
helping core European economies. Australia has generally been improving its
economic fundamentals, but suffered in the second half of the year as Asian
turmoil grew and commodity prices declined.
Were the Fund's equity holdings affected by the difficulties in Asian markets?
All markets were affected. Perhaps a more appropriate question would be, "How
much?" Since the Fund did not have major investments in Southeast Asia, but
concentrated primarily on large-capitalization U.S. equities, the Fund may have
benefited from the general flight to quality that occurred after the Asian
turmoil began. Many of the larger-capitalization companies in the S&P 500--
considered by many to be "safe haven stocks"--were among the best performing
stocks in 1997. The flight to quality also benefited high-quality domestic
bonds.
How did you invest the Fund's bond component?
The bond component of the Fund seeks to track the performance of the Salomon
Brothers Broad Investment Grade Bond Index. As a result, this portion of the
Fund had a duration of approximately 4.7 years for all of 1997, and the Fund's
portfolio had an average weighted rating which was better than AAA++ at year
end, since more than 50% of the Fund's bond investments were invested in
government bonds. Although only about 10% of the Fund's portfolio was invested
in bonds at year end 1997, the Salomon Brothers BIG Index returned 9.64% for the
year, making a positive contribution to performance, though certainly less than
the Fund's stock investments.
How was the Fund affected by the strength of the U.S. dollar?
Very little. By hedging most of its exposure to foreign currencies, the Fund
avoided the losses many other funds may have experienced as the U.S. dollar
strengthened relative to most major foreign currencies.
What other steps did the Fund take to help protect investors from risk?
Broad diversification by asset class and geographic region helped the Fund avoid
significant risk. Although there were a couple of corrections during the year,
overweighting domestic equities proved beneficial for the Fund and holding high-
quality bonds also contributed positively to performance while helping to reduce
risk.
- --------------------------------------------------------------------------------
Futures contract An agreement to buy or sell a specific amount of a financial
instrument at a particular price on a stipulated future date.
Local currency/U.S. dollar terms Returns expressed in local currency terms
show what an investor using that currency would have earned, without any
adjustment for differences in currency values. Returns expressed in U.S. dollar
terms reflect any differences in the relative value of the local currency and
the U.S. dollar.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
** All of the country-specific indexes mentioned are unmanaged and are
considered to be representative of the stock markets of their respective
countries.
++ Debt rated AAA has the highest rating assigned by Standard & Poor's, and
according to Standard & Poor's has an extremely strong capacity to pay
interest and repay principal.
67
<PAGE>
================================================================================
What will the future hold?
No one can say for sure. At year end, the Asian difficulties had not ended and
their effects were felt in markets around the world. Europe appeared promising
as European Monetary Union approaches, but again, the full effects have yet to
be seen. If Asian difficulties result in lower inflation, it may be beneficial
for bond markets. But multinational companies and those with close ties to Asian
markets may have hurdles ahead. Wherever the markets may move, we will continue
to use our multifactor asset allocation models to invest the Fund's assets and
pursue its investment objective.
James A. Mehling, CFA
Portfolio Manager
- -------------------------------------------------------------------------------
Past performance is no guarantee of future results.
68
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS LIPPER FLEXIBLE PORTFOLIO AVERAGE
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
DATE MULTI-ASSET FUND PORTFOLIO FUND AVERAGE
---- ---------------- ----------------------
<S> <C> <C>
1/2/91 10,000 10,000
1991 11,790 12,542
1992 12,626 13,559
1993 13,736 15,027
1994 13,618 14,710
1995 17,269 18,363
1996 20,061 20,842
12/31/1997 25,415 24,689
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS LIPPER FLEXIBLE PORTFOLIO AVERAGE
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
LIPPER FLEXIBLE
DATE MULTI-ASSET FUND PORTFOLIO FUND AVERAGE
---- ---------------- ----------------------
<S> <C> <C>
1/2/91 10,000 10,000
1991 11,790 12,542
1992 12,626 13,559
1993 13,736 15,027
1994 13,618 14,710
1995 17,254 18,363
1996 19,995 20,842
12/31/1997 25,255 24,689
</TABLE>
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, 1997 as of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Asset Fund Institutional Class 26.69% 26.69% 15.02% 14.24%
Multi-Asset Fund Service Class+ 26.30% 26.30% 14.87% 14.14%
Average Lipper Flexible Portfolio Fund 18.69% 18.69% 13.14% 14.29%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year End Total Return %*
-------- --------------
<S> <C>
1991 17.90
1992 7.09
1993 8.79
1994 (.86)
1995 26.81
1996 16.16
1997 26.69
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS
(% of net assets as of December 31, 1997)
- ----------------------------------------------------------------------------
<S> <C> <C>
1. General Electric Co. 1.90%
2. Coca-Cola Co. (The) 1.31%
3. Microsoft Corp. 1.24%
4. Exxon Corp. 1.20%
5. Merck & Co., Inc. 1.01%
6. Royal Dutch Petroleum Co. 0.92%
7. Intel Corp. 0.91%
8. Philip Morris Cos. Inc. 0.87%
9. Procter & Gamble Co. (The) 0.85%
10. International Business Machines Corp. 0.81%
- ----------------------------------------------------------------------------
<CAPTION>
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- ----------------------------------------------------------------------------
<S> <C> <C>
1. Oil-Integrated International 3.53%
2. Major Regional Banks 3.43%
3. Drugs 2.89%
4. Telephone 2.54%
5. Health Care-Diversified 2.54%
</TABLE>
- ----------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of .25%.
+ 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.
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%.
69
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
LONG-TERM BONDS (10.7%)+
CORPORATE BONDS (2.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
BANKS (0.4%)
First Union Corp.
8.77%, due 11/15/04 (c).............................. $ 1,000,000 $ 1,047,500
Morgan (J.P.) & Co. Inc.
8.50%, due 8/15/03 (c)............................... 500,000 552,500
------------
1,600,000
------------
BROKERAGE (0.1%)
PaineWebber Group, Inc. 7.75%, due 9/1/02 (c)......... 400,000 421,000
------------
CHEMICALS (0.1%)
Rhone-Poulenc S.A.
7.75%, due 1/15/02 (c)............................... 350,000 365,750
------------
CONGLOMERATES (0.2%)
Tenneco Inc.
10.20%, due 3/15/08 (c).............................. 500,000 633,125
------------
CONSUMER FINANCIAL SERVICES (0.1%)
Bear Stearns Cos., Inc. (The) 6.625%, due 1/15/04 (c). 500,000 503,750
------------
FINANCIAL--MISCELLANEOUS (0.4%)
Ford Motor Credit Co.
7.00%, due 9/25/01 (c)............................... 1,600,000 1,644,000
------------
FOOD, BEVERAGES & TOBACCO (0.1%)
Coca-Cola Enterprises Inc. 8.50%, due 2/1/22 (c)...... 500,000 598,750
------------
OIL--INTEGRATED DOMESTIC (0.1%)
Occidental Petroleum Corp. 10.125%, due 11/15/01 (c).. 500,000 564,375
------------
UTILITIES--ELECTRIC (0.5%)
Citizens Utilities Co.
7.45%, due 1/15/04 (c)............................... 1,000,000 1,062,500
Florida Power & Light Co. 6.875%, due 4/1/04 (c)...... 500,000 511,875
Houston Lighting & Power Co. 7.75%, due 3/15/23 (c)... 500,000 523,125
------------
2,097,500
------------
UTILITIES--TELEPHONE (0.1%)
Pacific Bell
7.125%, due 3/15/26 (c).............................. 500,000 526,250
------------
Total Corporate Bonds
(Cost $8,659,031).................................... 8,954,500
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
FOREIGN GOVERNMENT (0.2%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
CANADA (0.2%)
Manitoba (Province of)
9.625%, due 3/15/99 (c) (d)....................... $ 500,000 $ 520,625
Quebec (Province of)
9.375%, due 4/1/99 (c) (d)........................ 500,000 519,375
------------
Total Foreign Government (Cost $1,060,440)......... 1,040,000
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (8.4%)
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD
(MORTGAGE PASS-THROUGH SECURITIES)(1.1%)
6.00%, due 1/14/28 TBA (e) 1,200,000 1,155,376
7.00%, due 3/1/26-
10/1/26 (c)...................................... 953,548 962,189
7.50%, due 7/1/11-9/1/11 (c) 833,527 855,407
7.75%, due 10/1/07 (c)............................ 636,180 654,073
8.00%, due 10/1/11-
11/1/11 (c)...................................... 834,353 861,731
------------
4,488,776
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES)(1.7%)
6.50%, due 11/1/03 (c)............................ 890,442 892,391
7.00%, due 10/1/03-
6/1/26 (c)....................................... 1,827,517 1,846,154
7.50%, due 7/1/11-
10/1/11 (c)...................................... 837,751 859,480
8.00%, due 7/1/09-
11/1/11 (c)...................................... 1,699,054 1,757,459
8.50%, due 6/1/26-
10/1/26 (c)...................................... 678,040 707,915
9.00%, due 6/1/26-9/1/26 (c) 1,257,338 1,335,923
------------
7,399,322
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES)(1.0%)
7.00%, due 7/15/11-
10/15/11 (c)..................................... 938,979 956,585
7.50%, due 3/15/26-
6/15/26 (c)...................................... 909,256 931,704
8.00%, due 8/15/26-
10/15/26 (c)..................................... 959,703 995,093
8.50%, due 11/15/26 (c)........................... 566,150 594,634
9.00%, due 4/15/25-
11/15/26 (c)..................................... 783,689 838,057
------------
4,316,073
------------
RESOLUTION FUNDING CORP. (0.3%)
(zero coupon),
due 10/15/10 (c)................................. 2,600,000 1,222,442
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
70
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
U.S. GOVERNMENT & FEDERAL AGENCIES (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS (1.3%)
6.125%, due 11/15/27 (c)......................... $ 1,500,000 $ 1,541,775
6.25%, due 8/15/23 (c)........................... 1,000,000 1,029,140
8.125%, due 5/15/21 (c).......................... 1,000,000 1,260,000
10.625%, due 8/15/15 (c)......................... 1,000,000 1,502,380
------------
5,333,295
------------
UNITED STATES TREASURY NOTES (3.0%)
5.00%, due 1/31/99 (c)........................... 1,000,000 993,530
5.75%, due 8/15/03 (c)........................... 2,300,000 2,300,552
6.375%, due 1/15/99 (c).......................... 1,000,000 1,007,760
7.00%, due 7/15/06 (c)........................... 2,100,000 2,266,383
7.50%, due 11/15/01-
5/15/02 (c)..................................... 2,000,000 2,126,670
7.875%, due 4/15/98-
11/15/99 (c).................................... 2,000,000 2,045,540
8.25%, due 7/15/98 (c)........................... 1,000,000 1,014,290
11.875%, due 11/15/03 (c)........................ 700,000 910,497
------------
12,665,222
------------
Total U.S. Government & Federal Agencies
(Cost $34,760,196)............................... 35,425,130 (f)
------------
Total Long-Term Bonds
(Cost $44,479,667)............................... 45,419,630
------------
COMMON STOCKS (59.9%)
<CAPTION>
SHARES
------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.0%)
Boeing Co. (The).................................. 33,674 1,647,921
General Dynamics Corp. ........................... 2,173 187,829
Lockheed Martin Corp. ............................ 6,536 643,796
Northrop Grumman Corp. ........................... 2,254 259,210
Raytheon Co. Class B.............................. 11,396 575,498
Rockwell International Corp. ..................... 7,109 371,445
United Technologies Corp. ........................ 7,947 578,641
------------
4,264,340
------------
AIRLINES (0.3%)
AMR Corp. (a)..................................... 3,082 396,037
Delta Air Lines, Inc. ............................ 2,640 314,160
Southwest Airlines Co............................. 7,414 182,570
US Airways Group, Inc. (a)........................ 3,127 195,437
------------
1,088,204
------------
ALUMINUM (0.2%)
Alcan Aluminum Ltd. .............................. 7,626 210,668
Aluminum Co. of America........................... 5,740 403,953
Reynolds Metals Co. .............................. 2,505 150,300
------------
764,921
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
AUTO PARTS & EQUIPMENT (0.2%)
Cooper Tire & Rubber Co. .............................. 2,645 $ 64,472
Echlin Inc. ........................................... 2,045 74,003
Genuine Parts Co. ..................................... 6,024 204,440
Goodyear Tire & Rubber
Co. (The)............................................. 5,227 332,568
------------
675,483
------------
AUTOMOBILES (1.0%)
Chrysler Corp. ........................................ 22,305 784,857
Ford Motor Co. ........................................ 40,342 1,964,151
General Motors Corp. .................................. 23,847 1,445,724
------------
4,194,732
------------
BEVERAGES--ALCOHOLIC (0.3%)
Anheuser-Busch Cos., Inc. ............................. 16,540 727,760
Brown-Forman Corp. Class B............................. 2,370 130,943
Coors (Adolph) Co. Class B............................. 1,327 44,123
Seagram Co. Ltd. (The)................................. 11,963 386,554
------------
1,289,380
------------
BEVERAGES--SOFT DRINKS (1.7%)
Coca-Cola Co. (The).................................... 83,301 5,549,929
PepsiCo, Inc. ......................................... 51,026 1,859,260
------------
7,409,189
------------
BROADCAST/MEDIA (0.6%)
CBS Corp. ............................................. 23,783 700,112
Clear Channel
Communications, Inc. (a).............................. 3,200 254,200
Comcast Corp. Special Class A.......................... 11,652 367,766
Tele-Communications, Inc. Series A TCI Group (a)....... 17,045 476,195
US West Media Group (a)................................ 20,427 589,830
------------
2,388,103
------------
BUILDING MATERIALS (0.1%)
Masco Corp. ........................................... 5,622 286,019
Owens Corning.......................................... 1,782 60,811
Sherwin-Williams Co. (The)............................. 5,761 159,868
------------
506,698
------------
CHEMICALS (1.2%)
Air Products &
Chemicals, Inc. ...................................... 3,643 299,637
Dow Chemical Co. (The)................................. 7,668 778,302
Du Pont (E.I.) De Nemours
& Co. ................................................ 37,940 2,278,771
Eastman Chemical Co. .................................. 2,734 162,844
Goodrich (B.F.) Co. (The).............................. 2,429 100,652
Hercules Inc. ......................................... 3,223 161,351
Monsanto Co. .......................................... 19,808 831,936
Praxair, Inc. ......................................... 5,170 232,650
Rohm & Haas Co. ....................................... 2,016 193,032
Union Carbide Corp. ................................... 4,194 180,080
------------
5,219,255
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
71
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ................................. 3,363 $ 150,494
Engelhard Corp. ...................................... 4,939 85,815
FMC Corp. (a)......................................... 1,312 88,314
PPG Industries, Inc. ................................. 6,069 346,692
------------
671,315
------------
CHEMICALS--SPECIALTY (0.2%)
Grace (W.R.) & Co. ................................... 2,455 197,474
Great Lakes Chemical Corp. ........................... 1,992 89,391
Morton International, Inc. ........................... 4,529 155,684
Nalco Chemical Co. ................................... 2,335 92,378
Sigma-Aldrich Corp. .................................. 3,470 137,933
------------
672,860
------------
COMMUNICATION--EQUIPMENT MANUFACTURERS (1.3%)
Andrew Corp. (a)...................................... 3,059 73,416
Bay Networks, Inc. (a)................................ 7,063 180,548
Cabletron Systems, Inc. (a)........................... 5,168 77,520
Cisco Systems, Inc. (a)............................... 33,786 1,883,569
DSC Communications
Corp. (a)............................................ 3,893 93,432
Lucent Technologies Inc. ............................. 21,563 1,722,345
NextLevel Systems, Inc. (a)........................... 4,897 87,534
Northern Telecom Ltd. ................................ 8,847 787,383
Scientific-Atlanta, Inc. ............................. 2,563 42,930
Tellabs, Inc. (a)..................................... 6,043 319,524
3Com Corp. (a)........................................ 11,569 404,192
------------
5,672,393
------------
COMPUTER--SOFTWARE & SERVICES (2.2%)
Adobe Systems Inc. ................................... 2,429 100,196
Autodesk, Inc. ....................................... 1,649 61,013
Automatic Data
Processing, Inc. .................................... 9,909 608,165
Ceridian Corp. (a).................................... 2,574 117,921
Computer Associates International, Inc. .............. 18,381 971,895
Computer Sciences Corp. (a)........................... 2,644 220,774
Equifax Inc. ......................................... 5,100 180,731
First Data Corp. ..................................... 14,378 420,557
HBO & Co. ............................................ 6,700 321,600
Microsoft Corp. (a)................................... 40,623 5,250,523
Novell, Inc. (a)...................................... 11,646 87,345
Oracle Corp. (a)...................................... 32,935 734,862
Parametric Technology
Corp. (a)............................................ 4,207 199,307
Shared Medical Systems Corp. ......................... 821 54,186
------------
9,329,075
------------
COMPUTER SYSTEMS (2.2%)
Apple Computer, Inc. (a).............................. 4,310 56,569
Compaq Computer Corp. (a)............................. 25,340 1,430,126
Data General Corp. (a)................................ 1,734 30,237
Dell Computer Corp. (a)............................... 11,120 934,080
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
COMPUTER SYSTEMS (Continued)
Digital Equipment Corp. (a)........................... 5,017 $ 185,629
EMC Corp. (a)......................................... 16,550 454,091
Hewlett-Packard Co. .................................. 34,927 2,182,937
International Business
Machines Corp. ...................................... 32,706 3,419,821
Seagate Technology, Inc. (a).......................... 8,290 159,582
Silicon Graphics, Inc. (a)............................ 6,277 78,070
Sun Microsystems, Inc. (a)............................ 12,596 502,266
Unisys Corp. (a)...................................... 5,784 80,253
------------
9,513,661
------------
CONGLOMERATES (0.1%)
Tenneco Inc. ......................................... 5,704 225,308
Textron Inc. ......................................... 5,555 347,188
------------
572,496
------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. ........................................... 1,018 35,948
Crown Cork & Seal Co., Inc. .......................... 4,396 220,350
Owens-Illinois, Inc. (a).............................. 4,700 178,306
------------
434,604
------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ...................................... 1,823 80,326
Stone Container Corp. ................................ 3,249 33,911
Temple-Inland Inc. ................................... 1,871 97,877
------------
212,114
------------
COSMETICS (0.6%)
Alberto-Culver Co. Class B............................ 1,875 60,117
Avon Products, Inc. .................................. 4,469 274,285
Gillette Co. (The).................................... 18,808 1,889,029
International Flavors &
Fragrances Inc. ..................................... 3,639 187,408
------------
2,410,839
------------
DRUGS (2.9%)
Lilly (Eli) & Co. .................................... 37,376 2,602,304
Merck & Co., Inc. .................................... 40,294 4,281,238
Pfizer Inc. .......................................... 43,390 3,235,267
Pharmacia & Upjohn, Inc. ............................. 17,063 624,932
Schering-Plough Corp. ................................ 24,705 1,534,798
------------
12,278,539
------------
ELECTRIC POWER COMPANIES (1.7%)
American Electric Power
Co., Inc. ........................................... 6,280 324,205
Baltimore Gas & Electric Co. ......................... 4,995 170,142
Carolina Power & Light Co. ........................... 5,017 212,909
Central & South West Corp. ........................... 7,116 192,577
Cinergy Corp. ........................................ 5,301 203,095
Consolidated Edison Co.
of New York, Inc. ................................... 7,955 326,155
Dominion Resources, Inc. ............................. 6,245 265,803
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
72
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
ELECTRIC POWER COMPANIES (Continued)
DTE Energy Co. ....................................... 4,905 $ 170,142
Duke Energy Corp. .................................... 12,153 672,972
Edison International.................................. 12,843 349,169
Entergy Corp. ........................................ 8,112 242,853
FirstEnergy Corp. (a)................................. 7,691 223,039
FPL Group, Inc. ...................................... 6,245 369,626
GPU, Inc. ............................................ 4,160 175,240
Houston Industries Inc. .............................. 9,512 253,851
Niagara Mohawk Power
Corp. (a)............................................ 4,800 50,400
Northern States Power Co. ............................ 2,441 142,188
PacifiCorp............................................ 9,922 270,995
PECO Energy Co. ...................................... 7,476 181,293
PG&E Corp. ........................................... 14,742 448,710
PP&L Resources, Inc. ................................. 5,579 133,547
Public Service Enterprise
Group Inc. .......................................... 7,866 249,254
Southern Co. (The).................................... 23,217 600,740
Texas Utilities Co. .................................. 8,261 343,348
Unicom Corp. ......................................... 7,276 223,737
Union Electric Co. ................................... 4,514 195,230
------------
6,991,220
------------
ELECTRICAL EQUIPMENT (2.4%)
AMP Inc. ............................................. 7,284 305,928
Emerson Electric Co. ................................. 14,995 846,280
General Electric Co. (c).............................. 110,094 8,078,147
General Signal Corp. ................................. 1,673 70,580
Grainger (W.W.), Inc. ................................ 1,714 166,579
Honeywell Inc. ....................................... 4,270 292,495
Raychem Corp. ........................................ 2,928 126,087
Thomas & Betts Corp. ................................. 1,795 84,814
------------
9,970,910
------------
ELECTRONIC--DEFENSE (0.0%) (b)
EG&G, Inc. ........................................... 1,493 31,073
------------
ELECTRONIC--INSTRUMENTATION (0.0%) (b)
Perkin-Elmer Corp. (The).............................. 1,487 105,670
Tektronix, Inc. ...................................... 1,669 66,238
------------
171,908
------------
ELECTRONIC--SEMICONDUCTORS (1.6%)
Advanced Micro
Devices, Inc. (a).................................... 4,774 85,634
Applied Materials, Inc. (a)........................... 12,306 370,718
Intel Corp. .......................................... 55,006 3,864,172
KLA-Tencor Corp. (a).................................. 2,800 108,150
LSI Logic Corp. (a)................................... 4,723 93,279
Micron Technology, Inc. .............................. 7,056 183,456
Motorola, Inc. ....................................... 20,121 1,148,155
National Semiconductor
Corp. (a)............................................ 5,434 140,944
Texas Instruments Inc. ............................... 13,098 589,410
------------
6,583,918
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
ENGINEERING & CONSTRUCTION (0.0%) (b)
Fluor Corp. .......................................... 2,855 $ 106,706
Foster Wheeler Corp. ................................. 1,341 36,291
------------
142,997
------------
ENTERTAINMENT (0.9%)
King World
Productions, Inc. (a)................................ 1,313 75,826
Time Warner Inc. ..................................... 18,856 1,169,072
Viacom Inc. Class B (a)............................... 11,854 491,200
Walt Disney Co. (The)................................. 22,731 2,251,790
------------
3,987,888
------------
FINANCIAL--MISCELLANEOUS (1.7%)
American Express Co. ................................. 15,714 1,402,475
American General Corp. ............................... 8,153 440,772
Fannie Mae............................................ 35,633 2,033,308
Freddie Mac........................................... 23,334 978,570
Green Tree Financial Corp. ........................... 4,664 122,138
MBIA Inc. ............................................ 3,076 205,515
MBNA Corp. ........................................... 16,976 463,657
Morgan Stanley, Dean Witter, Discover & Co. .......... 19,922 1,177,888
SunAmerica Inc. ...................................... 6,600 282,150
Transamerica Corp. ................................... 2,155 229,507
------------
7,335,980
------------
FOOD DISTRIBUTORS (0.1%)
Cardinal Health, Inc. ................................ 3,648 274,056
SUPERVALU Inc. ....................................... 2,047 85,718
Sysco Corp. .......................................... 5,805 264,490
------------
624,264
------------
FOODS (1.8%)
Archer-Daniels-Midland Co. ........................... 18,868 409,200
Campbell Soup Co. .................................... 15,504 901,170
ConAgra, Inc. ........................................ 15,966 523,884
CPC International Inc. ............................... 4,811 518,385
General Mills, Inc. .................................. 5,310 380,329
Heinz (H.J.) Co. ..................................... 12,426 631,396
Hershey Foods Corp. .................................. 4,827 298,972
Kellogg Co. .......................................... 13,880 688,795
Quaker Oats Co. (The)................................. 4,579 241,542
Ralston-Ralston Purina Group.......................... 3,547 329,649
Sara Lee Corp. ....................................... 16,177 910,967
Unilever, N.V. ....................................... 21,668 1,352,896
Wrigley (Wm.) Jr. Co. ................................ 3,911 311,169
------------
7,498,354
------------
GOLD (0.1%)
Barrick Gold Corp. ................................... 12,488 232,589
Battle Mountain Gold Co. ............................. 7,618 44,756
Echo Bay Mines Ltd. (a)............................... 4,553 11,098
Homestake Mining Co. ................................. 4,991 44,295
Newmont Mining Corp. ................................. 5,234 153,749
Placer Dome Inc. ..................................... 7,910 100,358
------------
586,845
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
73
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
HARDWARE & TOOLS (0.1%)
Black & Decker Corp. (The)............................ 3,223 $ 125,898
Snap-on Inc. ......................................... 2,062 89,955
Stanley Works (The)................................... 3,033 143,120
------------
358,973
------------
HEALTH CARE--DIVERSIFIED (2.5%)
Abbott Laboratories................................... 25,714 1,685,874
Allergan, Inc. ....................................... 2,195 73,670
American Home
Products Corp. ...................................... 21,767 1,665,176
Bristol-Myers Squibb Co. ............................. 33,403 3,160,759
Johnson & Johnson..................................... 45,260 2,981,502
Mallinckrodt Inc. .................................... 2,436 92,568
Warner-Lambert Co. ................................... 9,155 1,135,220
------------
10,794,769
------------
HEALTH CARE--HMOs (0.1%)
Humana Inc. (a)....................................... 5,498 114,084
United Healthcare Corp. .............................. 6,256 310,845
------------
424,929
------------
HEALTH CARE--MISCELLANEOUS (0.2%)
ALZA Corp. (a)........................................ 2,851 90,697
Amgen Inc. (a)........................................ 8,785 475,488
HEALTHSOUTH Corp. (a)................................. 13,207 366,494
Manor Care, Inc. ..................................... 2,162 75,670
------------
1,008,349
------------
HEAVY DUTY TRUCKS & PARTS (0.2%)
Cummins Engine Co., Inc. ............................. 1,355 80,030
Dana Corp. ........................................... 3,488 165,680
Eaton Corp. .......................................... 2,674 238,654
ITT Industries, Inc. ................................. 3,963 124,339
Navistar International
Corp. (a)............................................ 2,545 63,148
PACCAR Inc. .......................................... 2,626 137,865
------------
809,716
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. ......................................... 989 62,245
Kaufman & Broad
Home Corp. .......................................... 1,309 29,371
Pulte Corp. .......................................... 658 27,513
------------
119,129
------------
HOSPITAL MANAGEMENT (0.2%)
Columbia/HCA
Healthcare Corp. .................................... 21,833 646,803
Tenet Healthcare Corp. (a)............................ 10,248 339,465
------------
986,268
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
HOTEL--MOTEL (0.2%)
Harrah's Entertainment,
Inc. (a)............................................. 3,448 $ 65,081
Hilton Hotels Corp. .................................. 8,474 252,101
ITT Corp. (a)......................................... 3,954 327,688
Marriott International, Inc. ......................... 4,324 299,437
------------
944,307
------------
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World
Industries, Inc. .................................... 1,329 99,343
Maytag Corp. ......................................... 3,152 117,609
Whirlpool Corp. ...................................... 2,534 139,370
------------
356,322
------------
HOUSEHOLD PRODUCTS (1.4%)
Clorox Co. (The)...................................... 3,444 272,291
Colgate-Palmolive Co. ................................ 9,959 731,987
Fort James Corp. ..................................... 7,066 270,274
Kimberly-Clark Corp. ................................. 18,710 922,637
Procter & Gamble Co. (The)............................ 45,376 3,621,572
------------
5,818,761
------------
HOUSEWARES (0.1%)
Fortune Brands, Inc. ................................. 5,777 214,110
Newell Co. ........................................... 5,394 229,245
Rubbermaid Inc. ...................................... 5,137 128,425
Tupperware Corp. ..................................... 2,057 57,339
------------
629,119
------------
INSURANCE BROKERS (0.2%)
Aon Corp. ............................................ 5,548 325,252
Marsh & McLennan Cos., Inc. .......................... 5,680 423,515
------------
748,767
------------
INVESTMENT BANK/BROKERAGE (0.3%)
Merrill Lynch & Co., Inc. ............................ 11,107 810,117
Schwab (Charles) Corp. (The).......................... 8,890 372,824
------------
1,182,941
------------
LEISURE TIME (0.1%)
Brunswick Corp. ...................................... 3,349 101,517
Mirage Resorts, Inc. (a).............................. 5,900 134,225
------------
235,742
------------
LIFE INSURANCE (0.4%)
Aetna Inc. ........................................... 5,095 359,516
Conseco, Inc. ........................................ 6,260 284,439
Jefferson-Pilot Corp. ................................ 2,389 186,043
Lincoln National Corp. ............................... 3,399 265,547
Torchmark Corp. ...................................... 4,672 196,516
UNUM Corp. ........................................... 4,676 254,258
------------
1,546,319
------------
</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>
MACHINE TOOLS (0.0%) (b)
Cincinnati Milacron Inc. ............................. 1,323 $ 34,315
------------
MACHINERY--DIVERSIFIED (0.5%)
Briggs & Stratton Corp. .............................. 855 41,521
Case Corp. ........................................... 2,471 149,341
Caterpillar Inc. ..................................... 12,502 607,128
Cooper Industries, Inc. .............................. 4,170 204,330
Deere & Co. .......................................... 8,379 488,600
Harnischfeger Industries, Inc. ....................... 1,592 56,218
Ingersoll-Rand Co. ................................... 5,644 228,582
NACCO Industries, Inc.
Class A.............................................. 238 25,511
Thermo Electron Corp. (a)............................. 4,977 221,476
Timken Co. (The)...................................... 2,066 71,019
------------
2,093,726
------------
MAJOR REGIONAL BANKS (3.4%)
Banc One Corp. ....................................... 19,638 1,066,589
Bank of New York
Co., Inc. (The)...................................... 12,647 731,155
BankBoston Corp. ..................................... 4,860 456,536
Barnett Banks, Inc. .................................. 6,597 474,159
BB&T Corp. ........................................... 4,600 294,688
Comerica Inc. ........................................ 3,546 320,026
CoreStates Financial Corp. ........................... 6,797 544,185
Fifth Third Bancorp................................... 5,281 431,722
First Union Corp. .................................... 21,006 1,076,558
Fleet Financial Group, Inc. .......................... 8,428 631,573
Huntington Bancshares Inc. ........................... 6,300 226,800
KeyCorp............................................... 7,522 532,652
Mellon Bank Corp. .................................... 8,525 516,828
National City Corp. .................................. 7,203 473,597
NationsBank Corp. .................................... 23,939 1,455,790
Norwest Corp. ........................................ 25,448 982,929
PNC Bank Corp. ....................................... 10,312 588,429
Republic New York Corp. .............................. 1,913 218,441
State Street Corp. ................................... 5,400 314,212
SunTrust Banks, Inc. ................................. 7,161 511,116
Synovus Financial Corp. .............................. 5,900 193,225
U.S. Bancorp.......................................... 8,217 919,790
Wachovia Corp. ....................................... 6,990 567,064
Wells Fargo & Co. .................................... 3,015 1,023,404
------------
14,551,468
------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc. .......................... 1,203 51,052
------------
MANUFACTURING--DIVERSIFIED (0.7%)
Aeroquip-Vickers, Inc. ............................... 895 43,911
AlliedSignal Inc. .................................... 18,936 737,320
Crane Co. ............................................ 1,581 68,576
Dover Corp. .......................................... 7,552 272,816
Illinois Tool Works Inc. ............................. 8,382 503,968
Johnson Controls, Inc. ............................... 2,742 130,930
Millipore Corp. ...................................... 1,499 50,872
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
MANUFACTURING--DIVERSIFIED (Continued)
Pall Corp. ........................................... 4,334 $ 89,660
Parker-Hannifin Corp. ................................ 3,715 170,426
Tyco International Ltd. .............................. 17,810 802,563
------------
2,871,042
------------
MEDICAL PRODUCTS (0.6%)
Bard (C.R.), Inc. .................................... 1,967 61,592
Bausch & Lomb Inc. ................................... 1,993 78,973
Baxter International Inc. ............................ 9,328 470,481
Becton, Dickinson & Co. .............................. 4,173 208,650
Biomet, Inc. ......................................... 3,902 99,989
Boston Scientific Corp. (a)........................... 6,463 296,490
Guidant Corp. ........................................ 4,874 303,406
Medtronic, Inc. ...................................... 15,716 822,143
St. Jude Medical, Inc. (a)............................ 2,999 91,470
United States Surgical Corp. ......................... 2,459 72,079
------------
2,505,273
------------
METALS--MISCELLANEOUS (0.1%)
ASARCO Inc. .......................................... 1,490 33,432
Cyprus Amax Minerals Co. ............................. 3,088 47,478
Freeport-McMoRan Copper & Gold Inc. Class B........... 6,592 103,824
Inco Ltd. ............................................ 5,684 96,628
Phelps Dodge Corp. ................................... 2,035 126,679
------------
408,041
------------
MISCELLANEOUS (0.7%)
AirTouch Communications,
Inc. (a)............................................. 16,925 703,445
American Greetings Corp.
Class A.............................................. 2,433 95,191
Corning Inc. ......................................... 7,704 286,011
Harcourt General, Inc. ............................... 2,327 127,403
Harris Corp. ......................................... 2,778 127,441
Jostens, Inc. ........................................ 1,268 29,243
Minnesota Mining & Manufacturing Co. ................. 13,812 1,133,447
Pioneer Hi-Bred
International, Inc. ................................. 2,271 243,565
TRW, Inc. ............................................ 4,092 218,411
Whitman Corp. ........................................ 3,458 90,124
------------
3,054,281
------------
MONEY CENTER BANKS (1.7%)
BankAmerica Corp. .................................... 23,332 1,703,236
Bankers Trust New York Corp. ......................... 3,402 382,512
Chase Manhattan Corp. (The)........................... 14,190 1,553,805
Citicorp.............................................. 15,330 1,938,287
First Chicago NBD Corp. .............................. 9,904 826,984
Morgan (J.P.) & Co., Inc. ............................ 5,989 676,008
------------
7,080,832
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
75
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
MULTI-LINE INSURANCE (1.3%)
American International
Group, Inc. ......................................... 23,642 $ 2,571,068
CIGNA Corp. .......................................... 2,636 456,193
Hartford Financial Services Group, Inc. .............. 3,957 370,227
Travelers Group Inc. ................................. 38,556 2,077,204
------------
5,474,692
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.4%)
Coastal Corp. (The)................................... 3,556 220,250
Columbia Gas System, Inc. ............................ 1,841 144,634
Consolidated Natural Gas Co. ......................... 3,198 193,479
Eastern Enterprises................................... 683 30,735
Enron Corp. .......................................... 10,697 444,594
NICOR Inc. ........................................... 1,603 67,627
ONEOK, Inc. .......................................... 1,075 43,403
Pacific Enterprises................................... 2,745 103,281
Peoples Energy Corp. ................................. 1,185 46,659
Sonat, Inc. .......................................... 2,898 132,583
Williams Cos., Inc. (The)............................. 10,586 300,378
------------
1,727,623
------------
OFFICE EQUIPMENT & SUPPLIES (0.3%)
Moore Corp. Ltd. ..................................... 2,943 44,513
Pitney Bowes Inc. .................................... 4,893 440,064
Xerox Corp. .......................................... 10,962 809,133
------------
1,293,710
------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. .............................. 845 57,354
Rowan Cos., Inc. (a).................................. 2,876 87,718
------------
145,072
------------
OIL--EXPLORATION & PRODUCTION (0.2%)
Anadarko Petroleum Corp. ............................. 2,000 121,375
Apache Corp. ......................................... 3,100 108,694
Burlington Resources Inc. ............................ 6,065 271,788
Oryx Energy Co. (a)................................... 3,527 89,938
Union Pacific Resources
Group, Inc. ......................................... 8,523 206,683
------------
798,478
------------
OIL--INTEGRATED DOMESTIC (0.7%)
Amerada Hess Corp. ................................... 3,089 169,509
Ashland Inc. ......................................... 2,503 134,380
Atlantic Richfield Co. ............................... 10,758 861,985
Kerr-McGee Corp. ..................................... 1,693 107,188
Occidental Petroleum Corp. ........................... 11,431 335,071
Pennzoil Co. ......................................... 1,639 109,506
Phillips Petroleum Co. ............................... 8,832 429,456
Sun Co., Inc. ........................................ 2,373 99,814
Unocal Corp. ......................................... 8,421 326,840
USX-Marathon Group.................................... 9,683 326,801
------------
2,900,550
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
OIL--INTEGRATED INTERNATIONAL (3.5%)
Amoco Corp. .......................................... 16,482 $ 1,403,030
Chevron Corp. ........................................ 22,036 1,696,772
Exxon Corp. .......................................... 83,110 5,085,293
Mobil Corp. .......................................... 26,428 1,907,771
Royal Dutch Petroleum Co. ............................ 72,204 3,912,554
Texaco Inc. .......................................... 18,480 1,004,850
------------
15,010,270
------------
OIL--WELL EQUIPMENT & SERVICES (0.6%)
Baker Hughes Inc. .................................... 5,677 247,659
Dresser Industries, Inc. ............................. 5,880 246,593
Halliburton Co. ...................................... 8,842 459,231
McDermott International, Inc. ........................ 1,854 67,903
Schlumberger Ltd. .................................... 16,638 1,339,359
Western Atlas Inc. (a)................................ 1,847 136,678
------------
2,497,423
------------
PAPER & FOREST PRODUCTS (0.4%)
Boise Cascade Corp. .................................. 1,880 56,870
Champion International Corp. ......................... 3,214 145,634
Georgia-Pacific Corp. ................................ 3,060 185,895
International Paper Co. .............................. 10,216 440,565
Louisiana-Pacific Corp. .............................. 3,624 68,856
Mead Corp. (The)...................................... 3,496 97,888
Potlatch Corp. ....................................... 1,001 43,043
Union Camp Corp. ..................................... 2,364 126,917
Westvaco Corp. ....................................... 3,354 105,441
Weyerhaeuser Co. ..................................... 6,685 327,983
Willamette Industries, Inc. .......................... 3,820 122,956
------------
1,722,048
------------
PERSONAL LOANS (0.2%)
Beneficial Corp. ..................................... 1,838 152,784
Countrywide Credit
Industries, Inc. .................................... 3,600 154,350
Household International, Inc. ........................ 3,542 451,826
Providian Financial Corp. ............................ 3,206 144,871
------------
903,831
------------
PHOTOGRAPHY/IMAGING (0.2%)
Eastman Kodak Co. .................................... 11,037 671,188
IKON Office Solutions, Inc. .......................... 4,496 126,450
Polaroid Corp. ....................................... 1,633 79,507
------------
877,145
------------
POLLUTION CONTROL (0.2%)
Browning-Ferris
Industries, Inc. .................................... 6,664 246,568
Waste Management, Inc. ............................... 15,275 420,063
------------
666,631
------------
PROPERTY--CASUALTY INSURANCE (1.0%)
Allstate Corp. (The).................................. 14,555 1,322,686
Chubb Corp. (The)..................................... 5,720 432,575
</TABLE>
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.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
PROPERTY--CASUALTY INSURANCE (Continued)
Cincinnati Financial Corp. ........................... 1,900 $ 267,425
General Re Corp. ..................................... 2,729 578,548
Loews Corp. .......................................... 3,978 422,165
MGIC Investment Corp. ................................ 3,777 251,170
Progressive Corp. (The)............................... 2,400 287,700
SAFECO Corp. ......................................... 4,644 226,395
St. Paul Cos., Inc. (The)............................. 2,858 234,535
USF&G Corp. .......................................... 3,846 84,852
------------
4,108,051
------------
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc. (The).......................... 3,284 243,016
Meredith Corp. ....................................... 1,759 62,774
------------
305,790
------------
PUBLISHING--NEWSPAPER (0.4%)
Dow Jones & Co., Inc. ................................ 3,346 179,638
Gannett Co., Inc. .................................... 9,658 596,985
Knight-Ridder, Inc. .................................. 2,982 155,064
New York Times Co. (The) Class A...................... 3,321 219,601
Times Mirror Co. (The)
Class A.............................................. 3,222 198,153
Tribune Co. .......................................... 4,250 264,563
------------
1,614,004
------------
RAILROADS (0.4%)
Burlington Northern
Santa Fe Corp. ...................................... 5,208 484,019
CSX Corp. ............................................ 7,337 396,198
Norfolk Southern Corp. ............................... 12,661 390,117
Union Pacific Corp. .................................. 8,277 516,795
------------
1,787,129
------------
RESTAURANTS (0.3%)
Darden Restaurants, Inc. ............................. 5,105 63,813
McDonald's Corp. ..................................... 23,085 1,102,309
Tricon Global
Restaurants, Inc. (a)................................ 5,182 150,602
Wendy's International, Inc. .......................... 4,342 104,479
------------
1,421,203
------------
RETAIL STORES--APPAREL (0.2%)
Charming Shoppes, Inc. (a)............................ 3,536 16,575
Gap, Inc. (The)....................................... 13,458 476,918
Limited, Inc. (The)................................... 9,044 230,622
TJX Cos., Inc. (The).................................. 5,538 190,369
------------
914,484
------------
RETAIL STORES--DEPARTMENT (0.4%)
Dillard's, Inc. Class A............................... 3,869 136,382
Federated Department
Stores, Inc. (a)..................................... 7,015 302,083
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
RETAIL STORES--DEPARTMENT (Continued)
May Department Stores
Co. (The)............................................ 7,838 $ 412,965
Mercantile Stores Co., Inc. .......................... 1,312 79,868
Nordstrom, Inc. ...................................... 2,625 158,484
Penney (J.C.) Co., Inc. .............................. 8,411 507,288
------------
1,597,070
------------
RETAIL STORES--DRUGS (0.2%)
Longs Drug Stores Corp. .............................. 1,351 43,401
Rite Aid Corp. ....................................... 4,180 245,314
Walgreen Co. ......................................... 16,520 518,315
------------
807,030
------------
RETAIL STORES--FOOD CHAIN (0.3%)
Albertson's, Inc. .................................... 8,296 393,023
American Stores Co. .................................. 9,232 189,833
Giant Food Inc. Class A............................... 2,022 68,116
Great Atlantic & Pacific Tea Co., Inc. (The).......... 1,229 36,486
Kroger Co. (The) (a).................................. 8,508 314,264
Winn-Dixie Stores, Inc. .............................. 4,992 218,088
------------
1,219,810
------------
RETAIL STORES--GENERAL MERCHANDISE (1.0%)
Dayton-Hudson Corp. .................................. 7,291 492,143
Kmart Corp. (a)....................................... 16,451 190,215
Sears, Roebuck & Co. ................................. 13,174 596,123
Wal-Mart Stores, Inc. ................................ 75,798 2,989,284
------------
4,267,765
------------
RETAIL STORES--SPECIALTY (0.8%)
AutoZone, Inc. (a).................................... 5,081 147,349
Circuit City Stores-
Circuit City Group................................... 3,348 119,063
Costco Cos., Inc. (a)................................. 7,167 319,827
CVS Corp. ............................................ 5,755 368,680
Home Depot, Inc. (The)................................ 24,578 1,447,030
Lowe's Cos., Inc. .................................... 5,859 279,401
Pep Boys-Manny, Moe &
Jack (The)........................................... 2,054 49,039
Tandy Corp. .......................................... 3,618 139,519
Toys "R" Us, Inc. (a)................................. 9,640 303,058
Woolworth Corp. (a)................................... 4,445 90,567
------------
3,263,533
------------
SAVINGS & LOANS (0.2%)
Ahmanson (H.F.) & Co. ................................ 3,276 219,287
Golden West Financial Corp. .......................... 2,012 196,799
Washington Mutual, Inc. .............................. 8,698 555,041
------------
971,127
------------
SHOES (0.1%)
NIKE, Inc. Class B.................................... 9,682 380,019
Reebok International Ltd. ............................ 1,897 54,657
------------
434,676
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
77
<PAGE>
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
SPECIALIZED SERVICES (0.6%)
Block (H&R), Inc. .................................... 3,439 $ 154,110
Cendant Corp. (a)..................................... 26,660 916,437
Cognizant Corp. ...................................... 5,562 247,857
Dun & Bradstreet Corp. (The).......................... 5,762 178,262
Ecolab Inc. .......................................... 2,215 122,794
Interpublic Group of
Cos., Inc. (The)..................................... 4,194 208,914
Laidlaw Inc. ......................................... 10,978 149,575
National Service
Industries, Inc. .................................... 1,461 72,411
Omnicom Group Inc. ................................... 5,400 228,825
Safety-Kleen Corp. ................................... 2,002 54,930
Service Corp. International........................... 8,467 312,750
------------
2,646,865
------------
SPECIALTY PRINTING (0.1%)
Deluxe Corp. ......................................... 2,743 94,633
Donnelley (R.R.) & Sons Co. .......................... 5,003 186,362
Harland (John H.) Co. ................................ 1,028 21,588
------------
302,583
------------
STEEL (0.1%)
Allegheny Teledyne Inc. .............................. 5,978 154,681
Armco Inc. (a)........................................ 3,571 17,632
Bethlehem Steel Corp. (a)............................. 3,828 33,016
Inland Steel Industries, Inc. ........................ 1,657 28,376
Nucor Corp. .......................................... 3,012 145,517
USX-U.S. Steel Group Inc. ............................ 2,921 91,281
Worthington Industries, Inc. ......................... 3,275 54,038
------------
524,541
------------
TELECOMMUNICATIONS--LONG DISTANCE (1.4%)
AT&T Corp. ........................................... 54,549 3,341,126
MCI Communications Corp. ............................. 23,443 1,003,653
Sprint Corp. ......................................... 14,527 851,645
WorldCom, Inc. (a).................................... 30,305 916,726
------------
6,113,150
------------
TELEPHONE (2.5%)
ALLTEL Corp. ......................................... 6,263 257,174
Ameritech Corp. ...................................... 18,565 1,494,483
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
TELEPHONE (Continued)
Bell Atlantic Corp. ............................... 26,145 $ 2,379,195
BellSouth Corp. ................................... 33,254 1,872,616
Frontier Corp. .................................... 5,423 130,491
GTE Corp. ......................................... 32,203 1,682,607
SBC Communications Inc. ........................... 30,722 2,250,386
US West Communications Group....................... 16,274 734,364
------------
10,801,316
------------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Fruit of the Loom, Inc.
Class A (a)....................................... 2,404 61,603
Liz Claiborne, Inc. ............................... 2,333 97,549
Russell Corp. ..................................... 1,238 32,884
Springs Industries, Inc.
Class A........................................... 666 34,632
VF Corp. .......................................... 4,174 191,743
------------
418,411
------------
TOBACCO (0.9%)
Philip Morris Cos. Inc. ........................... 81,548 3,695,144
UST Inc. .......................................... 6,141 226,833
------------
3,921,977
------------
TOYS (0.1%)
Hasbro, Inc. ...................................... 4,283 134,914
Mattel, Inc. ...................................... 9,683 360,692
------------
495,606
------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
Federal Express Corp. (a).......................... 3,867 236,129
Ryder System, Inc. ................................ 2,686 87,966
------------
324,095
------------
TRUCKERS (0.0%) (b)
Caliber System, Inc. .............................. 1,345 65,485
------------
Total Common Stocks
(Cost $187,569,925)............................... 254,451,173 (g)
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
78
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM INVESTMENTS (29.7%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
COMMERCIAL PAPER (25.0%)
Bridgestone/Firestone Inc.
7.20%, due 1/16/98 (c)........................... $ 8,300,000 $ 8,275,100
Cooperative Association of Tractor Dealers Inc.
6.75%, due 1/2/98 (c)............................ 1,700,000 1,699,681
Countrywide Home Loans Inc.
6.35%, due 1/2/98 (c)............................ 10,000,000 9,998,236
Dynamic Funding Corp.
7.45%, due 2/13/98 (c)........................... 20,700,000 20,515,799
Hartz 667 Commercial Paper Corp.
6.70%, due 1/6/98 (c)............................ 11,100,000 11,089,671
Llama Retail Funding Corp.
6.65%, due 1/2/98 (c)............................ 11,900,000 11,897,802
Madison Funding Corp.
7.20%, due 1/5/98 (c)............................ 5,000,000 4,996,000
Mitsui & Co. (USA) Inc.
6.28%, due 1/14/98 (c)........................... 13,800,000 13,768,704
Sanwa Business Credit Corp.
6.65%, due 1/29/98 (c)........................... 14,000,000 13,927,589
Southland Corp.
6.40%, due 1/5/98 (c)............................ 10,000,000 9,992,889
------------
Total Commercial Paper
(Cost $106,161,471).............................. 106,161,471
------------
U.S. GOVERNMENT (4.7%)
United States Treasury Bills
4.89%, due 3/26/98 (c)........................... 10,000,000 9,881,030
5.14%, due 4/2/98 (c)............................ 10,000,000 9,869,750
------------
Total U.S. Government
(Cost $19,751,841)............................... 19,750,780
------------
Total Short-Term Investments
(Cost $125,913,312).............................. 125,912,251
------------
Total Investments
(Cost $357,962,904) (h).......................... 100.3% 425,783,054 (i)
Liabilities in Excess of
Cash and Other Assets............................ (0.3) (1,069,714)
----------- ------------
Net Assets........................................ 100.0% $424,713,340
=========== ============
</TABLE>
FUTURES CONTRACTS (0.5%)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION)(j)
-----------------------------
<S> <C> <C>
AUSTRALIA (0.1%)
Australian All
Ordinaries Index
March 1998...................................... 297 $ 600,181
FRANCE (0.2%)
French CAC 40 Index
March 1998...................................... 127 638,482
GERMANY (0.2%)
German Dax Index
March 1998...................................... 87 915,357
HONG KONG (0.1%)
Hong Kong Hang Seng Index
January 1998.................................... 120 343,434
UNITED KINGDOM (-0.1%)
Great Britian FTSE 100 Index
March 1998...................................... 96 (232,220)
UNITED STATES (0.0%) (b)
Standard & Poor's 500
March 1998...................................... 12 23,278
United States Treasury Bond
March 1998 (30 Year)............................ 2 292
United States Treasury Note
March 1998 (5 Year)............................. 5 653
March 1998 (10 Year)............................ 4 585
----------
Total Futures Contracts (Settlement Value
$79,170,495).................................... $2,290,042
==========
</TABLE>
- --------
(a) Non-income producing security.
(b) Less than one tenth of a percent.
(c) Segregated or partially segregated as collateral for futures contracts.
(d) Yankee bonds.
(e) TBA: Securities purchased on a forward commitment basis with an
approximate principal amount and no definite maturity date. The actual
principal amount and the maturity date will be determined upon settlement.
(f) The combined market value of U.S. Government and Federal Agencies
Investments and settlement value of U.S. Treasury futures contracts
represents 8.6% of net assets.
(g) The combined market value of common stocks and settlement value of
Standard & Poor's 500 Index futures contracts represents 60.6% of net
assets.
(h) The cost for Federal income tax purposes is $358,324,432.
(i) At December 31, 1997, net unrealized appreciation was $67,458,622, based
on cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess
of market value over cost of $71,072,325 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $3,613,703.
(j) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1997.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
79
<PAGE>
MULTI-ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $357,962,904).................................. $425,783,054
Cash............................................................. 74,935
Receivables:
Dividends and interest........................................... 1,047,206
Investment securities sold....................................... 655,044
Fund shares sold................................................. 204,836
Variation margin receivable on futures contracts................. 71,891
------------
Total assets................................................... 427,836,966
------------
LIABILITIES:
Payables:
Investment securities purchased.................................. 2,033,616
Fund shares redeemed............................................. 752,518
MainStay Management.............................................. 231,329
Transfer agent................................................... 24,127
Custodian........................................................ 22,000
Accrued expenses................................................. 60,036
------------
Total liabilities.............................................. 3,123,626
------------
Net assets....................................................... $424,713,340
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 27,977
Institutional Service Class...................................... 668
Additional paid-in capital....................................... 328,213,349
Accumulated undistributed net investment income.................. 37,010
Accumulated undistributed net realized gain on investments....... 26,306,853
Net unrealized appreciation on investments....................... 70,110,192
Net unrealized appreciation on foreign currency transactions..... 17,291
------------
Net assets....................................................... $424,713,340
============
Institutional Class
Net assets applicable to outstanding shares...................... $414,824,005
============
Shares of capital stock outstanding.............................. 27,977,073
============
Net asset value per share outstanding............................ $ 14.83
============
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 9,889,335
============
Shares of capital stock outstanding.............................. 667,802
============
Net asset value per share outstanding............................ $ 14.81
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a)................................................... $ 4,848,186
Interest........................................................ 6,830,487
-----------
Total income.................................................. 11,678,673
-----------
Expenses:
Administration.................................................. 1,695,098
Advisory........................................................ 508,530
Management...................................................... 305,965
Transfer agent.................................................. 133,439
Custodian....................................................... 76,342
Professional.................................................... 68,794
Shareholder communication....................................... 57,910
Registration.................................................... 41,341
Service......................................................... 18,026
Directors....................................................... 11,785
Miscellaneous................................................... 26,735
-----------
Total expenses ............................................... 2,943,965
-----------
Net investment income........................................... 8,734,708
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Security transactions........................................... 39,582,126
Futures transactions............................................ 5,434,477
Foreign currency transactions................................... (32,358)
-----------
Net realized gain on investments and foreign currency
transactions................................................... 44,984,245
-----------
Net change in unrealized appreciation on investments:
Security transactions........................................... 33,589,400
Futures transactions............................................ 1,508,268
Foreign currency transactions................................... 17,446
-----------
Net unrealized gain on investments and foreign currency
transactions................................................... 35,115,114
-----------
Net realized and unrealized gain on investments and foreign
currency transactions.......................................... 80,099,359
-----------
Net increase in net assets resulting from operations............ $88,834,067
===========
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $30,067.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
80
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 8,734,708 $ 9,198,737
Net realized gain on investments.................. 45,016,603 24,496,600
Net realized loss on foreign currency
transactions..................................... (32,358) (21,867)
Net change in unrealized appreciation on
investments...................................... 35,097,668 12,530,753
Net change in unrealized depreciation on foreign
currency transactions............................ 17,446 (155)
------------ ------------
Net increase in net assets resulting from
operations....................................... 88,834,067 46,204,068
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (8,423,272) (9,027,765)
Institutional Service Class...................... (182,014) (138,056)
From net realized gain on investments:
Institutional Class.............................. (37,506,931) (3,132,082)
Institutional Service Class...................... (890,648) (52,426)
------------ ------------
Total dividends and distributions to
shareholders................................... (47,002,865) (12,350,329)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 45,388,650 49,757,971
Institutional Service Class...................... 4,026,989 2,319,600
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 45,930,203 12,159,847
Institutional Service Class...................... 1,072,662 190,482
------------ ------------
96,418,504 64,427,900
Cost of shares redeemed:
Institutional Class.............................. (41,612,145) (44,770,866)
Institutional Service Class...................... (1,221,935) (1,100,422)
------------ ------------
Increase in net assets derived from capital
share transactions.............................. 53,584,424 18,556,612
------------ ------------
Net increase in net assets....................... 95,415,626 52,410,351
NET ASSETS:
Beginning of year................................. 329,297,714 276,887,363
------------ ------------
End of year....................................... $424,713,340 $329,297,714
============ ============
Accumulated undistributed net investment income... $ 37,010 $ 15,336
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
81
<PAGE>
MULTI-ASSET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning
of year.......... $ 13.19 $ 13.19 $ 11.79 $ 11.79 $ 10.67 $ 10.67
-------- -------- -------- -------- -------- --------
Net investment
income........... 0.34 0.31 0.38 0.34 0.48 0.47
Net realized and
unrealized gain
(loss) on
investments...... 3.15 3.13 1.53 1.53 2.39 2.39
Net realized and
unrealized loss
on foreign
currency
transactions..... (0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.01) (0.01)
-------- -------- -------- -------- -------- --------
Total from
investment
operations....... 3.49 3.44 1.91 1.87 2.86 2.85
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
From net
investment
income........... (0.34) (0.31) (0.38) (0.34) (0.48) (0.47)
From net realized
gain on
investments...... (1.51) (1.51) (0.13) (0.13) (1.18) (1.18)
In excess of net
realized gain on
investments...... -- -- -- -- (0.08) (0.08)
-------- -------- -------- -------- -------- --------
Total dividends
and
distributions.... (1.85) (1.82) (0.51) (0.47) (1.74) (1.73)
-------- -------- -------- -------- -------- --------
Net asset value at
end of year...... $ 14.83 $ 14.81 $ 13.19 $ 13.19 $ 11.79 $ 11.79
======== ======== ======== ======== ======== ========
Total investment
return .......... 26.69% 26.30% 16.16% 15.89% 26.81% 26.70%
Ratios (to average
net
assets)/Supplemental
Data:
Net investment
income.......... 2.27% 2.02% 2.99% 2.74% 4.03% 3.78%
Net expenses..... 0.76% 1.01% 0.70% 0.95% 0.70% 0.95%
Expenses (before
reimbursement).. 0.76% 1.01% 0.75% 1.00% 0.77% 1.02%
Portfolio turnover
rate............. 19% 19% 103% 103% 261% 261%
Average commission
rate paid........ $ 0.0499 $ 0.0499 $ 0.0498 $ 0.0498 (b) (b)
Net assets at end
of year
(in 000's)....... $414,824 $ 9,889 $323,790 $ 5,508 $273,351 $ 3,536
<CAPTION>
INSTITUTIONAL
CLASS
--------------------
1994 1993
---------- ---------
<S> <C> <C>
Net asset value at
beginning
of year.......... $ 11.67 $ 12.02
---------- ---------
Net investment
income........... 0.45 0.39
Net realized and
unrealized gain
(loss) on
investments...... (0.55) 0.59
Net realized and
unrealized loss
on foreign
currency
transactions..... -- --
---------- ---------
Total from
investment
operations....... (0.10) 0.98
---------- ---------
Less dividends and
distributions:
From net
investment
income........... (0.45) (0.88)
From net realized
gain on
investments...... (0.42) (0.44)
In excess of net
realized gain on
investments...... (0.03) (0.01)
---------- ---------
Total dividends
and
distributions.... (0.90) (1.33)
---------- ---------
Net asset value at
end of year...... $ 10.67 $ 11.67
========== =========
Total investment
return .......... (0.86%) 8.79%
Ratios (to average
net
assets)/Supplemental
Data:
Net investment
income.......... 3.63% 3.55%
Net expenses..... 0.70% 0.60%
Expenses (before
reimbursement).. 0.75% 0.75%
Portfolio turnover
rate............. 128% 101%
Average commission
rate paid........ (b) (b)
Net assets at end
of year
(in 000's)....... $229,079 $258,345
</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.
82
<PAGE>
VALUE EQUITY FUND
===============================================================================
- -------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- -------------------------------------------------------------------------------
. The stock market experienced its third consecutive year of over 20% returns,
with large-capitalization, high P/E stocks accounting for a large percentage
of the gains.
. Despite tremendous gains, the stock market saw expanding volatility,
including two corrections of about 10%, and certain sectors corrected even
more during 1997.
. Asian turmoil dominated the news in the third and fourth quarters, causing
many equity investors to reassess risk and reevaluate earnings prospects
going forward.
. Large financial and pharmaceutical companies generally performed well, while
some HMOs and basic materials companies underperformed.
. With greater attention to the risk side of the investment equation, many
value stocks did well in the fourth quarter and may provide attractive
opportunities going forward.
. The prospects of lower inflation or possible deflation may pose difficulties
for commodity-oriented companies in the future.
- -------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- -------------------------------------------------------------------------------
. One-year returns of 22.63% and 22.28% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. The Fund reduced its position in financial stocks through the first half of
the year, missing part of the second quarter rally, with proceeds invested
largely in utilities.
. The Fund's top 10 holdings as of year end were also its top 10 performers for
the year, including companies such as AT&T, Ford Motor Company, and PG&E, all
of which earned more than 50% for the Fund.
. Both Institutional Class shares and Service Class shares received a four-star
overall rating from Morningstar, Inc.* as of 12/31/97.
In the third consecutive year with stock market returns of over 20%, ten large-
capitalization stocks with high price-to-earnings (P/E) ratios accounted for
about 26% of the S&P 500's total return. At the same time, volatility increased
and the stock market underwent two corrections of about 10%--one in the six
weeks prior to the end of April, the other from the market's peak in July
through the last week of October. Despite broad market gains, many individual
stocks and sectors experienced even larger corrections.
- -------------------------------------------------------------------------------
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.
Price-to-earnings ratio The price of a stock divided by its earnings per share.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Morningstar, Inc. is an independent fund performance monitor. Its ratings
reflect historic risk-adjusted performance, taking into account fees and
other sales charges and may change monthly. Its ratings of 1 (low) to 5
(high) stars are based on a fund's 3-, 5-, and 10-year average annual returns
with fee adjustments in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day Treasury bill monthly
returns. The top 10% of the funds in a rating group may receive 5 stars, the
next 22.5% receive 4 stars, the middle 35% receive 3 stars, the next 22.5%
receive 2 stars, and the bottom 10% receive 1 star. As of 12/31/97, the
individual 3- and 5-year rating for the MainStay Institutional Value Equity
Fund Institutional Class shares were 4 stars and 4 stars, respectively, out
of 2,332 and 1,292 domestic equity funds for the respective period. The
Fund's Service Class shares, introduced 1/1/95, received a 3-year rating of
4 stars out of 2,332 domestic equity funds for the period.
83
<PAGE>
==============================================================================
As interest rates declined after peaking in April, interest-sensitive issues
tended to outperform, with financial stocks providing robust returns, especially
during the second quarter of 1997. Communications stocks and high P/E
pharmaceuticals were also outstanding performers. Other sectors, including basic
materials such as chemicals, paper, forest products, and agriculture, provided
positive returns (some in the double digits), but still underperformed the
market as a whole.
As Asian turmoil developed later in the year, investors began to focus more on
the risk side of the investment equation, and value stocks generally did well in
the fourth quarter. The fallout from the Asian situation may include lower
inflation or possibly even deflation, which may be good for bonds, but bad for
commodity-oriented equities. While volatility may remain high, if the market
moves toward more historical return levels in 1998, value disciplines may
provide opportunities for investors.
Given this context, how did the MainStay Institutional Value Equity Fund
perform in 1997?
For the year ended 12/31/97, the MainStay Institutional Value Equity Fund
returned 22.63% and 22.28% for Institutional Class shares and Service Class
shares, respectively. Both share classes underperformed the average Lipper+
growth & income fund, which returned 27.14% for the year.
Why do you think the Fund underperformed its peers in 1997?
First, I want to point out that returns over 20% are by no means a negative. On
the other hand, several factors impacted the Fund over the course of the year in
a negative way. The Fund started 1997 heavily overweighted in the financial
sector. As those stocks began to reach the Fund's valuation targets, we
decreased the Fund's positions over the first half of the year. Interest-
sensitive issues, however, and financial stocks in particular, had an
outstanding second quarter. So we ended up selling as prices were rising. While
all of the sales were positive for the portfolio, the overall decision to sell
when we did contributed negatively to the Fund's performance relative to its
peers.
What did you do with the proceeds of the Fund's financial stock sales?
We invested most of the proceeds in utility stocks. For the first three quarters
of the year, that also penalized the Fund. But our proprietary research showed
that utilities were generally undervalued and likely to outperform over time.
With some utilities providing about 30% higher yields than Treasuries, we felt
that they were a solid, conservative, and attractive investment. In the fourth
quarter, Asian market turmoil caused many investors to rethink their risk taking
and there was a renewed interest in utilities. The Fund's utility stocks made up
for lost ground, with PG&E up 52% for the year and Long Island Lighting up 46%.
Both were among the Fund's top-ten holdings and the Fund's top-ten performers.
Did the Fund continue to hold any financial stocks that performed well?
Yes. PNC Bank Corp. was up 57% and was also among the Fund's larger holdings.
PNC is a regional bank the Fund held for its above-average earnings growth. In
the fourth quarter, the stock was reevaluated based on its asset value and the
Fund's position has been reduced.
Among insurance issues, the Fund owned Equitable, which benefited from
restructuring, was reevaluated in the
- -------------------------------------------------------------------------------
Volatility Fluctuations in the price of securities or markets, up or down, over
a short period of time.
Correction A shift in security prices that brings them more in line with
historically appropriate levels.
Inflation/deflation An increase in the cost of goods and services over time. As
prices rise, the purchasing power of the dollar declines. Deflation is a
reduction in the cost of goods over time. When deflation occurs, the purchasing
power of the dollar increases.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
+ 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.
84
<PAGE>
================================================================================
marketplace, and returned 103% for the Fund in 1997. We had identified capital
appreciation potential in Allstate, and when earnings accelerated faster than
analysts anticipated, the stock returned 58% for the Fund. The Fund also held a
large position in Travelers through most of the year and the stock was up 80%.
As the stock outperformed, however, we cut back the Fund's position to look for
other issues that had not reached their full potential.
Were there other new value-driven sectors where the Fund was invested?
Yes, the Fund had outstanding success in communications in 1997. We had sold
AT&T several years ago, when the stock was an underperformer. But with recent
management shifts, the company appeared to be focusing more closely on providing
shareholder value, and that captured our attention. At the beginning of the year
the Fund did not own any AT&T. At year-end 1997, AT&T was the Fund's largest
holding and had provided a 90% return for the Fund. GTE was another
communications company we bought that did well, although its progress was
stalled midyear by its entry into the bidding war for MCI. The Fund earned about
25% from GTE in 1997. We believe that over time, the company's asset value may
be unlocked for shareholders, either through proactive management or other
market forces.
Did being value-oriented hurt the Fund in a strong year for growth stocks?
It may have. Some value managers saw opportunities in growth stocks with high
price-to-earnings ratios and simply abandoned value investing to improve their
performance. Although we saw the tremendous rise in pharmaceuticals, technology
stocks, and large-capitalization issues, we did not pursue them because they did
not fit the Fund's strict value investment disciplines. As a result, our
performance may have lagged our peers who chose to abandon the value approach
and invested in some growth opportunities. Of course, being out of technology
helped in the fourth quarter, when many of the largest companies suffered severe
setbacks.
In any event, we stuck closely to the Fund's value approach throughout the year.
We found what we believed to be promising undervalued opportunities among HMOs,
with companies like Aetna, Foundation Health, and CIGNA. Our process showed each
of these issues to have positive value characteristics and we added the stocks
or increased the Fund's positions in them at various points in the year. But the
market was still adjusting to the HMO industry's transition from a growth phase
into a more mature management phase. Despite low P/E ratios, low price to cash
flow ratios, significant free cash flow, proactive management, and other
positive characteristics, Aetna was down 11%, Foundation Health declined 10%,
and CIGNA was flat for the year. Nevertheless, we still believe these stocks may
offer positive potential going forward.
Were there other factors that negatively impacted performance?
Our decision to continue overweighting basic materials had a negative impact on
the Fund's performance. Although fertilizers were a small portion of the Fund,
they had a negative impact on performance. While it is typical for fertilizers
to have cyclical performance, 1997 was the second year in a row fertilizers
provided negative returns.
Chemical stocks and paper and forest products had two significant rallies during
the year, but were underperformers as a group. Many of the Fund's stocks
provided double-digit returns, but did not excel in a market that was up more
than 33%.
- --------------------------------------------------------------------------------
Price to cash flow ratio The relationship between the price of a stock and the
amount of free cash flow the company is able to generate.
Cyclical stock A stock that tends to rise quickly with economic upturns and
fall quickly when the economy slows. Noncyclical industries, such as food,
insurance, and pharmaceuticals, are likely to have more consistent performance
regardless of economic changes.
- --------------------------------------------------------------------------------
85
<PAGE>
================================================================================
Georgia Pacific was a good example. Their proactive management agreed to split
the company into two parts to unlock value for shareholders. That's the kind of
value catalyst that we look for, and the Fund bought Georgia Pacific during the
year. Yet even though the stock did well, it underperformed the market as a
whole.
What other stocks did the Fund buy in 1997?
We bought utilities for the Fund. In fact, in 1997 we increased utilities from
4% to 11% of the Fund. We saw real value in this sector and recognized that
segmenting and separating underperforming assets would help investors identify
where the real opportunities could be found. The utilities sector as a whole did
very well for the Fund's investment portfolio in the fourth quarter, even though
we lost some opportunity by being overweighted in utilities earlier in the year
when this sector underperformed.
What were the Fund's most significant sales during the year?
The Fund had two types of sales. First were stocks that approached or met the
Fund's valuation targets and were sold as part of the Fund's investment
discipline to seek better opportunities. Others were stocks that performed below
expectations or whose fundamentals had changed.
In the first category, the Fund had holdings like Chubb, Travelers, Wells Fargo,
Allstate, Equitable, NationsBank, Banc One, and PNC. All of them were strong
performers for the Fund but were sold as they increased in value. Because of
their strength, we generally reduced the Fund's position rather than eliminate
it entirely. AIG, however, fully reached the Fund's target price and increased
its price-to-earnings ratio to the point where it looked more like a growth
stock than a value stock. As a result, we sold the Fund's entire position with a
very positive impact on performance.
Among cyclical stocks, we saw some companies with fundamentals that were
starting to dissipate. We reduced the Fund's position in Tenneco and Goodyear
Tire. In paper products, we sold Temple Inland and Rayonier, and among chemical
firms, we cut back on Lyondell. All of these sales had a positive impact and
were appropriate given their changing value characteristics.
Were there other positive value stories among stocks the Fund held throughout
the year?
Yes. Ford Motor Company was one of the Fund's largest holdings in 1997, based on
the same value criteria we use for all of the Fund's stocks. As earnings
estimates were revised upward during the year by more than 50%, the stock
brought in a 57% return for the Fund, which included an attractive 5% dividend
yield. Owens Illinois is another large holding that did exceptionally well, and
we added to the Fund's position during the year. Their strategy of acquiring
companies that add to earnings paid off in 1997 with a 67% return for the year.
What's your outlook for 1998?
We believe the Asian turmoil may have a positive impact on value investing by
making investors more aware of the risk side of the investment equation. At year
end we were still attracted to utility stocks, which we believed to be
undervalued. The impact of Asian difficulties may be greater than we originally
anticipated in the basic materials markets, and particularly for commodity
companies, so we are reevaluating our exposure in those areas. On the whole,
however, we remain bullish on deep value stocks, not only for their capital
appreciation potential, but also for the income many provide, which could act as
a cushion if the market should decline or remain flat. While we're not making
any predictions, we feel these considerations deserve careful attention after a
seven-year bull market and three consecutive years of equity market returns over
20%.
Denis Laplaige
Jeffrey A. Simon
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
86
<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
91 13,660 13,047
92 16,489 14,040
93 18,945 15,456
94 19,177 15,660
95 24,819 21,546
96 33,749 31,955
97 37,255 35,331
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
VALUE EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE VALUE EQUITY FUND S&P 500 INDEX
---- ----------------- -------------
<S> <C> <C>
1/2/91 10,000 10,000
91 13,660 13,047
92 16,489 14,040
93 18,945 15,456
94 19,177 15,660
95 24,799 21,546
96 33,584 31,955
97 37,024 35,331
</TABLE>
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, 1997 as of December 31, 1997
- ---------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Equity Fund Institutional Class 22.63% 22.63% 17.71% 20.65%
Value Equity Fund Service Class+ 22.28% 22.28% 17.56% 20.54%
Average Lipper Growth & Income Fund 27.14% 27.14% 17.53% 17.83%
S&P 500 Stock Index 33.36% 33.36% 20.27% 19.76%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year end Total Return %*
-------- ---------------
<S> <C>
1991 36.60
1992 20.71
1993 14.90
1994 1.22
1995 29.42
1996 22.41
1997 22.63
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Common Stocks 94.35%
Cash, Equivalents & Other Assets 5.65%++
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. AT&T Corp. 3.34%
2. Ford Motor Co. 2.37%
3. RJR Nabisco Holdings Corp. 2.19%
4. FPL Group, Inc. 2.18%
5. Long Island Lighting Co. 2.13%
6. Central and South West Corp. 2.10%
7. PG&E Corp. 2.10%
8. Bowater Inc. 1.85%
9. Columbia/HCA Healthcare Corp. 1.85%
10. Transamerica Corp. 1.80%
</TABLE>
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Utilities 11.03%
2. Banks 7.42%
3. Health Care 6.33%
4. Insurance 5.24%
5. Retail 5.18%
</TABLE>
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ 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.
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%.
++ Adjusted for liabilities.
87
<PAGE>
VALUE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
COMMON STOCKS (94.4%)+
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
AIRLINES (2.2%)
AMR Corp. (a)........................................ 86,800 $ 11,153,800
Northwest Airlines Corp.
Class A (a)......................................... 216,800 10,379,300
--------------
21,533,100
--------------
AUTO MANUFACTURING (2.4%)
Ford Motor Co. ...................................... 485,400 23,632,912
--------------
AUTO PARTS (4.0%)
Echlin Inc. ......................................... 461,100 16,686,056
LucasVarity PLC ADR (b).............................. 358,000 12,485,250
Mark IV Industries, Inc. ............................ 474,025 10,369,297
--------------
39,540,603
--------------
BANKS (7.4%)
Banc One Corp. ...................................... 278,800 15,142,325
Bankers Trust New
York Corp. ......................................... 98,700 11,097,581
Chase Manhattan Corp. ............................... 88,200 9,657,900
NationsBank Corp. ................................... 205,820 12,516,429
Norwest Corp. ....................................... 20,000 772,500
PNC Bank Corp. ...................................... 239,000 13,637,937
Wells Fargo & Co. ................................... 32,600 11,065,663
--------------
73,890,335
--------------
CAPITAL GOODS (1.6%)
Xerox Corp. ......................................... 212,700 15,699,919
--------------
CHEMICALS (4.0%)
Agrium Inc. ......................................... 814,300 9,924,281
Georgia Gulf Corp. .................................. 331,700 10,158,312
IMC Global Inc....................................... 402,260 13,174,015
Imperial Chemical Industries, PLC ADR (b)............ 70,100 4,552,119
PPG Industries, Inc. ................................ 35,900 2,050,788
--------------
39,859,515
--------------
COMPUTERS & OFFICE EQUIPMENT (2.0%)
Ceridian Corp. (a)................................... 150,100 6,876,456
Lexmark International Group, Inc. Class A (a)........ 353,500 13,433,000
--------------
20,309,456
--------------
CONGLOMERATES (2.8%)
American Standard Cos.
Inc. (a)............................................ 391,000 14,980,188
Tenneco Inc.......................................... 315,600 12,466,200
--------------
27,446,388
--------------
CONTAINERS (2.8%)
Crown Cork & Seal Co., Inc. ......................... 213,600 10,706,700
Owens-Illinois Inc. (a).............................. 460,600 17,474,012
--------------
28,180,712
--------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
DOMESTIC OIL (2.9%)
Amerada Hess Corp. ................................. 159,800 $ 8,769,025
Noble Affiliates, Inc. ............................. 185,700 6,545,925
Unocal Corp......................................... 343,000 13,312,687
--------------
28,627,637
--------------
ENERGY (4.2%)
Coastal Corp. (The)................................. 213,100 13,198,881
MAPCO Inc........................................... 375,100 17,348,375
Seagull Energy Corp. (a)............................ 547,000 11,281,875
--------------
41,829,131
--------------
FINANCE (3.0%)
Transamerica Corp................................... 168,500 17,945,250
Travelers Group Inc................................. 212,652 11,456,626
--------------
29,401,876
--------------
FOOD (0.9%)
IBP, Inc............................................ 426,400 8,927,750
--------------
FOOD, BEVERAGES & TOBACCO (4.9%)
Philip Morris Cos. ................................. 282,000 12,778,125
RJR Nabisco Holdings Corp. ......................... 580,700 21,776,250
UST Inc. ........................................... 389,300 14,379,769
--------------
48,934,144
--------------
HEALTH CARE (6.3%)
Aetna Inc. ......................................... 241,600 17,047,900
Allegiance Corp. ................................... 314,000 11,127,375
Columbia/HCA
Healthcare Corp. .................................. 620,600 18,385,275
Foundation Health Systems, Inc. Class A (a)......... 732,500 16,389,688
--------------
62,950,238
--------------
HOUSEHOLD PRODUCTS (0.7%)
Premark International, Inc. ........................ 237,000 6,873,000
--------------
INSURANCE (5.2%)
Allstate Corp. (The)................................ 175,171 15,918,665
Chubb Corp. ........................................ 142,400 10,769,000
CIGNA Corp. ........................................ 57,300 9,916,481
Equitable Cos., Inc. (The).......................... 312,500 15,546,875
--------------
52,151,021
--------------
INTERNATIONAL OIL (2.6%)
British Petroleum Co., PLC
ADR (b)............................................ 132,000 10,518,750
Occidental Petroleum Corp. ......................... 534,900 15,679,256
--------------
26,198,006
--------------
PAPER & FOREST PRODUCTS (5.1%)
Bowater Inc. ....................................... 413,800 18,388,237
Chesapeake Corp. ................................... 216,900 7,455,938
Georgia-Pacific Corp. .............................. 187,800 11,408,850
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
88
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
COMMON STOCKS (Continued)
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (Continued)
Georgia-Pacific Corp.
(Timber Group) (a)................................. 338,200 $ 7,672,913
Rayonier Inc. ...................................... 125,250 5,330,953
--------------
50,256,891
--------------
RAILROADS (4.0%)
CSX Corp. .......................................... 327,400 17,679,600
Illinois Central Corp. ............................. 363,700 12,388,531
Union Pacific Corp.................................. 157,700 9,846,394
--------------
39,914,525
--------------
RECREATION & ENTERTAINMENT (1.3%)
Harrah's Entertainment,
Inc. (a)........................................... 687,000 12,967,125
--------------
RETAIL (5.2%)
Federated Department Stores, Inc. (a)............... 398,600 17,164,712
Kroger Co. (a)...................................... 254,800 9,411,675
Penney (J.C.) Co., Inc. ............................ 116,700 7,038,469
Toys "R" Us, Inc. (a)............................... 570,400 17,931,950
--------------
51,546,806
--------------
TECHNOLOGY (1.2%)
International Business
Machines Corp. .................................... 111,500 11,658,719
--------------
TELECOMMUNICATION (3.3%)
AT&T Corp. ......................................... 542,900 33,252,625
--------------
TELECOMMUNICATION SERVICES (1.3%)
GTE Corp. .......................................... 246,800 12,895,300
--------------
TEXTILE & APPAREL (0.9%)
Burlington Industries,
Inc. (a)........................................... 414,900 5,730,806
Reebok International Ltd. (a)....................... 101,900 2,935,994
--------------
8,666,800
--------------
TIRE & RUBBER (1.0%)
Goodyear Tire & Rubber
Co. (The).......................................... 159,900 10,173,638
--------------
TRANSPORTATION (0.2%)
Arkansas Best Corp. (a)............................. 202,400 1,973,400
--------------
UTILITIES (11.0%)
Central & South West Corp........................... 773,400 20,930,138
FPL Group, Inc...................................... 366,300 21,680,381
GPU, Inc. .......................................... 52,800 2,224,200
Long Island Lighting Co. ........................... 704,100 21,211,013
Northeast Utilities................................. 90,000 1,063,125
PECO Energy Co. .................................... 497,400 12,061,950
PG&E Corp. ......................................... 685,500 20,864,906
Pinnacle West Capital Corp. ........................ 229,200 9,712,350
--------------
109,748,063
--------------
Total Common Stocks
(Cost $763,343,360)................................ 939,039,635
--------------
</TABLE>
SHORT-TERM INVESTMENTS (7.3%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
COMMERCIAL PAPER (7.3%)
American Express Credit Corp.
6.05%, due 1/5/98.............................. $36,755,000 $ 36,755,000
Ford Motor Credit Co.
6.15%, due 1/2/98.............................. 25,000,000 25,000,000
Prudential Funding Corp.
5.85%, due 1/6/98.............................. 10,869,000 10,869,000
--------------
Total Short-Term Investments
(Cost $72,624,000)............................. 72,624,000
--------------
Total Investments
(Cost $835,967,360) (c)........................ 101.7% 1,011,663,635 (d)
Liabilities in Excess of Cash
and Other Assets............................... (1.7) (16,433,830)
----------- --------------
Net Assets...................................... 100.0% $ 995,229,805
=========== ==============
</TABLE>
- --------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost for Federal income tax purposes is $836,610,583.
(d) At December 31, 1997, net unrealized appreciation was $175,053,052, 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 $196,040,243 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $20,987,191.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
89
<PAGE>
VALUE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $835,967,360)................................ $1,011,663,635
Receivables:
Dividends and interest......................................... 2,524,639
--------------
Total assets................................................. 1,014,188,274
--------------
LIABILITIES:
Payables:
Investment securities purchased................................ 9,859,322
Fund shares redeemed........................................... 8,204,922
MainStay Management............................................ 713,255
Transfer agent................................................. 53,194
Custodian...................................................... 23,570
Accrued expenses............................................... 104,206
--------------
Total liabilities............................................ 18,958,469
--------------
Net assets..................................................... $ 995,229,805
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................ $ 60,172
Institutional Service Class.................................... 674
Additional paid-in capital..................................... 794,040,625
Accumulated undistributed net investment income................ 5,790
Accumulated undistributed net realized gain on investments..... 25,426,269
Net unrealized appreciation on investments..................... 175,696,275
--------------
Net assets..................................................... $ 995,229,805
==============
Institutional Class
Net assets applicable to outstanding shares.................... $ 984,220,306
==============
Shares of capital stock outstanding............................ 60,172,073
==============
Net asset value per share outstanding.......................... $ 16.36
==============
Institutional Service Class
Net assets applicable to outstanding shares.................... $ 11,009,499
==============
Shares of capital stock outstanding............................ 673,539
==============
Net asset value per share outstanding.......................... $ 16.35
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (a).................................................... $ 18,559,684
Interest......................................................... 1,777,573
------------
Total income................................................... 20,337,257
------------
Expenses:
Administration................................................... 4,819,937
Advisory......................................................... 2,008,307
Management....................................................... 941,883
Transfer agent................................................... 243,708
Shareholder communication........................................ 136,223
Professional..................................................... 125,778
Custodian........................................................ 87,010
Registration..................................................... 54,976
Service.......................................................... 38,173
Directors........................................................ 28,243
Miscellaneous.................................................... 28,211
------------
Total expenses................................................. 8,512,449
------------
Net investment income............................................ 11,824,808
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments................................. 153,566,785
Net change in unrealized appreciation on investments............. 19,142,088
------------
Net realized and unrealized gain on investments.................. 172,708,873
------------
Net increase in net assets resulting from operations............. $184,533,681
============
</TABLE>
- --------
(a) Dividends recorded net of foreign withholding taxes of $53,465.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
90
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
VALUE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 11,824,808 $ 11,990,048
Net realized gain on investments.................. 153,566,785 84,508,224
Net change in unrealized appreciation on
investments...................................... 19,142,088 50,724,771
------------ ------------
Net increase in net assets resulting from
operations....................................... 184,533,681 147,223,043
------------ ------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class.............................. (11,794,002) (11,732,570)
Institutional Service Class...................... (93,075) (189,419)
From net realized gain on investments:
Institutional Class.............................. (143,738,757) (72,015,324)
Institutional Service Class...................... (1,600,702) (1,288,651)
------------ ------------
Total dividends and distributions to
shareholders................................... (157,226,536) (85,225,964)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 182,364,147 174,875,420
Institutional Service Class...................... 4,997,992 10,412,344
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class.............................. 155,256,205 83,668,524
Institutional Service Class...................... 1,693,777 1,478,062
------------ ------------
344,312,121 270,434,350
Cost of shares redeemed:
Institutional Class.............................. (200,632,469) (101,781,417)
Institutional Service Class...................... (12,233,644) (1,135,271)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 131,446,008 167,517,662
------------ ------------
Net increase in net assets....................... 158,753,153 229,514,741
NET ASSETS:
Beginning of year................................. 836,476,652 606,961,911
------------ ------------
End of year....................................... $995,229,805 $836,476,652
============ ============
Accumulated undistributed net investment income... $ 5,790 $ 68,059
============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
91
<PAGE>
VALUE EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------- ------------- -----------------------
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 15.87 $ 15.85 $ 14.43 $ 14.43 $ 11.58 $ 11.58 $ 12.40 $ 14.16
-------- -------- -------- -------- -------- -------- -------- --------
Net investment
income.......... 0.23 0.16 0.25 0.23 0.21 0.20 0.17 0.16
Net realized and
unrealized gain
(loss) on
investments..... 3.31 3.32 2.98 2.96 3.20 3.20 (0.02) 1.63
-------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations...... 3.54 3.48 3.23 3.19 3.41 3.40 0.15 1.79
-------- -------- -------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
From net
investment
income.......... (0.23) (0.16) (0.25) (0.23) (0.21) (0.20) (0.17) (0.37)
From net realized
gain on
investments..... (2.82) (2.82) (1.54) (1.54) (0.35) (0.35) (0.80) (3.18)
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends
and
distributions... (3.05) (2.98) (1.79) (1.77) (0.56) (0.55) (0.97) (3.55)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value
at end of year.. $ 16.36 $ 16.35 $ 15.87 $ 15.85 $ 14.43 $ 14.43 $ 11.58 $ 12.40
======== ======== ======== ======== ======== ======== ======== ========
Total investment
return ......... 22.63% 22.28% 22.41% 22.10% 29.42% 29.32% 1.22% 14.90%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 1.30% 1.05% 1.70% 1.45% 1.64% 1.39% 1.50% 1.38%
Net expenses.... 0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92% 0.90%
Expenses (before
reimbursement).. 0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92% 0.93%
Portfolio
turnover rate... 66% 66% 50% 50% 51% 51% 43% 83%
Average
commission rate
paid............ $ 0.0592 $ 0.0592 $ 0.0594 $ 0.0594 (a) (a) (a) (a)
Net assets at end
of year
(in 000's)...... $984,220 $ 11,010 $821,725 $ 14,752 $603,749 $ 3,213 $396,537 $305,060
</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.
92
<PAGE>
BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Interest rates remained relatively stable during the first half of 1997,
despite a Federal Reserve Board move to raise interest rates 25 basis points
at the end of March.
. In the second half of the year, expectations of slowing economic growth and a
budget surplus along with low inflation caused interest rates to decline and
bond prices to rally.
. The yield curve flattened in the second half of 1997, as foreign central
banks sold U.S. short-term securities to raise cash to defend their
currencies. Long-term U.S. government securities outperformed on expectations
of reduced inflation and slower economic growth.
. Corporate bonds, which were relatively strong in the first half of 1997,
underperformed in the second half of the year.
. Fiscal problems in Southeast Asia led to a flight to quality, which helped
the rally in long-term bonds.
. The reduction in the United States budget deficit led many investors to
rethink supply and demand dynamics as fewer government securities may be
required to fund a smaller deficit.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 8.57% and 8.21% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Both share classes outperformed the average Lipper* intermediate U.S.
government fund, which returned 8.08% for the year ended 12/31/97.
. The Institutional Class shares and Service Class shares ranked 47 and 57 out
of 123 funds, respectively, for the year ended 12/31/97.
. The Fund benefited from a neutral duration during the first half of the year
and a longer duration during the second half of 1997.
. The Fund also benefited from shifting opportunities among older and newer
issues and a movement out of mortgage-related issues into government and
agency securities.
. Asset-backed securities accounted for as much as 20% of the portfolio in the
first half of the year. The Fund profited by reducing this position by 10%
early in the second half of the year in anticipation of increased volatility
and prepayment concerns.
As years go, 1997 had a relatively split personality. During the first half of
the year, bonds traded in a relatively narrow range, despite the Federal Reserve
Board's move to raise interest rates 25 basis points at the end of March.
Opportunities among Treasury securities were limited, shifting the market's
focus toward yield-enhancing securities, such as corporates, mortgage-backed and
asset-backed securities, and collateralized mortgage obligations.
- --------------------------------------------------------------------------------
Basis point One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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.
93
<PAGE>
================================================================================
In the second half of the year, expectations of slowing economic growth, reduced
budget deficits and continued low inflation led to a bond price rally as yields
declined. At the same time, however, declining yields raised the specter of
prepayments in mortgage-backed and asset-backed securities, making these sectors
less attractive to investors.
Problems in the economies of several Asian nations led both domestic and foreign
investors to pursue higher-quality investments, which contributed to a rally in
long-term U.S. government bonds and underperformance in other sectors, including
corporate bonds. The full impact of the Asian turmoil on corporate bonds,
particularly those of multinational companies, has yet to be seen.
Meanwhile, fiscal strength in the United States resulted in a strong dollar
worldwide. This combined with high inflation-adjusted returns to make U.S. bonds
attractive to foreign investors. A declining U.S. budget deficit reduced the
amount of bonds the government may need to issue, shifting supply and demand
dynamics in the government securities market.
Given this context, how did the MainStay Institutional Bond Fund do in 1997?
For the year ended 12/31/97, the MainStay Institutional Bond Fund returned 8.57%
and 8.21% for Institutional Class shares and Service Class shares, respectively.
Both share classes ranked in the top 50% of all Lipper intermediate U.S.
government funds, with the average peer fund returning 8.08% for the year.
How did you manage the Fund's duration over the course of the year?
As portfolio managers, we adapted the Fund's duration to the market environment.
In the first half of the year, there were few opportunities to benefit from the
yield curve or duration plays, so the Fund maintained a relatively neutral
duration. In the second half of the year, the yield curve flattened
substantially as selling by foreign central banks put pressure on short-term
rates. With expectations of slower economic growth and low inflation, we
lengthened the Fund's duration to about 5.6 years, which is where the Fund stood
at year end. This strategy proved successful, as problems developed in the
Pacific Rim and many investors sought a safe haven in high-quality, long-term
bonds.
Which types of securities did you emphasize in the portfolio?
Once again, the Fund had to adapt to changing market conditions. In the first
half of the year, there were very few opportunities to increase value with
government securities, so we moved the Fund out of Treasuries and increased its
positions among yield-enhancing bonds, including corporates, mortgage-backed
securities, asset-backed bonds, and unleveraged collateralized mortgage
obligations (CMOs). When opportunities arose, the Fund took profits in CMOs, and
also invested some of its assets in low-balance mortgage loans.
- --------------------------------------------------------------------------------
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.
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).
Asset-backed securities Bonds or notes backed by loan paper or an anticipated
income stream from the sale of merchandise or services. The bonds are generally
originated by banks, credit card companies, or other providers of credit and
often "enhanced" by a bank letter of credit or by insurance from an institution
other than the issuer.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
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.
- --------------------------------------------------------------------------------
94
<PAGE>
================================================================================
What are low-balance mortgage loans?
They are securities which are rated AAA,+ and principally backed by smaller
nonconforming, limited-documentation mortgages to self-employed individuals. The
focus is on individuals with impeccable credit credentials. Since the borrowers
generally pay about 100 basis points over standard mortgages, we found them very
attractive for the Fund. While more investors are now beginning to see the
opportunities in these securities, the Fund was among the early investors and
did well with them.
Were there other securities that attracted your attention through the first half
of the year?
Yes. The Fund invested in manufactured housing loans which were rated AAA, and
home equity loans of similar quality. Both were positive contributors to the
Fund's performance.
How did the economic environment change in the second half of the year?
In the second half of 1997, several factors converged to cause bonds to perform
very well. Over the course of 1997, yields declined 85 basis points for the 30-
year U.S. Treasury bond and 40 basis points for 2-year Treasuries. Since bond
prices rise when yields decline, this was positive for the Fund's overall
performance, particularly since the Fund was invested in longer-duration bonds.
In fact, the last four months of the year generated all of the increase in price
and over 50% of the total return in the bond market. While the economic and
inflation picture remained relatively positive, problems in Asia caused a flight
to quality, which created heavy demand among government securities and helped
contribute to declining yields.
How did the bond rally affect risk in the market for income securities?
In general, with yields declining, prepayment risk increased. So we decided to
trim the Fund's holdings in mortgage-backed and asset-backed securities. The
Fund maintained small positions in commercial asset-backed securities and CMOs,
where prepayment risk is generally lower. We believe we made the right call on
mortgage-backed securities, as they underperformed over the second half of the
year.
Where did you invest the money from the sale of mortgage-backed and asset-backed
securities?
Primarily into Treasury securities. In the second half of the year, the Fund was
able to capitalize on several technical opportunities to switch between newer
and older government issues and back again, based on shifting supply and demand
characteristics in the market. The positive impact on overall performance was
enhanced by the Fund's longer duration strategy.
Were there other securities that you bought for the Fund in the second half of
the year?
We also purchased some agency securities for the Fund. In October, rising credit
concerns caused yield spreads on all non-Treasury investments to widen about 15
basis points. At that time, we saw opportunities in bullet 5-year agency
securities. We also increased the Fund's position in paper issued by the Federal
National Mortgage
- --------------------------------------------------------------------------------
Duration A measure of price sensitivity, 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.
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
Agency securities Securities issued by U.S. government agencies and federally
related institutions. These securities are exempt from SEC registration and
from state and local taxes.
Bullet securities Noncallable bonds that do not have potential yield-enhancing
features.
Paper Debt instrument issued by a corporation or other issuer. The term is
also used to refer to commercial paper, which is unsecured short-term corporate
debt.
Yankee bonds Dollar-denominated bonds issued in the United States by foreign
banks and corporations, usually when conditions in the U.S. are more favorable
than in other markets, including the issuer's domestic market overseas.
Weighting/Overweighted 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ Debt rated AAA has the highest rating assigned by Standard & Poor's, and
according to Standard & Poor's the capacity for these securities to pay
interest and repay principal is extremely strong.
95
<PAGE>
================================================================================
Association, which offered attractive characteristics with limited prepayment
concerns. Both have performed in line with our expectations, contributing
positively to the Fund's performance.
How did the Fund's corporate bonds perform?
Although corporates, particularly Yankee bonds, financial issues, and
telecommunications issues, performed relatively well in the first half of the
year, corporate bonds were the weak spot in the bond market during the second
half of the year. October was one of the worst months of the decade for the
performance of the corporate bond market. The bond market's best performers in
the second half of the year were banks, where the Fund was overweighted, and
utilities, where credit concerns caused us to maintain an underweighted position
for the Fund.
How did the Fund's Yankee bonds perform?
The Fund's Yankee holdings performed well in the first half of the year. In the
second half of the year, however, the Fund had a slightly overweighted position
in Korean paper that suffered a downgrade. Although we sold it before the
downgrade occurred, it had a negative impact on the Fund's performance, even
though Yankee bonds have no currency exposure. The Fund had other Yankee
holdings that performed better, but not enough to overshadow the Korean
difficulty.
Has the portfolio maintained its high quality rating?
Yes it has. At the end of 1997, the securities in the Fund had an average
weighted quality rating of AA+ overall++. The Fund seeks to take advantage of
opportunities as they arise, but as managers, we do not seek to enhance yield at
the expense of compromising the quality of the Fund's investments.
Do you have any regrets regarding 1997?
Not really, we believe we acted prudently throughout the year, adjusting the
Fund's holdings to reflect the shifting opportunities as they arose. Of course,
there may have been some opportunities we missed, but overall, we believe
mortgage-backed securities were the best investments in the first half of the
year, and Treasuries were best in the second half of the year. Since that was
where the Fund was primarily invested, we have no particular regrets.
What do you see on the horizon?
Going forward, we believe the economy will continue to slow, at least for the
first six months of 1998, reflecting the impact of the Asian crisis. The
decreasing budget deficit may reduce the need for Treasury financing and unless
demand slackens, the reduced supply should have a positive effect on Treasuries.
We also believe that stability on the inflation front will generally be good for
the bond market. At the same time, we're concerned that strong performance in
the bond market may cause some investors to become complacent. With unemployment
at such low levels, there remains the possibility that wage hikes could
negatively impact profits, and ultimately create inflationary pressure. So we
are keeping our eyes open and carefully monitoring market developments.
Do you think the Southeast Asian situation will have a major effect on the
markets?
It certainly has caused many investors to rethink their positions on risk. We
will have to wait and see how severe the fallout will be for international
markets and the U.S. economy. The flight to quality has had a positive impact on
funds like ours, which as of the end of 1997 were positioned for high quality
and long duration. Regardless of how things develop on the international front,
the Fund will continue to seek to maximize total return, consistent with
liquidity, low risk to principal, and investment in debt securities.
Ravi Akhoury
Edward Munshower
Portfolio Managers
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
++ Debt rated AA+ by Standard & Poor's is considered by Standard & Poor's to
have a very strong capacity to pay interest and repay principal, and
differs from the highest rated issues only in small degree. The + indicates
that the securities are somewhat stronger than those rated AA alone.
96
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
BOND FUND VS LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
LEHMAN BROTHERS
DATE BOND FUND INSTITUTIONAL GOV'T/CORP BOND INDEX
------- ----------------------- ---------------------
<S> <C> <C>
1/02/91 10,000 10,000
1991 11,400 11,613
1992 12,128 12,494
1993 13,310 13,873
1994 12,870 13,388
1995 15,170 15,963
1996 15,595 16,426
1997 16,931 18,029
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
BOND FUND VS LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
LEHMAN BROTHERS
DATE BOND FUND GOV'T/CORP BOND INDEX
------- --------- ---------------------
<S> <C> <C>
1/02/91 10,000 10,000
1991 11,400 11,613
1992 12,128 12,494
1993 13,310 13,873
1994 12,870 13,388
1995 15,128 15,963
1996 15,525 16,426
1997 16,799 18,029
</TABLE>
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, 1997 as of December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund Institutional Class 8.57% 8.57% 6.90% 7.81%
Bond Fund Service Class+ 8.21% 8.21% 6.73% 7.69%
Average Lipper Intermediate U.S.
Government Fund 8.08% 8.08% 6.00% 7.26%
Lehman Brothers Gov't/Corporate Bond Index 9.76% 9.76% 7.61% 8.78%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
YEAR END TOTAL RETURN %*
-------- ---------------
<S> <C>
1991 14.00
1992 6.39
1993 9.74
1994 (3.31)
1995 17.88
1996 2.80
1997 8.57
</TABLE>
QUALITY BREAKDOWN++
(% of bonds as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Government/Agency 46.99%
AAA 31.79%
AA 4.01%
A 11.69%
BBB 5.52%
-------
100.00%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
U.S. Government &
Federal Agencies 45.32%
Domestic Bonds 24.21%
Cash, Equivalents &
Other Assets 3.56%(S)
Other Asset-Backed/
Mortgage-Backed
Securities 25.83%
Certificates of Deposit 1.08%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. US Treasury Bond, 11/25/27, 6.125% 13.26%
2. US Treasury Note, 11/15/04, 7.875% 6.24%
3. US Treasury Bond, 8/15/13, 12.00% 5.35%
4. FNMA, 7/23/99, 5.96% 4.76%
5. US Treasury Bond, 2/15/25, 7.625% 4.31%
6. Hydro-Quebec, 7/7/24, 8.05% 3.39%
7. Green Tree Financial Corp., 2/15/18, 6.49% 2.72%
8. FNMA #73915, 1/1/07, 6.87% 2.26%
9. US Treasury Note, 2/15/03, 6.25% 2.22%
10. PNC Mortgage Sec. Corp., 7/25/27, 6.60% 2.02%
- --------------------------------------------------------------------------------
<CAPTION>
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. US Government & Federal Agencies 45.32%
2. Banks 7.46%
3. Commercial Mortgages 6.53%
4. Consumer Loans 5.53%
5. Industrial 4.02%
</TABLE>
Average Maturity 9.4 years
(as of 12/31/97)
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ 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.
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.
(S) Adjusted for liabilities.
97
<PAGE>
BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
LONG-TERM INVESTMENTS (96.5%)+
ASSET-BACKED
SECURITIES (15.5%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
AIRCRAFT LEASES (1.1%)
Aircraft Lease Portfolio Securitization Ltd.
Series 1996-1 Class C
7.35%, due 6/15/06 (a).............................. $ 1,982,257 $ 1,982,257
------------
AUTO LEASES (2.0%)
Nissan Auto Receivables Grantor Trust
Series 1997-A Class A
6.15%, due 2/15/03.................................. 3,674,656 3,673,333
------------
CONSUMER LOANS (5.5%)
BankBoston Recreational Vehicle Asset-Backed Trust
Series 1997-1 Class A10 6.39%, due 1/15/03.......... 2,025,000 2,031,845
Chase Manhattan Recreational Vehicle Owner Trust
Series 1997-A Class A5 6.05%, due 11/15/04.......... 2,025,000 2,020,970
Green Tree Recreational Equipment & Consumer Trust
Series 1997-C Class A1 6.49%, due 2/15/18........... 5,017,547 5,035,810
NationsCredit Grantor Trust Series 1997-2 Class A2
6.25%, due 11/15/13................................. 1,157,996 1,158,957
------------
10,247,582
------------
CREDIT CARD RECEIVABLES (1.3%)
Standard Credit Card
Master Trust
Series 1995-4 Class A
5.975%, due 2/15/00 (a)............................. 2,375,000 2,375,095
------------
RATE REDUCTION BONDS (3.1%)
California Infrastructure & Economic Development Bank
Special Purpose Trust San Diego Gas & Electric-1
Series 1997-1 Class A2
6.04%, due 3/25/02.................................. 3,340,000 3,340,835
Series 1997-1 Class A6
6.31%, due 9/25/08.................................. 2,440,000 2,452,517
------------
5,793,352
------------
EQUIPMENT LOANS (2.5%)
Case Equipment Loan Trust Series 1997-A Class A3
6.45%, due 3/15/04.................................. 2,865,000 2,882,333
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
EQUIPMENT LOANS (Continued)
Newcourt Receivables Asset Trust
Series 1996-2 Class A
6.87%, due 6/20/04................................... $ 898,799 $ 902,844
Series 1996-3 Class A
6.24%, due 12/20/04.................................. 793,386 791,704
------------
4,576,881
------------
Total Asset-Backed Securities (Cost $28,593,307)...... 28,648,500
------------
CERTIFICATE OF DEPOSIT (1.1%)
BANKS (1.1%)
Mercantile Safe Deposit & Trust Co., Baltimore, MD
6.30%, 8/16/99....................................... 2,000,000 2,007,400
------------
Total Certificate of Deposit (Cost $2,000,000)........ 2,007,400
------------
CORPORATE BONDS (18.4%)
BANKS (6.4%)
Banc One Corp.
7.60%, due 5/1/07.................................... 1,500,000 1,612,260
Bankers Trust New York Corp. 6.70%, due 10/1/07 (g)... 1,520,000 1,518,282
Capital One Bank
7.15%, due 9/15/06................................... 2,475,000 2,523,807
First National Bank Commerce 6.50%, due 1/14/00....... 2,000,000 2,015,340
MBNA American Bank, N.A. 7.25%, due 9/15/02........... 2,000,000 2,057,940
SouthTrust Bank of Alabama (Birmingham)
7.69%, due 5/15/25................................... 1,875,000 2,087,569
------------
11,815,198
------------
BROKERAGE (2.1%)
Lehman Brothers Holdings, Inc. 7.375%, due 5/15/07.... 2,000,000 2,094,760
Salomon, Inc.
6.70%, due 7/5/00.................................... 1,715,000 1,734,157
------------
3,828,917
------------
FINANCE (3.5%)
AB Spintab
7.50%, due 8/14/49 (d)............................... 1,395,000 1,436,292
7.9391%, beginning 8/14/06
Associates Corp. of North America
5.96%, due 5/15/37................................... 1,610,000 1,639,044
Integra Financial Corp. 6.50%, due 4/15/00............ 3,445,000 3,472,009
------------
6,547,345
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
98
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
CORPORATE BONDS (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
INDUSTRIAL (4.0%)
Dayton Hudson Co. 5.895%, due 6/15/37................. $ 2,585,000 $ 2,605,628
Merck & Co., Inc.
Series B
5.76%, due 5/3/37 (g)................................ 900,000 921,591
Philip Morris Cos., Inc. 7.25%, due 1/15/03........... 2,490,000 2,568,908
Sears Roebuck Acceptance Corp. Series IV
6.36%, due 12/4/01 (g)............................... 1,360,000 1,363,618
------------
7,459,745
------------
TRANSPORTATION (1.1%)
Norfolk Southern Corp. 7.05%, due 5/1/37.............. 2,025,000 2,147,229
------------
UTILITIES--TELEPHONE (1.3%)
BellSouth Capital Funding Corp. 6.04%, due 11/15/26... 2,345,000 2,386,671
------------
Total Corporate Bonds (Cost $33,655,356).............. 34,185,105
------------
MORTGAGE-BACKED SECURITIES (10.4%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS)
(6.5%)
Asset Securitization Corp. Series 1997-D5 Class A1C
6.75%, due 2/14/41................................... 1,975,000 2,016,850
Bear Stearns Mortgage Securities, Inc.
Series 1996-4 Class AI2 10.50%, due 9/25/27.......... 812,299 845,294
GS Mortgage Securities Corp. II Series 1997-GL Class
A2B 6.86%, due 7/13/30............................... 1,610,000 1,653,615
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C2 Class A1 7.3437%, due 6/15/21 (a)..... 2,113,300 2,150,178
PNC Mortgage Securities Corp. Series 1997-6 Class A2
6.60%, due 7/25/27 (b)............................... 3,729,003 3,739,221
Structured Asset Securities Corp.
Series 1997-LLI Class A1 6.79%, due 6/12/04.......... 1,668,951 1,705,701
------------
12,110,859
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
FIRST MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS)
(3.9%)
Countrywide Mortgage-Backed Securities Inc.
Series 1997-A3 Class A7 10.00%, due 5/25/27........ $ 1,973,421 $ 2,067,849
Series 1997-A5 Class A4 10.00%, due 7/25/27........ 978,787 1,022,314
Series 1997-A8 Class A2 10.00%, due 10/25/27....... 915,477 1,017,992
Series 1997-A9 Class A8 10.00%, due 11/26/27....... 1,420,268 1,507,586
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26................................. 1,488,403 1,495,726
------------
7,111,467
------------
Total Mortgage-Backed Securities (Cost $19,123,471). 19,222,326
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (45.3%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (4.7%)
5.96%, due 7/23/99 (g)............................. 8,810,000 8,831,584
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (3.7%)
6.54%, due 2/4/05 TBA (e).......................... 1,400,000 1,420,902
6.65%, due 1/30/08 TBA (e)......................... 1,160,000 1,185,636
6.87%, due 1/1/07 (f).............................. 4,049,590 4,188,856
------------
6,795,394
------------
UNITED STATES TREASURY BONDS (24.6%)
6.125%, due 11/15/27 (c)........................... 23,915,000 24,576,489
7.625%, due 2/15/25 (c)............................ 6,585,000 7,991,490
8.875%, due 8/15/17................................ 2,318,000 3,076,774
12.00%, due 8/15/13 (c)............................ 6,730,000 9,916,251
------------
45,561,004
------------
UNITED STATES TREASURY NOTES (12.3%)
5.625%, due 11/30/00............................... 1,610,000 1,606,973
6.25%, due 2/15/03 (c)............................. 4,020,000 4,111,093
6.25%, due 2/28/02................................. 3,125,000 3,182,125
6.625%, due 5/15/07 (c)............................ 1,100,000 1,164,284
7.75%, due 11/30/99................................ 1,140,000 1,182,214
7.875%, due 11/15/04 (c)........................... 10,355,000 11,576,580
------------
22,823,269
------------
Total U.S. Government & Federal Agencies
(Cost $82,338,476)................................. 84,011,251
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
99
<PAGE>
BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
YANKEE BONDS (5.8%)
FINANCE (2.4%)
Banesto Finance Ltd.
7.50%, due 3/25/07........................... $ 770,000 $ 809,370
Corporacion Andina de Fomento
7.79%, due 3/1/17............................ 670,000 694,824
Deutche Bank Finance NV 6.375%, due 12/23/98.. 2,915,000 2,926,485
------------
4,430,679
------------
FOREIGN GOVERNMENTS (3.4%)
Hydro-Quebec (Province of) Canada 8.05%, due
7/7/24....................................... 5,425,000 6,277,051
------------
Total Yankee Bonds (Cost $10,327,574)......... 10,707,730
------------
Total Long-Term Investments (Cost
$176,038,184)................................ 178,782,312
------------
SHORT-TERM
INVESTMENTS (3.5%)
COMMERCIAL PAPER (3.5%)
American Express Credit Corp. 6.107%, due
1/2/98....................................... 3,000,000 3,000,000
American General Finance Corp. 6.652%, due
1/2/98....................................... 3,530,000 3,530,000
------------
Total Short-Term Investments (Cost
$6,530,000).................................. 6,530,000
------------
Total Investments (Cost $182,568,184) (i)..... 100.0% 185,312,312 (j)
Cash and Other Assets,
Less Liabilities............................. 0.0 (h) 64,379
----------- ------------
Net Assets.................................... 100.0% $185,376,691
=========== ============
</TABLE>
- --------
(a) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(b) ARM-Adjustable Rate Mortgage. Resets monthly.
(c) Represents securities out on loan or a portion of which is out on loan.
(d) May be sold to institutional investors only.
(e) TBA: Securities purchased on a foward commitment basis with an approximate
principal amount and maturity date. The actual principal amount and the
maturity date will be determined upon settlement.
(f) Segregated or partially segregated as collateral for TBAs.
(g) Medium-Term Note
(h) Less than one tenth of a percent.
(i) The cost for Federal income tax purposes is $182,589,276.
(j) At December 31, 1997 net unrealized appreciation was $2,723,036, 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 $2,740,880 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $17,844.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
100
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$182,568,184).................................................. $185,312,312
Cash............................................................ 5,451
Collateral held for securities loaned, at value (Note 6)........ 38,642,169
Receivables:
Interest........................................................ 2,636,863
Fund shares sold................................................ 186,304
------------
Total assets.................................................. 226,783,099
------------
LIABILITIES:
Securities lending collateral, at value (Note 6)................ 38,642,169
Payables:
Investment securities purchased................................. 2,582,805
MainStay Management............................................. 102,634
Fund shares redeemed............................................ 35,488
Custodian....................................................... 5,583
Transfer agent.................................................. 4,585
Accrued expenses................................................ 33,144
------------
Total liabilities............................................. 41,406,408
------------
Net assets...................................................... $185,376,691
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................. $ 18,942
Institutional Service Class..................................... 158
Additional paid-in capital...................................... 195,335,783
Accumulated net realized loss on investments.................... (12,722,320)
Net unrealized appreciation on investments...................... 2,744,128
------------
Net assets...................................................... $185,376,691
============
Institutional Class
Net assets applicable to outstanding shares..................... $183,845,892
============
Shares of capital stock outstanding............................. 18,942,017
============
Net asset value per share outstanding........................... $ 9.71
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 1,530,799
============
Shares of capital stock outstanding............................. 158,197
============
Net asset value per share outstanding........................... $ 9.68
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................... $12,451,737
-----------
Expenses:
Administration.................................................... 870,864
Advisory.......................................................... 316,678
Management........................................................ 155,008
Professional...................................................... 45,356
Custodian......................................................... 27,783
Transfer agent.................................................... 27,480
Shareholder communication......................................... 26,981
Registration...................................................... 23,616
Directors......................................................... 5,678
Service........................................................... 3,778
Miscellaneous..................................................... 16,878
-----------
Total expenses before
reimbursement.................................................. 1,520,100
Expense reimbursement from Administrator or Manager............... (173,772)
-----------
Net expenses.................................................... 1,346,328
-----------
Net investment income............................................. 11,105,409
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................................. 1,673,440
Net change in unrealized appreciation on investments.............. 1,794,244
-----------
Net realized and unrealized gain on investments................... 3,467,684
-----------
Net increase in net assets resulting from operations.............. $14,573,093
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
101
<PAGE>
BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 11,105,409 $ 10,823,324
Net realized gain (loss) on investments........... 1,673,440 (1,408,215)
Net change in unrealized appreciation on
investments...................................... 1,794,244 (4,694,584)
------------ ------------
Net increase in net assets resulting from
operations....................................... 14,573,093 4,720,525
------------ ------------
Dividends to shareholders:
From net investment income:
Institutional Class.............................. (10,960,664) (10,771,014)
Institutional Service Class...................... (87,118) (96,049)
------------ ------------
Total dividends to shareholders................. (11,047,782) (10,867,063)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 9,276,484 13,700,996
Institutional Service Class...................... 645,193 1,264,903
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Institutional Class.............................. 10,960,664 10,770,836
Institutional Service Class...................... 86,673 96,049
------------ ------------
20,969,014 25,832,784
Cost of shares redeemed:
Institutional Class.............................. (16,896,833) (34,891,092)
Institutional Service Class...................... (826,594) (456,729)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 3,245,587 (9,515,037)
------------ ------------
Net increase (decrease) in net assets............ 6,770,898 (15,661,575)
NET ASSETS:
Beginning of year................................. 178,605,793 194,267,368
------------ ------------
End of year....................................... $185,376,691 $178,605,793
============ ============
</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.
BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
CLASS SERVICE CLASS CLASS SERVICE CLASS CLASS SERVICE CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------- ------------- ---------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 9.51 $ 9.49 $ 9.85 $ 9.83 $ 8.93 $ 8.93 $ 9.98 $ 11.08
-------- ------ -------- ------ -------- ------ --------- ---------
Net investment
income.......... 0.61 0.59 0.62 0.60 0.68 0.67 0.72 0.74
Net realized and
unrealized gain
(loss) on
investments..... 0.20 0.19 (0.34) (0.34) 0.92 0.90 (1.05) 0.26
-------- ------ -------- ------ -------- ------ --------- ---------
Total from
investment
operations...... 0.81 0.78 0.28 0.26 1.60 1.57 (0.33) 1.00
-------- ------ -------- ------ -------- ------ --------- ---------
Less dividends
and
distributions:
From net
investment
income.......... (0.61) (0.59) (0.62) (0.60) (0.68) (0.67) (0.72) (1.35)
From net realized
gain on
investments..... -- -- -- -- -- -- -- (0.65)
In excess of net
realized gain on
investments..... -- -- -- -- -- -- -- (0.10)
-------- ------ -------- ------ -------- ------ --------- ---------
Total dividends
and
distributions... (0.61) (0.59) (0.62) (0.60) (0.68) (0.67) (0.72) (2.10)
-------- ------ -------- ------ -------- ------ --------- ---------
Net asset value
at end of year.. $ 9.71 $ 9.68 $ 9.51 $ 9.49 $ 9.85 $ 9.83 $ 8.93 $ 9.98
======== ====== ======== ====== ======== ====== ========= =========
Total investment
return ......... 8.57% 8.21% 2.80% 2.62% 17.88% 17.55% (3.31%) 9.74%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 6.21% 5.96% 6.10% 5.85% 6.62% 6.37% 7.13% 6.86%
Net expenses.... 0.75% 1.00% 0.75% 1.00% 0.75% 1.00% 0.75% 0.70%
Expenses (before
reimbursement).. 0.85% 1.10% 0.86% 1.11% 0.86% 1.11% 0.82% 0.84%
Portfolio
turnover rate... 338% 338% 398% 398% 470% 470% 478% 567%
Net assets at end
of year
(in 000's)...... $183,846 $1,531 $177,009 $1,597 $193,518 $ 749 $ 202,970 $ 219,834
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
103
<PAGE>
INDEXED BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Although the Federal Reserve Board moved to raise interest rates 25 basis
points at the end of March, slower economic growth and lower inflation
expectations may have caused domestic interest rates to decline throughout
the rest of the year.
. As bond prices rose, enthusiasm over a strong stock market spilled over into
the bond markets.
. A strong U.S. dollar and high inflation-adjusted rates of return made U.S.
bonds attractive to many foreign investors.
. A flattening yield curve contributed to returns that were well above the
average for investors in long-term U.S. government and corporate bonds from
1926 through 1996.*
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year returns of 9.01% and 8.75% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Although the returns of Institutional Class shares and Service Class shares
were respectively above and below the average Lipper+ general U.S.
government fund's return of 8.84% for the year, in terms of rank, both share
classes placed in the top half of their Lipper peer group.
. Narrowing yield spreads between government and corporate bonds had a positive
impact on the Fund.
In 1997, the U.S. bond market was largely influenced by the direction of
interest rates and investor perception of what action the Federal Reserve Board
would take. Although the Federal Reserve Board moved to raise interest rates 25
basis points at the end of March and many market participants anticipated a
second tightening, slowing economic growth and restrained inflation caused
interest rates to decline throughout the rest of the year.
As bond prices rose, investor enthusiasm spilled over from the strong stock
market, helping to fuel the rally. At the same time, a strong U.S. dollar and
high real (or inflation-adjusted) rates of return helped attract foreign
investors to the U.S. bond market, pushing prices even higher. As the yield
curve flattened, long-term U.S. government and corporate bonds achieved total
returns well above their averages over the previous 71 years.* For the year
ended 12/31/97, the Salomon Brothers Broad Investment Grade (BIG) Bond Index++
returned 9.64%.
- --------------------------------------------------------------------------------
Basis point One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
Tightening/Easing When the Federal Reserve Board moves to lower interest rates
it is said to be "easing" or making borrowing more affordable. When it moves to
raise interest rates, it is said to be "tightening" or making borrowing more
expensive.
Inflation An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Source: Ibbotson Associates, Chicago. All rights reserved. Used with
permission.
+ 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 Broad Investment Grade (BIG) Bond Index is an unmanaged
index that is considered representative of the U.S. bond market.
104
<PAGE>
================================================================================
How did the MainStay Institutional Indexed Bond Fund do in this market
environment?
For the year ended 12/31/97, the MainStay Institutional Indexed Bond Fund
returned 9.01% and 8.75% for Institutional Class shares and Service Class
shares, respectively. Although the returns of Institutional Class shares and
Service Class shares were respectively above and below the average Lipper
general U.S. government fund's return of 8.84% for the year, in terms of rank,
both share classes placed in the top half of their Lipper peer group.
How can a share class underperform the average and rank in the top half?
The average is made up of the returns of a number of mutual funds. If some funds
do particularly well or poorly, it can skew the average up or down. But the
Fund's Institutional Class shares and Service Class shares ranked 67th and 83rd,
respectively, out of 179 funds in their Lipper universe, to rank in the top 38%
and 47%, respectively, of their peer group.
How did the Fund compare with its benchmark Index?
The Fund seeks to track the performance of the Salomon Brothers Broad Investment
Grade (BIG) Bond Index, which returned 9.64% over the same period. Since the
Fund incurs fees and expenses that are not included in the Index, some
underperformance should be expected, regardless of whether the Index moves up or
down. In addition, the Fund is unable to track the Index exactly, due to the
timing and amount of contributions to and redemptions from the Fund, and other
factors.
Which bond sectors provided the best performance in 1997?
From a maturity perspective, Treasury securities with maturities over 20 years
provided the highest returns, earning 16.2% for the year ended 12/31/97. In
terms of credit quality, corporate bonds rated BBB(S) had the best returns,
earning 11.2% in 1997. And from a sector perspective, utilities were the best
performing corporate sector, returning 11.1% for the year.
Which sectors were the worst performers?
As is typically the case, short-term securities underperformed those with longer
maturities, with 1- to 3-year Treasuries returning 6.6%. Since bonds with higher
quality do not need to provide as high returns as lower rated securities in
order to attract investors, AAA/AA+++ corporate bonds returned 9.4% for the
year, underperforming the Salomon Brothers Broad Investment Grade Bond Index
which returned 9.64% for the year. With the potential for increased prepayment
risk, asset-backed securities generally underperformed other sectors, returning
7.6% for the year. It is worth noting, however, that each of these sectors
outperformed the average annual total returns of long-term government bonds and
long-term corporate bonds over the previous 71 years. From 1926 through 1996,
long-term government bonds had an average annual total return of just 5.1% and
long-term corporate bonds had an average annual total return of 5.6%.*
- --------------------------------------------------------------------------------
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.
Credit quality A measure of an individual issuer's ability to repay principal
and interest on its income securities--or a measure of the general credit risk
of securities in an income portfolio.
Asset-backed securities Bonds or notes backed by loan paper or an anticipated
income stream from the sale of merchandise or services. The bonds are generally
originated by banks, credit card companies, or other providers of credit and
often "enhanced" by a bank letter of credit or by insurance from an institution
other than the issuer.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(S) Debt rated BBB is regarded by Standard & Poor's as having an adequate
capacity to pay interest and repay principal.
+++ Debt rated AAA has the highest rating assigned by Standard & Poor's, and
according to Standard & Poor's the capacity for these securities to pay
interest and repay principal is extremely strong. Debt rated AA by Standard
& Poor's is considered by Standard & Poor's to have a very strong capacity
to pay interest and repay principal, and differs from the highest rated
issues only in small degree.
105
<PAGE>
================================================================================
What do you see ahead for the bond markets?
The difficulties in Asian markets resulted in a flight to quality which helped
fuel the bond market rally in 1997. The long-term effects of this turmoil,
however, are yet to be seen. If inflation remains low and interest rates
continue to decline, bonds may continue to rally. If interest rates or inflation
rates increase, bonds could suffer. In either case, we will continue to seek 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 Index.
James A. Mehling, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
106
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS SALOMON BROTHERS BIG INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
DATE INDEXED BOND FUND SALOMON BROTHERS BIG INDEX
------ ----------------- --------------------------
<S> <C> <C>
1/2/91 10,000 10,000
1991 11,470 11,599
1992 12,283 12,477
1993 13,467 13,716
1994 13,003 13,326
1995 15,354 15,794
1996 15,745 16,365
12/31/97 17,164 17,940
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS SALOMON BROTHERS BIG INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
DATE INDEXED BOND FUND SALOMON BROTHERS BIG INDEX
------ ----------------- --------------------------
<S> <C> <C>
1/2/91 10,000 10,000
1991 11,470 11,599
1992 12,283 12,477
1993 13,467 13,716
1994 13,003 13,326
1995 15,341 15,794
1996 15,699 16,365
12/31/97 17,073 17,940
</TABLE>
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, 1997 as of December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Bond Fund Institutional Class 9.01% 9.01% 6.92% 8.02%
Indexed Bond Fund Service Class+ 8.75% 8.75% 6.81% 7.93%
Average Lipper General U.S. Government Fund 8.84% 8.84% 6.31% 7.49%
Salomon Brothers BIG Bond Index 9.64% 9.64% 7.53% 8.71%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year End Total Return %*
-------- ---------------
<S> <C>
1991 14.70
1992 7.09
1993 9.64
1994 (3.44)
1995 18.07
1996 2.55
1997 9.01
</TABLE>
<TABLE>
<CAPTION>
QUALITY BREAKDOWN++
(% of bonds as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C>
Government/Agency 76.47%
AAA 3.50%
AA 4.64%
A 10.19%
BBB 4.82%
B 0.38%
-------
100.00%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<S> <C>
U.S. Government & Federal Agencies 75.72%
Domestic Bonds 17.67%
Cash, Equivalents & Other Assets 0.35%(S)
Foreign & Other Bonds 6.26%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. Federal Home Loan Bank, 8/25/99, 8.60% 3.04%
2. Donaldson, Lufkin & Jenrette, 11/1/05, 6.875% 2.53%
3. AT&T Corp., 12/1/31, 8.625% 2.28%
4. US Treasury Note, 11/15/01, 7.50% 2.10%
5. US Treasury Note, 5/15/99, 6.375% 1.67%
6. Bayerische Landesbank, 2/9/06, 6.20% 1.56%
7. Limited, Inc., 3/15/23, 7.50% 1.55%
8. US Treasury Note, 10/31/99, 7.50% 1.36%
9. US Treasury Note, 3/31/00, 6.875% 1.36%
10. US Treasury Note, 8/15/03, 5.75% 1.32%
- --------------------------------------------------------------------------------
<CAPTION>
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. US Government & Federal Agencies 75.72%
2. Banks 5.15%
3. Finance 3.81%
4. Telecommunication Services 2.28%
5. Utilities-Electric 1.56%
</TABLE>
Average Maturity 13.2 years
(as of 12/31/97)
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee
of .25%.
+ 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.
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 track their respective indices.
++ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
(S) Adjusted for liabilities.
107
<PAGE>
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
LONG-TERM INVESTMENTS (99.6%)+
CORPORATE BONDS (17.7%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
AUTOMOTIVE RENTALS (0.6%)
Hertz Corp.
7.00%, due 7/15/03.................................... $ 700,000 $ 714,875
------------
BANKS (0.9%)
First Union Corp.
8.77%, due 11/15/04................................... 1,000,000 1,047,500
------------
CHEMICALS (0.7%)
DuPont (E.I.) de Nemours & Co.
8.125%, due 3/15/04................................... 800,000 877,000
------------
CONSUMER FINANCIAL SERVICES (0.9%)
General Motors Acceptance Corp.
8.40%, due 10/15/99................................... 500,000 518,750
KFW International Finance, Inc.
9.125%, due 5/15/01................................... 500,000 544,375
------------
1,063,125
------------
ENTERTAINMENT (0.5%)
Walt Disney Co. (The)
6.75%, due 3/30/06.................................... 600,000 618,750
------------
FINANCE (3.8%)
Commercial Credit Co.
8.70%, due 6/15/10.................................... 450,000 543,375
Donaldson, Lufkin & Jenrette Securities Corp.
6.875%, due 11/1/05................................... 3,000,000 3,063,750
Finova Capital Corp.
6.19%, due 10/20/99................................... 1,000,000 999,380
------------
4,606,505
------------
FOOD, BEVERAGES & TOBACCO (0.5%)
Coca-Cola Enterprises, Inc.
8.50%, due 2/1/22..................................... 500,000 598,750
------------
INDUSTRIAL (1.1%)
USA Waste Services, Inc.
7.00%, due 10/1/04.................................... 1,300,000 1,332,500
------------
MACHINERY (0.5%)
Caterpillar, Inc.
9.00%, due 4/15/06.................................... 500,000 585,625
------------
OIL & GAS (0.4%)
Texaco Capital, Inc.
9.75%, due 3/15/20.................................... 350,000 469,000
------------
PAPER & FOREST PRODUCTS (0.5%)
Scott Paper Co.
7.00%, due 8/15/23.................................... 650,000 663,000
------------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
RETAIL--GENERAL MERCHANDISE (1.6%)
Limited, Inc.
7.50%, due 3/15/23..................................... $1,900,000 $ 1,873,875
------------
STEEL (0.9%)
USX Corp.
7.20%, due 2/15/04..................................... 1,100,000 1,135,750
------------
TELECOMMUNICATIONS SERVICES (2.3%)
AT&T Corp.
8.625%, due 12/1/31.................................... 2,500,000 2,762,500
------------
UTILITIES--ELECTRIC (1.6%)
Pennsylvania Power & Light Co.
7.30%, due 3/1/24...................................... 1,000,000 1,011,250
Texas Utility Electric Co.
8.25%, due 4/1/04...................................... 800,000 874,000
------------
1,885,250
------------
UTILITIES--TELEPHONE (0.9%)
United Telecommunication, Inc.
9.50%, due 4/1/03...................................... 1,000,000 1,140,000
------------
Total Corporate Bonds
(Cost $20,506,042)..................................... 21,374,005
------------
INTERNATIONAL
CORPORATE BONDS (3.6%)
BANKS (3.6%)
ABN Amro Bank, NV
Chicago Branch
7.55%, due 6/28/06..................................... 800,000 856,000
Bayerische Landesbank Girozentrale
New York Branch
6.20%, due 2/9/06...................................... 1,900,000 1,883,375
Korea Development Bank (The) (Eurobonds)
7.25%, due 5/15/06..................................... 600,000 463,500
International Bank for Reconstruction & Development
7.125%, due 9/27/99.................................... 1,200,000 1,225,500
------------
4,428,375
------------
Total International
Corporate Bonds
(Cost $4,433,107)...................................... 4,428,375
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (75.7%)
FEDERAL HOME LOAN BANK (3.0%)
8.60%, due 8/25/99..................................... 3,525,000 3,674,672
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.7%)
(zero coupon), due 11/29/19............................ 3,100,000 791,430
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
108
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
U.S. GOVERNMENT & FEDERAL AGENCIES (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH SECURITIES) (11.4%)
6.00%, due 9/1/02-10/1/02............................. $2,004,207 $ 1,992,309
6.50%, due 10/1/01-3/1/27............................. 3,765,326 3,749,263
7.00%, due 8/1/03-12/1/27............................. 4,198,530 4,247,113
7.50%, due 9/1/11-3/1/27.............................. 2,775,692 2,844,387
8.00%, due 7/1/26..................................... 875,002 905,354
------------
13,738,426
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.7%)
(zero coupon), due 7/5/14............................. 2,500,000 897,650
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MEDIUM TERM NOTE) (0.4%)
5.83%, due 12/10/99................................... 500,000 499,860
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (11.2%)
6.50%, due 7/1/03-4/1/27.............................. 4,139,420 4,126,191
7.00%, due 5/1/11-11/1/26............................. 3,062,928 3,097,292
7.00%, due 1/1/28 TBA (a)............................. 1,000,000 1,007,188
7.50%, due 11/1/26.................................... 433,233 443,252
8.00%, due 7/1/07-4/1/27.............................. 4,661,555 4,822,742
------------
13,496,665
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (8.1%)
7.00%, due 3/15/07-12/15/27........................... 2,822,892 2,855,718
7.50%, due 8/15/08-11/15/26........................... 2,781,905 2,855,406
8.00%, due 6/15/26-11/15/26........................... 2,371,347 2,458,791
8.50%, due 7/15/26-11/15/26........................... 1,600,684 1,681,219
------------
9,851,134
------------
UNITED STATES TREASURY BONDS (15.8%)
6.00%, due 2/15/26.................................... 500,000 498,970
6.25%, due 8/15/23 (c)................................ 700,000 720,398
6.875%, due 8/15/25 (b)............................... 500,000 557,575
7.125%, due 2/15/23 (b)............................... 600,000 684,870
7.25%, due 5/15/16.................................... 500,000 569,245
7.50%, due 11/15/16-11/15/24 (c)...................... 1,200,000 1,412,536
7.625%, due 11/15/22-2/15/25 (c)...................... 800,000 966,984
8.00%, due 11/15/21................................... 1,000,000 1,246,830
8.125%, due 8/15/19-5/15/21........................... 1,300,000 1,632,312
8.75%, due 5/15/17-8/15/20............................ 1,500,000 1,989,355
8.875%, due 2/15/19................................... 600,000 802,788
9.375%, due 2/15/06................................... 530,000 651,306
9.875%, due 11/15/15.................................. 600,000 853,980
10.375%, due 11/15/12................................. 500,000 664,315
11.25%, due 2/15/15................................... 400,000 627,172
11.75%, due 2/15/01(c)................................ 900,000 1,054,602
11.875%, due 11/15/03................................. 500,000 650,355
12.00%, due 8/15/13................................... 500,000 736,750
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
UNITED STATES TREASURY BONDS (CONTINUED)
12.75%, due 11/15/10............................... $ 400,000 $ 570,828
13.125%, due 5/15/01............................... 300,000 367,779
13.375%, due 8/15/01 (c)........................... 1,200,000 1,498,536
14.25%, due 2/15/02................................ 300,000 392,889
------------
19,150,375
------------
UNITED STATES TREASURY NOTES (24.4%)
5.125%, due 12/31/98............................... 1,000,000 995,540
5.75%, due 10/31/00-8/15/03........................ 2,200,000 2,200,948
5.875%, due 3/31/99................................ 1,000,000 1,002,690
6.125%, due 9/30/00-8/15/07(c)..................... 2,100,000 2,145,444
6.25%, due 4/30/01-2/15/03......................... 1,900,000 1,937,132
6.375%, due 5/15/99-8/15/02........................ 3,500,000 3,553,465
6.50%, due 10/15/06................................ 1,200,000 1,256,304
6.75%, due 4/30/00................................. 700,000 715,736
6.875%, due 3/31/00................................ 1,600,000 1,639,264
7.00%, due 4/15/99................................. 1,200,000 1,219,980
7.125%, due 10/15/98-9/30/99....................... 2,500,000 2,547,180
7.50%, due 10/31/99-2/15/05........................ 5,350,000 5,652,698
7.75%, due 2/15/01................................. 500,000 528,575
7.875%, due 11/15/99............................... 1,000,000 1,038,480
8.50%, due 2/15/00-2/15/20......................... 1,600,000 1,786,664
9.125%, due 5/15/99................................ 1,200,000 1,253,904
------------
29,474,004
------------
Total U.S. Government &
Federal Agencies
(Cost $88,433,999)................................. 91,574,216 (d)
------------
YANKEE BONDS (2.6%)
BANKS (0.6%)
ANZ Banking Group, Ltd.
7.55%, due 9/15/06................................. 700,000 752,500
------------
CONSUMER FINANCIAL SERVICES (0.5%)
Japan Financial Corp.
8.70%, due 7/30/01................................. 600,000 650,250
------------
FOREIGN GOVERNMENT (1.0%)
Ontario Hydro
7.45%, due 3/31/13................................. 500,000 549,375
Quebec (Province of)
7.50%, due 7/15/23................................. 600,000 645,750
------------
1,195,125
------------
UTILITIES--TELEPHONE (0.5%)
Northern Telecom
8.75%, due 6/12/01................................. 500,000 538,125
------------
Total Yankee Bonds
(Cost $2,905,128).................................. 3,136,000
------------
Total Long-Term Investments (Cost $116,278,276)..... 120,512,596
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
109
<PAGE>
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
SHORT-TERM INVESTMENTS (2.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
U.S. GOVERNMENT (2.1%)
United States Treasury Bills
5.31%, due 3/26/98 (c)......................... $1,300,000 $ 1,284,534
5.37%, due 4/2/98 (c).......................... 1,200,000 1,184,370
------------
Total Short-Term Investments
(Cost $2,469,659).............................. 2,468,904
------------
Total Investments
(Cost $118,747,935) (g)........................ 101.7% 122,981,500 (h)
Liabilities in Excess of
Cash and Other Assets.......................... (1.7) (2,044,958)
---------- ------------
Net Assets...................................... 100.0% $120,936,542
========== ============
FUTURES CONTRACTS (0.0%) (e)
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION) (f)
------------------------------
<S> <C> <C>
United States Treasury Note
March 1998 (5 Year)............................ 5 $ 200
United States Treasury Note
March 1998 (10 Year)........................... 4 210
United States Treasury Bond
March 1998 (30 Year)........................... 4 (1,102)
------------
Total Futures Contracts
(Settlement Value $1,473,625).................. $ (692)
============
</TABLE>
- --------
(a) TBA: Securities purchased on a forward commitment basis with an
approximate principal amount and maturity date. The actual principal
amount and the maturity will be determined upon settlement.
(b) Segregated as collateral for TBAs.
(c) Segregated or partially segregated as collateral for futures contracts.
(d) The combined market value of U.S. Government and Federal Agencies
Investments and the value of securities purchased under U.S. Treasury
futures contracts represents 76.94% of net assets.
(e) Less than one tenth of a percent.
(f) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1997.
(g) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(h) At December 31, 1997 net unrealized appreciation was $4,233,565, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess
of market value over cost of $4,626,100 and aggregate unrealized
depreciation for all investments on which there was an excess of cost over
market value of $392,535.
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.
INDEXED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$118,747,935).................................................. $122,981,500
Cash............................................................ 1,266,708
Receivables:
Interest........................................................ 1,675,176
Fund shares sold................................................ 159,788
Variation margin receivable on futures contracts................ 5,172
------------
Total assets.................................................. 126,088,344
------------
LIABILITIES:
Payables:
Fund shares redeemed............................................ 2,820,901
Investment securities purchased................................. 2,252,762
MainStay Management............................................. 36,416
Custodian....................................................... 8,346
Transfer agent.................................................. 4,371
Accrued expenses................................................ 29,006
------------
Total liabilities............................................. 5,151,802
------------
Net assets...................................................... $120,936,542
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class............................................. $ 10,980
Institutional Service Class..................................... 281
Additional paid-in capital...................................... 118,291,523
Accumulated undistributed net investment income................. 2,820
Accumulated net realized loss on investments.................... (1,601,935)
Net unrealized appreciation on investments...................... 4,232,873
------------
Net assets...................................................... $120,936,542
============
Institutional Class
Net assets applicable to outstanding shares..................... $117,921,576
============
Shares of capital stock outstanding............................. 10,980,470
============
Net asset value per share outstanding........................... $ 10.74
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 3,014,966
============
Shares of capital stock outstanding............................. 280,755
============
Net asset value per share outstanding........................... $ 10.74
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................... $ 8,447,818
-----------
Expenses:
Administration.................................................... 421,641
Advisory.......................................................... 105,411
Management........................................................ 68,007
Professional...................................................... 39,339
Pricing Service................................................... 32,480
Custodian......................................................... 32,053
Transfer agent.................................................... 26,175
Registration...................................................... 23,796
Shareholder communication......................................... 18,449
Service........................................................... 7,332
Directors......................................................... 3,702
Miscellaneous..................................................... 5,374
-----------
Total expenses before
reimbursement.................................................. 783,759
Expense reimbursement from Administrator or Manager............... (181,369)
-----------
Net expenses.................................................... 602,390
-----------
Net investment income............................................. 7,845,428
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions............................................. (164,980)
Futures transactions.............................................. 17,231
-----------
Net realized loss on investments.................................. (147,749)
-----------
Net change in unrealized appreciation on investments:
Security transactions............................................. 2,542,939
Futures transactions.............................................. 27,247
-----------
Net unrealized gain on investments................................ 2,570,186
-----------
Net realized and unrealized gain on investments................... 2,422,437
-----------
Net increase in net assets resulting from operations.............. $10,267,865
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
111
<PAGE>
INDEXED BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................. $ 7,845,428 $ 7,685,433
Net realized loss on investments.................. (147,749) (210,720)
Net change in unrealized appreciation on invest-
ments............................................ 2,570,186 (5,463,442)
------------ ------------
Net increase in net assets resulting from opera-
tions............................................ 10,267,865 2,011,271
------------ ------------
Dividends to shareholders:
From net investment income:
Institutional Class.............................. (7,646,229) (7,431,001)
Institutional Service Class...................... (184,643) (179,250)
------------ ------------
Total dividends to shareholders................. (7,830,872) (7,610,251)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class.............................. 26,987,386 26,939,671
Institutional Service Class...................... 1,425,561 2,494,926
Net asset value of shares issued to shareholders
in reinvestment of dividends:
Institutional Class.............................. 7,626,166 7,370,778
Institutional Service Class...................... 184,643 179,250
------------ ------------
36,223,756 36,984,625
Cost of shares redeemed:
Institutional Class.............................. (28,549,926) (82,553,928)
Institutional Service Class...................... (1,420,783) (275,156)
------------ ------------
Increase (decrease) in net assets derived from
capital share transactions...................... 6,253,047 (45,844,459)
------------ ------------
Net increase (decrease) in net assets............ 8,690,040 (51,443,439)
NET ASSETS:
Beginning of year................................. 112,246,502 163,689,941
------------ ------------
End of year....................................... $120,936,542 $112,246,502
============ ============
Accumulated undistributed net investment income... $ 2,820 $ 3,976
============ ============
</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.
INDEXED BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------- ------------- ---------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 10.52 $10.52 $ 10.99 $10.99 $ 10.06 $10.06 $ 11.08 $ 11.65
-------- ------ -------- ------ -------- ------ --------- ---------
Net investment
income.......... 0.73 0.70 0.76 0.74 0.82 0.81 0.65 0.67
Net realized and
unrealized gain
(loss) on
investments..... 0.22 0.22 (0.48) (0.48) 1.00 1.00 (1.03) 0.38
-------- ------ -------- ------ -------- ------ --------- ---------
Total from
investment
operations...... 0.95 0.92 0.28 0.26 1.82 1.81 (0.38) 1.05
-------- ------ -------- ------ -------- ------ --------- ---------
Less dividends
and
distributions:
From net
investment
income.......... (0.73) (0.70) (0.75) (0.73) (0.82) (0.81) (0.64) (1.46)
From net realized
gain on
investments..... -- -- -- -- (0.07) (0.07) -- (0.15)
In excess of net
realized gain on
investments..... -- -- -- -- -- -- -- (0.01)
-------- ------ -------- ------ -------- ------ --------- ---------
Total dividends
and
distributions... (0.73) (0.70) (0.75) (0.73) (0.89) (0.88) (0.64) (1.62)
-------- ------ -------- ------ -------- ------ --------- ---------
Net asset value
at end of year.. $ 10.74 $10.74 $ 10.52 $10.52 $ 10.99 $10.99 $ 10.06 $ 11.08
======== ====== ======== ====== ======== ====== ========= =========
Total investment
return ......... 9.01% 8.75% 2.55% 2.34% 18.07% 17.97% (3.44%) 9.64%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 6.60% 6.35% 6.21% 5.96% 6.38% 6.13% 6.13% 6.19%
Net expenses.... 0.50% 0.75% 0.50% 0.75% 0.50% 0.75% 0.50% 0.45%
Expenses (before
reimbursement).. 0.65% 0.90% 0.65% 0.90% 0.63% 0.88% 0.61% 0.61%
Portfolio
turnover rate... 32% 32% 312% 312% 284% 284% 274% 213%
Net assets at end
of year
(in 000's)...... $117,922 $3,015 $109,482 $2,764 $163,219 $ 471 $ 169,404 $ 159,792
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
113
<PAGE>
INTERNATIONAL BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Low inflation and moderate economic growth helped the United States
significantly reduce its budget deficit, which was positive news for bond
investors worldwide.
. The U.K. bond market outperformed when the Bank of England became an
independent central bank, reducing concerns about inflation and wide economic
swings.
. A strengthening U.S. dollar increased currency risk for unhedged positions in
virtually all nations and led to negative overall returns for international
bonds.
. Emerging markets provided outstanding performance for the first three
quarters of 1997, but severely underperformed in the fourth quarter when
financial and currency problems in Southeast Asia took center stage.
. In the ensuing flight to quality, most securities that offered yield
advantages over Treasury securities tended to underperform.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year total returns of 2.62% and 2.27% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Both share classes outperformed the average Lipper* international income fund
for the 12 months ended 12/31/97.
. Overall, the Fund benefited from a lengthening duration and remaining
underweighted in core European markets and overweighted in peripheral
European markets through most of the year.
. The Fund benefited from increasing investments in the U.K. market, with
emphasis on longer-term securities, which outperformed the shorter-term
securities.
. Anticipating that currencies were reaching fair value, the Fund reduced its
currency hedges in midyear, which hurt performance as the U.S. dollar
continued to strengthen relative to most other currencies.
. The Fund's emerging market holdings suffered during the Asian crisis in the
fourth quarter.
Several themes combined to make 1997 a very moderate year for international
bonds. The strength of the U.S. economy and deficit reductions gave most
international markets a psychological boost. This led many investors to pursue
returns among riskier asset classes or emerging markets, which provided
outstanding returns in the first half of the year. Later, however, that proved a
dangerous strategy when financial difficulties in Asian markets caused all
yield-enhancing securities to suffer severe setbacks. Suddenly the focus shifted
to quality.
European markets continued to benefit from corporate restructuring and fiscal
improvements associated with European Monetary Union. Peripheral European
markets generally outperformed core European markets, with the highest
- --------------------------------------------------------------------------------
Emerging markets Countries with smaller or more recently established capital
markets.
European Monetary Union A proposed system that would allow participating
European countries to operate with a common currency or monetary unit.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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.
114
<PAGE>
================================================================================
returns in local currency terms coming from the U.K., Italy, Australia, Ireland,
and Spain. Given the strength of the U.S. dollar, however, the only major
foreign bond markets to provide positive returns in U.S. dollars were the U.K.
and Canada. Core European countries, including Germany, Belgium, and the
Netherlands, were all down more than 8.50% in U.S. dollar terms. Overall, the
Salomon Brothers Non-U.S. Dollar World Government Bond Index+ returned -4.26%
in U.S. dollar terms for the year ended 12/31/97.
The impact of the financial crisis in Asia was felt in markets worldwide.
Currency problems experienced there may affect corporate profitability and
product demand worldwide. On the positive side, inflation expectations have
generally been lowered, which may help keep interest rates in line.
Given this context, how did the MainStay Institutional International Bond Fund
do in 1997?
For the year ended 12/31/97, the MainStay Institutional International Bond Fund
provided total returns of 2.62% and 2.27% for Institutional Class shares and
Service Class shares, respectively. Both share classes outperformed the average
Lipper international income fund, which returned -0.43% for the same period.
What were the major contributors to the Fund's performance?
One of our best decisions during the year was to maintain a market-weighted
duration. Even though there were times when it looked as though rates would
rise, our decision proved to be highly beneficial in terms of the Fund's overall
performance. Of course, we also made specific country selections that had a
positive impact on the Fund.
Which countries performed the best?
The U.K. was the best overall performer in both local and U.S. dollar terms. We
increased the Fund's position there, based on the overall strength of the
economy, the currency, and the positive investment outlook when the Bank of
England became independent from government control. Investors seemed so positive
about this news that U.K. bonds continued to rally even as interest rates rose.
The Fund's U.K. positions were enhanced by the fact that we selected longer-term
bonds, which rallied much more than the shorter-term bonds. So in the U.K., the
Fund actually outperformed the best performing bond market in the world.
Were there other successful markets?
Canada was a strong performer in U.S. dollar terms and we increased the Fund's
Canadian holdings over the course of the year. Unfortunately, however, we bought
both Canadian bonds and Canadian currency. While the bonds were positive
performers, the currency exposure had a negative impact and reduced the Fund's
overall return.
Did you make other positive decisions for the Fund?
Yes we did. We use a "country-first" approach, which means assessing each
country and currency to determine where to invest. In 1997, we decided that core
European countries did not have as much value as some of the peripheral European
countries. So the Fund was underweighted in Germany, France, the Netherlands and
Belgium. While each of these countries had competitive returns in local terms,
many ended the year with sub-
- --------------------------------------------------------------------------------
Local currency terms Returns expressed in local currency terms show what an
investor using that currency would have earned, without any adjustment for
differences in currency values. Returns expressed in U.S. dollar terms reflect
any differences in the relative value of the local currency and the U.S. dollar.
Duration Equals the weighted average time until bond investors recover their
investment. It is a measurement of interest rate risk.
Currency exposure Risk of loss due to owning securities denominated in
different currencies, the value of which may change at any time. Currency
exposure can be reduced through a risk management technique known as hedging.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
+ The Salomon Brothers Non-U.S. Dollar World Government Bond Index is an
unmanaged index generally considered representative of the world bond market.
115
<PAGE>
================================================================================
stantial negative returns in U.S. dollar terms. The Fund benefited from relative
outperformance of its Italian holdings, even though the Italian market's U.S.
dollar returns were negative. In addition to Europe, Australian bonds also
provided some positive performance during the year, particularly since the Fund
did not have significant currency exposure related to those bonds and the local
return was over 13%. As the bonds rallied, the Fund took some profits, which
helped its performance.
What happened in the emerging markets?
In the fourth quarter, emerging market debt suffered some major setbacks.
Fortunately, we stayed out of Southeast Asia, which was a highly positive
decision in light of what happened to many Asian economies, currencies, and
financial companies. The Fund held Russian, Brazilian, and Argentine bonds that
were hurt in the aftermath of the Asian financial difficulties. We decided to
cut the Fund's emerging market debt approximately in half, which proved to be a
wise decision, given the subsequent price declines. We used the money from the
sale of Russian bonds to buy German government securities and we used the
Argentine proceeds to buy Gilts--or British government bonds--which were
generally good for the portfolio.
Which emerging markets did the Fund hold at year end?
The Fund held only the top-tier emerging market debt, including securities in
Mexico, Panama, Argentina, and South Africa. We believe that Panama, which was
rated BB++ at year end, may be due for an upgrade. And among the emerging
markets, we feel that these countries may be among the safer places to invest.
Were there other problem areas in the international bond market?
As the Asian problems unfolded, there was a general flight to quality, which
made owning spread products--or securities that offered yield spreads over local
Treasuries--less attractive. Fannie Mae, the Federal National Mortgage
Association, had issued bonds in Hong Kong dollars, New Zealand dollars,
Australian dollars, and U.K. sterling. As the fallout in Asia began, we reduced
the Fund's exposure even to relatively secure investments, such as Fannie Mae,
the European Investment Bank, Lloyd Bank, and Abbey National Bank, when
liquidity started to disappear. In some cases, we used the proceeds to buy Gilts
for their quality and liquidity. Most of those sales were near the break-even
point, but were positive for the portfolio, given the bonds' subsequent
performance.
Of course, there was also some positive news. We sold some South African Yankee
bonds at the end of the third quarter, after spreads had narrowed and the market
became hungry for a spread product, which was positive for the Fund. We also
held some corporate bonds and high-yield issues denominated in deutsche marks,
such as an issue from ITT that performed well.
What were some of the Fund's other significant purchases and sales during the
year?
In the second half of the year, we bought Mexican bonds denominated in Canadian
dollars for the Fund. Although at the time we believed the Canadian bond and
currency markets were cheap, as the U.S. dollar strengthened and Mexican bonds
showed weak performance, the Fund lost money on both sides of the transaction.
We also purchased a sizable amount of New Zealand bonds for the Fund, without
assuming any significant currency exposure. Although we believed the bonds were
well priced, in an erratic market, they became even cheaper, which had a
negative impact on the Fund's performance every quarter.
- --------------------------------------------------------------------------------
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
Yield spread The difference in yield between securities in different markets,
such as Germany and Spain; different market sectors, such as Treasuries and
corporate bonds; or between different securities in a single sector, such as
corporate bonds with different credit ratings.
Yankee bonds Dollar-denominated bonds issued in the United States by foreign
banks and corporations, usually when conditions in the U.S. are more favorable
than in other markets, including the issuer's domestic market overseas.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++ Debt rated BB is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay
principal.
116
<PAGE>
================================================================================
What steps did you take to help protect investors from currency risk?
For the first half of the year, the Fund's investment portfolio was about 75%
hedged. We did increase the Fund's exposure to Japanese yen-denominated money
market instruments early in the year, but we closed those positions out after
the yen strengthened relative to the dollar. By the third quarter, we believed
that the dollar had reached its fair value relative to the deutsche mark. At
that point, we started to reduce the Fund's currency hedges, which detracted
from the Fund's performance as the dollar continued to strengthen throughout the
rest of the year. By year end, the Fund had a market weighting of approximately
60% in European currency.
What is the overall quality of the Fund's investment portfolio?
Since the Fund invests primarily in government bonds, the quality is relatively
high. As of December 31, 1997, the Fund's overall portfolio credit quality
rating was AA(S) by Standard & Poor's, though of course the Fund included
securities across a wide spectrum of quality ratings.
What is your outlook going forward?
We believe that the impact of the Asian crisis has been widely underestimated
and that it may have a severe impact on prices worldwide. One view is that
prices will decline, keeping inflation low, which should be very good for
international bonds. Market volatility should keep central banks from raising
rates and may prompt us to move down the yield curve, looking at securities with
shorter maturities, while maintaining the Fund's longer duration.
We like the Fund's country exposure as of year end and do not plan to purchase
Japanese government bonds in the near future unless fundamentals dramatically
change. As Europe emerges from recession, we anticipate that European bonds may
become attractive if U.S. investors continue to see domestic spreads narrow to
very tight levels. Given Panama's solid growth, low debt ratios, and political
stability, we may increase the Fund's exposure there and since Panama does not
have a local currency, we can entirely avoid currency risk in that market.
Whatever the future brings, we'll continue to seek competitive overall return
commensurate with an acceptable level of risk by investing in a diversified
portfolio of non-U.S. debt securities, primarily government bonds.
Joseph Portera
Portfolio Manager
Investments in foreign securities may be subject to greater risks than domestic
investments. These risks include currency fluctuations, changes in U.S. or
foreign tax or currency laws, and changes in monetary policies and economic and
political conditions in foreign countries.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
(S) Debt rated AA by Standard & Poor's is considered by Standard & Poor's to
have a very strong capacity to pay interest and repay principal.
117
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS. SALOMON BROTHERS
NON-US DOLLAR WORLD GOV'T BOND INDEX
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
SALOMON BROTHERS
INTERNATIONAL NON-US DOLLAR WORLD
DATE BOND FUND GOV'T BOND INDEX
---- ------------- -------------------
<S> <C> <C>
1/31/90 10,000 10,000
90 11,670
91 11,868 12,445
92 12,779 13,039
93 14,640 15,012
94 15,094 16,910
95 17,881 19,022
96 20,441 19,798
97 20,978 17,648
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS. SALOMON BROTHERS
NON-US DOLLAR WORLD GOV'T BOND INDEX
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
SALOMON BROTHERS
INTERNATIONAL NON-US DOLLAR WORLD
DATE BOND FUND GOV'T BOND INDEX
---- ------------- -------------------
<S> <C> <C>
1/31/90 10,000 10,000
90 11,670
91 11,868 12,445
92 12,779 13,039
93 14,640 15,012
94 15,094 16,910
95 17,850 19,022
96 20,363 19,798
97 20,825 17,698
</TABLE>
Source: Lipper Analytical Services, Inc.
The graphs assume a $10,000 investment made on 1/31/90+.
<TABLE>
<CAPTION>
Total Return* SEC Average Annual Total Return*
PERFORMANCE as of December 31, 1997 as of December 31, 1997
- --------------------------------------------------------------------------------
Since
Year to Date One Year Five Year Inception
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Class+ 2.62% 2.62% 10.42% 9.80%
International Bond Fund
Service Class+ 2.27% 2.27% 10.26% 9.70%
Average Lipper
International Income Fund -0.43% -0.43% 7.67% 8.64%
Salomon Brothers Non-U.S.
Dollar World Gov't Bond
Index -4.26% -4.26% 7.77% 9.59%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net asets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Foreign & Other Bonds 73.59%
Cash, Equivalents & Other Assets 21.44%(S)
Foreign Government Bond-US dollar 2.21%
Foreign Corporate Bond-US dollar 2.76%
</TABLE>
Average Maturity 7.4 years
(as of 12/31/97)
- --------------------------------------------------------------------------------
QUALITY BREAKDOWN++
(% of bonds as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Government/Agency 1.17%
AAA 64.53%
AA 22.11%
A 4.76%
BBB 0.98%
BB 6.04%
B 0.41%
-------
100.00%
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Buoni Poliennali del Tesoro, 7/15/00, 10.50% 3.23%
2. Kingdom of Denmark, 12/15/04, 7.00% 2.94%
3. Bayerische Landesbank Giro, 12/7/06, 7.875% 2.92%
4. United Kingdom Treasury, 2/26/01, 10.00% 2.91%
5. Province of Ontario, 9/27/05, 7.25% 2.87%
6. Nykredit, 10/1/29, 7.00% 2.67%
7. Buoni Poliennali del Tesoro, 1/1/04, 8.50% 2.26%
8. United Kingdom Treasury, 12/7/06, 7.50% 2.26%
9. Bundesobligation, 11/21/00, 5.125% 2.18%
10. Banco National Commerciale Exterior, 5/30/06, 11.25% 2.07%
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 COUNTRIES
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Germany 13.08%
2. United Kingdom 12.13%
3. Italy 10.33%
4. Canada 8.15%
5. Sweden 6.44%
6. Denmark 5.62%
7. United States 4.97%
8. France 3.93%
9. Spain 3.54%
10. Ireland 3.23%
</TABLE>
- --------------------------------------------------------------------------------
* 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 gain 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.
+ The inception date of the International Bond Fund's predecessor separate
account is 1/31/90 ("Separate Account"). Performance figures, and in the
case of the graphs reflecting the investment of $10,000, investment results
include the historical performance of the Separate Account for the period
prior to the International Bond Fund's commencement of operations on January
1, 1995. MacKay Shields Financial Corporation, the International Bond Fund's
sub-adviser, served as investment adviser to the Separate Account, and the
investment objective, policies, restrictions, guidelines, and management
style of the Separate Account were substantially similar to those of the
International Bond Fund. Performance figures and investment results for the
period prior to January 1, 1995 have been calculated using the Separate
Account's expense structure, which generally was higher than the expense
structure of the International Bond Fund. The Separate Account was not
registered under the Investment Company Act of 1940 ("1940 Act") and
therefore was not subject to certain investment restrictions imposed under
the 1940 Act. If the Separate Account had been registered under the 1940
Act, the Separate Account's performance and investment results may have been
adversely affected.
++ Actual percentages will vary over time. Bond quality ratings provided by
Standard & Poor's. See the prospectus for details.
(S) Adjusted for liabilities.
118
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS*
December 31, 1997
LONG-TERM BONDS (78.5%)+
CORPORATE BONDS (17.1%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
DENMARK (2.7%)
Nykredit
Series ANN1
7.00%, due 10/1/29............................... DK 9,050,000 $ 1,306,472
-----------
GERMANY (2.9%)
Bayerische VBK New York
4.50%, due 6/24/02............................... DM 1,160,000 634,565
Deutsche Pfandbrief Bank
Series 436
5.75%, due 3/4/09................................ 1,375,000 764,842
-----------
1,399,407
-----------
NEW ZEALAND (0.7%)
International Bank of Reconstruction & Development
Medium-Term Notes
Series E
(zero coupon), due 8/20/07....................... N$ 1,231,000 360,709
-----------
SOUTH AFRICA (0.7%)
International Bank of Reconstruction & Development
Medium-Term Notes
Series E
(zero coupon),
due 12/29/17..................................... ZAR 21,000,000 360,320
-----------
SWEDEN (3.1%)
Banque Nationale de Paris
Medium-Term Notes
Series E
11.00%, due 11/4/99.............................. SK 6,050,000 823,594
Stadshypotek AB
Series 1553
10.00%, due 12/20/00............................. 5,000,000 698,521
-----------
1,522,115
-----------
UNITED KINGDOM (4.2%)
Bayerische Landesbank Giro
7.875%, due 12/7/06.............................. (Pounds) 807,000 1,427,769
European Investment Bank
8.75%, due 8/25/17............................... 315,000 639,391
-----------
2,067,160
-----------
UNITED STATES (2.8%)
Banco Nacional Commerciale Exterior
Series REGS
8.00%, due 7/18/02............................... $ 350,000 339,063
Series REGS
11.25%, due 5/30/06.............................. 905,000 1,009,075
-----------
1,348,138
-----------
Total Corporate Bonds
(Cost $8,483,127)................................ 8,364,321
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
* Investments are grouped by currency denomination.
GOVERNMENTS & FEDERAL AGENCIES
(61.4%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
ARGENTINA (0.9%)
Argentina Bocon Previs
Series Pre-1
3.39%, due 4/1/01 (b)............................ AP 478,415 $ 429,591
-----------
AUSTRALIA (1.7%)
Australian Government
Series 803
9.50%, due 8/15/03............................... A$ 208,000 159,355
Series 1002
10.00%, due 10/15/02............................. 385,000 295,404
Fannie Mae
Medium-Term Notes
Series E
6.375%, due 8/15/07.............................. 345,000 226,145
Queensland Treasury Corp.
8.00%, due 9/14/07............................... 225,000 164,193
-----------
845,097
-----------
CANADA (8.2%)
Alberta Government Telephone
Series UB
9.60%, due 7/7/98................................ C$ 850,000 610,448
Canadian Government
Series WB60
7.25%, due 6/1/07................................ 660,000 516,878
Series H74
10.00%, due 6/1/08............................... 210,000 196,687
Series A33
11.50%, due 9/1/00............................... 300,000 241,683
Province of Ontario
7.25%, due 9/27/05............................... 1,860,000 1,402,505
Province of Quebec
7.75%, due 3/30/06............................... 715,000 557,353
United Mexican States
7.00%, due 6/2/03................................ 700,000 457,340
-----------
3,982,894
-----------
DENMARK (3.0%)
Kingdom of Denmark
7.00%, due 12/15/04.............................. DK 9,025,000 1,436,681
-----------
EUROPEAN MONETARY UNION (1.6%)
France Obligations Assimilables du Tresor
7.50%, due 4/25/05............................... ECU 630,000 784,658
-----------
FRANCE (3.9%)
France Obligations Assimilables du Tresor
7.50%, due 4/25/05............................... FF 1,224,000 232,659
8.25%, due 2/27/04............................... 2,480,000 482,654
8.50%, due 3/28/00............................... 1,000,000 180,689
8.50%, due 11/25/02.............................. 4,200,000 809,299
8.50%, due 10/25/08.............................. 850,000 176,319
8.50%, due 12/26/12.............................. 170,000 36,595
-----------
1,918,215
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
119
<PAGE>
INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
GOVERNMENTS & FEDERAL AGENCIES (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
GERMANY (10.2%)
Bundesobligation
Series 123
4.50%, due 5/17/02............................... DM 1,265,000 $ 695,444
Series 117
5.125%, due 11/21/00............................. 1,880,000 1,065,238
Province of Ontario
6.25%, due 1/13/04............................... 835,000 487,613
Republic of Deutschland
Series 96
6.00%, due 2/16/06............................... 1,709,000 998,191
Series 94
6.25%, due 1/4/24 (a)............................ 1,230,000 718,760
Series 95
7.375%, due 1/3/05 (a)........................... 255,000 160,215
Treuhandanstalt
7.50%, due 9/9/04 (a)............................ 1,371,000 864,060
-----------
4,989,521
-----------
IRELAND (3.2%)
Irish Government
6.25%, due 4/1/99 (a)............................ IP 199,000 288,037
6.50%, due 10/18/01.............................. 345,000 516,572
8.00%, due 8/18/06............................... 466,000 774,794
-----------
1,579,403
-----------
ITALY (10.3%)
Buoni Poliennali del Tesoro
8.50%, due 1/1/04................................ IL 1,690,000,000 1,103,942
9.00%, due 11/1/23............................... 770,000,000 602,302
9.50%, due 2/1/01................................ 555,000,000 353,551
10.50%, due 7/15/00.............................. 2,470,000,000 1,576,280
10.50%, due 4/1/05............................... 670,000,000 489,763
12.00%, due 5/1/02............................... 1,295,000,000 921,859
-----------
5,047,697
-----------
NEW ZEALAND (1.5%)
Fannie Mae
7.25%, due 6/20/02............................... N$ 498,000 282,951
New Zealand Government
8.00%, due 11/15/06.............................. 688,000 423,924
-----------
706,875
-----------
SPAIN (3.5%)
Spanish Government
7.35%, due 3/31/07............................... SP 64,830,000 477,901
10.25%, due 11/30/98............................. 37,880,000 260,607
10.50%, due 10/30/03............................. 120,060,000 991,022
-----------
1,729,530
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
SWEDEN (3.3%)
Swedish Government
Series 1038
6.50%, due 10/25/06............................... SK 6,500,000 $ 850,925
Series 1030
13.00%, due 6/15/01............................... 5,000,000 773,994
-----------
1,624,919
-----------
UNITED KINGDOM (7.9%)
Republic of Argentina
Series LELI
10.00%, due 6/25/07............................... (Pounds) 250,000 389,757
United Kingdom Treasury Bonds
7.50%, due 12/7/06................................ 623,000 1,101,968
8.00%, due 9/27/13................................ 494,000 945,422
10.00%, due 2/26/01 (a)........................... 791,000 1,419,057
-----------
3,856,204
-----------
UNITED STATES (2.2%)
Bonos del Tesoro
Series BT02
8.75%, due 5/9/02................................. $ 190,000 180,500
Republic of Panama
Series REGS
7.875%, due 2/13/02............................... 315,000 305,156
8.875%, due 9/30/27............................... 630,000 592,200
-----------
1,077,856
-----------
Total Governments & Federal Agencies
(Cost $30,383,769)................................ 30,009,141
-----------
Total Long-Term Bonds
(Cost $38,866,896)................................ 38,373,462
-----------
SHORT-TERM
INVESTMENTS (16.0%)
COMMERCIAL PAPER (5.1%)
UNITED STATES (5.1%)
Ford Motor Credit Co.
6.25%, due 1/2/98................................. $ 2,000,000 1,999,652
Merrill Lynch & Co. Inc.
6.00%, due 1/2/98................................. 500,000 499,917
-----------
Total Commercial Paper
(Cost $2,499,569)................................. 2,499,569
-----------
GOVERNMENTS & FEDERAL
AGENCIES (10.9%)
AUSTRALIA (0.4%)
Treasury Corp. Victoria
Series 1098
12.00%, due 10/22/98.............................. A$ 285,000 195,841
-----------
</TABLE>
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 INVESTMENTS (Continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
GOVERNMENTS & FEDERAL
AGENCIES (Continued)
CANADA (4.1%)
Canadian Treasury Bill
(zero coupon),
due 1/8/98.................................... C$ 2,875,000 $ 2,007,538
-----------
FRANCE (4.1%)
French Treasury Bill
(zero coupon),
due 3/26/98................................... FF 12,006,000 1,979,768
-----------
IRELAND (0.5%)
Irish Government
9.75%, due 6/1/98............................. IP 180,000 261,023
-----------
NEW ZEALAND (1.8%)
New Zealand Treasury Bill
(zero coupon),
due 3/11/98................................... N$ 1,490,000 850,939
-----------
Total Governments & Federal Agencies
(Cost $5,435,329)............................. 5,295,109
-----------
Total Short-Term Investments
(Cost $7,934,898)............................. 7,794,678
-----------
Total Investments
(Cost $46,801,794) (c)........................ 94.5% 46,168,140 (d)
Cash and Other Assets,
Less Liabilities.............................. 5.5 2,680,415
---------------- -----------
Net Assets..................................... 100.0% $48,848,555
================ ===========
</TABLE>
- --------
(a) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(c) The cost for Federal income tax purposes is $46,830,956.
(d) At December 31, 1997 net unrealized depreciation for securities was
$662,816, 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 $742,467 and aggregate gross
unrealized depreciation for all investments on which there was an excess
of cost over market value of $1,405,283.
(e) The following abbreviations are used in the above portfolio:
AP --Argentine Peso
A$ --Australian Dollar
C$ --Canadian Dollar
DK --Danish Krone
DM --Deutsche Mark
ECU--European Currency Unit
FF --French Franc
IP --Irish Punt
IL --Italian Lira
N$ --New Zealand Dollar
(Pounds)--Pound Sterling
ZAR--South African Rand
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.
121
<PAGE>
INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $46,801,794)................................... $46,168,140
Cash denominated in foreign currencies (identified cost
$4,037,971)..................................................... 4,013,766
Cash............................................................. 16,807
Receivables:
Interest......................................................... 928,888
Investment securities sold....................................... 320,589
Fund shares sold................................................. 35,540
Unrealized appreciation on forward foreign currency contracts.... 333,270
Unamortized organization expense ................................ 1,518
-----------
Total assets................................................... 51,818,518
-----------
LIABILITIES:
Payables:
Investment securities purchased.................................. 2,583,740
Fund shares redeemed............................................. 24,458
MainStay Management.............................................. 21,605
Custodian........................................................ 8,415
Transfer agent................................................... 2,114
Accrued expenses................................................. 31,343
Unrealized depreciation on forward foreign currency contracts.... 298,288
-----------
Total liabilities.............................................. 2,969,963
-----------
Net assets....................................................... $48,848,555
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized Institutional Class.................................. $ 4,839
Institutional Service Class...................................... 23
Additional paid-in capital....................................... 49,365,242
Accumulated undistributed net investment income.................. 89,876
Accumulated undistributed net realized gain on investments....... 2,162
Net unrealized depreciation on investments....................... (633,654)
Net unrealized appreciation on translation of assets and
liabilities in foreign currencies and forward foreign currency
contracts....................................................... 20,067
-----------
Net assets....................................................... $48,848,555
===========
Institutional Class
Net assets applicable to outstanding shares...................... $48,613,489
===========
Shares of capital stock outstanding.............................. 4,839,358
===========
Net asset value per share outstanding............................ $ 10.05
===========
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 235,066
===========
Shares of capital stock outstanding.............................. 23,480
===========
Net asset value per share outstanding............................ $ 10.01
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest......................................................... $3,479,553
----------
Expenses:
Administration................................................... 228,235
Advisory......................................................... 136,941
Management....................................................... 43,865
Professional..................................................... 41,478
Custodian........................................................ 32,476
Registration..................................................... 24,142
Transfer agent................................................... 22,192
Shareholder communication........................................ 7,793
Directors........................................................ 1,578
Amortization of organization expense............................. 760
Service.......................................................... 604
Miscellaneous.................................................... 20,451
----------
Total expenses before
reimbursement................................................. 560,515
Expense reimbursement from
Administrator or Manager........................................ (74,177)
----------
Net expenses................................................... 486,338
----------
Net investment income............................................ 2,993,215
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions............................................ 1,535,035
Foreign currency transactions.................................... 1,308,158
----------
Net realized gain on investments and foreign currency
transactions.................................................... 2,843,193
----------
Net change in unrealized appreciation (depreciation) on
investments:
Security transactions............................................ (4,098,551)
Translation of assets and liabilities in
foreign currencies and forward foreign currency contracts....... (382,945)
----------
Net unrealized loss on investments and
foreign currencies.............................................. (4,481,496)
----------
Net realized and unrealized loss on investments and foreign
currency transactions........................................... (1,638,303)
----------
Net increase in net assets resulting from operations............. $1,354,912
==========
</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.
INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................... $ 2,993,215 $ 2,835,164
Net realized gain on investments.................... 1,535,035 868,042
Net realized gain on foreign currency transac-
tions.............................................. 1,308,158 2,078,040
Net change in unrealized appreciation (deprecia-
tion) on investments............................... (4,098,551) 179,771
Net change in unrealized appreciation (deprecia-
tion) on translation of assets and liabilities in
foreign currencies and forward foreign currency
contracts.......................................... (382,945) 421,727
----------- -----------
Net increase in net assets resulting from opera-
tions.............................................. 1,354,912 6,382,744
----------- -----------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Institutional Class................................ (4,197,703) (5,580,459)
Institutional Service Class........................ (19,891) (22,729)
From net realized gain on investments:
Institutional Class................................ (1,539,271) (1,136,473)
Institutional Service Class........................ (7,516) (4,703)
----------- -----------
Total dividends and distributions to sharehold-
ers.............................................. (5,764,381) (6,744,364)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................ 1,477,297 2,326,123
Institutional Service Class........................ 58,930 205,185
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................ 5,736,968 6,716,923
Institutional Service Class........................ 27,401 27,424
----------- -----------
7,300,596 9,275,655
Cost of shares redeemed:
Institutional Class................................ (6,192,594) (1,096,721)
Institutional Service Class........................ (54,357) (7,271)
----------- -----------
Increase in net assets derived from capital share
transactions...................................... 1,053,645 8,171,663
----------- -----------
Net increase (decrease) in net assets.............. (3,355,824) 7,810,043
NET ASSETS:
Beginning of year................................... 52,204,379 44,394,336
----------- -----------
End of year......................................... $48,848,555 $52,204,379
=========== ===========
Accumulated undistributed net investment income..... $ 89,876 $ 6,097
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
123
<PAGE>
INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31 JANUARY 1, 1995(a)
------------------------------------------------------- THROUGH
1997 1996 DECEMBER 31, 1995
--------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year...... $ 11.10 $ 11.07 $ 11.16 $ 11.14 $ 10.00 $ 10.00
------- ------- ------- ------- ------- -------
Net investment income... 1.01 0.98 1.21 1.19 0.70 0.70
Net realized and
unrealized gain (loss)
on investments......... (1.11) (1.13) 0.11 0.11 1.12 1.10
Net realized and
unrealized gain on
foreign currency
transactions........... 0.40 0.41 0.27 0.26 0.02 0.02
------- ------- ------- ------- ------- -------
Total from investment
operations............. 0.30 0.26 1.59 1.56 1.84 1.82
------- ------- ------- ------- ------- -------
Less dividends and
distributions:
From net investment
income and net realized
gain on foreign
currency transactions.. (0.99) (0.96) (1.37) (1.35) (0.55) (0.55)
From net realized gain
on investments......... (0.36) (0.36) (0.28) (0.28) (0.13) (0.13)
------- ------- ------- ------- ------- -------
Total dividends and
distributions.......... (1.35) (1.32) (1.65) (1.63) (0.68) (0.68)
------- ------- ------- ------- ------- -------
Net asset value at end
of year................ $ 10.05 $ 10.01 $ 11.10 $ 11.07 $ 11.16 $ 11.14
======= ======= ======= ======= ======= =======
Total investment return
....................... 2.62% 2.27% 14.32% 14.08% 18.46% 18.26%
Ratios (to average net
assets)/Supplemental
Data:
Net investment income.. 5.86% 5.61% 6.02% 5.77% 6.61% 6.36%
Net expenses........... 0.95% 1.20% 0.95% 1.20% 0.95% 1.20%
Expenses (before
reimbursement)........ 1.10% 1.35% 1.08% 1.33% 1.03% 1.28%
Portfolio turnover
rate................... 186% 186% 57% 57% 92% 92%
Net assets at end of
year (in 000's)........ $48,613 $ 235 $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.
124
<PAGE>
MONEY MARKET FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. The Federal Reserve Board increased their targeted Federal Funds rate by 25
basis points at the end of March, causing short-term rates to move higher.
. As economic growth slowed to a more moderate pace and inflation remained
subdued, short-term rates generally declined throughout the rest of the year.
. Securities with longer maturities tended to outperform as rates declined.
. In the second half of the year, some investors stayed away from securities
which they felt may be affected by difficulties in Asian markets.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. The Fund returned 5.27% and 5.01% for Institutional Class shares and Service
Class shares, respectively, for the year ended 12/31/97.
. Both share classes underperformed the average Lipper* institutional money
market fund, which returned 5.33% for the year ended 12/31/97.
. The Fund's shorter maturity helped its performance as interest rates rose,
but hurt performance in the second quarter as rates began to decline. Longer
maturities in the second half of the year helped the Fund's performance.
. Emphasizing floating rate securities and asset-backed securities and reducing
exposure to commercial paper helped the Fund's overall performance.
The money markets experienced a pivotal shift at the end of March 1997, when the
Federal Reserve Board (Fed) increased their targeted federal funds rate by 25
basis points. Although the increase stimulated broad speculation about whether
further Fed tightening would occur, slowing economic growth and continued low
inflation removed any need for additional action, and rates generally declined
throughout the rest of the year.
In a declining interest rate environment, securities with longer duration tend
to perform better. As investors sought longer-duration securities, however,
price competition intensified. During the second half of the year, currency and
financial problems in Southeast Asian markets caused a flight to quality, which
was basically positive for money market instruments since they are generally
considered to be low-risk investments. Holdings with any form of Asian exposure,
however, tended to underperform during the Asian market turmoil.
Given this context, how did the MainStay Institutional Money Market Fund do in
1997?
For the year ended 12/31/97, the MainStay Institutional Money Market Fund
returned 5.27% and 5.01% for Institutional Class shares and Service Class
shares, respectively. Both share classes underperformed the average Lipper
institutional money market fund, which returned 5.33% for the year.
- --------------------------------------------------------------------------------
Federal funds rate The benchmark for the rate institutions charge one another
for overnight loans to meet reserve requirements.
Basis point One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
Tightening/Easing When the Federal Reserve Board moves to lower interest rates
it is said to be "easing" or making borrowing more affordable. When it moves to
raise interest rates, it is said to be "tightening" or making borrowing more
expensive.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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.
125
<PAGE>
================================================================================
What accounted for the Fund's underperformance?
Duration is the most important factor influencing performance in money market
funds. Our decision to maintain a short duration during the first quarter
benefited the Fund when interest rates rose. But maintaining a short duration
hurt performance in the second quarter as rates began to decline. Beginning in
late May, we lengthened the duration of the Fund's portfolio, which helped in
the second half of the year. In addition, the Fund's concentration on higher-
quality securities may have caused it to underperform other funds that are
willing to assume higher levels of risk.
Why did you remain short after the Federal Reserve Board raised interest rates?
It was not yet clear whether the Fed would tighten again and we did not want the
Fund to have a long duration if they did.
What was the Fund's average maturity during the year?
The Fund's average maturity ranged between 42 and 61 days. At year end, the
Fund's maturity was 53 days, with a target of 55 to 60 days. Some other money
market funds were considerably longer in the second half of the year, which
proved beneficial.
Were there particular types of securities you preferred in 1997?
We invested a portion of the Fund's assets in floating rate securities. Starting
with a purchase of IBM securities in March 1997, we increased the Fund's
allocation throughout the year. The floaters allowed for flexibility in the
Fund's duration management as well as an increase in yield. The yield advantage
comes from giving up some liquidity with a longer final maturity. The coupon on
floaters is reset from time to time, and the duration on a floater is the time
between coupon resets, not the period to final maturity. Overall, these
securities provided the Fund with higher returns than commercial paper with
similar durations.
Were there other securities that worked well for the Fund?
The Fund was also invested in some asset-backed securities. Since these
securities have more complex structures than typical cash investments, they
attract a smaller number of investors and trade at slightly lower prices than
their less complex counterparts. We chose securities with underlying collateral,
such as credit card receivables, car loans, and student loans. These types of
securities tend not to be available on a daily basis and the timing of our
purchases was determined by technical factors such as supply. By buying when
supply was greater, we were able to purchase securities for the Fund at fair
value or slight discounts, which helped the Fund's overall performance.
Were there sectors that were emphasized less this year?
We reduced the Fund's allocation to commercial paper, which is the most liquid
segment of the money market. Since the Fund was experiencing cash inflows, we
decided that a portion of the Fund's assets could be invested in less liquid
sectors. The result for the Fund was positive, since what the Fund lost in
liquidity it made up for in return.
- --------------------------------------------------------------------------------
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.
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
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 net asset
value.
LIBOR The rate that the most creditworthy international banks dealing in
Eurodollars charge each other for loans. The LIBOR rate is usually the base for
other large Eurodollar loans to less creditworthy corporate and government
borrowers.
Yield spread The difference in yield between securities in different market
sectors, such as government and mortgage-backed securities or between different
securities in a single sector, such as 5- and 10-year Treasuries.
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.
- --------------------------------------------------------------------------------
126
<PAGE>
================================================================================
Which significant purchases during the year performed well for the Fund?
In June, we bought Asset-Backed Securities Trust 1997--C Class N security at a
price that was less expensive than other types of floaters and commercial paper
of similar duration. This instrument has outperformed over the remainder of the
year as floaters became more expensive relative to other investment
alternatives. In August, we purchased two Honeywell medium-term notes that
helped us lengthen the duration of the Fund and lock in higher yields for longer
periods. Since the Fed took no further action, the result increased the yield of
the Fund in the second half of the year. In September, we bought Barnett Auto
Trust 1997--A Class A-1 security for the Fund at an attractive price, allowing
us to increase liquidity and yield since principal payments are made on a
monthly basis.
How was the Fund affected by the Asian turmoil?
The Fund's exposure to Asian issuers or issuers with business relations in Asia
was very limited, so we avoided many of the difficulties that occurred in that
market. The Fund's only direct Asian holding was commercial paper issued by
Mitsubishi Motors, and backed by a Bank of Tokyo letter of credit. We are
comfortable with this paper and continue to believe it offers minimal credit
risk. But the Fund's holdings did suffer a bit along with the general flight
away from Asian companies.
Which securities provided the best overall performance for the Fund?
Asset-backed floaters did quite well. Securities with LIBOR as a benchmark
became more expensive in the money markets because of yield spreads widening
between Treasury bills and LIBOR.
How was the Fund weighted at year end?
Relative to its positions a year ago, the Fund was overweighted in asset-backed
securities and floaters, and underweighted in commercial paper. By year end, the
Fund's allocation to commercial paper was 75%, which we may seek to reduce to
between 50% and 70% in 1998 if values appear greater in other sectors.
What do you foresee in the year ahead?
We believe there remains a good deal of currency risk in Asia, and we have yet
to see how the outcome there will affect monetary policy. With the recent flight
to quality, the yield curve has become increasingly flat as interest rates
declined. A steepening of the curve could negatively impact the relative
performance of the longer maturity securities in the Fund. Whatever happens, we
will continue to manage the Fund seeking to provide a high level of current
income, while preserving capital and maintaining liquidity.
David Clement, CFA
Portfolio Manager
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
127
<PAGE>
[GRAPHS APPEAR HERE]
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
INSTITUTIONAL CLASS SHARES
<TABLE>
<CAPTION>
LIPPER
INSTITUTIONAL
DATE MONEY MARKET FUND MONEY MARKET AVERAGE
---- ----------------- --------------------
<S> <C> <C>
1/2/91 10,000 10,000
91 10,595 10,599
92 10,983 10,972
93 11,300 11,294
94 11,738 11,745
95 12,399 12,419
96 13,032 13,058
97 13,720 13,752
</TABLE>
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
SERVICE CLASS SHARES
<TABLE>
<CAPTION>
LIPPER
INSTITUTIONAL
DATE MONEY MARKET FUND MONEY MARKET AVERAGE
---- ----------------- --------------------
<S> <C> <C>
1/2/91 10,000 10,000
91 10,595 10,599
92 10,983 10,972
93 11,300 11,294
94 11,738 11,745
95 12,379 12,419
96 12,972 13,055
97 13,630 13,752
</TABLE>
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, 1997 as of December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund Institutional Class+ 5.27% 5.27% 4.55% 4.62%
Money Market Fund Service Class+ 5.01% 5.01% 4.41% 4.52%
Average Lipper Institutional Money Market Fund 5.33% 5.33% 4.64% 4.70%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year End Total Return %*
-------- ---------------
<S> <C>
1991 5.95
1992 3.66
1993 2.89
1994 3.88
1995 5.63
1996 5.11
1997 5.27
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Commercial Paper 74.75%
Medium-Term Notes 8.60%
Bank Notes 4.71%
Other 12.17%
Cash, Equivalents & Other Assets (0.23)%++
</TABLE>
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Xerox Capital Europe PLC 3.93%
2. Barnett Banks, Inc. 3.13%
3. Asset-Backed Securities Investment Trust 1.96%
4. Branch Banking & Trust Co. 1.96%
5. California Pollution Control Finance Authority 1.96%
6. Greenwood Trust Co. 1.96%
7. Dun & Bradstreet Corp. 1.96%
8. Societe Generale Bank 1.96%
9. General Electric Capital Corp. 1.96%
10. Riverwoods Funding Corp. 1.96%
</TABLE>
- --------------------------------------------------------------------------------
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Banks 17.64%
2. Finance 17.56%
3. Brokerage 13.81%
4. Auto Manufacturing 13.11%
5. Conglomerates 9.85%
</TABLE>
Average Maturity 53 Days
(as of 12/31/97)
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of .25%
+ 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 Money Market Fund--Institutional Class had a 7-day effective yield of
5.45% and a 7-day average yield of 5.31%, both as of 12/31/97. The Money
Market Fund--Service Class had a 7-day effective yield of 5.19% with a 7-day
current yield of 5.06%, both as of 12/31/97. These yields reflect certain
expense limitations. Had certain expenses not been limited, the 7-day
effective yield and the 7-day current yield would have been 5.28% and 5.15%,
respectively, for the Institutional Class and 5.02% and 4.90%, respectively,
for the Service Class. These expense limitations are voluntary and may be
terminated or revised at any time.
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%.
++ Adjusted for liabilities.
128
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
SHORT-TERM INVESTMENTS (100.2%)+
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES (4.0%)
Asset-Backed Securities Investment Trust
Series 1997-C Class N
5.98%, due 6/15/98 (a)(b)(d)......................... $ 5,000,000 $ 5,000,000
Barnett Auto Trust
Series 1997-A Class A1
5.65%, due 10/15/98 (d).............................. 2,955,010 2,955,010
PNC Student Loan Trust I
Series 1997-2 Class A1
5.91%, due 7/20/98 (b)(d)............................ 2,250,539 2,250,539
------------
10,205,549
------------
BANK NOTES (4.7%)
Comerica Bank Detroit, Michigan
5.68%, due 7/22/98 (b)(d)............................ 3,000,000 2,999,033
Greenwood Trust Co.
5.66%, due 1/7/98 (d)................................ 5,000,000 5,000,000
PNC Bank N.A.-Pittsburg, Pennsylvania
5.63%, due 5/12/98 (b)(d)............................ 3,000,000 2,999,473
6.00%, due 6/5/98 (b)(d)............................. 1,000,000 1,000,041
------------
11,998,547
------------
BANKERS' ACCEPTANCE (2.0%)
Wachovia Bank N.A.
5.49%, due 2/2/98.................................... 5,000,000 4,975,600
------------
CERTIFICATES OF DEPOSIT (3.9%)
Branch Banking & Trust Co.
5.75%, due 2/10/98 (d)............................... 5,000,000 5,000,000
Societe Generale Bank
New York
6.16%, due 8/25/98 (b)(d)............................ 5,000,000 4,998,127
------------
9,998,127
------------
COMMERCIAL PAPER (74.7%)
Altair Funding Corp.
5.73%, due 1/15/98 (a)............................... 5,000,000 4,988,858
Barnett Banks Inc.
5.95%, due 1/23/98................................... 8,000,000 7,970,911
Bear Stearns Cos. Inc.
5.62%, due 1/29/98................................... 5,000,000 4,978,144
5.74%, due 3/19/98................................... 5,000,000 4,938,614
Beneficial Corp.
5.70%, due 4/15/98................................... 5,000,000 4,917,667
California Pollution Control Financing Authority
Series 1996
5.85%, due 3/11/98 (a)(d)............................ 5,000,000 5,000,000
Caterpillar Financial
Services Corp.
5.52%, due 1/21/98................................... 5,000,000 4,984,667
5.55%, due 2/4/98.................................... 5,000,000 4,973,792
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Chrysler Financial Corp.
5.70%, due 4/13/98................................... $ 5,000,000 $ 4,919,250
5.71%, due 3/31/98................................... 5,000,000 4,929,418
Columbus Southern Power
6.60%, due 1/6/98.................................... 2,900,000 2,897,342
Daimler-Benz
North America Corp.
5.58%, due 3/26/98................................... 3,000,000 2,960,940
5.62%, due 3/17/98................................... 5,000,000 4,941,458
Duke Capital Corp.
5.85%, due 2/6/98 (a)................................ 5,000,000 4,970,750
6.85%, due 1/2/98 (a)................................ 1,032,000 1,031,804
Dun & Bradstreet Corp.
6.80%, due 1/2/98.................................... 5,000,000 4,999,056
Enterprise Funding Corp.
5.65%, due 2/27/98 (a)............................... 3,634,000 3,601,491
Ford Motor Credit Co.
5.70%, due 3/6/98.................................... 3,000,000 2,969,600
5.71%, due 1/5/98.................................... 880,000 879,442
Fountain Square Commercial Funding Corp.
5.65%, due 2/19/98 (a)............................... 1,987,000 1,971,719
General Electric Capital Corp.
5.54%, due 1/6/98.................................... 5,000,000 4,996,153
5.66%, due 4/9/98.................................... 5,000,000 4,922,961
5.72%, due 2/4/98 (d)................................ 196,000 196,000
General Motors
Acceptance Corp.
5.56%, due 1/12/98................................... 5,000,000 4,991,506
5.64%, due 3/25/98................................... 4,000,000 3,947,987
Goldman, Sachs & Co.
5.70%, due 5/4/98.................................... 5,000,000 4,902,707
Goldman Sachs Group L.P.
5.65%, due 3/24/98................................... 5,000,000 4,935,653
Heinz (H.J.) Co.
5.78%, due 2/10/98................................... 5,000,000 4,967,889
J.P. Morgan & Co. Inc.
5.74%, due 2/23/98................................... 5,000,000 4,957,747
LG&E Capital Corp.
5.57%, due 2/19/98 (a)............................... 4,000,000 3,969,674
Mayne Nickless Ltd.
5.70%, due 1/20/98................................... 5,000,000 4,984,958
Mitsubishi Motors Credit of America Inc.
Series A
5.67%, due 1/16/98................................... 5,000,000 4,988,188
Morgan Stanley, Dean Witter, Discover & Co.
5.69%, due 2/18/98................................... 5,000,000 4,962,067
5.74%, due 3/13/98................................... 3,000,000 2,966,038
Mount Sinai Medical Center Realty Corp.
5.65%, due 2/20/98................................... 5,000,000 4,960,764
Procter & Gamble Co.
5.72%, due 3/10/98................................... 5,000,000 4,945,978
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
129
<PAGE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1997
SHORT-TERM INVESTMENTS (Continued)
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
------------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Riverwoods Funding Corp.
5.55%, due 1/7/98.................................... $ 5,000,000 $ 4,995,375
5.69%, due 1/30/98................................... 5,000,000 4,977,082
Sears Roebuck Acceptance Corp.
5.60%, due 1/28/98................................... 5,000,000 4,979,000
5.62%, due 4/20/98................................... 4,000,000 3,931,935
Sigma Finance Corp.
5.55%, due 2/2/98 (a)................................ 2,000,000 1,990,133
Xerox Capital Europe PLC
6.80%, due 1/2/98.................................... 10,000,000 9,998,111
Xerox Credit Corp.
5.50%, due 2/9/98.................................... 5,000,000 4,970,208
------------
190,263,037
------------
CORPORATE BOND (0.4%)
Fleet Financial Group Inc.
6.00%, due 10/26/98 (d).............................. 1,000,000 1,000,420
------------
CORPORATE NOTES (1.4%)
CIT Group Holdings Inc.
8.75%, due 4/15/98 (d)............................... 1,000,000 1,006,691
Mississippi Power Co.
5.38%, due 3/1/98 (d)................................ 2,500,000 2,497,066
------------
3,503,757
------------
FEDERAL AGENCIES (0.5%)
Federal Home Loan Bank Discount Corp.
5.50%, due 6/17/98................................... 340,000 331,325
Federal Home Loan
Mortgage Corp.
5.49%, due 3/4/98.................................... 730,000 723,098
Federal National Mortgage Association
5.46%, due 3/19/98................................... 240,000 237,197
------------
1,291,620
------------
MEDIUM-TERM NOTES (8.6%)
American General Finance Corp. Series C
5.55%, due 4/27/98 (d)............................... 4,000,000 3,997,384
Chrysler Financial Corp.
Series K
6.83%, due 6/8/98 (d)................................ 1,000,000 1,002,249
General Motors
Acceptance Corp.
6.20%, due 5/11/98 (d)............................... 1,835,000 1,837,278
Honeywell, Inc. Series A
7.70%, due 4/1/98 (d)................................ 2,500,000 2,511,080
7.71%, due 5/7/98 (d)................................ 2,500,000 2,515,132
IBM Credit Corp.
5.60%, due 3/2/98 (b)(d)............................. 3,000,000 2,999,668
Morgan Stanley Group Inc. Series C
5.83%, due 5/18/98 (b)(d)............................ 2,500,000 2,499,953
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
-------------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
PepsiCo Inc.
5.46%, due 7/1/98 (c)(d)............................ $ 4,550,000 $ 4,540,521
------------
21,903,265
------------
Total Short-Term Investments
(Amortized Cost
$255,139,922) (e)................................... 100.2% 255,139,922
Liabilities in Excess of
Cash and Other Assets............................... (0.2) (592,798)
----------- ------------
Net Assets........................................... 100.0% $254,547,124
=========== ============
</TABLE>
- --------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1997.
(c) Variable rate. Rate shown is the rate in effect at December 31, 1997.
(d) Coupon interest bearing security.
(e) The cost stated also represents the aggregate cost for Federal income tax
purposes.
The table below sets forth the diversification of Money Market Fund
investments by industry.
INDUSTRY DIVERSIFICATION
<TABLE>
<CAPTION>
AMORTIZED
COST PERCENT +
----------------------
<S> <C> <C>
Auto Manufacturing...................................... $ 33,379,128 13.1%
Banks................................................... 44,892,137 17.6
Beverages............................................... 4,540,521 1.8
Brokerage............................................... 35,140,923 13.8
Capital Goods........................................... 9,958,458 3.9
Computers & Office Equipment............................ 17,967,987 7.1
Conglomerates........................................... 25,072,262 9.8
Consumer Financial Services............................. 1,006,691 0.4
Federal Agencies........................................ 1,291,620 0.5
Finance................................................. 44,690,668 17.6
Food.................................................... 4,967,889 1.9
Insurance............................................... 2,955,010 1.2
Publishing.............................................. 4,999,056 2.0
Retail.................................................. 8,910,936 3.5
Utilities............................................... 9,972,228 3.9
Utilities-Electrical.................................... 5,394,408 2.1
------------ -----
255,139,922 100.2
Liabilities in Excess of
Cash and Other Assets.................................. (592,798) (0.2)
------------ -----
Net Assets.............................................. $254,547,124 100.0%
============ =====
</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.
130
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (amortized cost
$255,139,922).................................................. $255,139,922
Cash............................................................ 227
Interest receivable............................................. 685,966
------------
Total assets.................................................. 255,826,115
------------
LIABILITIES:
Payables:
MainStay Management............................................. 78,686
Custodian....................................................... 8,372
Transfer agent.................................................. 4,857
Accrued expenses................................................ 70,468
Dividend payable................................................ 1,116,608
------------
Total liabilities............................................. 1,278,991
------------
Net assets...................................................... $254,547,124
============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 12 billion shares
authorized
Institutional Class............................................. $ 190,323
Institutional Service Class..................................... 64,228
Additional paid-in capital...................................... 254,296,965
Accumulated net realized loss
on investments................................................. (4,392)
------------
Net assets...................................................... $254,547,124
============
Institutional Class
Net assets applicable to outstanding shares..................... $190,318,873
============
Shares of capital stock outstanding............................. 190,323,265
============
Net asset value per share outstanding........................... $ 1.00
============
Institutional Service Class
Net assets applicable to outstanding shares..................... $ 64,228,251
============
Shares of capital stock outstanding............................. 64,228,251
============
Net asset value per share outstanding........................... $ 1.00
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest.......................................................... $11,948,163
-----------
Expenses:
Administration ................................................... 726,696
Advisory.......................................................... 181,674
Management........................................................ 142,675
Service........................................................... 128,723
Registration...................................................... 59,679
Shareholder communication......................................... 50,795
Professional...................................................... 47,914
Custodian......................................................... 32,626
Transfer agent.................................................... 29,127
Directors......................................................... 5,952
Miscellaneous..................................................... 6,352
-----------
Total expenses before
reimbursement.................................................. 1,412,213
Expense reimbursement from
Administrator or Manager......................................... (232,446)
-----------
Net expenses.................................................... 1,179,767
-----------
Net investment income............................................. 10,768,396
-----------
REALIZED LOSS ON INVESTMENTS:
Net realized loss on investments.................................. (497)
-----------
Net increase in net assets resulting from operations.............. $10,767,899
===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
131
<PAGE>
MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................ $ 10,768,396 $ 4,967,474
Net realized loss on investments................. (497) (888)
------------ -------------
Net increase in net assets resulting from
operations...................................... 10,767,899 4,966,586
------------ -------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class............................. (8,228,621) (4,202,178)
Institutional Service Class..................... (2,539,775) (765,425)
From net realized gain on investments:
Institutional Class............................. (2,265) --
Institutional Service Class..................... (742) --
------------ -------------
Total dividends and distributions to
shareholders.................................. (10,771,403) (4,967,603)
------------ -------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class............................. 383,541,801 346,674,956
Institutional Service Class..................... 90,078,559 58,869,480
Net asset value of shares issued to shareholders
in reinvestment of dividends and distributions:
Institutional Class............................. 7,733,123 4,007,693
Institutional Service Class..................... 2,386,943 650,486
------------ -------------
483,740,426 410,202,615
Cost of shares redeemed:
Institutional Class............................. (311,712,755) (307,790,041)
Institutional Service Class..................... (62,901,724) (27,639,595)
------------ -------------
Increase in net assets derived from capital
share transactions............................. 109,125,947 74,772,979
------------ -------------
Net increase in net assets...................... 109,122,443 74,771,962
NET ASSETS:
Beginning of year................................ 145,424,681 70,652,719
------------ -------------
End of year...................................... $254,547,124 $ 145,424,681
============ =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
132
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- --------------------------- ---------------------------
<S> <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
-------- -------- -------- -------- -------- --------
Net investment
income.......... 0.05 0.05 0.05 0.05 0.05 0.05
-------- -------- -------- -------- -------- --------
Less dividends
and
distributions:
From net
investment
income.......... (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
From net realized
gain on
investments..... (0.00)(a) (0.00)(a) -- -- -- --
-------- -------- -------- -------- -------- --------
Total dividends
and
distributions... (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- -------- --------
Net asset value
at end of year.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total investment
return ......... 5.27% 5.01% 5.11% 4.85% 5.63% 5.46%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 5.18% 4.93% 5.00% 4.75% 5.48% 5.23%
Net expenses.... 0.50% 0.75% 0.50% 0.75% 0.50% 0.75%
Expenses (before
reimbursement).. 0.61% 0.86% 0.67% 0.92% 0.73% 0.98%
Net assets at end
of year
(in 000's)...... $190,319 $ 64,228 $110,760 $ 34,664 $ 67,869 $ 2,784
<CAPTION>
INSTITUTIONAL CLASS
---------------------
1994 1993
---------- ----------
<S> <C> <C>
Net asset value
at beginning
of year......... $ 1.00 $ 1.00
---------- ----------
Net investment
income.......... 0.04 0.03
---------- ----------
Less dividends
and
distributions:
From net
investment
income.......... (0.04) (0.03)
From net realized
gain on
investments..... -- --
---------- ----------
Total dividends
and
distributions... (0.04) (0.03)
---------- ----------
Net asset value
at end of year.. $ 1.00 $ 1.00
========== ==========
Total investment
return ......... 3.88% 2.89%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 3.89% 2.85%
Net expenses.... 0.50% 0.45%
Expenses (before
reimbursement).. 0.68% 0.67%
Net assets at end
of year
(in 000's)...... $ 65,106 $ 75,832
</TABLE>
- --------
(a) Less than one cent per share.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
133
<PAGE>
SHORT-TERM BOND FUND
================================================================================
- --------------------------------------------------------------------------------
1997 MARKET HIGHLIGHTS
- --------------------------------------------------------------------------------
. Yields gradually rose during the first quarter of 1997, as the market
anticipated a Federal Reserve Board move to increase interest rates 25 basis
points at the end of March.
. Following the Federal Reserve Board's move, expectations of moderating
economic growth and lower inflation caused interest rates to gradually
decline throughout the rest of the year.
. Although short-term securities generally underperformed longer-term
securities throughout the year, short-term yields declined as the year
progressed.
. In general, declining yields increased prepayment risk among mortgage-backed
securities in the second half of the year, but opened selected opportunities
among asset-backed bonds and collateralized mortgage obligations (CMOs).
. The difficulties in Asian markets caused a flight to quality, which benefited
high-quality short-term securities.
- --------------------------------------------------------------------------------
1997 FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
. One-year returns of 6.13% and 5.98% for Institutional Class shares and
Service Class shares, respectively, as of 12/31/97.
. Both share classes outperformed the average Lipper* short U.S. government
fund, which returned 5.82% for the year ended 12/31/97.
. The Fund's Institutional Class shares received a four-star overall rating
from Morningstar Inc.,+ and Service Class shares received a three-star
overall rating, as of 12/31/97.
. In the second half of 1997, the Fund took profits in mortgage-backed
securities and increased its exposure to CMOs and low-balance mortgage loans,
which contributed positively to the Fund's performance.
The bond markets anticipated the Federal Reserve Board's move to raise interest
rates by 25 basis points at the end of March. After that, however, there was a
great deal of speculation about whether the Federal Reserve Board would tighten
interest rates again. As it happened, expectations of slowing economic growth
and reduced inflation expectations may have caused yields to decline from their
peak in April through the end of the year.
- --------------------------------------------------------------------------------
Basis point One hundredth of one percent in the yield of an investment, i.e.,
100 basis points equals 1%.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* 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 historic risk-adjusted performance, taking fees and sales charges
into account, and may change monthly. Its ratings of 1 (low) and 5 (high)
stars are based on a fund's 3, 5, and 10-year average annual returns with fee
adjustments, in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill monthly returns.
The top 10% of funds in a rating group may receive 5 stars, the next 22.5%
receive 4 stars, the middle 35% receive 3 stars, the next 22.5% receive 2
stars, and the bottom 10% receive 1 star. As of 12/31/97, the individual 3-
and 5- year rating for the MainStay Institutional Short-Term Bond Fund
Institutional Class shares were 3 stars and 4 stars, respectively, out of
1,371 and 771 taxable bond funds for the respective period. The Fund's
Service Class shares, introduced 1/1/95, received a 3-year rating of 3 stars
out of 1,371 taxable bond funds for the period.
134
<PAGE>
================================================================================
As interest rates declined, prepayment risk increased among most mortgage-backed
securities. In the second half of the year, currency and financial problems in
Asian markets caused a general flight to quality, which benefited high-quality
short-term debt instruments, particularly Treasury securities.
Given this context, how did the MainStay Institutional Short-Term Bond Fund
perform?
The MainStay Institutional Short-Term Bond Fund returned 6.13% and 5.98%
for Institutional Class shares and Service Class shares, respectively, for the
year ended 12/31/97. Both share classes outperformed the average Lipper short
U.S. government fund, which returned 5.82%.
How did you manage the Fund over the course of the year?
In the first half of the year, we invested in mortgage-backed and asset-backed
securities, seeking to improve on the yields available from Treasuries. As
interest rates declined, the Fund began to take profits in these securities as
they outperformed, which had a positive impact on performance. In the second
half of the year, we recognized the potential for increased prepayment risk of
U.S. government mortgage-backed securities in a declining rate environment and
substantially reduced the Fund's exposure by year end. Most of the sales were
positive for the Fund's portfolio and allowed us to redeploy Fund assets in
productive ways.
Were there other notable securities you bought for the Fund?
Yes, as the Asian turmoil unfolded in October, rising credit concerns caused
yield spreads on all non-Treasury investments to widen at least 15 basis points.
At the time, we saw selected opportunities in agency securities and increased
the Fund's exposure by 5%. These securities have performed in line with our
expectations, contributing positively to the Fund's performance. In the second
half of the year, we also increased the Fund's exposure to low-balance mortgage
loans.
What are low-balance loans?
They are securities rated AAA++ principally backed by smaller nonconforming,
limited-documentation mortgages to self-employed individuals. The focus is on
individuals with impeccable credit credentials. Since the borrowers generally
pay about 100 basis points over standard mortgages to get the loans, we found
them very attractive for the Fund. While more investors are now beginning to see
the opportunities in these securities, the Fund was among the early investors
and the securities contributed positively to the Fund's performance.
How did the Fund's Treasury holdings perform?
Treasury yields rose in the first quarter and then rallied as rates declined
through the rest of the year. In the short end of the market, interest rates
moved very little, so the rally was not huge. But Treasuries were sound
investments in the second half of the year, and the Fund benefited from its
overweighted position in them as rates declined and bond prices rose.
- --------------------------------------------------------------------------------
Easing/Tightening When the Federal Reserve Board moves to lower interest rates
it is said to be "easing" or making borrowing more affordable. When it moves to
raise interest rates, it is said to be "tightening" or making borrowing more
expensive.
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.
Prepayment risk As rates decline, it becomes more likely that borrowers will
repay their loans before maturity to refinance at lower rates. Lenders or
bondholders may see the income stream from existing loans or bonds disappear and
may be unable to obtain a similar income stream at the same price in the current
market--an additional difficulty known as reinvestment risk.
Flight to quality When investors in general move to improve the credit quality
and liquidity of the securities they own, either because of credit concerns or
international crisis.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
++ Debt rated AAA has the highest rating assigned by Standard & Poor's, and
according to Standard & Poor's the capacity for these securities to pay
interest and repay principal is extremely strong.
135
<PAGE>
================================================================================
What is the quality rating of the Fund?
As managers, we are particularly quality conscious. At the end of the year, the
Fund did not invest in any high-risk investments, such as high-yield issues or
emerging market debt, and it had no foreign currency exposure. The overall
quality rating of the Fund's portfolio as of year end was Agency-rated,(S)
which is better than AAA.
What do you see ahead?
At year end we saw a flight to quality, which boosted returns in higher-quality
debt securities of all maturities. Although we have yet to see how the Asian
problems will be resolved, we believe that the Asian market setbacks will help
keep domestic inflation and interest rates at relatively low levels. Whatever
happens, we will continue to seek to maximize total return, consistent with
liquidity, preservation of capital, and investment in short-term debt
securities.
Ravi Akhoury
Edward J. Munshower
Portfolio Managers
- --------------------------------------------------------------------------------
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).
Asset-backed securities Bonds or notes backed by loan paper or an anticipated
income stream from the sale of merchandise or services. The bonds are generally
originated by banks, credit card companies, or other providers of credit and
often "enhanced" by a bank letter of credit or by insurance from an institution
other than the issuer.
Short end of the market The maturities on income securities may range from as
short as overnight to as long as 30 years or more. Short-term bond funds
generally invest in the "short end" of the market, which includes securities
with a maturity under 3 years.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
(S) Agency rating is above AAA. 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 are not meant to
represent the stability or safety of the Fund.
136
<PAGE>
[GRAPHS APPEAR 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>
1/2/91 10,000 10,000
1991 11,130 11,166
1992 11,791 11,870
1993 12,459 12,510
1994 12,473 12,577
1995 13,754 13,927
1996 14,415 14,636
1997 15,299 15,608
</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>
1/2/91 10,000 10,000
1991 11,130 11,166
1992 11,791 11,870
1993 12,459 12,510
1994 12,473 12,577
1995 13,728 13,927
1996 14,340 14,636
1997 15,198 15,608
</TABLE>
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, 1997 as of December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Year to Date One Year Five Year Since Inception
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund Institutional Class 6.13% 6.13% 5.35% 6.26%
Short-Term Bond Fund Service Class+ 5.98% 5.98% 5.21% 6.16%
Average Lipper Short U.S. Government Fund 5.82% 5.82% 5.02% 5.86%
Salomon 1-3 Year Treasury Index 6.64% 6.64% 5.63% 6.56%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
Institutional Class Shares
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year end Total Return %*
-------- --------------
<S> <C>
1991 11.30
1992 5.94
1993 5.67
1994 0.11
1995 10.27
1996 4.81
1997 6.13
</TABLE>
<TABLE>
<CAPTION>
QUALITY BREAKDOWN++
(% of bonds as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C>
Government/Agency 74.43%
AAA 22.38%
AA 3.19%
-------
100.00%
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
U.S. Government & Agency Bonds 73.03%
Other Asset-Backed/Mortgage-Backed Securities 21.95%
Cash, Equivalents & Other Assets 1.89%(S)
Certificates of Deposit 3.13%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. US Treasury Note, 5/15/99, 6.375% 14.68%
2. US Treasury Note, 11/30/99, 7.75% 14.00%
3. US Treasury Note, 2/15/00, 5.875% 11.99%
4. US Treasury Note, 11/15/99, 7.875% 10.67%
5. US Treasury Note, 8/31/00, 6.25% 10.47%
6. US Treasury Note, 4/30/00, 6.75% 5.42%
7. FNMA, 7/23/99, 5.96% 5.12%
8. RAST 1997-A9, 10/25/27, 10.00% 3.51%
9. NASCOR 1997-10 A2, 1/25/07, 6.50% 3.51%
10. Newcourt Rec. Asset Trust, 6/20/04, 6.87% 3.40%
- --------------------------------------------------------------------------------
<CAPTION>
TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1997)
- --------------------------------------------------------------------------------
<S> <C> <C>
1. US Government & Federal Agencies 73.03%
2. First Mortgage Loans 11.56%
3. Equipment Loans 3.40%
4. Commercial Mortgage Loans 3.35%
5. Banks 3.13%
</TABLE>
Average Maturity 2.0 years
(as of 12/31/97)
- --------------------------------------------------------------------------------
* 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 gain distributions and
dividends, and, for the Service Class shares, include the service fee of
.25%.
+ 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.
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.
(S) Adjusted for liabilities.
137
<PAGE>
SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
LONG-TERM INVESTMENTS (98.1%)+
ASSET-BACKED SECURITIES (5.4%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
EQUIPMENT LOANS (3.4%)
Newcourt Receivables Asset Trust
Series 1996-2 Class A
6.87%, due 6/20/04..................................... $ 1,630,865 $ 1,638,204
-----------
RECREATIONAL VEHICLES (2.0%)
Fleetwood Credit Corp.
Grantor Trust
Series 1996-A Class A
6.75%, due 10/17/11.................................... 952,067 960,750
-----------
Total Asset-Backed Securities
(Cost $2,586,069)...................................... 2,598,954
-----------
CERTIFICATE OF DEPOSIT (3.1%)
BANKS (3.1%)
Mercantile Safe Deposit & Trust
Co., Baltimore, MD
6.30%, due 8/16/99..................................... 1,500,000 1,505,550
-----------
Total Certificate of Deposit
(Cost $1,500,000)...................................... 1,505,550
-----------
MORTGAGE-BACKED SECURITIES (14.9%)
COMMERCIAL MORTGAGE LOANS
(COLLATERALIZED MORTGAGE
OBLIGATIONS) (3.3%)
Financial Asset Securitization, Inc.
Series 1997-NAM2 Class FA8
10.00%, due 7/25/27.................................... 1,531,930 1,613,183
-----------
FIRST MORTGAGE LOANS (COLLATERALIZED MORTGAGE OBLIGATIONS) (11.6%)
Norwest Asset Securities Corp.
Series 1997-10 Class A2
6.50%, due 8/25/27..................................... 1,685,000 1,688,454
Countrywide Mortgage-Backed
Securities, Inc.
Series 1997-A8 Class A2
10.00%, due 10/25/27................................... 1,078,326 1,199,077
Series 1997-A9 Class A8
10.00%, due 11/26/27................................... 1,594,178 1,692,189
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26..................................... 981,713 986,543
-----------
5,566,263
-----------
Total Mortgage-Backed Securities
(Cost $7,177,377)...................................... 7,179,446
-----------
</TABLE>
- --------
+ Percentages indicated are based on Fund net assets.
U.S. GOVERNMENT & FEDERAL AGENCY
(73.0%)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MEDIUM TERM NOTE) (5.1%)
5.96%, due 7/23/99............................... $2,460,000 $ 2,466,027
-----------
UNITED STATES TREASURY NOTES (67.9%)
5.50%, due 11/15/98.............................. 330,000 329,640
5.875%, due 2/15/00 (a).......................... 5,750,000 5,772,482
6.25%, due 8/31/00 (a)........................... 4,975,000 5,041,864
6.375%, due 5/15/99.............................. 7,005,000 7,069,586
6.75%, due 4/30/00............................... 2,550,000 2,608,166
7.75%, due 11/30/99.............................. 6,500,000 6,740,695
7.875%, due 11/15/99............................. 4,950,000 5,140,278
-----------
32,702,711
-----------
Total U.S. Government &
Federal Agency
(Cost $35,055,990)............................... 35,168,738
-----------
YANKEE BOND (1.7%)
FINANCE (1.7%)
Deutsche Bank Finance NV
6.375%, due 12/23/98............................. 795,000 798,132
-----------
Total Yankee Bond
(Cost $797,576).................................. 798,132
-----------
Total Long Term Investments
(Cost $47,117,012)............................... 47,250,820
-----------
SHORT-TERM INVESTMENT (0.5%)
COMMERCIAL PAPER (0.5%)
American General Finance Corp.
6.652%, due 1/2/98............................... 225,000 225,000
-----------
Total Short-Term Investment
(Cost $225,000).................................. 225,000
-----------
Total Investments
(Cost $47,342,012) (b)........................... 98.6% 47,475,820 (c)
Cash and Other Assets,
Less Liabilities................................. 1.4 683,918
---------- -----------
Net Assets........................................ 100.0% $48,159,738
========== ===========
</TABLE>
- --------
(a) Represents securities out on loan or a portion which is out on loan.
(b) The cost for Federal income tax purposes is $47,367,190.
(c) At December 31, 1997 net unrealized appreciation was $108,630, 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 $174,152 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $65,522.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
138
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value (identified cost
$47,342,012).................................................... $47,475,820
Cash............................................................. 3,359
Collateral held for securities loaned, at value (Note 6)......... 4,142,500
Receivables:
Interest......................................................... 593,766
Fund shares sold................................................. 144,965
-----------
Total assets................................................... 52,360,410
-----------
LIABILITIES:
Securities lending collateral, at value (Note 6)................. 4,142,500
Payables:
Fund shares redeemed............................................. 13,663
MainStay Management.............................................. 12,484
Transfer agent................................................... 4,689
Custodian........................................................ 4,607
Accrued expenses................................................. 22,729
-----------
Total liabilities.............................................. 4,200,672
-----------
Net assets....................................................... $48,159,738
===========
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per share) 1 billion shares
authorized
Institutional Class.............................................. $ 4,969
Institutional Service Class...................................... 158
Additional paid-in capital....................................... 55,133,627
Accumulated undistributed net investment income.................. 4,103
Accumulated net realized loss on investments..................... (7,116,927)
Net unrealized appreciation on investments....................... 133,808
-----------
Net assets....................................................... $48,159,738
===========
Institutional Class
Net assets applicable to outstanding shares...................... $46,674,494
===========
Shares of capital stock outstanding.............................. 4,968,960
===========
Net asset value per share outstanding............................ $ 9.39
===========
Institutional Service Class
Net assets applicable to outstanding shares...................... $ 1,485,244
===========
Shares of capital stock outstanding.............................. 158,386
===========
Net asset value per share outstanding............................ $ 9.38
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest........................................................... $3,521,289
----------
Expenses:
Administration..................................................... 207,375
Advisory........................................................... 69,125
Management......................................................... 32,585
Professional....................................................... 31,310
Transfer agent..................................................... 25,214
Registration....................................................... 23,790
Custodian.......................................................... 15,501
Shareholder communication.......................................... 8,215
Service............................................................ 3,822
Directors.......................................................... 1,668
Miscellaneous...................................................... 5,226
----------
Total expenses before
reimbursement................................................... 423,831
Expense reimbursement from Administrator or Manager................ (110,927)
----------
Net expenses..................................................... 312,904
----------
Net investment income.............................................. 3,208,385
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................... (245,150)
Net change in unrealized appreciation on investments............... 107,487
----------
Net realized and unrealized loss on investments.................... (137,663)
----------
Net increase in net assets resulting from operations............... $3,070,722
==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
139
<PAGE>
SHORT-TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............................... $ 3,208,385 $ 3,831,143
Net realized loss on investments.................... (245,150) (490,723)
Net change in unrealized appreciation on
investments........................................ 107,487 (637,312)
----------- -----------
Net increase in net assets resulting from
operations......................................... 3,070,722 2,703,108
----------- -----------
Dividends to shareholders:
From net investment income:
Institutional Class................................ (3,108,772) (3,734,256)
Institutional Service Class........................ (95,584) (90,257)
----------- -----------
Total dividends to shareholders................... (3,204,356) (3,824,513)
----------- -----------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................ 19,252,118 61,352,652
Institutional Service Class........................ 803,378 806,649
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Institutional Class................................ 3,108,769 3,734,256
Institutional Service Class........................ 95,581 90,257
----------- -----------
23,259,846 65,983,814
Cost of shares redeemed:
Institutional Class................................ (33,366,279) (57,100,440)
Institutional Service Class........................ (720,752) (671,716)
----------- -----------
Increase (decrease) in net assets derived from
capital share transactions........................ (10,827,185) 8,211,658
----------- -----------
Net increase (decrease) in net assets.............. (10,960,819) 7,090,253
NET ASSETS:
Beginning of year................................... 59,120,557 52,030,304
----------- -----------
End of year......................................... $48,159,738 $59,120,557
=========== ===========
Accumulated undistributed net investment income..... $ 4,103 $ 31,925
=========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
140
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE
CLASS CLASS CLASS CLASS CLASS CLASS INSTITUTIONAL CLASS
------------- ------------- ------------- ------------- ------------- ------------- ---------------------
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of year......... $ 9.48 $ 9.46 $ 9.68 $ 9.67 $ 9.37 $ 9.37 $ 10.33 $ 11.23
------- ------ ------- ------ ------- ------ --------- ----------
Net investment
income.......... 0.67 0.64 0.66 0.64 0.65 0.64 0.97 0.72
Net realized and
unrealized gain
(loss) on
investments..... (0.09) (0.08) (0.20) (0.21) 0.31 0.30 (0.96) (0.12)
------- ------ ------- ------ ------- ------ --------- ----------
Total from
investment
operations...... 0.58 0.56 0.46 0.43 0.96 0.94 0.01 0.60
------- ------ ------- ------ ------- ------ --------- ----------
Less dividends
and
distributions:
From net
investment
income.......... (0.67) (0.64) (0.66) (0.64) (0.65) (0.64) (0.97) (1.36)
From net realized
gain on
investments..... -- -- -- -- -- -- -- (0.04)
In excess of net
investment
income.......... -- -- -- -- -- -- -- (0.02)
In excess of net
realized gain on
investments..... -- -- -- -- -- -- -- (0.08)
------- ------ ------- ------ ------- ------ --------- ----------
Total dividends
and
distributions... (0.67) (0.64) (0.66) (0.64) (0.65) (0.64) (0.97) (1.50)
------- ------ ------- ------ ------- ------ --------- ----------
Net asset value
at end of year.. $ 9.39 $ 9.38 $ 9.48 $ 9.46 $ 9.68 $ 9.67 $ 9.37 $ 10.33
======= ====== ======= ====== ======= ====== ========= ==========
Total investment
return ......... 6.13% 5.98% 4.81% 4.46% 10.27% 10.07% 0.11% 5.67%
Ratios (to
average net
assets)/Supplemental
Data:
Net investment
income......... 6.24% 5.99% 5.85% 5.60% 6.38% 6.13% 5.90% 6.32%
Net expenses.... 0.60% 0.85% 0.60% 0.85% 0.60% 0.85% 0.60% 0.55%
Expenses (before
reimbursement).. 0.82% 1.07% 0.79% 1.04% 0.82% 1.07% 0.72% 0.68%
Portfolio
turnover rate... 153% 153% 195% 195% 171% 171% 269% 232%
Net assets at end
of year
(in 000's)...... $46,674 $1,485 $57,805 $1,316 $50,902 $1,128 $ 62,340 $ 148,846
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
141
<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, 1997 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.
142
<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 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 sub-adviser if such prices are deemed to be representative of market
values at the regular close of business of the Exchange; (e) by appraising
debt securities at prices supplied by a pricing agent selected by a Fund's
sub-adviser, whose prices reflect broker/dealer supplied valuations and
electronic data processing techniques if those prices are deemed by a Fund's
sub-adviser to be representative of market values at the regular close of
business of the Exchange; (f) by appraising options and futures contracts at
the last sale price on the market where 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 sub-adviser to be representative of market values, but excluding money
market instruments with a remaining maturity of 60 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
Company's Board of Directors. Short-term securities which mature in more than
60 days are valued at current market quotations. Short-term securities which
mature in 60 days or less are valued at amortized cost if their term to
maturity at purchase was 60 days or less, or by amortizing the difference
between market value on the 61st day prior to maturity and value on maturity
date if their original term to maturity at purchase exceeded 60 days.
Events affecting the values of portfolio securities that occur between the
time their prices are determined and the close of the Exchange will not be
reflected in the Funds' calculation of net asset values unless a Fund's sub-
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.
143
<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. The reclassifications
for the Funds relate primarily to the character for tax purposes of certain
short-term gains and losses.
<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......... $ 215,252 $ (227,396) $ 12,176 $ (32)
Growth Equity Fund...... 2,035,692 (2,035,692) 0 0
Indexed Equity Fund..... 0 235 0 (235)
International Equity
Fund................... 10,477,054 (149,033) (10,328,021) 0
Multi-Asset Fund........ (107,748) 75,390 32,358 0
Bond Fund............... (57,627) 62,373 0 (4,746)
Indexed Bond Fund....... (15,712) 15,712 0 0
International Bond Fund. 1,308,158 0 (1,308,158) 0
Short-Term Bond Fund.... (31,851) 31,852 0 (1)
</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 not 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 accreted 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. Premiums on
securities purchased are not amortized for any Fund except the Money Market
Fund which amortizes the premium on the constant yield method over the life of
the respective securities.
(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 New York Life Insurance Company ("New York Life"), 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 direct allocations of expenses can be made.
144
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
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.
(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 year. 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. The International Bond Fund isolates the effect of changes
in foreign exchange rates from the fluctuations arising from changes in the
market prices of long-term debt securities sold during the year. Net currency
gains or losses from valuing such foreign currency denominated assets and
liabilities at year-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, 1997:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
----------------------------------- -------- --------
<S> <C> <C> <C>
Japanese Yen (Yen)25,726,224 $197,862 $197,862
Pound Sterling (Pounds) 89,858 141,529 142,797
-------- --------
$339,391 $340,659
======== ========
INTERNATIONAL EQUITY FUND
Foreign cash held at December 31, 1997:
<CAPTION>
CURRENCY COST VALUE
----------------------------------- -------- --------
<S> <C> <C> <C>
Australian Dollar A$ 21,354 $ 14,067 $ 13,914
Deutsche Mark DM 3,956 2,230 2,200
French Franc FF 13,137 2,209 2,184
Hong Kong Dollar HK 664 86 86
Japanese Yen (Yen)11,555,684 89,554 95,661
Netherland Guilder NG 5,547 2,783 2,736
New Zealand Dollar N$ 33,279 19,643 19,325
Pound Sterling (Pounds) 2,722 4,508 4,478
Spanish Peseta SP 3,641,961 24,550 23,895
-------- --------
$159,630 $164,479
======== ========
</TABLE>
145
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
INTERNATIONAL BOND FUND
Foreign cash held at December 31, 1997:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
----------------------------------- ---------- ----------
<S> <C> <C> <C>
Argentine Peso AP 13,586 $ 13,595 $ 13,589
Danish Krone DK 632,567 93,796 92,381
Deutsche Mark DM 2,451,896 1,382,693 1,363,605
French Franc FF 12,280,582 2,042,221 2,041,316
Hong Kong Dollar HK 1,351 175 174
Italian Lira IL 822,890 474 466
New Zealand Dollar N$ 306,406 177,439 177,930
Pound Sterling (Pounds)143,181 237,223 235,592
Spanish Peseta SP 3,904,165 25,983 25,615
Swedish Krona SK 500,660 64,372 63,098
---------- ----------
$4,037,971 $4,013,766
========== ==========
</TABLE>
(K)
FORWARD CURRENCY CONTRACTS. A forward currency contract is an agreement to buy
or sell currencies of different countries on a specified future date at a
specified rate. During the period the forward contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by "marking
to market" such contract on a daily basis to reflect the market value of the
contract at the end of each day's trading. When the forward contract is
closed, the Fund records a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract. Forward currency contracts are used for hedging
purposes. (see Note 5).
INTERNATIONAL EQUITY FUND
Forward foreign currency contracts open at December 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT AMOUNT CONTRACT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
---------------------- ----------------- --------------
<S> <C> <C> <C> <C>
FOREIGN CURRENCY SALE
CONTRACTS
- ---------------------
Australian Dollar vs.
U.S. Dollar, expiring
2/3/98 ................ A$ 1,030,000 $ 699,087 $ 27,417
Deutsche Mark vs. Pound
Sterling, expiring
1/14/98 ............... DM 13,797,146 (Pounds)4,924,000 416,575
Deutsche Mark vs. Swed-
ish Krona, expiring
3/16/98 ............... DM 5,343,625 S K 23,435,000 (25,210)
Deutsche Mark vs. U.S.
Dollar, expiring
1/7/98-1/20/98 ........ DM 28,413,593 $ 16,275,956 460,896
French Franc vs.
Deutsche Mark, expiring
2/18/98 ............... FF 6,400,000 DM 1,911,132 (976)
Italian Lira vs.
Deutsche Mark, expiring
1/12/98 ............... IL 4,342,000,000 DM 4,409,017 (3,742)
New Zealand Dollar vs.
U.S. Dollar, expiring
1/26/98 ............... N$ 3,670,000 $ 2,119,058 (7,098)
Norwegian Krone vs.
Deutsche Mark, expiring
1/30/98 ............... NK 3,825,000 DM 940,265 4,083
Pound Sterling vs.
Deutsche Mark, expiring
1/14/98................ (Pounds) 970,000 DM 2,870,463 2,823
Pound Sterling vs.
Deutsche Mark, expiring
1/15/98................ (Pounds) 1,235,000 DM 3,564,457 (46,394)
Spanish Peseta vs.
Deutsche Mark, expiring
1/12/98 ............... SP 379,470,000 DM 4,481,223 3,554
Swiss Franc vs. Deutsche
Mark, expiring 1/20/98
....................... CF 4,930,000 DM 6,117,384 17,810
FOREIGN CURRENCY BUY CONTRACT AMOUNT CONTRACT AMOUNT
CONTRACTS PURCHASED SOLD
- -------------------- ---------------------- -----------------
Australian Dollar vs.
U.S. Dollar, expiring
2/3/98 ................ A$ 1,030,000 $ 690,934 (19,264)
Deutsche Mark vs. U.S.
Dollar, expiring
1/7/98-1/20/98 ........ DM 28,186,758 $ 16,282,050 (592,118)
---------
Net unrealized
appreciation on forward
foreign currency
contracts.............. $ 238,356
=========
</TABLE>
146
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
Forward foreign currency contracts open at December 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT AMOUNT CONTRACT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
-------------------- --------------- --------------
<S> <C> <C> <C>
FOREIGN CURRENCY SALE CON-
TRACTS
- --------------------------
Australian Dollar vs. U.S.
Dollar, expiring 2/3/98... A$ 475,000 $ 322,394 $ 12,643
Canadian Dollar vs. U.S.
Dollar, expiring 2/23/98 . C$ 5,120,000 $ 3,579,418 (4,433)
Danish Krone vs. Deutsche
Mark, expiring 1/22/98 ... DK 5,985,000 DM 1,570,166 (677)
Deutsche Mark vs. French
Franc, expiring 2/18/98 .. DM 5,230,232 FF 17,515,000 2,671
Deutsche Mark vs. Pound
Sterling, expiring 1/15/98
.......................... DM 1,862,583 (Pounds)645,000 23,682
Deutsche Mark vs. U.S. Dol-
lar, expiring 1/2/98-
1/20/98................... DM 8,228,261 $ 4,734,715 157,266
French Franc vs. U.S. Dol-
lar, expiring 1/2/98-
3/26/98................... FF 23,790,000 $ 4,021,815 57,746
Irish Punt vs. Deutsche
Mark, expiring 1/15/98 ... IP 900,000 DM 2,314,575 5,973
Irish Punt vs. U.S. Dollar,
expiring 1/15/98.......... IP 357,000 $ 542,729 34,030
Italian Lira vs. Deutsche
Mark, expiring 1/12/98 ... IL 94,000,000 DM 95,801 114
Italian Lira vs. Deutsche
Mark, expiring 1/12/98.... IL 240,000,000 DM 243,957 (66)
New Zealand Dollar vs. U.S.
Dollar, expiring 1/26/98 . N$ 3,555,000 $ 2,052,657 (6,875)
Pound Sterling vs. Deutsche
Mark, expiring 1/15/98 ... (Pounds) 1,280,000 DM 3,603,597 (98,594)
Pound Sterling vs. U.S.
Dollar, expiring 1/15/98 . (Pounds) 600,000 $ 997,200 10,699
Pound Sterling vs. U.S.
Dollar, expiring 1/15/98.. (Pounds) 60,000 $ 97,038 (1,612)
South African Rand vs. U.S.
Dollar, expiring 1/29/98 . ZAR 1,740,000 $ 355,175 516
Spanish Peseta vs. Deutsche
Mark, expiring 1/12/98 ... SP 7,100,000 DM 83,845 66
Swedish Krona vs. Deutsche
Mark, expiring 2/10/98 ... SK 15,395,000 DM 3,526,248 23,330
Swiss Franc vs. Deutsche
Mark, expiring 1/20/98 ... CF 1,255,000 DM 1,557,265 4,534
<CAPTION>
CONTRACT AMOUNT CONTRACT AMOUNT
PURCHASED SOLD
-------------------- ---------------
<S> <C> <C>
FOREIGN CURRENCY BUY CON-
TRACTS
- -------------------------
Deutsche Mark vs. U.S. Dol-
lar, expiring 1/2/98-
1/20/98 .................. DM 8,007,851 $ 4,585,000 (129,919)
French Franc vs. U.S. Dol-
lar, expiring 1/2/98 ..... FF 11,880,000 $ 2,000,000 (25,271)
Pound Sterling vs. U.S.
Dollar, expiring 1/15/98 . (Pounds) 321,000 $ 547,690 (19,912)
Spanish Peseta vs. U.S.
Dollar, expiring 1/12/98 . SP 81,000,000 $ 542,532 (10,929)
---------
Net unrealized appreciation
on forward foreign cur-
rency contracts........... $ 34,982
=========
</TABLE>
(L)
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement between a seller
and a buyer, usually of U.S. Government securities, whereby the seller agrees
to repurchase the securities at an agreed upon price and, usually, at a stated
time. 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 and
price, or to make or receive a cash payment based on the value of a securities
index. During the period the futures contract is open, changes in the value of
the contract are recognized as unrealized gains or losses by "marking to
market" such contract on a daily basis to reflect the market value of the
contract at the end of each day's trading. The Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in the
value of the contract. Such receipts or payments are known as "variation
margin". When the futures contract is closed, the Fund records a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Futures contracts
are used for hedging purposes (see Note 5).
147
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
(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
MDRs are removed from the portfolio and a realized gain or loss is recognized.
The securities the Funds have agreed to acquire are included at market value
in the portfolio of investments and liabilities for such purchase commitments
are included as payables for investments purchased. The Fund maintains a
segregated account with its custodian containing securities from its portfolio
having a value not less than the repurchase price, including accrued interest.
MDR transactions involve certain risks, including the risk that the MBS
returned to the Fund at the end of the roll, while substantially similar,
could be inferior to what was initially sold to the counterparty.
(O)
SECURITIES LENDING. The Fund may lend its securities to broker-dealers and
financial institutions. The loans are secured by collateral (cash or
securities) at least equal at all times to the market value of the securities
loaned. The Fund may bear the risk of delay in recovery of, or loss of rights
in, the securities loaned should the borrower of the securities experience
financial difficulty. The Fund receives compensation for lending its
securities in the form of fees or it retains a portion of interest on the
investment of any cash received as collateral. The Fund also continues to
receive interest and dividends on the securities loaned and any gain or loss
in the market price of the securities loaned that may occur during the term of
the loan will be for the account of the Fund.
- -------------------------------------------------------------------------------
NOTE 3--Fees and Related Party Policies:
- -------------------------------------------------------------------------------
(A)
INVESTMENT ADVISORY, ADMINISTRATION, AND MANAGEMENT FEES. Through November 20,
1997, MacKay-Shields Financial Corporation ("MacKay-Shields"), a registered
investment adviser and an indirect wholly-owned subsidiary of New York Life,
served as 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. New York Life served as the
investment adviser to the Money Market Fund under an Investment Advisory
Agreement and Monitor Capital Advisors Inc. ("Monitor Capital"), a registered
investment adviser and an indirect wholly-owned subsidiary of New York Life,
served 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 served as the administrator for the Funds through November 20,
1997.
The Company, on behalf of each Fund, paid the above referenced investment
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 for the period January 1, 1997 through November 20, 1997:
<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>
148
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
The administrator (in the case of the Indexed Equity Fund together with
Monitor Capital, the Fund's investment adviser) voluntarily agreed to assume
the portion of the Funds' operating expenses for the period January 1, 1997
through November 20, 1997, for the following Funds to the extent the expenses
(excluding service fees) on an annualized basis exceeded the indicated
percentages:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund............ .94% Indexed Bond Fund......... .50%
Indexed Equity Fund........ .30% International Bond Fund... .95%
International Equity Fund.. 1.00% Money Market Fund......... .50%
Bond Fund.................. .75% Short-Term Bond Fund...... .60%
</TABLE>
In connection with the voluntary expense limitations, the administrator
assumed the following expenses for the period January 1, 1997 through November
20, 1997:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund....... $ 229,592 Indexed Bond Fund....... $161,693
Indexed Equity Fund... 1,878,195* International Bond
International Equity Fund................... 60,073
Fund................. 35,792 Money Market Fund....... 194,751
Bond Fund............. 154,845 Short-Term Bond Fund.... 96,101
</TABLE>
- --------
* For the Indexed Equity Fund the administrator assumed $1,518,395, Monitor
Capital the adviser assumed $359,800.
Commencing November 21, 1997, MainStay Management, Inc. ("MainStay
Management"), an indirect wholly-owned subsidiary of New York Life, serves as
manager and provides management services to the Company under a Management
Agreement. MacKay-Shields, Monitor Capital and New York Life serve as sub-
advisers for the Funds referenced above under Sub-Advisory Agreements with
MainStay Management.
The Company, on behalf of each Fund, pays the manager a monthly fee for the
services performed and facilities furnished at an annual rate of average daily
net assets of that Fund as follows:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund............. .95% Bond Fund................. .75%
Growth Equity Fund.......... .85% Indexed Bond Fund......... .50%
Indexed Equity Fund......... .50% International Bond Fund... .80%
International Equity Fund... .85% Money Market Fund......... .50%
Multi-Asset Fund............ .65% Short-Term Bond Fund...... .60%
Value Equity Fund........... .85%
</TABLE>
Pursuant to the terms of the Sub-Advisory Agreements between MainStay
Management and each of the above referenced sub-advisers, the manager pays
each Fund's respective sub-adviser a monthly fee at an annual rate of average
daily net assets of that Fund as follows:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund............. .15% Bond Fund................. .20%
Growth Equity Fund.......... .25% Indexed Bond Fund......... .10%
Indexed Equity Fund......... .10% International Bond Fund... .30%
International Equity Fund... .35% Money Market Fund......... .10%
Multi-Asset Fund............ .15% Short-Term Bond Fund...... .15%
Value Equity Fund........... .25%
</TABLE>
MainStay Management voluntarily agreed to assume the portion of the Fund's
operating expenses for the period November 21, 1997 through December 31, 1997,
for the following Funds to the extent the expenses (excluding service fees) on
an annualized basis exceeded the indicated percentages:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund............ .94% Indexed Bond Fund........... .50%
Indexed Equity Fund........ .30% International Bond Fund..... .95%
International Equity Fund.. 1.00% Money Market Fund........... .50%
Bond Fund.................. .75% Short-Term Bond Fund........ .60%
</TABLE>
149
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
In connection with the voluntary expense limitations, MainStay Management
assumed the following expenses for the period November 21, 1997 through
December 31, 1997:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund........ $ 42,915 Indexed Bond Fund........ $19,676
Indexed Equity Fund.... 290,267** International Bond Fund.. 14,104
International Equity Money Market Fund........ 37,695
Fund.................. 13,689 Short-Term Bond Fund..... 14,826
Bond Fund.............. 18,927
</TABLE>
- --------
** For the Indexed Equity Fund the manager assumed $236,104, Monitor Capital
the sub-adviser assumed $54,163.
The Growth Equity Fund, Multi-Asset Fund and the Value Equity Fund do not
have a voluntary expense limitation.
These voluntary expense limitations will remain in effect through December
31, 1998, after which they may be terminated or revised at anytime.
(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, 1997 affiliates of
New York Life owned a significant number of shares of the Funds with the
following market values:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund...... $ 38,543,427 Bond Fund............ $133,775,388
Growth Equity Fund... 621,432,763 Indexed Bond Fund.... 96,005,824
Indexed Equity Fund.. 794,068,709 International Bond
International Equity Fund................ 45,975,897
Fund................ 91,489,440 Money Market Fund.... 126,667,451
Multi-Asset Fund..... 272,451,578 Short-Term Bond
Value Equity Fund.... 776,035,346 Fund................ 12,996,930
</TABLE>
From time to time, the Funds 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.
(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, 1997 these fees were as follows:
<TABLE>
<S> <C> <C> <C>
EAFE Index Fund.......... $ 5,547 Bond Fund................ $10,651
Growth Equity Fund....... 35,544 Indexed Bond Fund........ 6,995
Indexed Equity Fund...... 44,589 International Bond Fund.. 3,099
International Equity Money Market Fund........ 10,907
Fund.................... 7,984 Short-Term Bond Fund..... 3,243
Multi-Asset Fund......... 21,822
Value Equity Fund........ 52,150
</TABLE>
150
<PAGE>
MAINSTAY
INSTITUTIONAL FUNDS INC.
- -------------------------------------------------------------------------------
NOTE 4--Federal Income Tax:
- -------------------------------------------------------------------------------
At December 31, 1997, for Federal income tax purposes, capital loss
carryforwards, as shown in the table below, were 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 after October 31, 1997 as if they arose on January 1, 1998.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
----------------- -------------- ----------------
<S> <C> <C> <C>
EAFE Index Fund........... $ 0 $ 135
======= ======
International Equity
Fund..................... $ 0 $5,288
======= ======
Bond Fund................. 2002 $10,864
2004 1,625
-------
$12,489 $ 213
======= ======
Indexed Bond Fund......... 2004 $ 1,439
2005 44
-------
$ 1,483 $ 120
======= ======
Money Market Fund......... $ 0 $ 4
======= ======
Short-Term Bond Fund...... 2001 $ 164
2002 4,478
2003 1,770
2004 485
2005 173
-------
$ 7,070 $ 22
======= ======
</TABLE>
The Multi-Asset Fund intends to elect to treat for Federal income tax purposes
approximately $11,032 of qualifying foreign exchange losses that arose during
the year after October 31, 1997 as if they arose on January 1, 1998. The Bond
Fund utilized $1,757,701 of capital loss carryforwards during the current
year.
- -------------------------------------------------------------------------------
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 year 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.
151
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
NOTE 6--Portfolio Securities Loaned:
- -------------------------------------------------------------------------------
At December 31, 1997, the Bond Fund and Short-Term Bond Fund had portfolio
securities with a fair market value of $41,108,992 and $4,034,700,
respectively, on loan to broker-dealers and government securities dealers.
Cash collateral received by the Bond Fund and Short-Term Bond Fund are
invested in investment grade commercial paper, or other securities in
accordance with the Funds' Securities Lending Procedures. Such investments are
included as an asset and a corresponding liability in the Statement of Assets
and Liabilities. While these Funds invest cash collateral in investment grade
securities or other "high quality" investment vehicles, the Funds bear the
risk that liability for the collateral may exceed the value of the investment.
Non-cash collateral received and held by the Bond Fund, in the form of U.S.
Government obligations, had a value of $3,527,250 at December 31, 1997.
Net income earned on securities lending amounted to $63,266 and $6,390, net of
broker fees and rebates, respectively, for the year ended December 31, 1997
which is included as interest income on the Statement of Operations.
- -------------------------------------------------------------------------------
NOTE 7--Line of Credit:
- -------------------------------------------------------------------------------
The Funds maintain a line of credit with the custodian in order to secure a
source of funds for temporary purposes to meet unanticipated or excessive
shareholder redemption requests. There was no outstanding balance on this line
of credit at December 31, 1997.
152
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
153
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1997, 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 5,132 40,652 230,671 224,899 176,462 23,041 42,037 62,482
-------------------------------------------------------------------------------
Total $5,132 $40,652 $230,671 $224,899 $176,462 $23,041 $ 42,037 $ 62,482
===============================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 9--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
1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 766 9 1,451 17 7,615 160 8,895 183
Shares issued in
reinvestment of
dividends and
distributions 1,467 12 190 1 2,018 28 983 13
---------------------------------------------------------------------------------------------------------------
2,233 21 1,641 18 9,633 188 9,878 196
Shares redeemed (3,202) (6) (1,192) (9) (6,715) (78) (7,148) (28)
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) (969) 15 449 9 2,918 110 2,730 168
===============================================================================================================
<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
1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 3,058 260 3,939 188 10,407 287 11,047 686
Shares issued in
reinvestment of
dividends and
distributions 3,152 74 917 14 9,661 105 5,285 93
---------------------------------------------------------------------------------------------------------------
6,210 334 4,856 202 20,068 392 16,332 779
Shares redeemed (2,779) (84) (3,494) (84) (11,665) (649) (6,392) (71)
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 3,431 250 1,362 118 8,403 (257) 9,940 708
===============================================================================================================
<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
1997 1996 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 137 5 187 18 383,542 90,079 346,675 58,869
Shares issued in
reinvestment of
dividends and
distributions 567 3 609 3 7,733 2,387 4,008 651
---------------------------------------------------------------------------------------------------------------
704 8 796 21 391,275 92,466 350,683 59,520
Shares redeemed (546) (5) (93) (1) (311,713) (62,902) (307,790) (27,640)
---------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 158 3 703 20 79,562 29,564 42,893 31,880
===============================================================================================================
</TABLE>
154
<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>
$ 7,969 $ -- $ -- $ -- $378,754 $366,505 $37,468 $33,068 $ -- $ -- $64,841 $67,399
49,083 98,241 576,265 602,457 208,414 220,149 12,326 3,875 79,852 77,845 12,421 12,593
- -----------------------------------------------------------------------------------------------------------------
$57,052 $98,241 $576,265 $602,457 $587,168 $586,654 $49,794 $36,943 $ 79,852 $ 77,845 $77,262 $79,992
=================================================================================================================
</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
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12,006 404 12,964 232 1,051 14 1,803 47
1,180 16 1,075 10 1,247 7 994 5
- ----------------------------------------------------------------------------------------------------------------
13,186 420 14,039 242 2,298 21 2,797 52
(6,821) (187) (4,575) (17) (2,721) (28) (260) (4)
- ----------------------------------------------------------------------------------------------------------------
6,365 233 9,464 225 (423) (7) 2,537 48
================================================================================================================
<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
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
944 67 1,404 129 2,458 131 2,467 228
1,129 9 1,130 10 710 17 699 17
- ----------------------------------------------------------------------------------------------------------------
2,073 76 2,534 139 3,168 148 3,166 245
(1,737) (86) (3,576) (47) (2,590) (130) (7,620) (25)
- ----------------------------------------------------------------------------------------------------------------
336 (10) (1,042) 92 578 18 (4,454) 220
================================================================================================================
<CAPTION>
Short-Term Bond
Fund
Institutional Institutional Institutional Institutional
Class Service Class Class Service Class
- ------------- ------------- ------------- -------------
Year ended Year ended
1997 1996
- --------------------------------------------------------
<S> <C> <C> <C>
1,988 82 6,225 82
331 10 394 10
- --------------------------------------------------------
2,319 92 6,619 92
(3,450) (73) (5,775) (70)
- --------------------------------------------------------
(1,131) 19 844 22
========================================================
</TABLE>
155
<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, 1997, 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 in
the period 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, 1997 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 23, 1998
156
<PAGE>
OFFICERS AND DIRECTORS
Stephen C. Roussin
Chairman 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
Richard Zuccaro
Tax Vice President
Anthony W. Polis
Treasurer
Sara L. Badler
Secretary
MANAGER
MainStay Management, Inc.
SUB-ADVISERS
New York Life Insurance Company
MacKay Shields Financial Corporation
Monitor Capital Advisors, Inc.
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.
Sub-Advisers:
New York Life Insurance Company
MacKay Shields Financial Corporation
Monitor Capital Advisors, Inc.
DON'T MISS THE BOAT(R)
Distributed by NYLIFE Distributors Inc., member NASD,
300 Interpace Parkway, Building A, 2nd Floor, Parsippany, NJ 07054
NYLIFE Distributors Inc. is an indirect wholly owned [LOGO OF NEW YORK LIFE
subsidiary of New York Life Insurance Company. APPEARS HERE]
02-010-0298
