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[LOGO]
MAINSTAY
INSTITUTIONAL
FUNDS INC.
1998
ANNUAL REPORT
December 31, 1998
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SEC AVERAGE ANNUAL
PERFORMANCE HIGHLIGHTS--TOTAL RETURNS* TOTAL RETURNS
YEAR ENDED DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
SINCE
FUNDS 1991 1992 1993 1994 1995 1996 1997 1998 1 YEAR 5 YEAR INCEPTION
EQUITY FUNDS
EAFE Index (Instl. 10.10% -12.22% 28.97% 6.83% 9.03% 6.45% 0.40% 19.15% 19.15% 8.20% 7.98%
Class)(+)
EAFE Index (Serv. 10.10 -12.22 28.97 6.83 8.63 6.37 0.08 18.83 18.83 7.98 7.84
Class)(++)
GROWTH EQUITY (INSTL. 67.00 5.63 9.59 -2.23 37.88 21.62 24.73 40.50 40.50 23.50 23.89
CLASS)(+)
GROWTH EQUITY (SERV. 67.00 5.63 9.59 -2.23 37.50 21.29 24.50 40.18 40.18 23.26 23.74
CLASS)(++)
Index Equity (Instl. 29.80 7.19 9.41 0.90 36.88 22.57 32.88 28.62 28.62 23.67 20.34
Class)(+)
Index Equity (Serv. 29.80 7.19 9.41 0.90 36.70 22.21 32.60 28.24 28.24 23.44 20.20
Class)(++)
INTERNATIONAL EQUITY N/A -5.37 25.03 8.36 7.17 12.09 5.44 22.41 22.41 10.93 11.29
(INSTL. CLASS)(SEC.)
INTERNATIONAL EQUITY N/A -5.37 25.03 8.36 6.86 11.59 4.88 22.20 22.20 10.61 11.04
(SERV. CLASS)(SEC.)
Multi-Asset (Instl. 17.90 7.09 8.79 -0.86 26.81 16.16 26.69 21.31 21.31 17.55 15.10
Class)(+)
Multi-Asset (Serv. 17.90 7.09 8.79 -0.86 26.70 15.89 26.30 21.00 21.00 17.34 14.97
Class)(++)
VALUE EQUITY (INSTL. 36.60 20.71 14.90 1.22 29.42 22.41 22.63 -8.10 -8.10 12.56 16.62
CLASS)(+)
VALUE EQUITY (SERV. 36.60 20.71 14.90 1.22 29.32 22.10 22.28 -8.30 -8.30 12.38 16.50
CLASS)(++)
INCOME FUNDS
Bond (Instl. Class)(+) 14.00% 6.39% 9.74% -3.31% 17.88% 2.80% 8.57% 7.93% 7.93% 6.54% 7.82%
Bond (Serv. Class)(++) 14.00 6.39 9.74 -3.31 17.55 2.62 8.21 7.73 7.73 6.34 7.69
INDEXED BOND (INSTL. 14.70 7.09 9.64 -3.44 18.07 2.55 9.01 8.21 8.21 6.64 8.04
CLASS)(+)
INDEXED BOND (SERV. 14.70 7.09 9.64 -3.44 17.97 2.34 8.75 7.86 7.86 6.46 7.93
CLASS)(++)
International Bond 18.73 7.68 14.56 3.11 18.46 14.32 2.62 12.53 12.53 10.03 10.11
(Instl. Class)(sec.)
International Bond (Serv. 18.73 7.68 14.56 3.11 18.26 14.08 2.27 12.30 12.30 9.82 9.99
Class)(sec.)
MONEY MARKET (//) (INSTL. 5.95 3.66 2.89 3.88 5.63 5.11 5.27 5.25 5.25 5.03 4.70
CLASS)(+)
MONEY MARKET (//) (SERV. 5.95 3.66 2.89 3.88 5.46 4.85 5.01 4.99 4.99 4.84 4.58
CLASS)(++)
MONEY MARKET (//) (SWEEP 5.95 3.66 2.89 3.88 5.46 4.85 5.01 4.99 4.99 4.84 4.58
SHARES CLASS)(++)
Short-Term Bond (Instl. 11.30 5.94 5.67 0.11 10.27 4.81 6.13 6.37 6.37 5.49 6.27
Class)(+)
Short-Term Bond (Serv. 11.30 5.94 5.67 0.11 10.07 4.46 5.98 5.98 5.98 5.27 6.13
Class)(++)
</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 and Sweep Shares
Class shares, include the service fee of .25% on an annualized basis of
the average daily net asset values of the Service Class and Sweep Shares
Class shares. In addition, Sweep Shares Class shares are sold with an
annual 12b-1 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 Sweep Shares Class, first offered to the
public on 12/8/98, include the historical performance of the Service
Class from the Fund's inception (1/1/95) up to 12/7/98. 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 12/31/94. Performance figures for these
Classes after these dates will vary based on differences in their expense
structures.
(sec.) 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 had an effective 7-day yield with a
current 7-day yield of 4.98% and 4.86%, respectively, for the
Institutional Class; 4.72% and 4.61%, respectively, for the Service
Class; and 4.63% and 4.53%, respectively, for the Sweep Shares Class, all
as of 12/31/98. 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 4.80% and 4.69%, respectively, for
the Institutional Class; 4.54% and 4.45%, respectively, for the Service
Class; and 4.46% and 4.36%, respectively, for the Sweep Shares Class.
These expense limitations are voluntary and may be terminated or revised
at any time.
Investments in the Money Market Fund are not insured nor guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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. Most Funds are offered in two classes of
shares, except the Money Market Fund which has three classes. 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 and Sweep Shares Class shares, first offered 1/1/95 and 12/8/98,
respectively, are sold with no initial or contingent deferred sales
charge, but are subject to an annual shareholder service fee of .25%. In
addition, Sweep Shares Class shares are sold with an annual 12b-1 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.
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TABLE OF CONTENTS
Chairman's Letter 2
PORTFOLIO MANAGERS' INTERVIEWS & COMMENTS
&
FINANCIAL STATEMENTS
EQUITY FUNDS
EAFE Index Fund 3
Growth Equity Fund 22
Indexed Equity Fund 34
International Equity Fund 52
Multi-Asset Fund 68
Value Equity Fund 88
INCOME FUNDS
Bond Fund 100
Indexed Bond Fund 112
International Bond Fund 124
Money Market Fund 136
Short-Term Bond Fund 146
Note 1 Organization and Business 156
Note 2 Significant Accounting Policies 157
Note 3 Fees and Related Party Policies 164
Note 4 Federal Income Tax 166
Note 5 Financial Investments 167
Note 6 Portfolio Securities Loaned 168
Note 7 Line of Credit 169
Note 8 Purchases and Sales of Securities 170
Note 9 Capital Share Transactions 170
Report of Independent Accountants 172
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CHAIRMAN'S LETTER
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REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1998
At the close of 1998, investors celebrated the fourth consecutive year that
domestic stocks in general returned more than 20%. Getting there, however, was
often like riding a roller-coaster. Just as the stock market climbed to new
highs in mid-July, preliminary corrections in various portions of the market
warned of an imminent decline. By the end of August, the U.S. stock market had
plummeted nearly 20%, turning earlier exhilaration into serious investor
concern. Remarkably, however, the market continued to charge ahead, again
reaching record levels in November, then dropping back slightly and ending the
year on a strongly positive note. With this continuing volatility, investors
were left simply nodding at daily point shifts that once might have provoked
alarm.
What was behind the market swings? Investors' attitudes shifted repeatedly as
the world's economic and political drama unfolded. Overseas, the focus moved
from the financial crisis in Asia to economic woes in Russia and Latin America.
Meanwhile, most European markets continued to advance in anticipation of
European Monetary Union. Here at home, most U.S. investors remained highly
optimistic as evidenced by the strong advances in large-capitalization growth
stocks and Internet and other technology issues. Over the course of the year,
however, market sentiment rose and fell with modest inflation, corporate
earnings disappointments, interest-rate cuts, military strikes in Iraq, and
impeachment action against President Clinton.
BOND TRADE-OFFS AND MARKET LESSONS
As interest rates declined, most domestic bond investors enjoyed rising prices,
but found it increasingly difficult to secure attractive yields. In the third
quarter, falling stock prices caused a general rush to high-quality bonds, which
helped some investors, but reduced the demand for domestic and global high-yield
bonds.
If there's a lesson to be learned from 1998, it's the importance of a long-term
perspective. Broad recoveries in the stock and bond markets underscored the
value of being guided by long-range objectives rather than short-term results.
STRICT INVESTMENT DISCIPLINES
An important benefit of MainStay Institutional Funds is their strict adherence
to established investment disciplines and style guidelines, which makes them
excellent asset allocation tools. Whether you prefer indexed investing or active
management, MainStay offers a wide selection of Institutional Funds for
virtually any investment objective or risk/reward profile.
The following report will tell you more about the specific events that affected
your MainStay Institutional Funds in 1998, with commentary from the portfolio
managers who guided your investment through this challenging market environment.
Sincerely,
/s/ Stephen C. Roussin
Stephen C. Roussin
January 1999
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PORTFOLIO MANAGEMENT DISCUSSION AND ANALYSIS
EAFE INDEX FUND
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1998 MARKET RECAP
- - The Russian economic collapse, a weakening economic outlook in Latin America,
and ongoing economic woes in Asia resulted in global equity market volatility.
- - The near collapse of Long-Term Capital Management, a major leveraged hedge
fund, added to concerns about a liquidity crunch.
- - As a result of currency controls and limitations on the repatriation of
foreign assets, Malaysia was removed from the Morgan Stanley Capital
International (MSCI) Europe, Australia, and Far East (EAFE) Index(*) at the
end of September.
- - The concerted effort of most European governments to lower interest rates
helped bolster the region's economic growth and boost most of its equity
markets to record highs.
- - Fears of global recession and other concerns prompted three successive 0.25%
interest-rate cuts by the Federal Reserve Board beginning in late September,
which contributed to equity market rallies in both Europe and Asia during the
fourth quarter.
- ------------------------------------------------------
1998 FUND RECAP
- - For the one-year period ended 12/31/98, the MainStay Institutional EAFE Index
Fund returned 19.15% for Institutional Class shares and 18.83% for Service
Class shares.
- - Both share classes underperformed the Morgan Stanley Capital International
(MSCI) Europe, Australia, and Far East (EAFE) Index, which returned 20.00% for
the one-year period ended 12/31/98.
- - Both share classes significantly outperformed the average Lipper(+)
international fund, which returned 13.02% for the 12-month period ended
12/31/98.
- - The Fund benefited from investments in Belgium, Spain, France, and Portugal,
while investments in New Zealand, Austria, Denmark, and Hong Kong detracted
from performance.
- - Although Malaysia was removed from the Morgan Stanley Capital International
(MSCI) Europe, Australia, and Far East (EAFE) Index, the Fund has retained
Malaysian stocks in its portfolio.
While 1998 was marked by periods of extreme volatility in the global markets,
the year ended with 15 out of 20 EAFE markets posting gains for the one-year
period ended December 31, 1998. Five EAFE markets had double-digit gains.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
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* The Morgan Stanley Capital International Europe, Australia, and Far East
Index--the EAFE Index--is an unmanaged index generally considered to be
representative of the international stock market.
(+) Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns
with capital gains and dividends reinvested.
3
<PAGE> 6
During the first half of the year, European markets roared ahead, fueled by
solid economic growth, low inflation, and a concerted effort on the part of
several European countries to lower interest rates. The decision to ease
monetary policy by central banks in Denmark, France, Germany, Ireland, Italy,
Portugal, Spain, Sweden, and the United Kingdom raised optimism that for
participants in European Monetary Union, the January 1, 1999, conversion to a
single currency--the much-anticipated euro--would proceed smoothly. On May 2,
1998, the members of European Monetary Union were announced. Together, these
factors helped buttress the region's markets through most of the remainder of
the year.
In sharp contrast, countries in Asia and the Pacific Rim suffered through the
first half of 1998 as currency concerns, high local interest rates, political
turmoil in Indonesia, and balance-sheet deficits led to significant market
losses--particularly in Hong Kong, Malaysia, and Singapore. In Japan, the equity
market initially rose during the first quarter, as the ruling political party
announced that its fiscal stimulus package was implemented a month earlier than
expected. However, the market in Japan then suffered setbacks in the face of a
weakening economy, including record unemployment, and disappointment over the
Japanese government's $124 billion economic stimulus package, which included no
permanent tax cuts. Within the region, Australia was the notable exception.
There, the anticipation of an interest-rate cut led the equity market to an
all-time high in April.
A number of factors came together in August to affect most equity markets around
the globe. Among them were Russia's debt default and the $3.6 billion bailout of
the hedge fund Long-Term Capital Management. Economic distress in Asia
continued. Prices fell sharply in many parts of the world, and the MSCI EAFE
Index dropped 12.39% for the month.
Optimism returned in September, when the first of a series of three successive
0.25% interest-rate cuts by the U.S. Federal Reserve Board helped to reignite
investor confidence. Along with a favorable low interest/low inflation rate
environment, continued European Monetary Union enthusiasm, better than expected
earnings, and significant merger and acquisition activity throughout Europe,
this easing of U.S. monetary policy sent the European markets decidedly higher.
By year end, European equity markets as a whole rose 28.58% in U.S. dollar
terms, with most countries setting record highs in their individual markets.
Asian equity markets also moved higher, with Malaysia outperforming all other
EAFE markets in September. Still, capital controls imposed on September 1 by the
Malaysian central bank resulted in the removal, as of September 30, of Malaysia
from the MSCI EAFE Index. Equity markets in Hong Kong and Singapore continued to
rise through the fourth quarter of 1998, as confidence by most investors was
boosted by the U.S. interest-rate cuts and the appreciation of the Japanese yen.
The Japanese equity market, however, experienced wide price swings, reaching a
twelve-year low in September, rallying in the next two months, only to end the
year once again as the worst-performing EAFE market in local currency terms in
December.
GIVEN THIS BACKDROP, HOW DID THE MAINSTAY INSTITUTIONAL EAFE INDEX
FUND PERFORM IN 1998?
For the one-year period ended 12/31/98, the MainStay Institutional EAFE Index
Fund returned 19.15% for Institutional Class shares and 18.83% for Service Class
shares. Both share classes underperformed the MSCI EAFE Index, which returned
20.00% for the year. However, both share classes significantly outperformed the
average Lipper international fund, which returned 13.02% for the 12-month period
ended 12/31/98.
EUROPEAN MONETARY UNION A system that allows participating European countries to
operate with a common currency or monetary unit, the euro.
MERGERS AND ACQUISITIONS A merger is a combination of two companies, an
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
LOCAL CURRENCY TERMS/U.S. DOLLAR TERMS Returns expressed in local currency terms
show what investors using that currency would have earned, without any
adjustment for differences in currency values. Returns expressed in U.S. dollar
terms also reflect any differences in the relative value of the local currency
and the U.S. dollar.
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.
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WHY DID THE FUND UNDERPERFORM THE MSCI EAFE INDEX?
The MainStay Institutional EAFE Index Fund is designed to replicate the total
return performance of the MSCI EAFE Index by holding a subset of the benchmark's
securities. The Fund holds a basket of stocks within each EAFE country, which
are weighted in such a manner as to closely mirror the overall weight, risk, and
return profiles of each individual country in the Index. However, not all EAFE
Index companies within a country will be represented in the Fund's portfolio of
securities at the same time. The Fund does not seek to make any regional,
country, or industry evaluations. Rather, it seeks to generate Index-like
returns within an acceptable range of tracking error. During the reporting
period, most of the baskets owned by the Fund performed within an acceptable
range of tracking error. However, the Fund carries fees and expenses that the
Index does not, and as a result, the Fund underperformed the Index.
DURING 1998, WHICH COUNTRIES CONTRIBUTED MOST POSITIVELY TO THE FUND'S
PERFORMANCE?
The EAFE Index was led by Belgium, which rose 55.75%; Spain, up 50.03%; France,
up 40.66%; and Portugal, up 33.71%, all in U.S. dollar terms. Historic changes
relating to European Monetary Union, including a surge in corporate
restructuring, merger and acquisition activity, and privatization of
government-run businesses--along with a concerted effort on the part of
individual central banks to lower interest rates--helped foster economic growth
in Europe. We believe these and other ongoing efforts to convert to the
single-currency euro seamlessly and to forge economic alliances across national
borders helped the stock markets in these countries perform well during 1998.
WHICH COUNTRIES PROVIDED THE WORST PERFORMANCE?
New Zealand was down 18.77%, Austria fell 7.17%, Denmark slipped 6.92%, and Hong
Kong rounded out the worst-performing markets with a decline of 6.26%, all in
U.S. dollar terms. New Zealand and Hong Kong were particularly impacted by
uncertainty over their currencies, decreasing demand for manufactured products,
Japan's economic and market slump, and high local interest rates. Austria and
Denmark did not cut their local interest rates to the same degree as several of
their European neighbors.
WAS THERE ANY SIGNIFICANT CHANGE IN THE FUND'S PORTFOLIO DURING THE YEAR?
There was. While, as an index fund, we rarely act on individual stocks to be
bought or sold on a stand-alone basis, the MSCI EAFE Index is not static.
Mergers, acquisitions, spin-offs, the success and failure of specific companies,
and various other economic and political factors can impact which companies and
which nations' markets are included in the EAFE Index--and their relative
weightings.
For example, in September, MSCI removed Malaysia from the EAFE Index as a result
of currency controls and the illiquidity of the country's stock market. We
decided to retain the Malaysian stocks in the Fund, which represent a 0.40%
weighting. Even if we sold these stocks, Malaysian currency controls, which
impose a minimum waiting period between the sale of securities and the time that
proceeds may be taken out of the country, would have delayed the realization of
the Fund's proceeds for at least 12 months. By holding these securities, the
Fund may benefit if Malaysia should experience an economic turnaround and a move
to a more liquid open environment in which the Fund's Malaysian holdings might
be sold.
Also, on November 17, 1998, the merger of Daimler Benz and Chrysler Corporation
resulted in the combined company assuming a more substantial weighting in the
MSCI EAFE Index, representing 1.35%, up from 0.71% prior to the merger. The
Fund's portfolio was properly positioned both at the country and industry levels
to effectively track the benchmark.
WHAT IS YOUR OUTLOOK FOR 1999?
The MainStay Institutional EAFE Index Fund seeks to track the total return
performance of its benchmark, the MSCI EAFE Index. As a result, we do not seek
to either anticipate or react to changing market conditions or to emphasize the
weighting of any particular region, country, or sector in the Fund's investment
portfolio for the purpose of strong performance.
However, we remain positive about the European equity markets. With most
European economies operating well below capacity, favorable low-inflation
prospects, and the introduction of the euro may lead to further interest-rate
cuts in Europe. However, we believe there are a few potential concerns. For
instance, Germany and Italy may see weakness in
5
<PAGE> 8
their equity markets if troubles in their industrial sectors spread in 1999. In
Asia, investors are gradually edging back into equities, but the ongoing malaise
in Japan will likely continue to hinder Asian markets.
Whatever happens, the Fund will continue to seek 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 MSCI EAFE
Index.
JAMES A. MEHLING, CFA
Portfolio Manager
Monitor Capital Advisors, Inc.
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.
6
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$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
EAFE INDEX FUND VS MSCI EAFE INDEX
INSTITUTIONAL CLASS SHARES
[INSTITUTIONAL CLASS SHARES GRAPH]
<TABLE>
<CAPTION>
MSCI EAFE
EAFE INDEX FUND INDEX
------------------- ---------
<S> <C> <C>
1/2/91 10000.00 10000.00
3/31/91 10630.00 10743.00
6/30/91 10180.00 10156.00
9/30/91 10930.00 11027.00
12/31/91 11010.00 11212.00
3/31/92 9665.00 9881.00
6/30/92 9866.00 10090.00
9/30/92 10027.00 10242.00
12/31/92 9665.00 9847.00
3/31/93 10681.00 11027.00
6/30/93 11635.00 12137.00
9/30/93 12427.00 12941.00
12/31/93 12464.00 13053.00
3/31/94 12858.00 13509.00
6/30/94 13542.00 14200.00
9/30/94 13521.00 14214.00
12/31/94 13315.00 14069.00
3/31/95 13526.00 14331.00
6/30/95 13547.00 14435.00
9/30/95 14043.00 15037.00
12/31/95 14518.00 15646.00
3/31/96 14989.00 16098.00
6/30/96 15246.00 16353.00
9/30/96 15235.00 16332.00
12/31/96 15453.00 16591.00
3/31/97 15199.00 16331.00
6/30/97 17153.00 18451.00
9/30/97 17010.00 18321.00
12/31/97 15515.00 16887.00
3/31/98 17636.00 19371.00
6/30/98 17909.00 19576.00
9/30/98 15424.00 16794.00
12/31/98 18485.00 20264.00
</TABLE>
- - EAFE Index Fund -- MSCI EAFE Index
Source: Lipper, Inc.
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
EAFE INDEX FUND VS MSCI EAFE INDEX
SERVICE CLASS SHARES
[SERVICE CLASS SHARES GRAPH]
<TABLE>
<CAPTION>
EAFE INDEX FUND MSCI EAFE INDEX
--------------- ---------------
<S> <C> <C>
1/2/91 10000.00 10000.00
3/31/91 10630.00 10743.00
6/30/91 10180.00 10156.00
9/30/91 10930.00 11027.00
12/31/91 11010.00 11212.00
3/31/92 9665.00 9881.00
6/30/92 9866.00 10090.00
9/30/92 10027.00 10242.00
12/31/92 9665.00 9847.00
3/31/93 10681.00 11027.00
6/30/93 11635.00 12137.00
9/30/93 12427.00 12941.00
12/31/93 12464.00 13053.00
3/31/94 12858.00 13509.00
6/30/94 13542.00 14200.00
9/30/94 13521.00 14214.00
12/31/94 13315.00 14069.00
3/31/95 13537.00 14331.00
6/30/95 13547.00 14435.00
9/30/95 14011.00 15037.00
12/31/95 14465.00 15646.00
3/31/96 14947.00 16098.00
6/30/96 15182.00 16353.00
9/30/96 15150.00 16332.00
12/31/96 15386.00 16591.00
3/31/97 15110.00 16331.00
6/30/97 17049.00 18451.00
9/30/97 16894.00 18321.00
12/31/97 15397.00 16887.00
3/31/98 17496.00 19371.00
6/30/98 17752.00 19576.00
9/30/98 15292.00 16794.00
12/31/98 18296.00 20264.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
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YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EAFE Index Fund Institutional Class 19.15% 19.15% 8.20% 7.98%
EAFE Index Fund Service Class(+) 18.83% 18.83% 7.98% 7.84%
Average Lipper International Fund 13.02% 13.02% 7.69% 10.20%
MSCI EAFE Index 20.00% 20.00% 9.19% 9.23%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year End 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return%* 10.1% -12.22% 28.97% 6.83% 9.03% 6.45% 0.40% 19.15%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998)
- -------------------------------------------------
[PIE CHART]
<S> <C>
COMMON STOCKS 98.96%
OTHER 0.65%
CASH & EQUIVALENTS 0.39%(++)
</TABLE>
<TABLE>
<CAPTION>
TOP 10 HOLDINGS TOP 10 COUNTRIES
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Novartis S.A. Registered 1.65% 1. United Kingdom 21.76%
2. Glaxo Wellcome PLC 1.64% 2. Japan 21.63%
3. Royal Dutch Petroleum Co. 1.46% 3. Germany 10.50%
4. Toyota Motor Corp. 1.46% 4. France 9.15%
5. Nippon Telegraph & Telephone Corp. 1.37% 5. Switzerland 7.82%
6. British Telecommunications PLC 1.35% 6. Netherlands 5.41%
7. British Petroleum Co. PLC 1.21% 7. Italy 4.93%
8. Allianz AG Registered 1.20% 8. Spain 3.39%
9. Roche Holdings AG Genusscheine 1.19% 9. Sweden 2.79%
10. Nestle S.A. Registered 1.18% 10. Australia 2.10%
- ---------------------------------------------------------------------------------------------------------
</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% on an annualized basis of the average daily net asset value of the
Service Class shares.
(+) 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 structure.
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 indexes.
(++)Adjusted for liabilities.
7
<PAGE> 10
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (99.0%)+
SHARES VALUE
------------------------
<S> <C> <C>
AUSTRALIA (1.9%)
AMP, Ltd. (insurance) (a)........ 9,400 $ 119,203
Boral, Ltd. (building materials &
components)..................... 9,600 13,661
Brambles Industries, Ltd.
(business & public services).... 2,100 51,200
Broken Hill Proprietary Co., Ltd.
(energy sources)................ 16,284 120,046
Coles Myer, Ltd.
(merchandising)................. 14,858 77,918
Lend Lease Corp., Ltd. (real
estate)......................... 5,600 75,566
National Australia Bank, Ltd.
(banking)....................... 13,390 202,038
News Corp., Ltd. (The)
(broadcasting & publishing)..... 19,650 129,926
Pacific Dunlop, Ltd.
(multi-industry)................ 8,700 14,088
Pioneer International, Ltd.
(building materials &
components)..................... 25,231 53,391
Rio Tinto, Ltd.
(metals-nonferrous)............. 8,677 103,010
Smith (Howard), Ltd.
(multi-industry)................ 6,441 42,651
Star City Holdings, Ltd. (leisure
& tourism) (a).................. 37,214 32,938
Westpac Banking Corp., Ltd.
(banking)....................... 22,071 147,830
WMC, Ltd. (metals-nonferrous).... 19,846 59,889
-----------
1,243,355
-----------
AUSTRIA (0.3%)
Bank Austria AG (banking)........ 1,039 52,863
Flughafen Wien AG (business &
public services)................ 1,094 53,710
Generali Holding Vienna AG
(insurance)..................... 311 76,436
-----------
183,009
-----------
BELGIUM (1.9%)
Electrabel, S.A.
(utilities-electrical & gas).... 609 267,690
Fortis AG (insurance)............ 1,845 668,658
Fortis AG CVG (insurance) (a).... 700 3,158
Fortis AG STRIPS (insurance)
(a)............................. 700 41
KBC Bancassurance Holding N.V.
(banking)....................... 761 60,255
PetroFina, S.A. (energy
sources)........................ 377 172,847
Tractebel, S.A.
(utilities-electrical & gas).... 204 39,609
-----------
1,212,258
-----------
DENMARK (0.9%)
Dampskibsselskabet AF 1912 Class
B (transportation-shipping)..... 10 69,921
Dampskibsselskabet Svendborg AS
Class B
(transportation-shipping)....... 10 101,346
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
DENMARK (Continued)
Den Danske Bank (banking)........ 889 $ 119,430
FLS Industries AS Class B
(machinery & engineering)....... 435 8,885
Novo Nordisk AS Class B (health &
personal care).................. 965 127,366
Tele Danmark AS Class B
(telecommunications)............ 1,000 134,971
-----------
561,919
-----------
FINLAND (1.3%)
Kesko (wholesale & international
trade).......................... 3,900 58,539
Kone Corp. Class B (machinery &
engineering).................... 174 20,275
Metra AB PLC Class B (multi-
industry)....................... 2,139 37,176
Nokia Oyj Class A (electrical &
electronics).................... 5,662 693,313
Pohjola Group Insurance Class B
(insurance)..................... 629 34,535
-----------
843,838
-----------
FRANCE (9.2%)
Accor, S.A. (leisure &
tourism)........................ 205 44,406
Alcatel, S.A. (electrical &
electronics).................... 1,414 173,143
AXA S.A. (insurance)............. 3,646 528,689
Banque Nationale de Paris
(banking)....................... 1,422 117,151
Cap Gemini, S.A. (business &
public services)................ 991 159,135
Carrefour, S.A.
(merchandising)................. 454 342,897
Compagnie de Saint Gobain, S.A.
(building materials &
components)..................... 1,343 189,693
Compagnie Generale de
Geophysique, S.A. (energy
equipment & services) (a)....... 175 10,204
Elf Aquitaine, S.A. (energy
sources)........................ 1,399 161,789
Etablissements Economiques du
Casino Guichard-Perrachon, S.A.
(merchandising)................. 1,809 188,478
France Telecom, S.A.
(telecommunications)............ 7,617 605,432
Groupe Danone, S.A. (food &
household products)............. 905 259,219
L'Air Liquide, S.A.
(chemicals)..................... 1,139 209,000
L'Oreal, S.A. (health & personal
care)........................... 703 508,435
Lafarge, S.A. (building materials
& components)................... 400 38,023
LVMH (Moet Hennessy Louis
Vuitton), S.A. (recreation &
other consumer goods)........... 980 194,035
Michelin (CGDE), S.A. Class B
(industrial components)......... 2,173 86,943
Paribas, S.A. (banking).......... 2,700 234,763
</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.
8
<PAGE> 11
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
FRANCE (Continued)
Pinault-Printemps-Redoute, S.A.
(merchandising)................. 1,069 $ 204,384
Promodes, S.A. (merchandising)... 81 58,930
PSA Peugeot, S.A.
(automobiles)................... 628 97,246
Rhone-Poulenc, S.A. (health &
personal care).................. 2,440 125,625
Sanofi, S.A. (health & personal
care)........................... 1,354 223,000
Schneider, S.A. (electrical &
electronics).................... 2,418 146,742
Societe Generale, S.A. Class A
(banking)....................... 1,140 184,693
Suez Lyonnaise des Eaux, S.A.
(business & public services).... 1,055 216,817
Total, S.A. Class B (energy
sources)........................ 2,330 236,086
Valeo, S.A. (industrial
components)..................... 545 42,968
Vivendi, S.A. (business & public
services)....................... 1,602 415,842
-----------
6,003,768
-----------
GERMANY (10.0%)
Adidas-Salomon AG (recreation &
other consumer goods)........... 400 44,070
AGIV AG (multi-industry)......... 904 23,339
Allianz AG Registered
(insurance)..................... 2,106 783,969
AMB Aachener & Muenchener
Beteiligungs AG (insurance)..... 350 50,855
BASF AG (chemicals).............. 5,234 199,709
Bayer AG (chemicals)............. 6,417 269,506
Bayerische Hypo-und Vereinsbank
AG (banking).................... 4,249 336,241
Beiersdorf AG (health & personal
care)........................... 1,546 106,283
DaimlerChrysler AG
(automobiles)................... 5,485 545,034
Deutsche Bank AG (banking)....... 4,600 271,439
Deutsche Lufthansa AG Registered
(transportation-airlines)....... 3,100 68,774
Deutsche Telekom AG
(telecommunications)............ 20,028 658,370
Dresdner Bank AG (banking)....... 4,550 190,685
Heidelberger Zement AG (building
materials & components)......... 1,215 95,564
Hochtief AG (construction &
housing)........................ 1,636 64,339
Linde AG (machinery &
engineering).................... 100 60,642
Mannesmann AG
(telecommunications)............ 3,500 405,053
Merck KGaA (health & personal
care)........................... 2,100 94,565
Metro AG (merchandising)......... 2,650 208,433
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance)..................... 708 346,449
Preussag AG (multi-industry)..... 150 68,177
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
GERMANY (Continued)
RWE AG (utilities-electrical &
gas)............................ 4,139 $ 228,629
SAP AG (business & public
services)....................... 550 237,763
Schering AG (health & personal
care)........................... 600 75,472
Siemens AG (electrical &
electronics).................... 5,458 358,836
STRABAG AG (construction &
housing) (a).................... 216 13,488
Thyssen AG (metals-steel)........ 450 85,108
VEBA AG (utilities-electrical &
gas)............................ 4,829 286,169
Viag AG (utilities-electrical &
gas)............................ 294 173,873
Volkswagen AG (automobiles)...... 3,000 242,807
-----------
6,593,641
-----------
HONG KONG (2.1%)
Cathay Pacific Airways, Ltd.
(transportation-airlines)....... 22,409 22,272
Cheung Kong (Holdings), Ltd.
(real estate)................... 15,000 107,945
Chinese Estates Holdings, Ltd.
(real estate)................... 68,854 10,046
CLP Holdings, Ltd.
(utilities-electrical & gas).... 20,432 101,805
Hang Lung Development Co. (real
estate)......................... 44,946 48,155
Hang Seng Bank, Ltd. (banking)... 16,730 149,548
Hong Kong & China Gas Co., Ltd.
(utilities-electrical & gas).... 39,548 50,285
Hong Kong Telecommunications,
Ltd. (telecommunications)....... 105,658 184,807
Hopewell Holdings, Ltd. (multi-
industry)....................... 18,706 10,202
Hutchison Whampoa, Ltd. (multi-
industry)....................... 37,381 264,179
Miramar Hotel & Investment, Ltd.
(real estate)................... 36,028 36,971
New World Development Co., Ltd.
(real estate)................... 31,772 79,973
Shangri-La Asia, Ltd. (leisure &
tourism)........................ 67,464 57,473
Sun Hung Kai Properties, Ltd.
(real estate)................... 21,000 153,155
Swire Pacific, Ltd. Class A
(multi-industry)................ 16,385 73,390
-----------
1,350,206
-----------
IRELAND (0.5%)
Allied Irish Banks PLC
(banking)....................... 16,000 286,987
Irish Life PLC (insurance)....... 6,900 65,020
-----------
352,007
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
9
<PAGE> 12
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
ITALY (4.9%)
Assicurazioni Generali S.p.A.
(insurance)..................... 8,500 $ 355,694
Banca Commerciale Italiana S.p.A.
(banking)....................... 26,820 185,425
Bulgari S.p.A. (recreation &
other consumer goods)........... 5,548 33,142
Cementir S.p.A. (building
materials & components)......... 31,373 36,151
Edison S.p.A.
(utilities-electrical & gas).... 3,000 35,415
ENI S.p.A. (energy sources)...... 66,248 433,918
Fiat S.p.A. (automobiles)........ 38,566 134,252
Istituto Nazionale delle
Assicurazioni S.p.A.
(insurance)..................... 59,698 158,033
Magneti Marelli S.p.A.
(industrial components)......... 889 1,542
Mediaset S.p.A. (broadcasting &
publishing)..................... 14,500 117,837
Mediobanca S.p.A. (banking)...... 8,523 118,626
Montedison S.p.A.
(multi-industry)................ 75,868 100,995
Olivetti S.p.A.
(telecommunications) (a)........ 10,000 34,872
Pirelli S.p.A. (industrial
components)..................... 35,468 113,895
San Paolo-IMI S.p.A. (banking)... 15,785 279,535
Snia BPD S.p.A.
(multi-industry)................ 32,373 51,046
Telecom Italia S.p.A.
(telecommunications)............ 30,920 264,403
Telecom Italia Mobile S.p.A.
(telecommunications)............ 69,196 511,974
Unicredito Italiano S.p.A.
(banking)....................... 40,119 238,323
Unione Immobiliare S.p.A. (real
estate)......................... 59,698 31,210
-----------
3,236,288
-----------
JAPAN (21.6%)
Acom Co., Ltd. (financial
services)....................... 500 32,182
Ajinomoto Co., Inc. (food &
household products)............. 4,567 48,586
Arabian Oil Co., Ltd. (energy
sources)........................ 987 12,697
Asahi Bank, Ltd. (banking)....... 21,986 80,695
Asahi Breweries, Ltd. (beverages
& tobacco)...................... 4,098 60,491
Asahi Chemical Industry Co., Ltd.
(chemicals)..................... 8,649 41,329
Asahi Glass Co., Ltd.
(miscellaneous-materials &
commodities).................... 17,000 105,650
Ashikaga Bank, Ltd. (banking).... 3,043 5,449
Bank of Tokyo-Mitsubishi, Ltd.
(banking) (c)................... 38,375 398,052
Bank of Yokohama, Ltd.
(banking)....................... 11,000 26,429
Bridgestone Corp. (industrial
components)..................... 7,935 180,442
Brother Industries, Ltd.
(appliances & household
durables)....................... 5,601 17,479
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Canon, Inc. (data processing &
reproduction)................... 8,288 $ 177,448
Chiba Bank, Ltd. (banking)....... 11,600 46,175
Chiyoda Corp. (machinery &
engineering) (a)................ 5,000 9,530
Chugai Pharmaceutical Co., Ltd.
(health & personal care)........ 5,974 59,847
Citizen Watch Co., Ltd.
(recreation & other consumer
goods).......................... 3,678 22,173
Dai Nippon Printing Co., Ltd.
(business & public services).... 7,133 113,955
Daiei, Inc. (merchandising)...... 11,467 31,210
Daikin Industries, Ltd.
(machinery & engineering)....... 6,000 59,576
Dainippon Ink & Chemical, Inc.
(chemicals)..................... 1,203 3,295
Daiwa House Industry Co., Ltd.
(construction & housing)........ 6,667 71,105
Daiwa Securities Co., Ltd.
(financial services)............ 10,287 35,203
Denso Corp. (industrial
components) (c)................. 7,331 135,835
East Japan Railway Co.
(transportation- road & rail)... 35 195,795
Ebara Corp. (machinery &
engineering).................... 5,660 48,824
Eisai Co., Ltd. (health &
personal care).................. 3,677 71,717
Fanuc, Ltd. (electronic
components & instruments)....... 2,223 76,270
Fuji Bank, Ltd. (banking) (c).... 25,432 93,796
Fuji Photo Film, Ltd. (recreation
& other consumer goods) (c)..... 5,394 200,847
Fujitsu, Ltd. (data processing &
reproduction)................... 20,107 268,280
Furukawa Electric Co., Ltd.
(industrial components)......... 11,558 39,450
Gakken Co., Ltd. (broadcasting &
publishing) (a)................. 13,000 14,982
Gunma Bank, Ltd. (banking)....... 9,766 77,663
Hitachi Corp., Ltd. (electrical &
electronics) (c)................ 31,857 197,701
Hitachi Zosen Corp. (machinery &
engineering).................... 19,634 27,154
Hokuriku Bank (banking) (a)...... 15,952 28,709
Honda Motor Co., Ltd.
(automobiles) (c)............... 8,345 274,476
Industrial Bank of Japan, Ltd.
(banking)....................... 22,283 102,923
Ito-Yokado Co., Ltd.
(merchandising)................. 4,375 306,414
Japan Airlines Co.
(transportation-airlines) (a)... 11,138 29,425
Japan Energy Corp. (energy
sources)........................ 5,637 5,347
Japan Steel Works (machinery &
engineering) (a)................ 25,176 31,248
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
10
<PAGE> 13
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Joyo Bank (banking).............. 13,550 $ 53,097
Jusco Co., Ltd.
(merchandising)................. 5,000 101,288
Kajima Corp. (construction &
housing)........................ 12,910 33,764
Kamigumi Co., Ltd. (business &
public services) (a)............ 456 2,219
Kansai Electric Power Co., Inc.
(utilities-electrical & gas).... 8,928 195,899
Kao Corp. (food & household
products)....................... 7,000 158,250
Kawasaki Heavy Industries
(machinery & engineering)....... 19,050 44,756
Kawasaki Steel Corp.
(metals-steel).................. 34,815 52,163
Keihin Electric Express Railway
(transportation-road & rail).... 3,000 9,442
Kinki Nippon Railway Co., Ltd.
(transportation-road & rail).... 32,124 172,300
Kirin Brewery Co., Ltd.
(beverages & tobacco)........... 11,154 142,395
Komatsu, Ltd. (machinery &
engineering).................... 12,162 63,939
Kubota Corp. (machinery &
engineering).................... 17,806 53,199
Kumagai Gumi Co., Ltd.
(construction & housing)........ 29,812 22,994
Kurabo Industries (textile &
apparel)........................ 15,000 15,426
Kyocera Corp. (electronic
components & instruments)....... 2,490 131,788
Kyowa Hakko Kogyo (health &
personal care).................. 4,234 20,946
Makita Corp. (electrical &
electronics).................... 5,448 60,809
Marubeni Corp. (wholesale &
international trade)............ 13,723 23,602
Marui Co., Ltd.
(merchandising)................. 3,378 65,136
Matsushita Electric Industrial
Co., Ltd. (appliances &
household durables)............. 22,247 394,266
Mitsubishi Chemical Corp.
(chemicals)..................... 29,833 62,948
Mitsubishi Corp. (wholesale &
international trade)............ 13,531 77,974
Mitsubishi Electric Corp.
(electrical & electronics)
(a)............................. 24,000 75,535
Mitsubishi Estate Co., Ltd. (real
estate)......................... 13,191 118,466
Mitsubishi Heavy Industries, Ltd.
(machinery & engineering)....... 27,059 105,552
Mitsubishi Oil Co., Ltd. (energy
sources) (a).................... 8,000 14,114
Mitsubishi Trust & Banking Corp.
(banking)....................... 4,031 25,981
Mitsui & Co. (wholesale &
international trade)............ 18,822 105,292
Mitsui Fudosan Co., Ltd. (real
estate)......................... 129 978
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Mitsui Marine & Fire Insurance
Co., Ltd. (insurance)........... 8,359 $ 44,094
Mitsui O.S.K. Lines, Ltd.
(transportation-shipping)....... 8,266 13,337
Mitsui Trust & Banking Co., Ltd.
(banking)....................... 8,000 9,150
Mitsukoshi, Ltd.
(merchandising)................. 14,758 39,252
Murata Manufacturing Co., Ltd.
(electronic compenents &
instruments).................... 3,000 124,738
NEC Corp. (electrical &
electronics).................... 12,416 114,477
NGK Insulators, Ltd. (industrial
components)..................... 2,800 36,168
Niigata Engineering Co., Ltd.
(machinery & engineering) (a)... 11,000 8,875
Nikon Corp. (electronic
components & instruments)....... 6,407 62,482
Nippon Express Co., Ltd.
(transportation-road & rail).... 14,446 81,454
Nippon Fire & Marine Insurance
(insurance)..................... 9,686 35,723
Nippon Light Metal Co. (metals-
nonferrous)..................... 18,577 19,433
Nippon Meat Packers, Inc. (food &
household products)............. 3,357 54,166
Nippon Oil Co., Ltd. (energy
sources)........................ 8,936 31,213
Nippon Steel Corp.
(metals-steel).................. 95,313 173,222
Nippon Telegraph & Telephone
Corp. (telecommunications)...... 116 896,765
Nissan Motor Co., Ltd.
(automobiles)................... 25,121 77,059
Nisshinbo Industries, Inc.
(textile & apparel)............. 7,363 25,719
Nissin Food Products Co., Ltd.
(food & household products)..... 2,384 60,130
NKK Corp. (metals-steel)......... 35,919 24,518
Nomura Securities Co., Ltd.
(financial services)............ 17,955 156,792
Obayashi Corp. (construction &
housing)........................ 10,799 51,890
Oji Paper Co., Ltd. (forest
products & paper)............... 17,490 91,020
Olympus Optical Co., Ltd.
(electronic components &
instruments).................... 4,000 46,065
Orient Corp. (financial
services)....................... 13,483 30,122
Osaka Gas Co., Ltd. (utilities-
electrical & gas)............... 10,126 34,922
Penta-Ocean Construction
(construction & housing)........ 10,000 20,036
Pioneer Electronic Corp.
(appliances & household
durables)....................... 3,078 51,711
Rohm Co., Ltd. (electronic
components & instruments)....... 2,000 182,452
Sakura Bank, Ltd. (banking)...... 30,834 70,801
Sankyo Co., Ltd. (health &
personal care).................. 4,654 101,912
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
11
<PAGE> 14
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Sanrio Co., Ltd. (recreation &
other consumer goods) (a)....... 1,861 $ 24,072
Sanyo Electric Co., Ltd.
(appliances & household
durables)....................... 22,684 70,386
Sapporo Breweries, Ltd.
(beverages & tobacco)........... 5,692 24,727
Sato Kogyo Co., Ltd.
(construction & housing)........ 12,000 9,149
Secom Co., Ltd. (business &
public services)................ 2,000 165,962
Sekisui House, Ltd. (construction
& housing)...................... 7,000 74,160
Sharp Corp. (appliances &
household durables)............. 10,279 92,860
Shimizu Corp. (construction &
housing)........................ 11,055 37,145
Shin-Etsu Chemical Co., Ltd.
(chemicals)..................... 4,830 116,472
Shionogi & Co., Ltd. (health &
personal care).................. 5,396 39,562
Shiseido Co., Ltd. (health &
personal care).................. 5,739 73,876
Shizuoka Bank, Ltd. (banking).... 3,494 43,212
SMC Corp. (machinery &
engineering).................... 700 55,977
Sony Corp. (appliances &
household durables)............. 3,741 272,955
Sumitomo Bank, Ltd. (banking)
(c)............................. 23,242 239,021
Sumitomo Chemical Co., Ltd.
(chemicals)..................... 14,403 56,183
Sumitomo Corp. (wholesale &
international trade)............ 11,864 57,849
Sumitomo Electric Industries
(industrial components)......... 5,982 67,406
Sumitomo Marine & Fire Insurance
Co. (insurance)................. 8,126 51,581
Sumitomo Metal Industries, Ltd.
(metals-steel).................. 34,343 39,278
Sumitomo Metal Mining Co.
(metals-nonferrous)............. 11,298 36,759
Taiheiyo Cement Corp. (building
materials & components)......... 12,783 32,071
Taisei Corp. (construction &
housing)........................ 14,713 28,305
Taisho Pharmaceutical Co., Ltd.
(health & personal care)........ 4,066 112,107
Taiyo Yuden Co., Ltd. (electronic
components & instruments)....... 2,127 25,231
Takashimaya Co., Ltd.
(merchandising)................. 6,574 55,426
Takeda Chemical Industries, Ltd.
(health & personal care)........ 12,318 475,044
Teikoku Oil Co., Ltd. (energy
sources)........................ 5,646 16,768
Tobu Railway Co., Ltd.
(transportation-road & rail).... 2,000 5,851
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Tohoku Electric Power Co., Inc.
(utilities-electrical & gas).... 7,968 $ 141,281
Tokai Bank, Ltd. (banking)....... 18,989 89,898
Tokio Marine & Fire Insurance Co.
(insurance)..................... 12,540 150,084
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas).... 14,251 352,496
Tokyo Electron, Ltd. (electronic
components & instruments)....... 2,192 83,369
Tokyo Gas Co., Ltd. (utilities-
electrical & gas)............... 41,091 108,197
Tokyo Steel Manufacturing Co.,
Ltd. (metals-steel)............. 5,394 27,067
Tokyu Corp. (transportation-road
& rail)......................... 7,451 19,619
Toppan Printing Co., Ltd.
(business & public services).... 10,076 123,274
Toray Industries, Inc.
(chemicals)..................... 15,000 78,460
Tostem Corp. (building materials
& components)................... 2,935 58,286
Toto, Ltd. (building materials &
components)..................... 5,467 43,960
Toyo Seikan Kaisha
(miscellaneous-materials &
commodities).................... 3,445 58,579
Toyoda Automatic Loom Works, Ltd.
(machinery & engineering)....... 3,000 53,167
Toyota Motor Corp. (automobiles)
(c)............................. 35,152 956,735
Ube Industries, Ltd.
(miscellaneous-materials &
commodities).................... 28,768 43,612
Uny Co., Ltd. (merchandising).... 4,346 79,564
Yamaha Corp. (recreation & other
consumer goods)................. 4,188 43,441
Yamanouchi Pharmaceutical Co.,
Ltd. (health & personal care)... 7,000 225,893
Yasuda Trust & Banking (banking)
(a)............................. 15,000 11,570
-----------
14,188,017
-----------
MALAYSIA (0.4%)(i)
Golden Hope Plantations Berhad
(miscellaneous-materials &
commodities).................... 39,056 29,491
Hong Leong Properties Berhad
(real estate)................... 56,625 8,239
Kuala Lumpur Kepong Berhad
(miscellaneous-materials &
commodities).................... 21,044 25,192
Leader Universal Holdings Berhad
(industrial components) (a)..... 30,000 5,802
Malayan Banking Berhad
(banking)....................... 21,588 30,614
Malaysia International Shipping
Berhad Foreign Registered
(transportation-shipping)....... 14,236 13,108
Malaysian Airline System Berhad
(transportation-airlines)....... 856 328
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
12
<PAGE> 15
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------
<S> <C> <C>
MALAYSIA (Continued)
Malaysian Resources Corp. Berhad
(real estate)................... 25,333 $ 6,440
Metroplex Berhad (real estate)... 10,434 1,354
Multi-Purpose Holdings Berhad
(multi-industry) (a)............ 27,000 5,073
Perlis Plantations Berhad (food &
household products)............. 13,560 9,740
Resorts World Berhad (leisure &
tourism)........................ 19,000 15,327
Sime Darby Berhad
(multi-industry)................ 464 373
Technology Resources Industries
Berhad (telecommunications)..... 25,409 9,267
Telekom Malaysia Berhad
(telecommunications)............ 28,700 52,857
Tenaga Nasional Berhad
(utilities-electrical & gas).... 23,117 33,208
-----------
246,413
-----------
NETHERLANDS (5.4%)
ABN AMRO Holding N.V.
(banking)....................... 14,276 300,480
Akzo Nobel N.V. (chemicals)...... 2,500 113,899
Buhrmann N.V. (forest products &
paper).......................... 2,271 40,660
Elsevier N.V. (broadcasting &
publishing)..................... 12,921 181,077
Heineken N.V. (beverages &
tobacco)........................ 1,900 114,405
Hollandsche Beton Groep N.V.
(construction & housing)........ 2,218 27,420
ING Groep N.V. (financial
services)....................... 8,614 525,561
Koninklijke Ahold N.V.
(merchandising)................. 3,600 133,129
Koninklijke Hoogovens CVA N.V.
(metals-steel).................. 1,081 29,953
Koninklijke KPN N.V.
(telecommunications)............ 2,900 145,258
Koninklijke Nedlloyd Groep N.V.
(transportation-road & rail).... 1,165 15,830
Koninklijke Pakhoed N.V. (energy
equipment & service)............ 921 23,262
Koninklijke Philips Electronics
N.V. (appliances & household
durables)....................... 3,369 226,196
Royal Dutch Petroleum Co. (energy
sources)........................ 19,284 960,773
Stork N.V. (machinery &
engineering).................... 1,864 42,610
TNT Post Group (business & public
services)....................... 2,900 93,490
Unilever CVA N.V. (food &
household products)............. 6,744 576,773
-----------
3,550,776
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
NEW ZEALAND (0.2%)
Carter Holt Harvey Ltd. (forest
products & paper)............... 21,197 $ 19,035
Fletcher Challenge Energy (energy
souces)......................... 2,375 4,517
Fletcher Challenge Forest (forest
products & paper)............... 20,290 6,752
Telecom Corp. of New Zealand Ltd.
(telecommunications)............ 20,270 88,339
-----------
118,643
-----------
NORWAY (0.4%)
Christiania Bank Og Kreditkasse
(banking)....................... 23,553 81,613
Elkem ASA Class A (metals-
nonferrous)..................... 4,033 48,171
Norsk Hydro ASA (energy
sources)........................ 2,759 93,068
Orkla ASA Class A
(multi-industry)................ 2,000 29,795
-----------
252,647
-----------
PORTUGAL (0.6%)
Banco Comercial Portugues, S.A.
Registered (banking)............ 2,100 64,565
Banco Espirito Santo e Comercial
de Lisboa, S.A. Registered
(banking)....................... 1,200 37,245
Cimpor-Cementos de Portugal SGPS,
S.A. (building materials &
components)..................... 1,200 38,307
Electricidade de Portugal, S.A.
(utilities--electrical & gas)... 6,675 146,967
Portugal Telecom, S.A. Registered
(telecommunications)............ 2,450 112,335
-----------
399,419
-----------
SINGAPORE (0.7%)
City Developments, Ltd. (real
estate)......................... 18,348 79,509
Development Bank of Singapore,
Ltd. Foreign Registered
(banking)....................... 6,212 56,097
First Capital Corp., Ltd. (multi-
industry)....................... 30,000 20,001
Sembcorp Industries Ltd. (multi-
industry)....................... 29,512 33,626
Singapore Airlines, Ltd. Foreign
Registered
(transportation-airlines)....... 10,273 75,337
Singapore Telecommunications,
Ltd. (telecommunications)....... 83,258 127,160
United Overseas Bank, Ltd.
Foreign Registered (banking).... 9,898 63,589
-----------
455,319
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
13
<PAGE> 16
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
SPAIN (3.4%)
Argentaria, Caja Postal y Banco
Hipotecario de Espana, S.A.
Registered (banking)............ 4,900 $ 127,090
Autopistas Concesionaria
Espanola, S.A. (business &
public services)................ 2,800 46,636
Banco Bilbao Vizcaya, S.A.
Registered (banking)............ 23,296 365,822
Banco Central Hispanoamericano,
S.A. (banking).................. 10,200 121,298
Banco Santander, S.A.
(banking)....................... 11,230 223,504
Empresa Nacional de Celulosas,
S.A. (forest products &
paper).......................... 1,466 24,625
Endesa, S.A.
(utilities-electrical & gas).... 8,467 224,685
Gas Natural SDG, S.A. (utilities-
electrical & gas)............... 1,546 168,576
Iberdrola, S.A.
(utilities-electrical & gas).... 10,558 197,835
Repsol, S.A. (energy sources).... 3,527 188,433
Tabacalera, S.A. (beverages &
tobacco)........................ 1,400 35,373
Telefonica, S.A.
(telecommunications)............ 11,042 491,738
Telefonica, S.A. Bonus Rights
(telecommunications) (a)........ 11,042 9,820
-----------
2,225,435
-----------
SWEDEN (2.8%)
ABB AB Series B (electrical &
electronics).................... 6,380 67,692
Astra AB Series A (health &
personal care).................. 16,822 343,473
Drott AB Series B (real
estate)......................... 1,000 9,191
Electrolux AB Series B
(appliances & household
durables)....................... 3,100 53,352
ForeningsSparbanken AB
(banking)....................... 3,200 82,906
Hennes & Mauritz AB Series B
(merchandising)................. 2,000 163,345
Mandamus AB (real estate)........ 130 730
Netcom AB Series B
(telecommunications) (a)........ 500 20,357
Skandia Forsakrings AB
(insurance)..................... 5,000 76,491
Skanska AB Series B (construction
& housing)...................... 1,000 27,759
Svenska Cellulosa AB Series B
(forest products & paper)....... 6,750 147,399
Svenska Handelsbanken Series A
(banking)....................... 2,100 88,606
Swedish Match AB (beverages &
tobacco)........................ 19,483 70,908
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
SWEDEN (Continued)
Telefonaktiebolaget LM Ericsson
Series B (electrical &
electronics).................... 21,184 $ 504,410
Volvo AB Series B
(automobiles)................... 7,525 172,679
-----------
1,829,298
-----------
SWITZERLAND (7.8%)
ABB AG Bearer (electrical &
electronics).................... 80 93,776
Adecco, S.A. (business & public
services)....................... 160 73,041
Alusuisse Lonza Group AG
Registered (multi-industry)..... 40 46,597
Credit Suisse Group Registered
(banking)....................... 2,440 381,949
Holderbank Financiere Glarus AG
Bearer (building materials &
components)..................... 60 71,031
Holderbank Financiere Glarus AG
Registered (building materials &
components)..................... 140 35,064
Jelmoli Holdings, Ltd. Bearer
(merchandising)................. 10 11,212
Nestle S.A. Registered (food &
household products)............. 355 772,817
Novartis S.A. Bearer (health &
personal care).................. 50 98,290
Novartis S.A. Registered (health
& personal care)................ 550 1,081,193
Roche Holdings AG Bearer (health
& personal care)................ 16 289,774
Roche Holdings AG Genusscheine
(health & personal care)........ 64 780,964
Schindler Holding AG
Participating Certificates
(machinery & engineering)....... 10 16,018
Schindler Holding AG Registered
(machinery & engineering)....... 10 17,037
Societe Generale de Surveillance
Holding S.A. Bearer (business &
public services)................ 15 14,689
Societe Generale de Surveillance
Holding S.A. Registered
(business & public service...... 70 16,513
Sulzer AG Registered (machinery &
engineering).................... 50 30,433
Swatch Group AG (The) Registered
(recreation & other consumer
goods).......................... 300 44,940
Swiss Reinsurance Registered
(insurance)..................... 135 351,978
UBS AG Registered (banking)...... 1,874 575,783
Zurich Allied AG Registered
(insurance)..................... 440 325,800
-----------
5,128,899
-----------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
14
<PAGE> 17
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
UNITED KINGDOM (21.7%)
Abbey National PLC (banking)..... 13,800 $ 295,501
Allied Zurich PLC (insurance).... 14,402 215,539
Associated British Foods PLC
(food & household products)..... 8,159 76,155
BAA PLC (business & public
services)....................... 13,374 155,316
Barclays PLC (banking)........... 12,984 279,324
Bass PLC (leisure & tourism)..... 7,411 104,254
BG PLC (utilities-electrical &
gas)............................ 34,221 216,219
Boots Co. PLC (merchandising).... 12,773 217,086
British Aerospace PLC (aerospace
& military technology).......... 29,600 251,414
British Airways PLC
(transportation-airlines)....... 9,829 66,559
British American Tobacco PLC
(beverages & tobacco)........... 14,402 127,838
British Petroleum Co. PLC (energy
sources)........................ 53,288 795,286
British Sky Broadcasting Group
PLC (broadcasting &
publishing)..................... 12,463 95,541
British Steel PLC
(metals-steel).................. 52,800 80,599
British Telecommunications PLC
(telecommunications)............ 58,965 887,370
BTR PLC (multi-industry)......... 34,990 71,607
Cable & Wireless PLC
(telecommunications)............ 20,928 257,494
Cadbury Schwepps PLC (beverages &
tobacco)........................ 7,985 136,043
Centrica PLC (energy sources)
(a)............................. 34,134 68,575
CGU PLC (insurance).............. 10,444 163,254
Coats Viyella PLC (textiles &
apparel)........................ 15,111 6,788
De La Rue PLC (business & public
services)....................... 1,910 6,562
Diageo PLC (beverages &
tobacco)........................ 33,363 374,967
Elementis Holdings PLC
(chemicals)..................... 8,693 12,077
General Electric Co. PLC
(electrical & electronics)...... 31,816 285,851
GKN PLC (machinery &
engineering).................... 13,813 184,660
Glaxo Wellcome PLC (health &
personal care).................. 31,290 1,072,962
Granada Group PLC (leisure &
tourism)........................ 8,820 156,506
Great Universal Stores PLC (The)
(merchandising)................. 15,300 160,246
Guardian Royal Exchange PLC
(insurance)..................... 19,043 106,458
Halifax PLC (banking)............ 21,744 308,415
Hanson PLC (building materials &
components)..................... 9,656 76,352
HSBC Holdings PLC (HK par)
(banking) (j)................... 14,346 362,568
HSBC Holdings PLC (L par)
(banking) (j)................... 7,100 193,378
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Imperial Chemical Industries PLC
(chemicals)..................... 7,746 $ 66,888
Kingfisher PLC (merchandising)... 27,800 300,649
Ladbroke Group PLC (leisure &
tourism)........................ 18,213 72,726
Land Securities PLC (real
estate)......................... 13,956 167,185
LASMO PLC (energy sources)....... 21,000 34,591
Legal & General Group PLC
(insurance)..................... 20,900 272,101
Lloyds TSB Group PLC (banking)... 48,502 688,350
Lucasvarity PLC (industrial
components)..................... 14,252 46,950
Marks & Spencer PLC
(merchandising)................. 34,406 234,990
National Grid Group PLC
(utilities-electrical & gas).... 18,314 145,651
National Power PLC (utilities-
electrical & gas)............... 10,792 95,345
Next PLC (merchandising)......... 6,649 53,985
Peason PLC (broadcasting &
publishing)..................... 6,206 123,700
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The)
(transportation-shipping)....... 4,725 55,816
Prudential Corp. PLC
(insurance)..................... 18,366 277,613
Racal Electronic PLC (electrical
& electronics).................. 4,570 26,384
Railtrack Group PLC (business &
public services)................ 3,607 94,341
Rank Group PLC (leisure &
tourism)........................ 12,294 46,841
Rentokil Initial PLC (business &
public services)................ 24,734 184,981
Reuters Group PLC (business &
public services)................ 16,399 172,030
Rio Tinto PLC Registered (metals-
nonferrous)..................... 12,231 141,229
Rolls-Royce PLC (aerospace &
military technology)............ 20,600 84,658
Royal & Sun Alliance Insurance
Group PLC (insurance)........... 18,266 147,852
Royal Bank of Scotland Group PLC
(banking)....................... 9,138 147,020
Sainsbury (J.) PLC
(merchandising)................. 22,313 173,649
Scottish & Newcastle PLC (leisure
& tourism)...................... 5,136 58,236
Scottish Power PLC (utilities-
electrical & gas)............... 8,089 82,837
Siebe PLC (electronic components
& instruments).................. 22,860 89,762
SmithKline Beecham PLC (health &
personal care).................. 47,322 664,122
Tarmac PLC (building materials &
components)..................... 946 1,566
Tesco PLC (merchandising)........ 78,393 224,996
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
15
<PAGE> 18
EAFE INDEX FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
Thames Water PLC (business &
public services)................ 5,760 $ 109,827
Unilever PLC (food & household
products)....................... 33,900 381,002
United Biscuits (Holdings) PLC
(food & household products)..... 9,940 39,733
Vodafone Group PLC
(telecommunications)............ 27,061 438,534
Williams PLC (electronic
components & instruments)....... 15,057 84,550
Wilson Connolly Holdings PLC
(construction & housing)........ 1,820 3,255
Zeneca Group PLC (chemicals)..... 7,953 347,345
-----------
14,250,054
-----------
UNITED STATES (1.0%)
Amoco Corp. (energy sources)..... 4,700 277,300
DaimlerChrysler AG
(automobiles)................... 4,177 401,253
-----------
678,553
-----------
Total Common Stocks
(Cost $50,559,950).............. 64,903,762(f)
-----------
<CAPTION>
PREFERRED STOCKS (0.6%)
<S> <C> <C>
AUSTRALIA (0.2%)
News Corp., Ltd.
A$ 0.075
(broadcasting & publishing)
(d)(j).......................... 21,600 131,559
-----------
GERMANY (0.4%)
RWE AG
DM 1.80
(utilities-electrical & gas)
(d)(j).......................... 2,754 100,039
SAP AG
DM 2.85
(data processing & reproduction)
(d)(j).......................... 400 192,012
-----------
292,051
-----------
Total Preferred Stocks
(Cost $311,057)................. 423,610
-----------
WARRANTS (0.0%) (b)
HONG KONG (0.0%) (b)
Chinese Estates Holdings, Ltd.
Call Warrants
Strike price HK 0.97
Expire 11/24/99
(real estate) (a)(j)............ 6,885 302
Chinese Estates Holdings, Ltd.
Call Warrants
Strike price HK 1.02
Expire 11/24/00
(real estate) (a)(j)............ 6,885 364
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------
<S> <C> <C>
HONG KONG (Continued)
Hong Kong & China Gas Co., Ltd.
Call Warrants
Strike price HK 12.27
Expire 9/30/99
(utilities-electrical & gas)
(a)(j).......................... 1,797 $ 118
-----------
Total Warrants................... 784
-----------
SHORT-TERM
INVESTMENTS (1.1%)
PRINCIPAL
AMOUNT
---------
U.S. GOVERNMENT (1.1%)
United States Treasury Bill
4.34%, due 4/1/99 (c)........... $100,000 98,946
4.50%, due 4/1/99 (c)........... 100,000 98,946
4.43%, due 4/8/99 (c)........... 500,000 494,230
-----------
Total Short-Term Investments
(Cost $691,822)................. 692,122
-----------
Total Investments
(Cost $51,562,829) (g).......... 100.7% 66,020,278(h)
Liabilities in Excess of Cash and
Other Assets.................... (0.7) (434,349)
-------- -----------
Net Assets....................... 100.0% $65,585,929
======== ===========
</TABLE>
<TABLE>
FUTURE CONTRACTS (0.0%) (b)
UNREALIZED
CONTRACTS APPRECIATION
LONG (DEPRECIATION)(e)
--------------------
<S> <C> <C>
FRANCE (0.0%) (b)
French Francs, CAC 40
Index, January 1999... 2 $ 143
-------
JAPAN (0.0%) (b)
Japanese Yen, TOPIX
Index, March 1999..... 3 (9,442)
-------
UNITED KINGDOM (0.0%)
(b)
Pound Sterling, FTSE 100
Index, March 1999..... 2 2,278
-------
Total Futures Contracts
(Settlement Value
$551,745)............. $(7,021)
=======
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
16
<PAGE> 19
MAINSTAY
INSTITUTIONAL FUNDS INC.
- ------------
(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, 1998.
(f) The combined market value of common stocks and settlement value of Index
futures contracts represents 99.8% of net assets.
(g) The cost for Federal income tax purposes is $52,550,611.
(h) At December 31, 1998 net unrealized appreciation for securities was
$13,469,667, based on cost for Federal income tax purposes. This consisted
of aggregate gross unrealized appreciation for all investments on which
there was an excess of market value over cost of $21,522,930 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $8,053,263.
(i) Securities deemed illiquid. As of December 31, 1998, the Malaysian
Government prohibited the repatriation of proceeds on sales of securities
denominated in Malaysian Ringgits for a one year period from the date of
sale. Effective February 15, 1999, the Malaysian Government replaced the
holding period with a graduated exit tax.
(j) A$ --Australian Dollar
DM--Deutsche Mark
HK --Hong Kong Dollar
Pound Sterling --Pound Sterling
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.................. $ 336,071 0.5%
Appliances & Household
Durables.................... 1,179,206 1.8
Automobiles................... 2,901,541 4.4
Banking....................... 9,454,169 14.4
Beverages & Tobacco........... 1,087,146 1.7
Broadcasting & Publishing..... 794,623 1.2
Building Materials &
Components.................. 783,121 1.2
Business & Public Services.... 2,699,315 4.1
Chemicals..................... 1,229,766 1.9
Construction & Housing........ 484,807 0.7
Data Processing &
Reproduction................ 445,727 0.7
Electrical & Electronics...... 2,798,669 4.3
Electronic Components &
Instruments................. 906,706 1.4
Energy Equipment & Service.... 33,466 0.1
Energy Sources................ 3,558,793 5.4
Financial Services............ 779,860 1.2
Food & Household Products..... 2,436,572 3.7
Forest Products & Paper....... 329,491 0.5
Health & Personal Care........ 7,119,774 10.9
Industrial Components......... 757,401 1.1
Insurance..................... 5,409,308 8.2
Leisure & Tourism............. 588,706 0.9
Machinery & Engineering....... 942,359 1.4
Merchandising................. 3,432,618 5.2
Metals-Nonferrous............. 408,492 0.6
Metals-Steel.................. 511,909 0.8
Miscellaneous-Materials &
Commodities................. 262,524 0.4
Multi-Industry................ 872,314 1.3
Real Estate................... 955,780 1.5
Recreation & Other Consumer
Goods....................... 606,720 0.9
Telecommunications............ 6,337,173 9.7
Textile & Apparel............. 47,933 0.1
Transportation-Airlines....... 262,696 0.4
Transportation-Road & Rail.... 500,291 0.8
Transportation-Shipping....... 253,529 0.4
U.S. Government............... 692,122 1.1
Utilities-Electrical & Gas.... 3,496,324 5.3
Wholesale & International
Trade....................... 323,256 0.5
----------- -----
66,020,278 100.7
Liabilities in Excess of Cash
and Other Assets............ (434,349) (0.7)
----------- -----
Net Assets.................... $65,585,929 100.0%
=========== =====
</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.
17
<PAGE> 20
EAFE INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $51,562,829)...... $ 66,020,278
Cash denominated in foreign
currencies (identified cost
$16,833)........................... 18,303
Cash................................. 25,932
Deposit with broker for futures
contracts.......................... 240,563
Receivables:
Dividends and interest............. 241,189
Fund shares sold................... 38,667
--------------
Total assets................... 66,584,932
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 641,732
Investment securities purchased.... 277,535
Transfer agent..................... 2,224
MainStay Management................ 9,979
Custodian.......................... 13,026
Accrued expenses..................... 47,486
Unrealized loss on futures
contracts.......................... 7,021
--------------
Total liabilities.............. 999,003
--------------
Net assets........................... $ 65,585,929
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 5,777
Institutional Service Class........ 44
Additional paid-in capital........... 51,708,480
Accumulated distribution in excess of
net investment income.............. (867,449)
Accumulated undistributed net
realized gain on investments....... 286,597
Net unrealized appreciation on
investments........................ 14,450,428
Net unrealized appreciation on
translation of other assets and
liabilities in foreign
currencies......................... 2,052
--------------
Net assets........................... $ 65,585,929
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 65,086,664
==============
Shares of capital stock
outstanding........................ 5,776,575
==============
Net asset value per share
outstanding........................ $ 11.27
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 499,265
==============
Shares of capital stock
outstanding........................ 44,486
==============
Net asset value per share
outstanding........................ $ 11.22
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 1,037,985
Interest........................... 49,176
--------------
Total income................... 1,087,161
--------------
Expenses:
Management......................... 562,217
Portfolio pricing.................. 74,836
Custodian.......................... 60,183
Professional....................... 43,783
Transfer agent..................... 27,218
Registration....................... 25,236
Shareholder communication.......... 11,179
Directors.......................... 1,345
Service............................ 1,208
Miscellaneous...................... 8,226
--------------
Total expenses before
reimbursement................ 815,431
Expense reimbursement from
Manager.......................... (257,925)
--------------
Net expenses................... 557,506
--------------
Net investment income................ 529,655
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.............. 4,249,864
Futures transactions............... 165,271
Foreign currency transactions...... (491)
--------------
Net realized gain on investments and
foreign currency transactions...... 4,414,644
--------------
Net change in unrealized appreciation
on investments:
Security transactions.............. 6,075,674
Futures transactions............... 10,157
Translation of other assets and
liabilities in foreign
currencies....................... 15,803
--------------
Net unrealized gain on investments
and foreign currency
transactions....................... 6,101,634
--------------
Net realized and unrealized gain on
investments and foreign currency
transactions....................... 10,516,278
--------------
Net increase in net assets resulting
from operations.................... $ 11,045,933
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $145,064.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
18
<PAGE> 21
MAINSTAY
INSTITUTIONAL FUNDS INC.
EAFE INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 529,655 $ 885,580
Net realized gain on investments........................ 4,415,135 13,669,000
Net realized loss on foreign currency transactions...... (491) (12,176)
Net change in unrealized appreciation on investments.... 6,085,831 (11,618,701)
Net change in unrealized depreciation on translation of
other assets and liabilities in foreign currencies..... 15,803 (7,995)
-------------- --------------
Net increase in net assets resulting from operations.... 11,045,933 2,915,708
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................... (526,186) (878,664)
Institutional Service Class........................... (3,469) (6,916)
From net realized gain on investments and foreign
currency transactions:
Institutional Class................................... (3,871,228) (13,337,599)
Institutional Service Class........................... (29,729) (106,298)
In excess of net investment income:
Institutional Class................................... (560,314) (353,710)
Institutional Service Class........................... (3,666) (1,817)
-------------- --------------
Total dividends and distributions to shareholders... (4,994,592) (14,685,004)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 29,896,062 10,993,310
Institutional Service Class........................... 86,552 140,022
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 4,948,383 14,564,746
Institutional Service Class........................... 36,795 115,016
-------------- --------------
34,967,792 25,813,094
Cost of shares redeemed:
Institutional Class................................... (30,946,559) (47,761,439)
Institutional Service Class........................... (102,752) (91,780)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... 3,918,481 (22,040,125)
-------------- --------------
Net increase (decrease) in net assets................. 9,969,822 (33,809,421)
NET ASSETS:
Beginning of year......................................... 55,616,107 89,425,528
-------------- --------------
End of year............................................... $ 65,585,929 $ 55,616,107
============== ==============
Accumulated distribution in excess of net investment
income at end of year................................... $ (867,449) $ (487,364)
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
19
<PAGE> 22
EAFE INDEX FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 10.24 $ 10.20
---------- ----------
Net investment income....................................... 0.11 0.08
Net realized and unrealized gain (loss) on investments...... 1.84 1.83
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. 0.00(a) 0.00(a)
---------- ----------
Total from investment operations............................ 1.95 1.91
---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.11) (0.08)
From net realized gain on investments and foreign currency
transactions.............................................. (0.72) (0.72)
In excess of net investment income.......................... (0.09) (0.09)
---------- ----------
Total dividends and distributions........................... (0.92) (0.89)
---------- ----------
Net asset value at end of year.............................. $ 11.27 $ 11.22
========== ==========
Total investment return..................................... 19.15% 18.83%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 0.90% 0.65%
Net expenses.............................................. 0.94% 1.19%
Expenses (before reimbursement)........................... 1.38% 1.63%
Portfolio turnover rate..................................... 24% 24%
Net assets at end of year (in 000's)........................ $ 65,087 $ 499
</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.
20
<PAGE> 23
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 14.00 $ 13.97 $ 13.56 $ 13.51 $ 12.63 $ 12.63 $ 12.03
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.22 0.19 0.16 0.12 0.13 0.14 0.10
(0.28) (0.29) 0.71 0.73 1.11 1.05 0.70
(0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.10) (0.10) 0.03
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.06) (0.10) 0.87 0.85 1.14 1.09 0.83
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.22) (0.19) (0.16) (0.12) (0.04) (0.04) (0.09)
(3.39) (3.39) (0.25) (0.25) (0.14) (0.14) (0.14)
(0.09) (0.09) (0.02) (0.02) (0.03) (0.03) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
(3.70) (3.67) (0.43) (0.39) (0.21) (0.21) (0.23)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 10.24 $ 10.20 $ 14.00 $ 13.97 $ 13.56 $ 13.51 $ 12.63
========== ========== ========== ========== ========== ========== ==========
0.40% 0.08% 6.45% 6.37% 9.03% 8.63% 6.83%
1.04% 0.79% 1.11% 0.86% 1.01% 0.76% 0.57%
0.94% 1.19% 0.94% 1.19% 1.03% 1.28% 1.26%
1.26% 1.51% 1.23% 1.48% 1.24% 1.49% 1.26%
6% 6% 4% 4% 6% 6% 7%
$ 55,177 $ 439 $ 89,029 $ 396 $ 80,087 $ 257 $ 72,265
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
21
<PAGE> 24
GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
1998 MARKET RECAP
- - The U.S. stock market was highly volatile throughout 1998, but provided
double-digit returns for the fourth year in a row.
- - In general, companies benefited from low inflation throughout 1998 and
declining interest rates in the second half of the year.
- - Financial problems in Asia, Russia, and Latin America led most investors to
seek highly liquid, predominately domestic stocks with steady growth and
relatively predictable earnings.
- - Technology and pharmaceutical stocks generally showed strong performance,
while energy and commodity-related stocks tended to underperform.
- ------------------------------------------------------
1998 FUND RECAP
- - The MainStay Institutional Growth Equity Fund returned 40.50% for
Institutional Class shares and 40.18% for Service Class shares for the
one-year period ended 12/31/98.
- - The Fund benefited from seeking to remain fully invested throughout the year
and from careful security selection among the leading large-capitalization
companies in the technology and pharmaceutical sectors.
- - Our decision to reduce the Fund's positions in problem sectors such as energy
contributed positively to performance.
- - Both share classes outperformed the average Lipper(*) growth fund, which
returned 22.86% for the year.
As years go, 1998 was one of the most volatile in recent memory. Despite its ups
and downs, however, the S&P 500(+) Index closed the year with a 28.58% gain,
making 1998 the fourth year in a row domestic stocks in general have returned
more than 20%.
With financial problems in Asia, Russia, and Latin America, declining oil
prices, and weaknesses in other commodities, many investors sought refuge in
stocks they felt were least likely to be affected by these difficulties. The
market focused on large-capitalization growth stocks that appeared to have
steady and predictable earnings prospects. Purely domestic issues continued to
do well, while oil and commodity-related stocks tended to show poor performance.
The technology sector as a whole made strong advances and pharmaceutical
companies generally performed well as new drug introductions and aggressive
marketing helped push earnings and stock prices higher.
Declining interest rates improved earnings prospects for many companies in the
latter half of the year, and subdued inflation also helped strengthen the stock
market's advance. Despite international tensions and impeachment action against
President Clinton, the stock market remained relatively strong at the end of the
year.
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.
- --------------------------------------------------------------------------------
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested.
(+) "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. The S&P 500
is an unmanaged index and is considered to be generally representative of
the U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment cannot be made directly into an
index.
22
<PAGE> 25
HOW DID THE MAINSTAY INSTITUTIONAL GROWTH EQUITY FUND PERFORM IN THIS MARKET
ENVIRONMENT?
Quite well. The MainStay Institutional Growth Equity Fund returned 40.50% for
Institutional Class shares and 40.18% for Service Class shares for the one-year
period ended 12/31/98. Both share classes outperformed the average Lipper growth
fund, which returned 22.86% for the year, and the S&P 500 Index, which returned
28.58% in 1998.
HOW DID THE FUND MANAGE TO DO SO WELL?
A number of factors contributed positively to the Fund's performance, but we
believe the most important factor was sticking to our strict investment
disciplines. In investing the Fund's assets, we seek companies with strong
growth prospects, considering factors such as steady revenue growth and
increasing earnings per share. The Fund's emphasis on large-capitalization
companies helped performance during the volatile market environment of 1998, as
these were the stocks most investors favored when problems in foreign markets
caused a flight to quality. We also reduced the Fund's positions in sectors we
felt were weak, such as energy. By concentrating on winners and largely avoiding
losers, the Fund had an excellent year.
WHICH SECTORS CONTRIBUTED MOST STRONGLY TO PERFORMANCE?
We don't spend a lot of time on sector weightings. Instead, we choose stocks for
the Fund based on their individual merits after extensive quantitative analysis
and fundamental research. As a result of the Fund's selection process, we found
a number of technology stocks that we believed had strong growth potential and
they contributed to the Fund's significant outperformance. The Fund was
overweighted in technology stocks through all four quarters of 1998.
Pharmaceutical stocks also had an excellent year, and the Fund had a number of
holdings that did well. New drug introductions, direct-to-consumer advertising,
and a long pipeline of FDA-approved drugs awaiting release helped advance the
sector as a whole.
Consumer staples as a group showed relatively weak performance in 1998, as many
global consumer product companies faced pressure from the emerging markets. The
Fund did not own many of these stocks. Instead, the Fund was more concentrated
in relatively defensive, purely domestic companies in this sector, such as
supermarkets, which performed well at a time when the market seemed to prefer
stable growth and relatively predictable earnings. The supermarket industry is
rapidly consolidating, which has helped improve margins and profits.
CAN YOU GIVE SOME EXAMPLES OF TECHNOLOGY STOCKS THAT DID WELL?
Certainly. Lucent Technologies was the Fund's best-performing stock in 1998 and
also its largest holding. The company has done exceedingly well, with the value
of the Fund's position almost tripling during the year. Cisco Systems is another
technology stock that showed outstanding performance, with an increase of
149%(++) in 1998.
In January, the Fund purchased EMC Corp., a stock it had owned and sold a few
years ago. The company is a leader in corporate data storage systems, hardware,
and software. We believed EMC had excellent potential, based on increasing
dominance in the company's market sector and rapidly accelerating earnings. The
Fund's position almost doubled in value during the year.
Compuware Corp. is a computer software company that was also among the Fund's
best-performing stocks, and it more than doubled in value during the year.
- --------------------------------------------------------------------------------
(++) Returns reflect performance for the one-year period ended 12/31/98.
EARNINGS PER SHARE The portion of a company's profit allocated to each share of
outstanding common stock.
FLIGHT TO QUALITY When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, or market
concerns that suggest lower-quality securities or those that are less liquid are
likely to be more vulnerable to negative market events.
WEIGHTING The proportion of a portfolio allocated to a specific security or
sector, i.e., a fund is said to be overweighted in a sector when that portion
of the portfolio is greater than the sector's general relationship to the market
as a whole.
23
<PAGE> 26
DID ALL OF THE FUND'S TECHNOLOGY STOCKS DO THAT WELL?
No, the Fund held a few issues that showed relatively weak performance. Computer
Associates is an example. The company's management team announced that it might
have difficulty closing some large contracts, which led to lower earnings
expectations. As a result, Computer Associates was among the worst-performing
stocks in the Fund's investment portfolio in 1998, returning -25% for the year.
WHAT ABOUT PHARMACEUTICAL STOCKS?
Given the positive fundamentals in the pharmaceutical industry and the high unit
volume growth these companies can generate in a low-inflation environment,
pharmaceuticals were generally excellent performers. Stand-out companies among
drug stocks included Eli Lilly, a stock the Fund has held for some time, and
Schering-Plough Corp., which was up sharply in 1997 also. Schering-Plough's
product for allergy sufferers, Claritin, boosted sales and earnings to record
levels and helped the stock almost double in value in 1998. Overall,
pharmaceutical stocks accounted for a substantial portion of the Fund's positive
total return. During the year, we also increased the Fund's position in Merck, a
major drug company profiting from successful products such as Fosamax,
Singulair, and many others. The stock increased 39% over the course of the year,
contributing positively to performance. Although we increased the Fund's
position in Pfizer, our timing could have been better. In the first half of the
year, many investors were selling the stock to take profits after the release of
its drug Viagra. Since the Fund seeks long-term capital appreciation, however,
we looked at the company's fundamentals and continued to hold the stock in the
Fund's portfolio, which had a modestly positive impact for the year.
DID THE FUND REMAIN OVERWEIGHTED IN FINANCIAL STOCKS IN 1998?
No, over the course of the year, we decreased the Fund's weighting in financial
stocks for a number of reasons. First, we believed that growth was slowing in
the financial sector. Second, the huge mergers in the financial industry
produced companies that were more difficult to analyze and evaluate.
The NationsBank merger with BankAmerica is a good example. The merger agreement
had barely been completed when BankAmerica announced it would take a large
write-off because of exposure to a faltering hedge fund. Since the stock no
longer fit the Fund's growth criteria and risk profile, we sold the Fund's
position, which had a slightly negative impact.
Another mega merger in the financial sector was Travelers and Citicorp joining
to form Citigroup. With management facing a substantial reorganization in an
uncertain financial environment, we decided to cut back on our holdings in
Citigroup in October, which had a negative impact on performance.
We also sold the Fund's holdings in MGIC Investment Corp., a mortgage lender
that saw decelerating growth as interest rates dropped in the second half of the
year. The decision was positive for the Fund, and allowed us to invest in more
profitable securities. Washington Mutual was another stock sold to reduce the
Fund's financial holdings. The stock had appreciated significantly over the last
few years, and we decided to take profits when the company's earnings growth
rate slowed. The impact on the Fund's performance for 1998 was slightly
negative.
Not all of the Fund's financial holdings underperformed. SunAmerica was one of
the Fund's best performers in 1998, as news of its sale to AIG propelled its
stock price to new highs. At year end, the Fund had a weighting similar to that
of the S&P 500 in the financial sector.
WHAT WERE SOME OF THE MAJOR PURCHASES THE FUND MADE DURING THE YEAR?
In addition to the purchases already mentioned, the Fund purchased Fred Meyer, a
large supermarket chain. We liked the company's fundamentals and believed it
might benefit from consolidation in the supermarket
MERGERS AND ACQUISITIONS A merger is a combination of two companies, an
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
24
<PAGE> 27
industry. The Fund bought the stock midyear at an average price of about $40,
and shortly after we bought it, the company announced that it would be acquired
by Kroger, another of the Fund's investments. By the end of the year, Fred Meyer
stock was trading around $60, for an increase of about 50% from the Fund's
purchase price.
In the second quarter, the Fund purchased Colgate-Palmolive. The company has a
long record of stable growth and was having success with its launch of Total
toothpaste in the U.S. in early 1998. Despite the company's international
exposure, we believed it could still produce strong earnings advances due to the
diversity of its revenue streams and the cost-cutting program it had underway.
For the year, the stock was up 28%, which was in line with the S&P 500 Index.
As new money came into the Fund over the course of the year, we used much of it
to add to the Fund's most successful positions, including Lucent Technologies,
Cisco Systems, EMC Corp., and others. So our buying strategy paralleled our
investment strategy of sticking with the winners in the Fund's investment
portfolio.
WERE ALL OF THE FUND'S PURCHASES EQUALLY SUCCESSFUL?
No. The Fund purchased HBO & Company, a leading provider of health care software
systems, during the third quarter of 1998. The company looked attractive given
its size, market share, and growth rate. But shortly after the Fund purchased
the stock, the company decided to merge with McKesson, a leading drug
distributor. Miscommunication about the merger caused the stock to underperform
the market. Although the stock provided a positive return, on a relative basis,
it had a negative impact on the Fund's performance.
WHAT ELSE DID THE FUND SELL DURING 1998?
Perhaps the Fund's most significant sales were in the energy sector. In light of
declining oil prices and weakening prospects for oil services companies, we sold
the Fund's positions in Diamond Offshore, Halliburton, and ENSCO. Since the
impact of energy service stocks was almost uniformly negative in 1998, we viewed
the sales as positive for the portfolio, even though the Fund lost a modest
amount of money on each of these transactions. The wisdom of reallocating the
assets was further underscored as oil prices continued to decline.
The Fund also sold toy maker Mattel during the first half of the year as
fundamentals deteriorated. We were pleased to sell the Fund's position at a gain
over its original purchase price, although the sale had a slightly negative
impact on the Fund's performance in 1998. Later developments at the company
confirmed that the Fund's sale of this position was a good decision.
DID THE FUND MAKE OTHER SIGNIFICANT SALES?
Yes. The Fund sold Tenet Healthcare Corp. and United Healthcare Corp., both of
which were experiencing decelerating earnings growth rates. Tenet is a large
hospital chain that is grappling with lower medicare reimbursements. United
Healthcare, like many HMOs, is battling rising medical costs and an inability to
smoothly integrate acquisitions. We believe both sales were positive for the
Fund because they freed up cash, allowing us to pursue other investment
opportunities.
Adaptec is a technology company the Fund sold at a loss, after the Asian crisis
and slower earnings growth undercut the fundamental reasons for owning the
stock. The stock continued to decline even further throughout most of the year.
So again, we consider the decision a positive one for the Fund's shareholders.
Hewlett-Packard was a long-standing position in the Fund that simply failed to
live up to earnings expectations. The Fund sold the stock at a huge gain over
its original cost, but at a slight loss for the year.
WHICH STOCKS WERE THE FUND'S WORST PERFORMERS IN 1998?
By far the worst stock was Cendant, which was plagued by news of accounting
irregularities at its merger partner, CUC International. The stock, which was a
major holding, was down nearly 44% for the year. As of year end, the Fund
continued to own Cendant stock as we believe the market has overpenalized a
company that is exhibiting strong operating momentum and generating $1.5 billion
of free cash flow.
Other poor performers included HEALTHSOUTH, a nationwide rehabilitation and
outpatient surgery company, which surprised the market by missing third quarter
earnings projections and preannouncing that problems would continue in 1999.
Conseco is an insurance company that acquired Green Tree Financial and suffered
from negative perceptions of its top management. Despite these and a few other
weak performers, the Fund was still able to outperform the market by a
substantial margin.
25
<PAGE> 28
WERE THERE OTHER ASPECTS OF THE FUND'S MANAGEMENT THAT HELPED OR HURT
PERFORMANCE?
Our focus during the year was primarily on the kinds of stocks the market
wanted--large-capitalization issues with consistent growth records and
relatively dependable and predictable earnings. While we couldn't predict the
problems in Russia or Brazil, we have always believed that stocks with superior
fundamentals are likely to get stronger on a relative basis when macroeconomic
problems arise. While we also couldn't predict specific company shortfalls, we
believe the Fund's diversification and stock selection process helped contribute
to excellent performance in 1998.
WERE THERE SPECIFIC WAYS YOU SOUGHT TO MANAGE THE FUND'S RISK DURING THE YEAR?
Selling the Fund's energy stocks was one step we took, with a positive overall
impact on performance. We also avoided a heavy overweighting in technology.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to view the markets as highly volatile and generally unpredictable.
So instead of trying to time our investments or dodge and weave with the market,
we will continue to select companies with strong growth characteristics and
solid performance records. The Fund invests for the long-term and we believe the
market is willing to pay a premium for companies that can show consistent growth
potential over time. Despite one of the most tumultuous markets in history, we
view 1998 as a confirmation of the Fund's approach to seeking long-term growth
of capital, with dividend income, if any, as an incidental consideration.
EDMUND SPELMAN
RUDOLPH CARRYL
Portfolio Managers
MacKay-Shields Financial Corporation
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
26
<PAGE> 29
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Growth Equity Fund S&P 500 Index
-------------------- -------------
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 12560.00 11453.00
6/30/91 12100.00 11427.00
9/30/91 14680.00 12038.00
12/31/91 16700.00 13047.00
3/31/92 16369.00 12717.00
6/30/92 14175.00 12958.00
9/30/92 14738.00 13366.00
12/31/92 17640.00 14040.00
3/31/93 17434.00 14654.00
6/30/93 17663.00 14726.00
9/30/93 19168.00 15105.00
12/31/93 19333.00 15456.00
3/31/94 19064.00 14870.00
6/30/94 17735.00 14933.00
9/30/94 19453.00 15663.00
12/31/94 18901.00 15660.00
3/31/95 20628.00 17185.00
6/30/95 22729.00 18826.00
9/30/95 25437.00 20323.00
12/31/95 26062.00 21546.00
3/31/96 28040.00 22703.00
6/30/96 28939.00 23723.00
9/30/96 30793.00 24456.00
12/31/96 31696.00 26493.00
3/31/97 30355.00 27203.00
6/30/97 35905.00 31955.00
9/30/97 39537.00 34345.00
12/31/97 39535.00 35331.00
3/31/98 45303.00 40260.00
6/30/98 47200.00 41588.00
9/30/98 43407.00 37450.00
12/31/98 55548.00 45427.00
Growth Equity Fund -- S&P 500
Source: Lipper Analytical Services, Inc.
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
GROWTH EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Growth Equity Fund S&P 500 Index
- -------- ----- -----
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 12560.00 11453.00
6/30/91 12100.00 11427.00
9/30/91 14680.00 12038.00
12/31/91 16700.00 13047.00
3/31/92 16369.00 12717.00
6/30/92 14175.00 12958.00
9/30/92 14738.00 13366.00
12/31/92 17640.00 14040.00
3/31/93 17434.00 14654.00
6/30/93 17663.00 14726.00
9/30/93 19168.00 15105.00
12/31/93 19333.00 15456.00
3/31/94 19064.00 14870.00
6/30/94 17735.00 14933.00
9/30/94 19453.00 15663.00
12/31/94 18901.00 15660.00
3/31/95 20615.00 17185.00
6/30/95 22701.00 18826.00
9/30/95 25381.00 20323.00
12/31/95 25990.00 21546.00
3/31/96 27939.00 22703.00
6/30/96 28810.00 23723.00
9/30/96 30649.00 24456.00
12/31/96 31523.00 26493.00
3/31/97 30169.00 27203.00
6/30/97 35658.00 31955.00
9/30/97 39246.00 34345.00
12/31/97 39245.00 35331.00
3/31/98 44936.00 40260.00
6/30/98 46786.00 41588.00
9/30/98 43008.00 37450.00
12/31/98 55012.00 45427.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Equity Fund Institutional Class 40.50% 40.50% 23.50% 23.89%
Growth Equity Fund Service Class(+) 40.18% 40.18% 23.26% 23.74%
Average Lipper Growth Fund 22.86% 22.86% 18.63% 18.66%
S&P 500 Stock Index 28.58% 28.58% 24.06% 20.83%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year End 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return%* 67.00% 5.63% 9.59% -2.23% 37.83% 21.62% 24.73% 40.50%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[Pie Chart] Common Stocks Cash, Equivalents & 1. Cisco Systems, Inc. 3.45%
Other Assets 2. Tyco International Ltd. 3.43%
97.23% 2.77%(++) 3. Lucent Technologies Inc. 3.41%
4. EMC Corp. 3.22%
5. Sun Microsystems 3.21%
6. Lily (Eli) & Co. 3.08%
7. Compuware Corp. 3.05%
8. Safeway Inc. 3.00%
9. MCI WorldCom, Inc. 2.96%
10. Schering-Plough Corp. 2.93%
TOP 5 INDUSTRY
HOLDINGS
(% of net assets as of December 31, 1998)
-------------------------------------------------
<C> <C>
1. Retail 18.22%
2. Computer Software & Services 10.53%
3. Health Care -- Drugs 10.21%
4. Financial -- Miscellaneous 7.93%
5. Communications -- Equipment 6.86%
</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%
on an annualized basis of the average daily net asset value of the Service
Class shares.
(+) 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.
27
<PAGE> 30
GROWTH EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (97.2%)+
SHARES VALUE
--------------------------
<S> <C> <C>
BANKS (1.8%)
SouthTrust Corp. ................ 132,500 $ 4,894,219
Wells Fargo & Co. ............... 322,600 12,883,837
------------
17,778,056
------------
BROADCAST/MEDIA (2.5%)
Chancellor Media Corp. (a)....... 233,000 11,154,875
Clear Channel Communications,
Inc. (a)........................ 198,700 10,829,150
Fox Entertainment Group, Inc.
(a)............................. 120,000 3,022,500
------------
25,006,525
------------
CHEMICALS (0.9%)
Monsanto Co. .................... 186,900 8,877,750
------------
COMMUNICATIONS--EQUIPMENT (6.9%)
Cisco Systems, Inc. (a).......... 368,325 34,185,164
Lucent Technologies Inc. ........ 307,400 33,814,000
------------
67,999,164
------------
COMPUTER SOFTWARE & SERVICES (10.5%)
Computer Associates
International, Inc. ............ 190,100 8,103,012
Compuware Corp. (a).............. 387,300 30,257,813
Equifax Inc. .................... 251,000 8,581,063
HBO & Co. ....................... 458,300 13,147,481
Microsoft Corp. (a).............. 200,000 27,737,500
Oracle Corp. (a)................. 383,625 16,543,828
------------
104,370,697
------------
COMPUTER SYSTEMS (6.4%)
EMC Corp. (a).................... 375,700 31,934,500
Sun Microsystems (a)............. 371,000 31,766,875
------------
63,701,375
------------
CONSUMER FINANCE (1.4%)
Providian Financial Corp. ....... 182,550 13,691,250
------------
ELECTRONICS--SEMICONDUCTORS (1.9%)
Intel Corp. ..................... 156,200 18,519,462
------------
FINANCIAL--MISCELLANEOUS (7.9%)
Associates First Capital Corp.
Class A......................... 457,800 19,399,275
Citigroup Inc. .................. 263,197 13,028,252
Fannie Mae....................... 156,300 11,566,200
Freddie Mac...................... 126,700 8,164,231
SunAmerica Inc. ................. 325,700 26,422,412
------------
78,580,370
------------
HEALTH CARE DISTRIBUTORS (1.8%)
Cardinal Health Inc. ............ 235,950 17,902,706
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------------------
<S> <C> <C>
HEALTH CARE--DRUGS (10.2%)
Elan Corp. PLC ADR (a) (b)....... 203,000 $ 14,121,188
Lilly (Eli) & Co. ............... 343,000 30,484,125
Merck & Co., Inc. ............... 97,600 14,414,300
Pfizer Inc. ..................... 104,100 13,058,044
Schering-Plough Corp. ........... 525,800 29,050,450
------------
101,128,107
------------
HEALTH CARE--MEDICAL PRODUCTS (5.5%)
Guidant Corp. ................... 245,400 27,055,350
Medtronic, Inc. ................. 373,600 27,739,800
------------
54,795,150
------------
HEALTH CARE--MISCELLANEOUS (3.0%)
HEALTHSOUTH Corp. (a)............ 504,500 7,788,219
Johnson & Johnson................ 258,104 21,648,473
------------
29,436,692
------------
HOUSEHOLD PRODUCTS (1.7%)
Colgate-Palmolive Co. ........... 176,000 16,346,000
------------
INSURANCE (2.6%)
American International Group,
Inc. ........................... 176,837 17,086,875
Conseco, Inc. ................... 294,100 8,988,431
------------
26,075,306
------------
LEISURE TIME (1.9%)
Harley-Davidson, Inc. ........... 398,000 18,855,250
------------
MANUFACTURING--DIVERSIFIED (4.4%)
Illinois Tool Works Inc. ........ 155,500 9,815,938
Tyco International Ltd. ......... 450,400 33,977,050
------------
43,792,988
------------
POLLUTION CONTROL (1.3%)
Waste Management, Inc. .......... 277,900 12,957,088
------------
RETAIL (18.2%)
Bed Bath & Beyond, Inc. (a)...... 409,400 13,970,775
CVS Corp. ....................... 366,300 20,146,500
Dollar General Corp. ............ 375,496 8,871,093
Fred Meyer, Inc. (a)............. 248,500 14,972,125
Home Depot, Inc. (The)........... 458,900 28,078,944
Kohl's Corp. (a)................. 380,000 23,346,250
Kroger Co. (a)................... 284,200 17,194,100
Safeway Inc. (a)................. 488,200 29,749,687
Staples, Inc. (a)................ 554,000 24,202,875
------------
180,532,349
------------
</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.
28
<PAGE> 31
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
--------------------------
<S> <C> <C>
SPECIALIZED SERVICES (3.4%)
Cendant Corp. (a)................ 706,910 $ 13,475,472
IMS Health Inc. ................. 138,300 10,433,006
Service Corp. International...... 256,000 9,744,000
------------
33,652,478
------------
TELECOMMUNICATIONS--LONG DISTANCE (3.0%)
MCI WorldCom, Inc. (a)........... 409,088 29,352,064
------------
Total Common Stocks
(Cost $437,523,375)............. 963,350,827
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (2.0%)
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (2.0%)
American Express Credit Corp.
5.85%, due 1/5/99............... $ 8,000,000 7,994,798
General Electric Capital Corp.
5.60%, due 1/11/99.............. 8,000,000 7,987,540
Xerox Credit Corp.
5.10%, due 1/4/99............... 4,125,000 4,123,247
------------
Total Short-Term Investments
(Cost $20,105,585).............. 20,105,585
------------
Total Investments
(Cost $457,628,960) (c)......... 99.2% 983,456,412(d)
Cash and Other Assets,
Less Liabilities................ 0.8 7,368,063
---------- ----------
Net Assets....................... 100.0% $990,824,475
==========- ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(d) At December 31, 1998, net unrealized appreciation was $525,827,452 , 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 $531,599,990 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $5,772,538.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
29
<PAGE> 32
GROWTH EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $457,628,960)..... $ 983,456,412
Cash................................. 73
Receivables:
Investment securities sold......... 5,743,260
Fund shares sold................... 4,562,381
Dividends.......................... 180,413
Other assets......................... 3,208
--------------
Total assets................... 993,945,747
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 2,290,422
MainStay Management................ 673,079
Transfer agent..................... 28,621
Custodian.......................... 26,954
Accrued expenses..................... 102,196
--------------
Total liabilities.............. 3,121,272
--------------
Net assets........................... $ 990,824,475
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 29,121
Institutional Service Class........ 477
Additional paid-in capital........... 455,080,954
Accumulated undistributed net
realized gain on investments....... 9,886,471
Net unrealized appreciation on
investments........................ 525,827,452
--------------
Net assets........................... $ 990,824,475
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 975,010,316
==============
Shares of capital stock
outstanding........................ 29,121,360
==============
Net asset value per share
outstanding........................ $ 33.48
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 15,814,159
==============
Shares of capital stock
outstanding........................ 477,407
==============
Net asset value per share
outstanding........................ $ 33.13
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 4,019,977
Interest........................... 1,142,273
--------------
Total income................... 5,162,250
--------------
Expenses:
Management......................... 6,963,032
Transfer agent..................... 316,855
Shareholder communication.......... 128,545
Professional....................... 110,624
Custodian.......................... 75,784
Registration....................... 45,413
Service............................ 31,342
Directors.......................... 19,761
Miscellaneous...................... 42,847
--------------
Total expenses................. 7,734,203
--------------
Net investment loss.................. (2,571,953)
--------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments..... 62,407,353
Net change in unrealized appreciation
on investments..................... 227,097,694
--------------
Net realized and unrealized gain on
investments........................ 289,505,047
--------------
Net increase in net assets resulting
from operations.................... $ 286,933,094
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $3,124.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
30
<PAGE> 33
MAINSTAY
INSTITUTIONAL FUNDS INC.
GROWTH EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss..................................... $ (2,571,953) $ (2,035,692)
Net realized gain on investments........................ 62,407,353 58,052,272
Net change in unrealized appreciation on investments.... 227,097,694 84,067,993
-------------- --------------
Net increase in net assets resulting from operations.... 286,933,094 140,084,573
-------------- --------------
Distributions to shareholders:
From net realized gain on investments:
Institutional Class................................... (60,369,694) (49,601,396)
Institutional Service Class........................... (994,776) (761,884)
-------------- --------------
Total distributions to shareholders................. (61,364,470) (50,363,280)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 135,442,134 191,569,771
Institutional Service Class........................... 3,436,490 3,838,239
Net asset value of shares issued to shareholders in
reinvestment of distributions:
Institutional Class................................... 60,366,383 49,596,146
Institutional Service Class........................... 900,466 691,022
-------------- --------------
200,145,473 245,695,178
Cost of shares redeemed:
Institutional Class................................... (142,993,936) (170,865,746)
Institutional Service Class........................... (2,633,729) (1,866,670)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 54,517,808 72,962,762
-------------- --------------
Net increase in net assets............................ 280,086,432 162,684,055
NET ASSETS:
Beginning of year......................................... 710,738,043 548,053,988
-------------- --------------
End of year............................................... $ 990,824,475 $ 710,738,043
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
31
<PAGE> 34
GROWTH EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 25.43 $ 25.24
---------- ----------
Net investment income (loss)................................ (0.09)(a) (0.16)(a)
Net realized and unrealized gain (loss) on investments...... 10.35 10.26
---------- ----------
Total from investment operations............................ 10.26 10.10
---------- ----------
Less dividends and distributions:
From net investment income.................................. -- --
From net realized gain on investments....................... (2.21) (2.21)
In excess of net investment income.......................... -- --
In excess of net realized gain on investments............... -- --
---------- ----------
Total dividends and distributions........................... (2.21) (2.21)
---------- ----------
Net asset value at end of year.............................. $ 33.48 $ 33.13
========== ==========
Total investment return..................................... 40.50% 40.18%
Ratios (to average net assets)/Supplemental Data:
Net investment income (loss).............................. (0.31%) (0.56%)
Net expenses.............................................. 0.94% 1.19%
Portfolio turnover rate..................................... 29% 29%
Net assets at end of year (in 000's)........................ $ 975,010 $ 15,814
</TABLE>
- ------------
(a) Per share data based on average shares outstanding during the period.
(b) Less than one cent per share.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
32
<PAGE> 35
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 21.99 $ 21.88 $ 18.84 $ 18.80 $ 13.68 $ 13.68 $ 14.40
-------- -------- -------- -------- -------- -------- --------
(0.08)(a) (0.14)(a) (0.06)(a) (0.11)(a) 0.02 (0.01) 0.01
5.45 5.43 4.14 4.12 5.16 5.14 (0.33)
-------- -------- -------- -------- -------- -------- --------
5.37 5.29 4.08 4.01 5.18 5.13 (0.32)
-------- -------- -------- -------- -------- -------- --------
-- -- -- -- (0.02) (0.01) (0.01)
(1.93) (1.93) (0.93) (0.93) -- -- (0.39)
-- -- -- -- (0.00)(b) (0.00)(b) --
-- -- -- -- (0.00)(b) (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------- -------- --------
(1.93) (1.93) (0.93) (0.93) (0.02) (0.01) (0.40)
-------- -------- -------- -------- -------- -------- --------
$ 25.43 $ 25.24 $ 21.99 $ 21.88 $ 18.84 $ 18.80 $ 13.68
======== ======== ======== ======== ======== ======== ========
24.73% 24.50% 21.62% 21.29% 37.88% 37.50% (2.23%)
(0.31%) (0.56%) (0.27%) (0.52%) 0.12% (0.13%) 0.04%
0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92%
36% 36% 22% 22% 33% 33% 37%
$700,070 $ 10,668 $541,212 $ 6,842 $412,129 $ 2,729 $284,388
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
33
<PAGE> 36
INDEXED EQUITY FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
1998 MARKET RECAP
- - The U.S. economy continued to expand in a favorable environment of generally
solid corporate earnings growth, low interest rates, and extraordinarily tame
inflation.
- - In the third quarter, however, an economic collapse in Russia, a weakening
economic outlook in Latin America, and ongoing economic woes in Asia combined
with lower corporate profits and expectations of slower growth in the U.S. to
cause U.S. equity markets to tumble.
- - Fears of global recession and financial market instability prompted the
Federal Reserve Board to move to lower interest rates 0.25% three separate
times beginning in late September. This provided an enormous psychological
boost that set the stage for the equity markets' unexpectedly speedy rebound
in the fourth quarter.
- ------------------------------------------------------
1998 FUND RECAP
- - The MainStay Institutional Indexed Equity Fund returned 28.62% for
Institutional Class shares and 28.24% for Service Class shares for the
one-year period ended 12/31/98.
- - The Fund closely tracked the 28.58% return of the S&P 500(*) Index and
exceeded the 14.52% return of the average Lipper(+) general equity fund for
the one-year period ended 12/31/98.
- - Buoyed by positive investor sentiment toward their higher liquidity and
relative safe haven status, the large-capitalization stocks of which the Fund
is composed outperformed their mid- and small-capitalization counterparts
which returned 19.11% and -1.32%, respectively, based on the performance of
the S&P 400 MidCap(++) and S&P 600 SmallCap(sec.) Indexes, respectively.
- - Both share classes outperformed the average Lipper S&P 500 Index objective
fund, which returned 28.05% for the one-year period ended 12/31/98.
- - Both Institutional Class Shares and Service Class shares earned a five-star
rating from Morningstar(#) based on overall performance as of 12/31/98.
- --------------------------------------------------------------------------------
* "S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has
been licensed for use by Monitor Capital Advisors, Inc. Standard & Poor's
does not sponsor, endorse, sell, or promote the Fund or represent the
advisability of investing in the Indexed Equity Fund. The S&P 500 is an
unmanaged index and is considered to be generally representative of the
U.S. stock market. Results assume the reinvestment of all income and
capital gain distributions. An investment may not be made directly into
the S&P 500 Index.
(+) Lipper Inc. is an independent monitor of mutual fund performance. Results
do not reflect any deduction of sales charges and are based on total
returns with capital gains and dividends reinvested.
(++) S&P 400 MidCap Index is an unmanaged index consisting of 400 domestic
stocks chosen for market size, liquidity, and industry group
representation. It is a market-value weighted index that represents
approximately 10% of the aggregate market value of U.S. domestic
companies.
(sec.)S&P 600 SmallCap Index is an unmanaged capitalization-weighted index that
measures the performance of selected stocks with small-market
capitalizations.
(#) 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 12/31/98, the individual 3- and 5-year ratings for the MainStay
Institutional Indexed Equity Fund Institutional Class shares were 5 stars
out of 2,802 and 1,702 domestic equity funds. The Fund's Service Class
shares, introduced 1/1/95, received a 3-year rating of 5 stars out of
2,802 domestic equity funds for the period.
34
<PAGE> 37
Overall in 1998, tame inflation and a corresponding drop in interest rates had
a positive impact on stock prices, with the S&P 500 Index returning 28.58% for
the one-year period ended 12/31/98. Against a backdrop of above-average
corporate productivity, falling producer prices (i.e. the cost of raw
materials), and heavy consumer spending, the market for large-capitalization
stocks managed to post its fourth consecutive annual gain in excess of 20%.
Giant mergers among the telecommunications, financial services, and heavy
industry sectors made headlines throughout the year.
During the first six months of the year, the S&P 500 climbed even as volatility
increased, crossing the 1,000 mark for the first time in February 1998. As fears
of a tightening by the Federal Reserve Board mounted during the second quarter,
the markets began a roller-coaster ride of volatility that began in April and
continued through June. Lower corporate profits, expectations of slower U.S.
corporate growth, and the General Motors strike helped cause stocks to tumble in
a July sell-off. Bad news continued in August, as Russia devalued its currency
and defaulted on its debt, weak commodity prices helped to dampen the outlook
for Latin America, and ongoing economic instability in Asia generally impacted
markets worldwide. Declining consumption in these regions and their inexpensive
exports to the United States put considerable downward pressure on corporate
profitability. An impending credit crunch, political infighting, and the
collapse of a high-profile hedge fund only added to investor concerns. The
result of all this--the S&P 500's total return in August was one of the ten
worst since the Index's inception.
The S&P 500 Index scored tremendous gains early in September, which helped it to
quickly recover more than half of its August losses before faltering toward the
end of the month. Frustrated by a smaller-than-expected 0.25% interest-rate cut
by the Federal Reserve Board at the end of September, the markets tumbled once
again, only to roar back as the Federal Reserve rapidly cut rates 0.25% twice
more in the fourth quarter. We believe this evidence of commitment to
maintaining global financial stability--along with a lack of panic among
small-market investors after the summer plunge--was all the markets needed to
spark a powerful rally that fueled the strongest fourth-quarter returns in some
twenty years for most of the major U.S. large-cap equity indexes. The quarter
was led by the technology sector in general and Internet-related stocks in
particular.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY INSTITUTIONAL INDEXED EQUITY FUND
PERFORM IN 1998?
The MainStay Institutional Indexed Equity Fund returned 28.62% for Institutional
Class shares and 28.24% for Service Class shares for the one-year period ended
12/31/98. Both share classes outperformed the average Lipper S&P 500 Index
objective fund, which returned 28.05% for the year, and significantly
outperformed the average Lipper general equity fund, which returned 14.52%.
DID THE FUND'S PORTFOLIO COMPOSITION CHANGE DURING THE YEAR?
It did. The S&P 500 Index is not static. Mergers, acquisitions, spin-offs, and
the success and failure of some companies can impact which companies are
included in the Index--and their relative weightings. During 1998, an abundance
of giant corporate mergers changed the composition of the S&P 500 Index, and
thus the Fund's portfolio. Specifically, at year end, there were 48 changes to
the S&P 500, over 75% of which were due to mergers and acquisitions.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
FEDERAL RESERVE BOARD The seven-member governing board of the Federal Reserve
System, which is the central bank of the United States. The Board sets policies
on reserve requirements, establishes bank regulations, sets the discount rate,
tightens or loosens the availability of credit in the economy, and regulates the
purchase of securities on margin.
DEVALUATION A lowering of the value of a country's currency relative to gold
and/or the currencies of other nations. Devaluation can also result from a rise
in the value of other currencies relative to the currency of a particular
country.
MERGERS AND ACQUISITIONS A merger is a combination of two companies, an
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
SPIN-OFF A form of corporate divestiture that results in a subsidiary or
division becoming an independent company.
35
<PAGE> 38
WHICH WERE THE FUND'S MOST SIGNIFICANT PURCHASES AND SALES DURING THE ANNUAL
PERIOD?
All purchases and sales were executed in an attempt to invest in stocks in the
same proportions as they are represented in the S&P 500. Significant purchases
included America Online, General Electric, Microsoft, Coca-Cola, Exxon, Intel,
AT&T, Merck, Pfizer, and Safeway. Significant sales included Amoco, Chrysler,
General Re, General Electric, MCI WorldCom, Exxon, IBM, Abercrombie & Fitch,
Microsoft, and Intel.
WHICH OF THE FUND'S INDIVIDUAL STOCKS SHOWED THE BEST PERFORMANCE DURING 1998?
America Online generated the single highest gain for the year, rising 586%.(//)
Other strong performers included Dell Computer, up 249%; Apple Computer, up
212%; EMC Corp., up 210%; Lucent Technology, up 175%; Ascend Communications, up
168%; Cisco Systems, up 150%; Providian Financial, up 149%; Unisys Corp., up
148%; and Compuware, which rose 144%.
WHICH INDIVIDUAL STOCKS RECORDED THE WORST PERFORMANCE DURING 1998?
Harnischfeger was the worst-performing stock in the S&P 500, with a decline of
71%. IKON Office Solutions fell 70%; Rowan Companies fell 68%; Case Corp. was
down 64%; and Union Pacific Resources declined 63% for the year.
WHAT IS YOUR OUTLOOK FOR THE FUTURE?
Stocks are inherently risky investments. While they historically have provided
investors with attractive returns and outperformed all other major asset classes
over the long term, investors must be aware that over shorter periods of time,
their prices may fluctuate in value, often dramatically.
The objective of the MainStay Institutional Indexed Equity Fund is to seek 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 S&P 500. As a result, we do not respond to nor evaluate
changing market and economic conditions. Nor do we manage according to a given
outlook for the equity markets or the economy in general.
However, it seems unlikely that stock market returns can continue at the levels
we have seen in recent years. As 1998 has once again proved, equity markets are
unpredictable, particularly in the short term, and no one can know with absolute
certainty whether the markets will rise or fall in 1999. That's why we feel it
is important for investors to keep focused on their long-term goals despite
short-term volatility.
JAMES A. MEHLING, CFA
Portfolio Manager
Monitor Capital Advisors, Inc.
- --------------------------------------------------------------------------------
() Past performance is no guarantee of future results.
(//) Returns reflect performance for the one-year period ended 12/31/98.
36
<PAGE> 39
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED EQUITY FUND VS S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Institutional Class Shares S&P 500 Index
-------------------------- -------------
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 11440.00 11453.00
6/30/91 11390.00 11427.00
9/30/91 11990.00 12038.00
12/31/91 12980.00 13047.00
3/31/92 12645.00 12717.00
6/30/92 12872.00 12958.00
9/30/92 13264.00 13366.00
12/31/92 13913.00 14040.00
3/31/93 14494.00 14654.00
6/30/93 14537.00 14726.00
9/30/93 14888.00 15105.00
12/31/93 15222.00 15456.00
3/31/94 14618.00 14870.00
6/30/94 14662.00 14933.00
9/30/94 15365.00 15663.00
12/31/94 15359.00 15660.00
3/31/95 16846.00 17185.00
6/30/95 18424.00 18826.00
9/30/95 19854.00 20323.00
12/31/95 21024.00 21546.00
3/31/96 22145.00 22703.00
6/30/96 23112.00 23723.00
9/30/96 23796.00 24456.00
12/31/96 25768.00 26493.00
3/31/97 26441.00 27203.00
6/30/97 31044.00 31955.00
9/30/97 33321.00 34345.00
12/31/97 34241.00 35331.00
3/31/98 38988.00 40260.00
6/30/98 40254.00 41588.00
9/30/98 36254.00 37450.00
12/31/98 44041.00 45427.00
Indexed Equity Fund -- S&P 500 Index
Source: Lipper Analytical Services, Inc.
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED EQUITY FUND VS S&P 500 INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Service Class Shares S&P 500 Index
<S> <C> <C>
12.00/31/90 10000.00 10000.00
3.00/31/91 11440.00 11453.00
6.00/30/91 11390.00 11427.00
9.00/30/91 11990.00 12038.00
12.00/31/91 12980.00 13047.00
3.00/31/92 12645.00 12717.00
6.00/30/92 12872.00 12958.00
9.00/30/92 13264.00 13366.00
12.00/31/92 13913.00 14040.00
3.00/31/93 14494.00 14654.00
6.00/30/93 14537.00 14726.00
9.00/30/93 14888.00 15105.00
12.00/31/93 15222.00 15456.00
3.00/31/94 14618.00 14870.00
6.00/30/94 14662.00 14933.00
9.00/30/94 15365.00 15663.00
12.00/31/94 15359.00 15660.00
3.00/31/95 16846.00 17185.00
6.00/30/95 18413.00 18826.00
9.00/30/95 19843.00 20323.00
12.00/31/95 20995.00 21546.00
3.00/31/96 22104.00 22703.00
6.00/30/96 23047.00 23723.00
9.00/30/96 23707.00 24456.00
12.00/31/96 25659.00 26493.00
3.00/31/97 26306.00 27203.00
6.00/30/97 30874.00 31955.00
9.00/30/97 33121.00 34345.00
12.00/31/97 34024.00 35331.00
3.00/31/98 38701.00 40260.00
6.00/30/98 39924.00 41588.00
9.00/30/98 35941.00 37450.00
12.00/31/98 43632.00 45427.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Equity Fund Institutional Class 28.62% 28.62% 23.67% 20.34%
Indexed Equity Fund Service Class(+) 28.24% 28.24% 23.44% 20.20%
Average Lipper S&P 500 Index Fund 28.05% 28.05% 23.56% 20.71%
S&P 500 Stock Index 28.58% 28.58% 24.06% 20.83%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year end
1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
29.80% 7.19% 9.41% 0.90% 36.88% 22.57% 32.88% 28.62%
Total Return %*
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[Pie Chart] U.S. GOVERNMENT COMMON STOCKS 1. Microsoft Corp. 3.44%
0.38% 99.62% 2. General Electric Co. 3.33%
3. Intel Corp. 1.97%
4. Wal-Mart Stores, Inc. 1.83%
5. Exxon Corp. 1.77%
6. Merck & Co., Inc. 1.75%
7. International Business Machines Corp. 1.72%
8. Coca-Cola Co. (The) 1.64%
9. Pfizer Inc. 1.62%
10. Cisco Systems, Inc. 1.46%
TOP 5 INDUSTRY
HOLDINGS
(% of net assets as of December 31, 1998)
-------------------------------------------------
<C> <C>
1. Computer Software & Services 6.21%
2. Health Care -- Drugs 5.44%
3. Computer Systems 5.14%
4. Telephone 4.79%
5. Health Care -- Diversified 4.61%
-------------------------------------------------
</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%
on an annualized basis of the average daily net asset value of the Service
Class shares.
+ 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 indexes.
37
<PAGE> 40
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (99.6%)+
SHARES VALUE
----------------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.1%)
Boeing Co. (The)........... 150,184 $ 4,899,753
General Dynamics Corp. .... 19,114 1,120,558
Lockheed Martin Corp. ..... 29,465 2,497,159
Northrop Grumman Corp. .... 10,132 740,903
Raytheon Co. Class B....... 50,645 2,696,846
Rockwell International
Corp. .................... 28,864 1,401,708
United Technologies
Corp. .................... 33,920 3,688,800
--------------
17,045,727
--------------
AIRLINES (0.3%)
AMR Corp. (a).............. 27,613 1,639,522
Delta Air Lines, Inc. ..... 21,415 1,113,580
Southwest Airlines Co. .... 50,626 1,135,921
US Airways Group, Inc.
(a)....................... 13,098 681,096
--------------
4,570,119
--------------
ALUMINUM (0.2%)
Alcan Aluminum Ltd. ....... 34,458 932,520
Aluminum Co. of America.... 27,556 2,054,644
Reynolds Metals Co. ....... 9,695 510,805
--------------
3,497,969
--------------
AUTO PARTS & EQUIPMENT (0.2%)
Cooper Tire & Rubber
Co. ...................... 11,398 232,947
Genuine Parts Co. ......... 27,089 905,788
Goodyear Tire & Rubber Co.
(The)..................... 23,395 1,179,985
--------------
2,318,720
--------------
AUTOMOBILES (1.2%)
Ford Motor Co. ............ 181,878 10,673,965
General Motors Corp. ...... 98,315 7,035,667
--------------
17,709,632
--------------
BANKS--MAJOR REGIONAL (4.6%)
Bank of New York Co., Inc.
(The)..................... 114,288 4,600,092
Bank One Corp. ............ 175,983 8,986,132
BankBoston Corp. .......... 44,420 1,729,604
BB&T Corp. ................ 44,230 1,783,022
Comerica Inc. ............. 23,402 1,595,724
Fifth Third Bancorp........ 40,045 2,855,709
Firstar Corp. ............. 25,100 2,340,575
Fleet Financial Group,
Inc. ..................... 85,423 3,817,340
Huntington Bancshares
Inc. ..................... 31,684 952,500
KeyCorp.................... 68,377 2,188,064
Mellon Bank Corp. ......... 39,355 2,705,656
Mercantile Bancorp Inc. ... 23,600 1,088,550
National City Corp. ....... 49,751 3,606,947
Northern Trust Corp. ...... 16,858 1,471,914
PNC Bank Corp. ............ 45,195 2,446,179
Regions Financial Corp. ... 33,263 1,340,915
Republic New York Corp. ... 16,073 732,326
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (Continued)
State Street Corp. ........ 24,122 $ 1,677,987
Summit Bancorp............. 26,180 1,143,739
SunTrust Banks, Inc. ...... 47,369 3,623,728
Synovus Financial Corp. ... 40,139 978,388
Union Planters Corp. ...... 20,418 925,191
U.S. Bancorp............... 109,089 3,872,659
Wachovia Corp. ............ 30,447 2,662,210
Wells Fargo Co. ........... 243,062 9,707,289
--------------
68,832,440
--------------
BANKS--MONEY CENTER (2.5%)
BankAmerica Corp. ......... 260,108 15,638,994
Bankers Trust Corp. ....... 14,373 1,227,993
Chase Manhattan Corp.
(The)..................... 127,158 8,654,691
First Union Corp. ......... 148,926 9,056,562
Morgan (J.P.) & Co.,
Inc. ..................... 26,250 2,757,891
--------------
37,336,131
--------------
BANKS--SAVINGS & LOANS (0.3%)
Golden West Financial
Corp. .................... 8,652 793,280
Washington Mutual, Inc. ... 89,193 3,406,077
--------------
4,199,357
--------------
BEVERAGES--ALCOHOLIC (0.5%)
Anheuser-Busch Cos.,
Inc. ..................... 71,823 4,713,384
Brown-Forman Corp. Class
B......................... 10,393 786,620
Coors (Adolph) Co. Class
B......................... 5,482 309,391
Seagram Co. Ltd. (The)..... 59,274 2,252,412
--------------
8,061,807
--------------
BEVERAGES--SOFT DRINKS (2.4%)
Coca-Cola Co. (The) (c).... 370,501 24,777,254
Coca-Cola Enterprises
Inc. ..................... 58,880 2,104,960
PepsiCo, Inc. ............. 220,549 9,028,725
--------------
35,910,939
--------------
BROADCAST/MEDIA (1.2%)
CBS Corp. ................. 106,111 3,475,135
Clear Channel
Communications, Inc.
(a)....................... 37,354 2,035,793
Comcast Corp. Special Class
A......................... 55,498 3,257,039
MediaOne Group Inc. (a).... 91,240 4,288,280
Tele-Communications, Inc.
Series A TCI Group (a).... 80,846 4,471,794
--------------
17,528,041
--------------
BUILDING MATERIALS (0.2%)
Masco Corp. ............... 50,966 1,465,272
Owens Corning.............. 8,109 287,363
Sherwin-Williams Co.
(The)..................... 25,839 759,021
--------------
2,511,656
--------------
</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.
38
<PAGE> 41
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------------
<S> <C>
CHEMICALS (1.4%)
Air Products & Chemicals,
Inc. ..................... 34,927 $ 1,397,080
Dow Chemical Co. (The)..... 33,281 3,026,491
Du Pont (E.I.) De Nemours &
Co. ...................... 169,187 8,977,485
Eastman Chemical Co. ...... 11,913 533,107
Goodrich (B.F.) Co.
(The)..................... 11,036 395,916
Hercules Inc. ............. 15,082 412,870
Monsanto Co. .............. 94,142 4,471,745
Praxair, Inc. ............. 23,863 841,171
Rohm & Haas Co. ........... 24,981 752,553
Union Carbide Corp. ....... 19,983 849,277
--------------
21,657,695
--------------
CHEMICALS--DIVERSIFIED (0.2%)
Avery Dennison Corp. ...... 17,715 798,282
Engelhard Corp. ........... 21,500 419,250
FMC Corp. (a).............. 5,206 291,536
PPG Industries, Inc. ...... 26,770 1,559,353
--------------
3,068,421
--------------
CHEMICALS--SPECIALTY (0.1%)
Grace (W.R.) & Co. (a)..... 11,004 172,625
Great Lakes Chemical
Corp. .................... 8,890 355,600
Morton International,
Inc. ..................... 18,257 447,297
Nalco Chemical Co. ........ 10,011 310,341
Sigma-Aldrich Corp. ....... 15,176 445,795
--------------
1,731,658
--------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (3.8%)
Andrew Corp. (a)........... 12,937 213,461
Ascend Communications, Inc.
(a)....................... 32,505 2,137,204
Cabletron Systems, Inc.
(a)....................... 24,780 207,532
Cisco Systems, Inc. (a).... 237,271 22,021,715
General Instrument Corp.
(a)....................... 25,181 854,580
Lucent Technologies
Inc. ..................... 197,609 21,736,990
Northern Telecom Ltd. ..... 98,021 4,913,303
Scientific-Atlanta,
Inc. ..................... 11,310 258,009
Tellabs, Inc. (a).......... 29,398 2,015,600
3Com Corp. (a)............. 53,743 2,408,358
--------------
56,766,752
--------------
COMPUTER SOFTWARE & SERVICES (6.2%)
Adobe Systems Inc. ........ 10,058 470,211
America Online Inc. (a).... 68,400 9,900,900
Autodesk, Inc. ............ 7,037 300,392
Automatic Data Processing,
Inc. ..................... 45,555 3,652,941
BMC Software, Inc. (a)..... 32,423 1,444,850
Ceridian Corp. (a)......... 10,961 765,215
Computer Associates
International, Inc. ...... 80,869 3,447,041
Computer Sciences Corp.
(a)....................... 23,589 1,520,016
Compuware Corp. (a)........ 20,000 1,562,500
Electronic Data Systems
Corp. .................... 74,152 3,726,138
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C>
COMPUTER SOFTWARE & SERVICES (Continued)
Equifax Inc. .............. 22,390 $ 765,458
First Data Corp. .......... 66,548 2,108,740
HBO & Co. ................. 69,908 2,005,486
Microsoft Corp. (a)........ 374,723 51,969,396
Novell, Inc. (a)........... 52,930 959,356
Oracle Corp. (a)........... 146,117 6,301,296
Parametric Technology Corp.
(a)....................... 40,869 669,230
Paychex, Inc. ............. 24,614 1,266,083
PeopleSoft, Inc. (a)....... 34,773 658,514
Shared Medical Systems
Corp. .................... 3,936 196,308
--------------
93,690,071
--------------
COMPUTER SYSTEMS (5.1%)
Apple Computer, Inc. (a)... 20,136 824,317
Compaq Computer Corp. ..... 255,471 10,713,815
Data General Corp. (a)..... 7,348 120,783
Dell Computer Corp. (a).... 191,441 14,011,088
EMC Corp. (a).............. 75,242 6,395,570
Gateway 2000, Inc. (a)..... 23,455 1,200,603
Hewlett-Packard Co. ....... 155,896 10,649,645
International Business
Machines Corp. ........... 140,259 25,912,850
Seagate Technology, Inc.
(a)....................... 36,772 1,112,353
Silicon Graphics, Inc.
(a)....................... 28,210 363,204
Sun Microsystems, Inc.
(a)....................... 57,277 4,904,343
Unisys Corp. (a)........... 38,319 1,319,611
--------------
77,528,182
--------------
CONGLOMERATES (0.2%)
Tenneco Inc. .............. 25,611 872,375
Textron Inc. .............. 23,791 1,806,629
--------------
2,679,004
--------------
CONSUMER FINANCE (0.4%)
Capital One Financial
Corp. .................... 9,913 1,139,995
Countrywide Credit
Industries, Inc. ......... 16,820 844,154
Household International,
Inc. ..................... 72,548 2,874,714
Providian Financial
Corp. .................... 21,241 1,593,075
--------------
6,451,938
--------------
CONTAINERS--METAL & GLASS (0.1%)
Ball Corp. ................ 4,562 208,711
Crown Cork & Seal Co.,
Inc. ..................... 18,372 566,087
Owens-Illinois, Inc. (a)... 23,329 714,451
--------------
1,489,249
--------------
CONTAINERS--PAPER (0.1%)
Bemis Co., Inc. ........... 8,062 305,852
Temple-Inland Inc. ........ 8,495 503,860
--------------
809,712
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
39
<PAGE> 42
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-------------------------------
<S> <C>
COSMETICS/PERSONAL CARE (0.7%)
Alberto-Culver Co. Class
B......................... 8,316 $ 221,933
Avon Products, Inc. ....... 39,469 1,746,503
Gillette Co. (The)......... 166,762 8,056,689
International Flavors &
Fragrances Inc. .......... 15,966 705,498
--------------
10,730,623
--------------
ELECTRIC POWER COMPANIES (2.3%)
Ameren Corp. .............. 20,789 887,430
American Electric Power
Co., Inc. ................ 28,768 1,353,894
Baltimore Gas & Electric
Co. ...................... 22,362 690,427
Carolina Power & Light
Co. ...................... 22,904 1,077,919
Central & South West
Corp. .................... 32,075 880,058
Cinergy Corp. ............. 23,844 819,638
Consolidated Edison,
Inc. ..................... 35,014 1,851,365
Dominion Resources,
Inc. ..................... 29,319 1,370,663
DTE Energy Co. ............ 21,900 938,963
Duke Energy Corp. ......... 54,562 3,495,378
Edison International....... 52,975 1,476,678
Entergy Corp. ............. 37,240 1,159,095
FirstEnergy Corp. ......... 35,807 1,165,965
FPL Group, Inc. ........... 27,389 1,687,847
GPU, Inc. ................. 19,381 856,398
Houston Industries Inc. ... 42,802 1,375,014
New Century Energies
Inc. ..................... 17,181 837,574
Niagara Mohawk Power Corp.
(a)....................... 28,125 453,516
Northern States Power
Co. ...................... 22,832 633,588
PacifiCorp................. 44,719 941,894
PECO Energy Co. ........... 33,634 1,400,015
PG&E Corp. ................ 57,681 1,816,952
PP&L Resources, Inc. ...... 22,843 636,749
Public Service Enterprise
Group Inc. ............... 34,348 1,373,920
Southern Co. (The)......... 104,791 3,045,488
Texas Utilities Co. ....... 42,263 1,973,154
Unicom Corp. .............. 32,848 1,266,701
--------------
35,466,283
--------------
ELECTRICAL EQUIPMENT (4.0%)
AMP Inc. .................. 32,931 1,714,470
Emerson Electric Co. ...... 66,431 4,156,089
General Electric Co. (c)... 492,530 50,268,843
Grainger (W.W.), Inc. ..... 14,282 594,488
Honeywell Inc. ............ 19,078 1,436,812
Raychem Corp. ............. 12,000 387,750
Solectron Corp. (a)........ 17,700 1,644,994
Thomas & Betts Corp. ...... 8,539 369,846
--------------
60,573,292
--------------
ELECTRONICS--DEFENSE (0.0%) (b)
EG&G, Inc. ................ 6,894 191,739
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------
<S> <C>
ELECTRONICS--INSTRUMENTATION (0.1%)
Perkin-Elmer Corp. (The)... 7,432 $ 725,084
Tektronix, Inc. ........... 7,114 213,865
--------------
938,949
--------------
ELECTRONICS--SEMICONDUCTORS (3.1%)
Advanced Micro Devices,
Inc. (a).................. 21,729 628,783
Applied Materials, Inc.
(a)....................... 55,369 2,363,564
Intel Corp. ............... 250,574 29,708,680
KLA-Tencor Corp. (a)....... 13,157 570,685
LSI Logic Corp. (a)........ 21,304 343,527
Micron Technology, Inc.
(a)....................... 32,209 1,628,568
Motorola, Inc. ............ 90,401 5,520,111
National Semiconductor
Corp. (a)................. 24,926 336,501
Texas Instruments Inc. .... 58,637 5,017,128
--------------
46,117,547
--------------
ENGINEERING & CONSTRUCTION (0.0%) (b)
Fluor Corp. ............... 11,433 486,617
Foster Wheeler Corp. ...... 6,177 81,459
--------------
568,076
--------------
ENTERTAINMENT (1.6%)
King World Productions,
Inc. (a).................. 11,016 324,283
Time Warner Inc. .......... 184,431 11,446,249
Viacom Inc. Class B (a).... 52,289 3,869,386
Walt Disney Co. (The)...... 307,940 9,238,200
--------------
24,878,118
--------------
FINANCIAL--MISCELLANEOUS (4.3%)
American Express Co. ...... 67,951 6,947,990
American General Corp. .... 37,906 2,956,668
Associates First Capital
Corp. Class A............. 108,532 4,599,043
Citigroup Inc. ............ 341,458 16,902,171
Fannie Mae................. 155,865 11,534,010
Franklin Resources Inc. ... 38,199 1,222,368
Freddie Mac................ 102,033 6,574,751
MBIA Inc. ................. 14,795 969,997
MBNA Corp. ................ 112,997 2,817,863
Morgan Stanley Dean Witter
& Co. .................... 86,784 6,161,664
SLM Holding Corp. ......... 24,889 1,194,672
SunAmerica Inc. ........... 32,641 2,648,001
Transamerica Corp. ........ 9,445 1,090,898
--------------
65,620,096
--------------
FOOD (2.2%)
Bestfoods.................. 42,916 2,285,277
Campbell Soup Co. ......... 67,319 3,702,545
ConAgra, Inc. ............. 73,610 2,318,715
General Mills, Inc. ....... 22,996 1,787,939
Heinz (H.J.) Co. .......... 54,598 3,091,612
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
40
<PAGE> 43
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C>
FOOD (Continued)
Hershey Foods Corp. ....... 21,665 $ 1,347,292
Kellogg Co. ............... 60,908 2,078,485
Quaker Oats Co. (The)...... 20,612 1,226,414
Ralston-Ralston Purina
Group..................... 47,117 1,525,413
Sara Lee Corp. ............ 137,286 3,869,749
Unilever N.V. ............. 96,241 7,981,988
Wrigley (Wm.) Jr. Co. ..... 17,521 1,569,225
--------------
32,784,654
--------------
FOOD & HEALTH CARE DISTRIBUTORS (0.3%)
Cardinal Health, Inc. ..... 30,242 2,294,612
SUPERVALU Inc. ............ 18,084 506,352
SYSCO Corp. ............... 50,164 1,376,375
--------------
4,177,339
--------------
GOLD & PRECIOUS METALS MINING (0.2%)
Barrick Gold Corp. ........ 56,053 1,093,034
Battle Mountain Gold
Co. ...................... 34,771 143,430
Homestake Mining Co. ...... 36,101 331,678
Newmont Mining Corp. ...... 25,230 455,717
Placer Dome Inc. .......... 37,780 434,470
--------------
2,458,329
--------------
HARDWARE & TOOLS (0.1%)
Black & Decker Corp.
(The)..................... 13,202 740,137
Snap-on Inc. .............. 8,919 310,493
Stanley Works (The)........ 13,377 371,212
--------------
1,421,842
--------------
HEALTH CARE--DIVERSIFIED (4.6%)
Abbott Laboratories........ 228,055 11,174,695
Allergan, Inc. ............ 9,871 639,147
American Home Products
Corp. .................... 198,074 11,154,042
Bristol-Myers Squibb
Co. ...................... 149,332 19,982,488
Johnson & Johnson.......... 202,050 16,946,944
Mallinckrodt Inc. ......... 10,684 329,201
Warner-Lambert Co. ........ 123,658 9,297,536
--------------
69,524,053
--------------
HEALTH CARE--DRUGS (5.4%)
Lilly (Eli) & Co. ......... 165,318 14,692,637
Merck & Co., Inc. ......... 179,024 26,439,607
Pfizer Inc. ............... 195,085 24,470,975
Pharmacia & Upjohn,
Inc. ..................... 76,354 4,323,545
Schering-Plough Corp. ..... 220,922 12,205,941
--------------
82,132,705
--------------
HEALTH CARE--HMOs (0.2%)
Aetna Inc. ................ 21,442 1,685,877
Humana Inc. (a)............ 25,181 448,537
United Healthcare Corp. ... 28,023 1,206,740
--------------
3,341,154
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C>
HEALTH CARE--HOSPITAL MANAGEMENT (0.2%)
Columbia/HCA Healthcare
Corp. .................... 97,012 $ 2,401,047
Tenet Healthcare Corp.
(a)....................... 46,575 1,222,594
--------------
3,623,641
--------------
HEALTH CARE--MEDICAL PRODUCTS (1.1%)
Bard (C.R.), Inc. ......... 8,035 397,732
Bausch & Lomb Inc. ........ 8,321 499,260
Baxter International
Inc. ..................... 43,106 2,772,255
Becton, Dickinson & Co. ... 37,136 1,585,243
Biomet, Inc. .............. 16,948 682,157
Boston Scientific Corp.
(a)....................... 59,008 1,582,152
Guidant Corp. ............. 22,757 2,508,959
Medtronic, Inc. ........... 73,706 5,472,671
St. Jude Medical, Inc.
(a)....................... 12,658 350,468
--------------
15,850,897
--------------
HEALTH CARE--MISCELLANEOUS (0.4%)
ALZA Corp. (a)............. 13,142 686,670
Amgen Inc. (a)............. 38,363 4,011,331
HCR Manor Care, Inc. (a)... 16,417 482,249
HEALTHSOUTH Corp. (a)...... 63,600 981,825
--------------
6,162,075
--------------
HEAVY DUTY TRUCKS & PARTS (0.2%)
Cummins Engine Co.,
Inc. ..................... 6,318 224,289
Dana Corp. ................ 25,011 1,022,325
Eaton Corp. ............... 10,820 764,839
ITT Industries, Inc. ...... 15,569 618,868
Navistar International
Corp. (a)................. 10,119 288,391
PACCAR Inc. ............... 11,797 485,151
--------------
3,403,863
--------------
HOMEBUILDING (0.1%)
Centex Corp. .............. 8,983 404,796
Kaufman & Broad Home
Corp. .................... 5,910 169,913
Pulte Corp. ............... 6,378 177,388
--------------
752,097
--------------
HOTEL/MOTEL (0.4%)
Carnival Corp. ............ 89,500 4,296,000
Harrah's Entertainment,
Inc. (a).................. 15,265 239,470
Hilton Hotels Corp. ....... 39,300 751,612
Marriott International,
Inc. Class A.............. 37,777 1,095,533
--------------
6,382,615
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
41
<PAGE> 44
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C>
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.1%)
Armstrong World
Industries, Inc. ......... 6,023 $ 363,262
Maytag Corp. .............. 13,749 855,875
Whirlpool Corp. ........... 11,325 627,122
--------------
1,846,259
--------------
HOUSEHOLD PRODUCTS (2.0%)
Clorox Co. (The)........... 15,746 1,839,330
Colgate-Palmolive Co. ..... 43,976 4,084,271
Fort James Corp. .......... 33,354 1,334,160
Kimberly-Clark Corp. ...... 81,399 4,436,245
Procter & Gamble Co.
(The)..................... 199,380 18,205,886
--------------
29,899,892
--------------
HOUSEWARES (0.2%)
Fortune Brands, Inc. ...... 25,660 811,498
Newell Co. ................ 24,495 1,010,419
Rubbermaid Inc. ........... 22,634 711,556
Tupperware Corp. .......... 8,714 143,236
--------------
2,676,709
--------------
INSURANCE BROKERS (0.2%)
Aon Corp. ................. 25,423 1,407,799
Marsh & McLennan Cos.,
Inc. ..................... 38,873 2,271,641
--------------
3,679,440
--------------
INSURANCE--LIFE (0.4%)
Conseco, Inc. ............. 47,288 1,445,239
Jefferson-Pilot Corp. ..... 15,991 1,199,325
Lincoln National Corp. .... 15,223 1,245,432
Provident Cos., Inc. ...... 20,446 848,509
Torchmark Corp. ........... 21,244 750,179
UNUM Corp. ................ 20,890 1,219,454
--------------
6,708,138
--------------
INSURANCE--MULTI-LINE (1.3%)
American International
Group, Inc. .............. 157,809 15,248,295
CIGNA Corp. ............... 31,037 2,399,548
Hartford Financial Services
Group, Inc. (The)......... 35,127 1,927,594
--------------
19,575,437
--------------
INSURANCE--PROPERTY & CASUALTY (0.9%)
Allstate Corp. (The)....... 123,264 4,761,072
Chubb Corp. (The).......... 24,448 1,586,064
Cincinnati Financial
Corp. .................... 25,255 924,964
Loews Corp. ............... 17,051 1,675,261
MGIC Investment Corp. ..... 16,452 654,995
Progressive Corp. (The).... 10,877 1,842,292
SAFECO Corp. .............. 20,502 880,305
St. Paul Cos., Inc.
(The)..................... 35,423 1,230,949
--------------
13,555,902
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C>
INVESTMENT BANK/BROKERAGE (0.6%)
Bear Stearns Cos., Inc.
(The)..................... 16,936 $ 632,983
Lehman Brothers Holdings
Inc. ..................... 17,443 768,582
Merrill Lynch & Co.,
Inc. ..................... 53,325 3,559,444
Schwab (Charles) Corp.
(The)..................... 60,302 3,388,219
--------------
8,349,228
--------------
LEISURE TIME (0.1%)
Brunswick Corp. ........... 14,483 358,454
Mirage Resorts, Inc. (a)... 27,152 405,583
--------------
764,037
--------------
MACHINE TOOLS (0.0%) (b)
Milacron Inc. ............. 5,997 115,442
--------------
MACHINERY--DIVERSIFIED (0.4%)
Briggs & Stratton Corp. ... 3,543 176,707
Case Corp. ................ 10,899 237,734
Caterpillar Inc. .......... 53,872 2,478,112
Cooper Industries, Inc. ... 15,588 743,353
Deere & Co. ............... 35,852 1,187,598
Harnischfeger Industries,
Inc. ..................... 7,218 73,533
Ingersoll-Rand Co. ........ 24,689 1,158,840
NACCO Industries, Inc.
Class A................... 1,204 110,768
Thermo Electron Corp.
(a)....................... 23,908 404,942
Timken Co. (The)........... 9,375 176,953
--------------
6,748,540
--------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises,
Inc. ..................... 5,178 179,936
--------------
MANUFACTURING--DIVERSIFIED (1.2%)
Aeroquip-Vickers, Inc. .... 4,220 126,336
AlliedSignal Inc. ......... 84,166 3,729,606
Crane Co. ................. 10,341 312,169
Danaher Corp. ............. 20,197 1,096,950
Dover Corp. ............... 33,726 1,235,215
Illinois Tool Works
Inc. ..................... 37,573 2,371,796
Johnson Controls, Inc. .... 12,845 757,855
Millipore Corp. ........... 6,610 187,972
Pall Corp. ................ 18,721 473,875
Parker-Hannifin Corp. ..... 16,334 534,938
Sealed Air Corp. (a)....... 12,659 646,400
Tyco International Ltd. ... 96,979 7,315,853
--------------
18,788,965
--------------
METALS--MINING (0.1%)
ASARCO Inc. ............... 5,982 90,104
Cyprus Amax Minerals
Co. ...................... 13,708 137,080
Freeport-McMoRan Copper &
Gold Inc. Class B......... 24,840 259,268
Inco Ltd. ................. 25,063 264,728
Phelps Dodge Corp. ........ 8,846 450,040
--------------
1,201,220
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
42
<PAGE> 45
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C>
MISCELLANEOUS (1.4%)
AES Corp. (The) (a)........ 27,129 $ 1,285,236
AirTouch Communications,
Inc. (a).................. 85,990 6,202,029
American Greetings Corp.
Class A................... 10,697 439,246
Archer-Daniels-Midland
Co. ...................... 89,168 1,532,575
Corning Inc. .............. 34,739 1,563,255
Harcourt General, Inc. .... 10,663 567,138
Harris Corp. .............. 12,129 444,225
Jostens, Inc. ............. 5,289 138,506
Minnesota Mining &
Manufacturing Co. ........ 60,339 4,291,611
Nextel Communications, Inc.
Class A (a)............... 43,138 1,019,135
Pioneer Hi-Bred
International, Inc. ...... 36,465 984,555
Sprint Corp. (PCS Group)
(a)....................... 62,448 1,444,110
TRW Inc. .................. 18,030 1,013,061
--------------
20,924,682
--------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.6%)
Coastal Corp. (The)........ 32,030 1,119,048
Columbia Energy Group...... 12,545 724,474
Consolidated Natural Gas
Co. ...................... 14,373 776,142
Eastern Enterprises........ 3,373 147,569
Enron Corp. ............... 49,669 2,834,237
NICOR Inc. ................ 7,256 306,566
ONEOK, Inc. ............... 4,760 171,955
Peoples Energy Corp. ...... 5,308 211,656
Sempra Energy.............. 36,149 917,281
Sonat, Inc. ............... 16,606 449,400
Williams Cos., Inc.
(The)..................... 64,133 2,000,148
--------------
9,658,476
--------------
OFFICE EQUIPMENT & SUPPLIES (0.6%)
Moore Corp. Ltd. .......... 13,371 147,081
Pitney Bowes Inc. ......... 41,009 2,709,157
Xerox Corp. ............... 49,256 5,812,208
--------------
8,668,446
--------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. ... 7,574 146,746
Rowan Cos., Inc. (a)....... 12,612 126,120
--------------
272,866
--------------
OIL & GAS--EQUIPMENT & SERVICES (0.5%)
Baker Hughes Inc. ......... 49,128 868,951
Halliburton Co. ........... 66,036 1,956,316
McDermott International
Inc. ..................... 9,095 224,533
Schlumberger Ltd. ......... 82,165 3,789,861
--------------
6,839,661
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C>
OIL & GAS--EXPLORATION & PRODUCTION (0.2%)
Anadarko Petroleum
Corp. .................... 18,044 $ 557,109
Apache Corp. .............. 14,645 370,702
Burlington Resources
Inc. ..................... 26,745 957,805
Oryx Energy Co. (a)........ 16,078 216,048
Union Pacific Resources
Group, Inc. .............. 37,938 343,813
--------------
2,445,477
--------------
OIL--INTEGRATED DOMESTIC (0.7%)
Amerada Hess Corp. ........ 13,812 687,147
Ashland Inc. .............. 11,531 557,812
Atlantic Richfield Co. .... 48,312 3,152,358
Kerr-McGee Corp. .......... 7,185 274,826
Occidental Petroleum
Corp. .................... 52,018 877,804
Phillips Petroleum Co. .... 38,298 1,632,452
Sunoco Inc. ............... 14,203 512,196
Unocal Corp. .............. 36,450 1,063,885
USX-Marathon Group......... 46,321 1,395,420
--------------
10,153,900
--------------
OIL--INTEGRATED INTERNATIONAL (4.3%)
Chevron Corp. ............. 98,018 8,129,368
Exxon Corp. ............... 365,378 26,718,267
Mobil Corp. ............... 117,250 10,215,406
Royal Dutch Petroleum
Co. ...................... 322,240 15,427,240
Texaco Inc. ............... 80,286 4,245,122
--------------
64,735,403
--------------
PAPER & FOREST PRODUCTS (0.5%)
Boise Cascade Corp. ....... 8,417 260,927
Champion International
Corp. .................... 14,438 584,739
Georgia-Pacific Group...... 13,220 774,196
International Paper Co. ... 46,136 2,067,469
Louisiana-Pacific Corp. ... 16,304 298,567
Mead Corp. (The)........... 15,475 453,611
Potlatch Corp. ............ 4,372 161,218
Union Camp Corp. .......... 10,466 706,455
Westvaco Corp. ............ 15,367 412,028
Weyerhaeuser Co. .......... 30,129 1,530,930
Willamette Industries,
Inc. ..................... 16,830 563,805
--------------
7,813,945
--------------
PHOTOGRAPHY/IMAGING (0.3%)
Eastman Kodak Co. ......... 48,768 3,511,296
IKON Office Solutions,
Inc. ..................... 20,464 175,223
Polaroid Corp. ............ 6,710 125,393
--------------
3,811,912
--------------
POLLUTION CONTROL (0.3%)
Browning-Ferris Industries,
Inc. ..................... 26,178 744,437
Waste Management, Inc. .... 86,336 4,025,416
--------------
4,769,853
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
43
<PAGE> 46
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C>
PUBLISHING (0.1%)
McGraw-Hill Cos., Inc.
(The)..................... 14,930 $ 1,520,994
Meredith Corp. ............ 8,002 303,076
--------------
1,824,070
--------------
PUBLISHING--NEWSPAPER (0.5%)
Dow Jones & Co., Inc. ..... 14,112 679,140
Gannett Co., Inc. ......... 42,287 2,798,871
Knight-Ridder, Inc. ....... 11,856 606,138
New York Times Co. (The)
Class A................... 27,393 950,195
Times Mirror Co. (The)
Class A................... 11,960 669,760
Tribune Co. ............... 17,835 1,177,110
--------------
6,881,214
--------------
RAILROADS (0.5%)
Burlington Northern Santa
Fe Corp. ................. 70,467 2,378,261
CSX Corp. ................. 32,824 1,362,196
Norfolk Southern Corp. .... 57,229 1,813,444
Union Pacific Corp. ....... 37,140 1,673,621
--------------
7,227,522
--------------
RESTAURANTS (0.6%)
Darden Restaurants,
Inc. ..................... 20,988 377,784
McDonald's Corp. .......... 101,686 7,791,690
Tricon Global Restaurants,
Inc. (a).................. 23,001 1,152,925
Wendy's International,
Inc. ..................... 18,667 407,174
--------------
9,729,573
--------------
RETAIL STORES--APPAREL (0.5%)
Gap, Inc. (The)............ 87,132 4,901,175
Limited, Inc. (The)........ 34,208 996,308
TJX Cos., Inc. (The)....... 48,433 1,404,557
--------------
7,302,040
--------------
RETAIL STORES--DEPARTMENT (0.5%)
Dillard's, Inc. Class A.... 16,004 454,113
Federated Department
Stores, Inc. (a).......... 30,785 1,341,072
Kohl's Corp. (a)........... 23,855 1,465,592
May Department Stores Co.
(The)..................... 34,910 2,107,691
Nordstrom, Inc. ........... 22,447 778,630
Penney (J.C.) Co., Inc. ... 38,022 1,782,281
--------------
7,929,379
--------------
RETAIL STORES--DRUGS (0.4%)
Longs Drug Stores Corp. ... 5,822 218,325
Rite Aid Corp. ............ 39,027 1,934,276
Walgreen Co. .............. 75,106 4,398,395
--------------
6,550,996
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C>
RETAIL STORES--FOOD (0.9%)
Albertson's, Inc. ......... 36,879 $ 2,348,731
American Stores Co. ....... 41,373 1,528,215
Fred Meyer Inc. (a)........ 23,138 1,394,065
Great Atlantic & Pacific
Tea Co., Inc. (The)....... 5,735 169,899
Kroger Co. (The) (a)....... 38,733 2,343,347
Safeway Inc. (a)........... 73,298 4,466,597
Winn-Dixie Stores, Inc. ... 22,464 1,008,072
--------------
13,258,926
--------------
RETAIL STORES--GENERAL MERCHANDISE (2.3%)
Dayton Hudson Corp. ....... 66,110 3,586,467
Kmart Corp. (a)............ 74,276 1,137,351
Sears, Roebuck & Co. ...... 57,624 2,449,020
Wal-Mart Stores, Inc. ..... 338,552 27,570,829
--------------
34,743,667
--------------
RETAIL STORES--SPECIALTY (1.9%)
AutoZone, Inc. (a)......... 23,158 762,767
Circuit City Stores-Circuit
City Group................ 14,916 744,868
Consolidated Stores Corp.
(a)....................... 16,281 328,673
Costco Cos., Inc. (a)...... 32,557 2,350,208
CVS Corp. ................. 58,750 3,231,250
Dollar General Corp. ...... 27,857 658,121
Home Depot, Inc. (The)..... 234,952 14,376,125
Lowe's Cos., Inc. ......... 53,041 2,715,036
Pep Boys-Manny, Moe & Jack
(The)..................... 9,558 149,941
Staples Inc. (a)........... 47,066 2,056,196
Tandy Corp. ............... 14,894 613,447
Toys "R" Us, Inc. (a)...... 39,354 664,099
--------------
28,650,731
--------------
SHOES (0.1%)
NIKE, Inc. Class B......... 43,008 1,744,512
Reebok International Ltd.
(a)....................... 8,471 126,006
--------------
1,870,518
--------------
SPECIALIZED SERVICES (0.8%)
Block (H&R), Inc. ......... 15,142 681,390
Cendant Corp. (a).......... 128,244 2,444,651
Dun & Bradstreet Corp.
(The)..................... 25,087 791,808
Ecolab Inc. ............... 19,513 706,127
IMS Health Inc. ........... 24,072 1,815,932
Interpublic Group of Cos.,
Inc. (The)................ 20,919 1,668,290
Laidlaw Inc. .............. 49,519 498,285
National Service
Industries, Inc. ......... 6,375 242,250
Omnicom Group Inc. ........ 25,366 1,471,228
Service Corp.
International............. 38,750 1,474,922
--------------
11,794,883
--------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
44
<PAGE> 47
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
----------------------------
<S> <C>
SPECIALTY PRINTING (0.1%)
Deluxe Corp. .............. 12,175 $ 445,148
Donnelley (R.R.) & Sons
Co. ...................... 20,374 892,636
--------------
1,337,784
--------------
STEEL (0.1%)
Allegheny Teledyne Inc. ... 29,502 602,947
Bethlehem Steel Corp.
(a)....................... 19,429 162,718
Nucor Corp. ............... 13,286 574,619
USX-U.S. Steel Group....... 13,039 299,897
Worthington Industries,
Inc. ..................... 13,894 173,675
--------------
1,813,856
--------------
TELECOMMUNICATIONS--LONG DISTANCE (3.0%)
AT&T Corp. ................ 271,462 20,427,515
MCI WorldCom, Inc. (a)..... 275,588 19,773,439
Sprint Corp. (FON Group)... 64,711 5,443,813
--------------
45,644,767
--------------
TELEPHONE (4.8%)
ALLTEL Corp. .............. 41,241 2,466,727
Ameritech Corp. ........... 166,051 10,523,482
Bell Atlantic Corp. ....... 233,316 13,255,265
BellSouth Corp. ........... 293,908 14,658,662
Frontier Corp. ............ 25,879 879,886
GTE Corp. ................. 145,240 9,794,622
SBC Communications Inc. ... 294,009 15,766,233
US West Inc. .............. 75,542 4,881,902
--------------
72,226,779
--------------
TEXTILES--APPAREL MANUFACTURERS (0.1%)
Fruit of the Loom, Inc.
Class A (a)............... 10,884 150,335
Liz Claiborne, Inc. ....... 9,685 305,683
Russell Corp. ............. 5,508 111,881
Springs Industries, Inc.
Class A................... 2,913 120,708
V.F. Corp. ................ 17,983 842,953
--------------
1,531,560
--------------
TOBACCO (1.5%)
Philip Morris Cos. Inc. ... 365,940 19,577,790
RJR Nabisco Holdings
Corp. .................... 49,049 1,456,142
UST Inc. .................. 27,977 975,698
--------------
22,009,630
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C>
TOYS (0.1%)
Hasbro, Inc. .............. 19,612 $ 708,484
Mattel, Inc. .............. 43,215 985,842
--------------
1,694,326
--------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
FDX Corp. (a).............. 22,210 1,976,690
Ryder System, Inc. ........ 10,770 280,020
--------------
2,256,710
--------------
Total Common Stocks
(Cost $872,604,310)....... 1,502,957,904(d)
--------------
<CAPTION>
SHORT-TERM
INVESTMENTS (0.5%)
PRINCIPAL
AMOUNT
--------------
<S> <C> <C>
COMMERCIAL PAPER (0.1%)
Cooperative Association of
Tractor Dealers, Inc.
5.85%, due 1/22/99 (c).... $ 1,200,000 1,195,905
--------------
Total Commercial Paper
(Cost $1,195,905)......... 1,195,905
--------------
U.S. GOVERNMENT (0.4%)
United States Treasury
Bills
4.43%, due 4/8/99 (c)..... 1,000,000 988,459
4.50%, due 4/1/99 (c)..... 4,800,000 4,749,423
--------------
Total U.S. Government
(Cost $5,736,253)......... 5,737,882
--------------
Total Short-Term
Investments
(Cost $6,932,158)......... 6,933,787
--------------
Total Investments
(Cost $879,536,468) (e)... 100.1% 1,509,891,691(f)
Liabilities in Excess of
Cash and Other Assets..... (0.1) (1,186,318)
-------------- --------------
Net Assets................. 100.0% $1,508,705,373
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
45
<PAGE> 48
INDEXED EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
FUTURES CONTRACTS (0.0%) (b)
UNREALIZED
CONTRACTS APPRECIATION
LONG (g)
----------------------------
<S> <C> <C>
Standard & Poor's 500
March 1999.............. 19 $ 315,846
Mini March 1999......... 4 1,416
--------------
Total Futures Contracts
(Settlement Value
$6,165,225) (d)........... $ 317,262
==============
</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) The combined market value of common stocks and settlement value of Standard
& Poor's 500 Index futures contracts represents 100% of net assets.
(e) The cost for Federal income tax purposes is $880,234,577.
(f) At December 31, 1998, net unrealized appreciation was $629,657,114, 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 $648,116,516 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $18,459,402.
(g) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
46
<PAGE> 49
MAINSTAY
INSTITUTIONAL FUNDS INC.
INDEXED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $879,536,468)..... $1,509,891,691
Cash................................. 33,540
Receivables:
Fund shares sold................... 4,443,635
Dividends and interest............. 1,374,853
Investment securities sold......... 8,435
Variation margin receivable on
futures contracts.................. 18,104
--------------
Total assets................... 1,515,770,258
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 4,100,097
Investment securities purchased.... 2,374,015
MainStay Management................ 305,479
Custodian.......................... 51,000
Transfer agent..................... 3,843
Accrued expenses..................... 230,451
--------------
Total liabilities.............. 7,064,885
--------------
Net assets........................... $1,508,705,373
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share) 1 billion shares authorized
Institutional Class................ $ 44,093
Institutional Service Class........ 1,095
Additional paid-in capital........... 864,792,102
Accumulated undistributed net
realized gain on investments....... 13,195,598
Net unrealized appreciation on
investments........................ 630,672,485
--------------
Net assets........................... $1,508,705,373
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $1,472,263,504
==============
Shares of capital stock
outstanding........................ 44,093,115
==============
Net asset value per share
outstanding........................ $ 33.39
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 36,441,869
==============
Shares of capital stock
outstanding........................ 1,094,877
==============
Net asset value per share
outstanding........................ $ 33.28
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 17,922,084
Interest........................... 1,943,830
--------------
Total income................... 19,865,914
--------------
Expenses:
Management......................... 6,263,846
Shareholder communication.......... 201,314
Professional....................... 165,346
Custodian.......................... 157,270
Registration....................... 113,053
Service............................ 71,771
Transfer agent..................... 40,041
Directors.......................... 29,413
Miscellaneous...................... 57,958
--------------
Total expenses before
reimbursement................ 7,100,012
Expense reimbursement from
Manager.......................... (3,269,934)
--------------
Net expenses................... 3,830,078
--------------
Net investment income................ 16,035,836
--------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain from:
Security transactions.............. 51,291,155
Futures transactions............... 2,727,576
--------------
Net realized gain on investments..... 54,018,731
--------------
Net change in unrealized appreciation
on investments:
Security transactions.............. 244,039,298
Futures transactions............... 278,027
--------------
Net unrealized gain on investments... 244,317,325
--------------
Net realized and unrealized gain on
investments........................ 298,336,056
--------------
Net increase in net assets resulting
from operations.................... $ 314,371,892
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $105,046.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
47
<PAGE> 50
INDEXED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 16,035,836 $ 12,926,062
Net realized gain on investments........................ 54,018,731 13,824,202
Net change in unrealized appreciation on investments.... 244,317,325 199,341,116
-------------- --------------
Net increase in net assets resulting from operations.... 314,371,892 226,091,380
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................... (15,890,238) (12,753,262)
Institutional Service Class........................... (314,560) (156,133)
From net realized gain on investments:
Institutional Class................................... (43,243,748) (18,598,652)
Institutional Service Class........................... (1,050,731) (264,603)
-------------- --------------
Total dividends and distributions to shareholders... (60,499,277) (31,772,650)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 355,359,146 295,739,975
Institutional Service Class........................... 23,308,027 10,256,956
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 59,128,205 31,351,914
Institutional Service Class........................... 1,359,018 420,736
-------------- --------------
439,154,396 337,769,581
Cost of shares redeemed:
Institutional Class................................... (156,430,972) (170,645,271)
Institutional Service Class........................... (7,935,488) (4,979,101)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 274,787,936 162,145,209
-------------- --------------
Net increase in net assets............................ 528,660,551 356,463,939
NET ASSETS:
Beginning of year......................................... 980,044,822 623,580,883
-------------- --------------
End of year............................................... $1,508,705,373 $ 980,044,822
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ -- $ 16,667
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
48
<PAGE> 51
(This page intentionally left blank)
49
<PAGE> 52
INDEXED EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 27.05 $ 26.99
---------- ----------
Net investment income....................................... 0.38 0.31
Net realized and unrealized gain (loss) on investments...... 7.36 7.31
---------- ----------
Total from investment operations............................ 7.74 7.62
---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.38) (0.31)
From net realized gain on investments....................... (1.02) (1.02)
In excess of net realized gain on investments............... -- --
---------- ----------
Total dividends and distributions........................... (1.40) (1.33)
---------- ----------
Net asset value at end of year.............................. $ 33.39 $ 33.28
========== ==========
Total investment return..................................... 28.62% 28.24%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 1.29% 1.04%
Net expenses.............................................. 0.30% 0.55%
Expenses (before reimbursement)........................... 0.56% 0.81%
Portfolio turnover rate..................................... 8% 8%
Net assets at end of year (in 000's)........................ $1,472,263 $ 36,442
</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.
50
<PAGE> 53
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 21.05 $ 21.01 $ 17.82 $ 17.81 $ 13.53 $ 13.53 $ 13.86
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.37 0.32 0.34 0.31 0.35 0.33 0.33
6.54 6.52 3.69 3.66 4.64 4.64 (0.20)
---------- ---------- ---------- ---------- ---------- ---------- ----------
6.91 6.84 4.03 3.97 4.99 4.97 0.13
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.37) (0.32) (0.34) (0.31) (0.34) (0.33) (0.33)
(0.54) (0.54) (0.46) (0.46) (0.36) (0.36) (0.13)
-- -- -- -- -- -- 0.00(a)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.91) (0.86) (0.80) (0.77) (0.70) (0.69) (0.46)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 27.05 $ 26.99 $ 21.05 $ 21.01 $ 17.82 $ 17.81 $ 13.53
========== ========== ========== ========== ========== ========== ==========
32.88% 32.60% 22.57% 22.21% 36.88% 36.70% 0.90%
1.56% 1.31% 1.96% 1.71% 2.21% 1.96% 2.43%
0.30% 0.55% 0.44% 0.69% 0.50% 0.75% 0.50%
0.56% 0.81% 0.59% 0.84% 0.59% 0.84% 0.58%
3% 3% 8% 8% 4% 4% 5%
$ 966,217 $ 13,828 $ 617,716 $ 5,865 $ 354,420 $ 969 $ 244,685
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
51
<PAGE> 54
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
1998 MARKET RECAP
- - Led by the U.S. stock market, liquidity in most major markets around the world
contributed to positive results in stock markets throughout most of Europe.
- - As European Monetary Union approached, European stocks benefited from
increased merger and acquisition activity, moves by most European central
banks to lower interest rates, and strong consumer spending.
- - Deregulation in the telecommunications and banking sectors helped them show
strong performance, especially in European markets.
- - Financial problems in Asia, Russia, and Latin America caused a flight to
quality, with many equity investors seeking highly liquid securities and
issues of companies with consistent track records of earnings growth.
- ------------------------------------------------------
1998 FUND RECAP
- - The MainStay Institutional International Equity Fund returned 22.41% for
Institutional Class shares and 22.20% for Service Class shares for the
one-year period ended 12/31/98.
- - The Fund benefited from an overweighted position in European equity securities
and from its underweighted position in Japanese stocks.
- - A focus on telecommunications, banking, and health-related stocks helped the
Fund benefit from consumer, economic, and demographic trends.
- - Both share classes outperformed the average Lipper(*) international fund,
which returned 13.02% for the year and both ranked within the top 10% of their
peer funds.
As years go, 1998 was one of the most volatile in recent memory. International
equity markets started the year with investors focused on the Asian financial
crisis, which grew progressively worse as Japan slipped into a recession. Over
the course of the year, problems in Russia and Latin America caused a general
flight to quality, with most investors focusing on highly liquid securities,
well-known names, and consistent earnings generators.
The flight to quality was positive for the European market, which showed strong
performance as European Monetary Union approached. Most European countries
continued to benefit from low inflation, strong merger and acquisition activity,
and moves by central banks to lower interest rates. The U.K. faced a recession
in its manufacturing sector and was forced to lower interest rates, which had a
positive effect on stock prices.
Japanese stocks benefited from a strengthening yen in the second half of the
year, but generally tended to underperform other international markets.
Australia and New Zealand suffered somewhat as commodity prices continued to
decline, and falling oil prices had a generally negative impact on energy stocks
around the world.
VOLATILITY Fluctuations in the price of securities or markets, up or down, over
a short period of time.
RECESSION A downturn in economic activity, typically defined by at least two
consecutive quarters of decline in a country's gross domestic product.
- --------------------------------------------------------------------------------
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested.
52
<PAGE> 55
Among the best-performing sectors worldwide were telecommunications, which
benefited from technological advances and wide consumer appeal; banking, which
benefited from low inflation and lower interest rates; and health-related
stocks, which advanced with new products to assist an aging population.
HOW DID THE MAINSTAY INSTITUTIONAL INTERNATIONAL EQUITY FUND PERFORM IN THIS
MARKET ENVIRONMENT?
Quite well. The MainStay Institutional International Equity Fund returned 22.41%
for Institutional Class shares and 22.20% for Service Class shares for the
one-year period ended 12/31/98. Both share classes outperformed the average
Lipper international fund, which returned 13.02%, with both share classes
ranking in the top 10% of all peer funds.
HOW DID THE FUND MANAGE TO DO SO WELL?
The Fund uses a "country first" approach, seeking to identify the most promising
geographic markets and then to invest in a wide array of companies in each
target market. This approach proved beneficial in 1998, as difficulties in Asia
led the Fund to maintain an underweighted position in Japanese equities.
Overall, Japanese stocks underperformed other global markets, despite currency
gains in the second half of the year. At the same time, the promise of European
Monetary Union led the Fund to take an overweighted position in Europe, which
proved highly beneficial for the Fund's performance. Finland was up 106.10% for
the year, Belgium 55.50%, Italy 42.20%, Spain 39.40%, France 31.40%, and Ireland
29.40%, all in local currency terms.
The Fund did not restrict its investments to countries that would participate in
European Monetary Union (EMU). Fund investments in non-EMU countries, such as
Sweden and the U.K., also had a positive impact on the Fund's performance.
Although it generally seeks to invest across a broad range of industries and
sectors, the Fund recognized the strong potential in telecommunications,
banking, and health-related stocks, and emphasized them in its 1998 investments.
This strategy contributed to the Fund outperforming its peers.
WHAT WAS SO GOOD ABOUT TELECOMMUNICATIONS STOCKS?
Telecommunications stocks have benefited from strong growth and increasing
consumer demand. At the same time, many companies are taking advantage of new
technological advances to improve performance and deliver better service to
their customers. The Fund's largest holding and best-performing issue in 1998
was Nokia Oyj, a Finnish stock that we purchased for the Fund in the third
quarter. The company has surpassed Motorola and Ericsson as the leading provider
of mobile phones and sold a record one million handsets in a single month in
1998.
Another company that benefited from its telecommunications interests was
Mannesmann AG, which designs and manufactures a wide range of industrial
products, production machinery, and assembly systems. The company also makes
telecommunication gears and equipment, which contributed significantly to
profits and earnings. The stock returned 103.9%(+) in local currency terms for
the year.
Deutsche Telekom AG was another of the Fund's strong performers. The company
owns and leases public telecommunications networks and has introduced new
telecommunications technology known as ASDL, which promises faster transmission
than existing data transmission lines. Although telecommunications is growing
more slowly in Germany than in the rest of Europe, the stock contributed
significantly to the Fund's positive performance.
FLIGHT TO QUALITY When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, or market
concerns that suggest lower-quality securities or those that are less liquid are
likely to be more vulnerable to negative market events.
LIQUIDITY Securities are said to be liquid when they can be easily bought or
sold in large volume without substantially affecting their price. Some
securities, such as private placements or stocks that have few shares
outstanding are considered illiquid either because there are few market
participants interested in buying or selling the securities or because purchases
and sales may cause wide price swings.
EUROPEAN MONETARY UNION (EMU) A system that allows participating European
countries to operate with a common currency or monetary unit.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the local currency declines.
- --------------------------------------------------------------------------------
(+) Returns reflect performance for the one-year period end 12/31/98.
53
<PAGE> 56
In July and August, the Fund began to take profits in European and Japanese
issues that had reached the target values we had established for them. The Fund
invested some of the proceeds of these sales in telecommunications stocks in
Australia and New Zealand. One was an initial public offering in Cable and
Wireless Optus. The stock went public at 2.15 Australian dollars and by year end
was trading at close to 4.00 Australian dollars, which had a positive impact on
the Fund's performance.
WHY DID THE FUND ALSO FOCUS ON THE BANKING AND FINANCIAL INDUSTRIES?
Financial stocks tend to perform well when interest rates decline. With the
severe market setbacks caused by problems in Asia, Russia, and Latin America, we
believed that central banks would be likely to lower interest rates to help
corporations cope with pressures to increase earnings in a low-inflation
environment. In the third and fourth quarters, the Federal Reserve Board lowered
U.S. interest rates three times, and several European banks lowered rates
throughout the year, which helped stimulate corporate growth and make borrowing
more affordable. Since banks profit when borrowing increases, the results were
positive for the banking industry.
One of the Fund's successful investments was Allied Irish Banks PLC, which was
up 77.4% in local currency terms for the year. The company provides a full range
of banking services through over 319 offices in Ireland, 82 branches in Northern
Ireland, and 37 offices in the U.K. It also operates over 200 branches in the
United States through its wholly owned subsidiary, First Maryland Bancorp. With
the inception of the single currency throughout EMU countries, we believe
financial institutions will look to establish themselves as a European force,
and we believe Allied Irish Banks has the experience and potential to do so.
Another financial services stock that showed positive performance during the
year was ING Groep N.V. The company is headquartered in the Netherlands and has
global offices that provide commercial, savings, and investment banking
services, and property and commercial insurance. The company was hurt in the
third quarter by losses from its emerging-market trading, but still returned
29.6% in local terms for the 12 months ended 12/31/98.
HOW DID THE FUND BENEFIT FROM HEALTH-RELATED STOCKS?
Health-related sectors were stimulated by advances at several pharmaceutical
companies that capitalized on the aging population. Some of the biggest and best
pharmaceutical names are located in Europe, and the Fund sought to take
advantage of the positive trends in this sector. Other companies benefited from
the move toward natural foods, herbal remedies, and other health and
fitness-related trends.
The Fund owned Novartis AG, a large pharmaceutical company that emerged from the
combination of Sandoz and Ciba Geigy. As the price of the stock rose, we decided
to take profits from the Fund's Novartis shares by selling a portion of the
Fund's position and investing the assets in the stock of Schering AG, a German
pharmaceutical company specializing in diagnostics, fertility control, hormone
therapy, and dermatology. We believed that Schering AG represented better value.
Although neither stock was a stellar performer, both Novartis and Schering AG
provided positive returns for the Fund's portfolio in 1998.
MERGERS AND ACQUISITIONS A merger is a combination of two companies, an
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
COMMODITIES Bulk goods, such as grains, precious metals, industrial metals, and
foods traded on a commodities exchange.
WEIGHTING The proportion of a portfolio allocated to a specific security,
sector, or country 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.
LOCAL CURRENCY TERMS Returns expressed in local currency terms show what
investors 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.
PROXY HEDGE A transaction in the forward market that seeks to offset currency
risk by substituting exposure of one foreign currency which is expected to
fall with exposure to another currency which is expected to rise.
54
<PAGE> 57
While the Fund tended to underweight Japanese stocks, it did own names that had
broad exposure to world markets. One of these was Yamanouchi Pharmaceutical Co.
Ltd., which was up 30.00% in local terms for the year. While few people have
ever heard the name Yamanouchi, almost everyone is familiar with one of their
leading products, Pepcid AC. The company also has a number of drugs that may
provide substantial earnings growth over time, including medications for high
cholesterol, hepatitis C, and diabetes. The stock reflected the Fund's
concentration in the health-related sector and provided strong relative value in
a Japanese stock market that declined 8.90% in local terms in 1998.
WHICH OTHER MARKETS WERE WEAK PERFORMERS FOR THE FUND IN 1998?
New Zealand was the worst market, declining 14.90% in local terms for the year.
While Australian stocks advanced an otherwise respectable 12.70%, that figure
was substantially below the returns available in the Fund's best-performing
European markets.
DID THE FUND OWN STOCKS IN OTHER SECTORS THAT SHOWED STRONG PERFORMANCE IN 1998?
Yes. The Fund owned CRH PLC, an Irish company that manufactures cement, concrete
products, and building materials. With operations in 12 countries, including
Ireland, Spain, Germany, and the Netherlands, the company is well positioned to
take advantage of government spending throughout Europe to improve
infrastructure. Although cement may seem like a dull industry, the expansion and
improvement of Europe's infrastructure is presenting growth opportunities for
the company, and the investment was a positive contributor to the Fund's
performance in 1998.
Another positive contributor to the Fund's performance was Volkswagen AG, the
car and truck manufacturer. The company expects double-digit growth in its North
American car sales in 1999, based on the introduction of its new Beetle, which
was named North American Car of the Year. The stock was up 30.8% in local
currency terms for the year.
WHICH STOCKS DIDN'T DO WELL IN 1998?
The Fund owned a number of stocks that underperformed. One was Royal Dutch
Petroleum, which suffered from the substantial drop in the price of oil and
declined 16.00% in local currency terms for the year. As of year end, we
believed the company represented good value and may perform well if and when oil
prices turn around. In fact, we're hoping to add to the Fund's position in this
stock to take advantage of its broad-based energy exposure--from exploration and
drilling to final processing, delivery, and marketing.
Another stock that underperformed was Volvo. We added the stock to the portfolio
in September because we felt Sweden was a desirable market, autos were a solid
industry, and Volvo had strong fundamentals and international breadth, with 80%
of its sales outside of Sweden. Given the merger of Daimler Benz and Chrysler,
we believed that Volvo would be the next acquisition target in the auto
industry. But the stock did not perform well in the few months the Fund owned it
in 1998.
Finally, Nestle, the Swiss cocoa and consumer products company was a substantial
underperformer in the Fund's portfolio. Although the company has solid
fundamentals, a good growth plan, and is involved in the growing market for
nutritious foods, the stock was too defensive to gain investor attention with
the boom in telecommunications and technology stocks.
WERE THERE ANY SIGNIFICANT SALES YOU MADE FOR THE FUND IN 1998?
In Japan, we recognized the difficulties the financial industry was facing and
decided to sell several of the Fund's financial holdings, including Bank of
Tokyo Mitsubishi and Sumitomo Bank. The sales were positive for the Fund, since
we were able to invest the assets elsewhere for more productive returns.
We also sold some of the Fund's holdings in Foster's Brewing, an Australian
company, to take profits and reduce the Fund's overweighted position in the
industry and area. The sale had a positive impact on performance.
Most of the Fund's sales were designed to narrow its focus from 300 securities
to about 215 at the end of the year--and improve the Fund's positioning in
industries we felt had the strongest potential in individual countries. Many of
the sales that were part of this repositioning had only a modest impact on
performance, though in most cases, the impact was positive.
WERE THERE OTHER SHIFTS IN THE MAKEUP OF THE PORTFOLIO?
Yes. While we retained about the same weighting in Europe, in the third quarter
of 1998, we shifted the
55
<PAGE> 58
Fund's focus from central European countries to take in more peripheral European
nations, such as Ireland, Finland, and Sweden. With names like Allied Irish
Banks, Nokia, and Ericsson, each of these additions had a positive impact on
performance.
WHAT WAS THE EFFECT OF CURRENCY MOVEMENTS ON THE FUND IN 1998?
Generally speaking, the Fund had positive results from its currency exposure.
European currencies strengthened about 7.6% against the U.S. dollar over the
course of the year, which had a positive effect on the Fund's total return.
In the second half of 1998, European currencies weakened against the yen, and
the Fund participated in the yen's advance through the forwards market, with a
proxy hedge of European currency exposure. The trade was a contrarian move that
reflected our belief that negative sentiment about the yen--as well as euphoria
over the new European currency, the euro--were both excessive. As the yen
strengthened, the hedge contributed positively to the Fund's performance. The
Fund also had direct exposure to the yen through its weighting in Japanese
equities, which strengthened the otherwise weak returns from Japanese stocks in
the second half of the year.
Commodity-linked currencies, particularly the Canadian, Australian, and New
Zealand dollar, all suffered from the general weakness in commodity prices in
1998. Each of these currencies declined about 7% relative to the U.S. dollar,
which had a negative impact on the Fund's performance.
IF YOU COULD RELIVE 1998, WHAT WOULD YOU HAVE DONE DIFFERENTLY?
In hindsight, the Fund would have benefited by having more yen-based securities
during the second half of the year. The Fund also might have benefited by being
invested in Hong Kong and Singapore in the second half of the year, since they
were both very strong. While the Fund might have missed some opportunities
there, we feel that the decisions we made for the portfolio were positive ones,
and they were reflected in the Fund's performance relative to its peers.
AS OF YEAR END, WHERE WAS THE FUND OVERWEIGHTED AND UNDERWEIGHTED?
At year end, the Fund was overweighted in Finland, Belgium, Spain, Ireland,
Portugal, Sweden, New Zealand, and Australia. It was neutral in Germany and
underweighted in France and Switzerland. As we noted earlier, the Fund is
heavily underweighted in Japan.
WHAT RISKS DO YOU SEE AHEAD FOR INVESTORS?
The problems we saw this year represent real risks going forward. Emerging
markets, by their very nature, are relatively fragile and subject to forces that
can make them highly volatile. Brazil's economic difficulties are not happening
in a vacuum. They could have implications for other countries, such as Spain and
Portugal, which have economic, cultural, and language ties with Brazil. While we
believe that Europe should remain strong, the effects of European Monetary Union
are as yet untested. So we will continue to monitor developments in both
participating and nonparticipating European countries.
WHAT IS YOUR OUTLOOK FOR THE FUTURE?
We believe that Europe is likely to benefit from additional mergers and
acquisitions as monetary union gets underway. As long as interest rates and
inflation remain low, economic growth should continue to expand throughout
European nations. In light of recent economic setbacks in many parts of the
world, however, we may position the Fund more defensively in the months ahead.
Generally speaking, we like the industries in which the Fund is concentrated.
Telecommunications should continue to benefit from advancing technology and high
consumer demand. Health-related companies should continue to find opportunities
as the popula-
56
<PAGE> 59
tion ages. While favorable forces have helped banks and financial services, we
recognize that this could change at any time. Whatever happens, we will seek to
identify countries and companies that we believe may provide long-term growth of
capital by investing in a portfolio consisting of non-U.S. equity securities
with current income as a secondary objective.
JOSEPH PORTERA
Portfolio Manager
MacKay-Shields Financial Corporation
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.
57
<PAGE> 60
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS
MSCI EAFE INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND MSCI EAFE
INSTITUTIONAL CLASS INDEX
------------------- ---------
<S> <C> <C>
7/31/92 10000.00 10000.00
9/30/92 9512.00 10417.00
12/31/92 9463.00 10015.00
3/31/93 10562.00 11216.00
6/30/93 11294.00 12344.00
9/30/93 11781.00 13162.00
12/31/93 11831.00 13276.00
3/31/94 12258.00 13740.00
6/30/94 12724.00 14442.00
9/30/94 12780.00 14457.00
12/31/94 12820.00 14309.00
3/31/95 12602.00 14576.00
6/30/95 12166.00 14682.00
9/30/95 13012.00 15294.00
12/31/95 13739.00 15914.00
3/31/96 14416.00 16373.00
6/30/96 14907.00 16632.00
9/30/96 14867.00 16611.00
12/31/96 15400.00 16875.00
3/31/97 15414.00 16610.00
6/30/97 17254.00 18766.00
9/30/97 17269.00 18634.00
12/31/97 16238.00 17175.00
3/31/98 18495.00 19702.00
6/30/98 19100.00 19911.00
9/30/98 16663.00 17081.00
12/31/98 19877.00 20610.00
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 7/31/92.(+)
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL EQUITY FUND VS
MSCI EAFE INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY FUND MSCI EAFE
SERVICE CLASS INDEX
------------- ---------
<S> <C> <C>
7/31/92 10000 10000
9/30/92 9512 10417
12/31/92 9463 10015
3/31/93 10562 11216
6/30/93 11294 12344
9/30/93 11781 13162
12/31/93 11831 13276
3/31/94 12258 13740
6/30/94 12724 14442
9/30/94 12780 14457
12/31/94 12820 14309
3/31/95 12602 14576
6/30/95 12153 14682
9/30/95 12973 15294
12/31/95 13699 15914
3/31/96 14348 16373
6/30/96 14826 16632
9/30/96 14773 16611
12/31/96 15287 16875
3/31/97 15301 16610
6/30/97 17122 18766
9/30/97 17122 18634
12/31/97 16032 17175
3/31/98 18229 19702
6/30/98 18848 19911
9/30/98 16423 17081
12/31/98 19591 20610
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund Institutional
Class(+) 22.41% 22.41% 10.93% 11.29%
International Equity Fund Service Class(+) 22.20% 22.20% 10.61% 11.04%
Average Lipper International Fund 13.02% 13.02% 7.69% 11.04%
MSCI EAFE Index 20.00% 20.00% 9.19% 11.93%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998)
- --------------------------------------------------
[Pie Chart]
<S> <C>
COMMON STOCK 96.28%
CASH & EQUIVALENTS 3.72%(++)
</TABLE>
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
(% of net assets as of December 31, 1998)
- ----------------------------------------------------
<S> <C>
1. Nokia Oyj Class A 2.50%
2. Novartis S.A. Registered 1.76%
3. Roche Holdings AG Genusscheine 1.73%
4. Royal Dutch Petroleum Co. 1.63%
5. Deutsche Telekom AG 1.56%
6. Allied Irish Banks PLC 1.56%
7. British Telecommunications PLC 1.51%
8. Glaxo Wellcome PLC 1.46%
9. Nestle S.A. Registered 1.39%
10. Telefonaktiebolaget LM Ericsson Series B 1.37%
</TABLE>
<TABLE>
<CAPTION>
TOP 10 COUNTRIES
(% of net assets as of December 31, 1998)
- ----------------------------------------------------
<S> <C>
1. United Kingdom 21.33%
2. Japan 11.15%
3. Germany 10.95%
4. France 8.52%
5. Switzerland 7.81%
6. Netherlands 5.38%
7. Italy 5.11%
8. Spain 4.62%
9. Australia 4.16%
10. Belgium 4.06%
</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% on an annualized basis of the average daily net asset value of the
Service Class shares.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
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.
58
<PAGE> 61
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (96.3%)+
SHARES VALUE
----------------------------
<S> <C> <C>
AUSTRALIA (4.2%)
Broken Hill Proprietary Co.,
Ltd. (energy sources).......... 97,679 $ 720,087
Cable & Wireless Optus Ltd.
(telecommunications) (a)....... 511,175 1,075,423
Commonwealth Bank of Australia
(banking)...................... 59,800 849,594
Foster's Brewing Group, Ltd.
(beverages & tobacco).......... 105,727 286,632
Lend Lease Corp., Ltd. (real
estate)........................ 51,000 688,190
News Corp., Ltd. (The)
(broadcasting & publishing).... 119,772 791,935
Telstra Corp., Ltd.
(telecommunications)........... 263,400 1,232,695
WMC, Ltd. (metals-nonferrous)... 79,425 239,683
------------
5,884,239
------------
BELGIUM (4.1%)
Delhaize-Le Lion, S.A.
(merchandising)................ 4,940 437,162
Electrabel, S.A.
(utilities-electrical & gas)... 2,550 1,120,881
Fortis AG (insurance)........... 3,560 1,290,214
KBC Bancassurance Holding N.V.
(banking)...................... 12,680 1,003,992
PetroFina, S.A. (energy
sources)....................... 1,210 554,764
Solvay, S.A. Class A
(chemicals).................... 6,850 516,455
Tractebel, S.A.
(utilities-electrical & gas)... 4,160 807,721
------------
5,731,189
------------
FINLAND (3.7%)
Merita Oyj (banking)............ 72,650 462,018
Nokia Oyj Class A
(electrical & electronics)..... 28,830 3,530,233
Outokumpu Oyj
(metals-nonferrous)............ 47,190 436,177
Sampo Insurance Co. PLC Class A
(insurance).................... 7,490 286,240
UPM-Kymmene Oyj
(forest products & paper)...... 20,060 562,583
------------
5,277,251
------------
FRANCE (8.5%)
AXA (insurance)................. 5,774 837,261
Carrefour, S.A.
(merchandising)................ 1,525 1,151,804
Elf Aquitaine, S.A.
(energy sources)............... 7,095 820,510
Eridania Beghin-Say, S.A.
(food & household products).... 2,140 370,458
France Telecom, S.A.
(telecommunications)........... 9,630 765,435
Groupe Danone, S.A.
(food & household products).... 3,367 964,411
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
----------------------------
<S> <C> <C>
FRANCE (Continued)
Lafarge, S.A. (building
materials & components)........ 3,973 377,670
L'Air Liquide, S.A.
(chemicals).................... 2,990 $ 548,649
L'Oreal, S.A.
(health & personal care)....... 2,198 1,589,674
Pernod-Ricard, S.A.
(beverages & tobacco).......... 4,950 321,670
Pinault-Printemps-Redoute, S.A.
(merchandising)................ 2,250 430,183
Sanofi, S.A.
(health & personal care)....... 4,040 665,378
Schneider, S.A. (electrical &
electronics)................... 5,626 341,428
Societe Generale, S.A. Class A
(banking)...................... 2,054 332,773
Thomson CSF, S.A. (aerospace &
military technology)........... 10,205 438,453
Total, S.A. Class B
(energy sources)............... 4,280 433,670
Vivendi, S.A. (business & public
services)...................... 6,342 1,646,241
------------
12,035,668
------------
GERMANY (10.9%)
Allianz AG Registered
(insurance).................... 3,600 1,320,666
Bayer AG (chemicals)............ 27,850 1,162,979
DaimlerChrysler AG
(automobiles).................. 17,135 1,692,386
Deutsche Bank AG (banking)...... 10,700 629,913
Deutsche Telekom AG
(telecommunications)........... 67,100 2,207,763
Dresdner Bank AG (banking)...... 16,900 710,287
Karstadt AG (merchandising)..... 1,400 731,302
Mannesmann AG
(telecommunications)........... 10,000 1,146,787
Metro AG (merchandising)........ 9,900 790,563
Muenchener Rueckversicherungs-
Gesellschaft AG Registered
(insurance).................... 1,390 673,500
RWE AG (utilities-electrical &
gas)........................... 23,700 1,298,466
Schering AG (health & personal
care).......................... 7,160 899,555
VEBA AG (utilities-electrical &
gas)........................... 15,050 900,909
Viag AG (utilities-electrical &
gas)........................... 1,000 586,603
Volkswagen AG (automobiles)..... 9,000 718,693
------------
15,470,372
------------
IRELAND (3.8%)
Allied Irish Banks PLC
(banking)...................... 122,550 2,198,139
CRH PLC (building materials &
components).................... 75,632 1,308,096
Irish Life PLC (insurance)...... 49,406 465,558
Kerry Group PLC Class A (food &
household products)............ 40,277 549,483
Ryanair Holdings PLC
(transportation-airlines)
(a)............................ 27,806 199,001
</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.
59
<PAGE> 62
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
IRELAND (Continued)
Smurfit (Jefferson) Group PLC
(forest products & paper)...... 347,647 $ 627,191
------------
5,347,468
------------
ITALY (5.1%)
Assicurazioni Generali S.p.A.
(insurance).................... 14,015 586,023
Banca Commerciale Italiana
S.p.A. (banking)............... 56,000 386,870
Benetton Group S.p.A.
(textile & apparel)............ 114,400 230,857
Edison S.p.A.
(utilities-electrical & gas)... 11,000 129,754
ENI S.p.A. (energy sources)..... 152,000 994,810
Fiat S.p.A. (automobiles)....... 55,300 192,358
Fiat S.p.A. di Risp
(automobiles).................. 61,600 123,188
Istituto Nazionale delle
Assicurazioni S.p.A.
(insurance).................... 132,000 349,165
Italgas S.p.A.
(utilities-electrical & gas)... 43,000 233,089
Mediobanca S.p.A. (banking)..... 19,900 276,763
Montedison S.p.A.
(multi-industry)............... 142,900 190,081
Olivetti S.p.A.
(telecommunications) (a)....... 50,000 174,225
Parmalat Finanziaria S.p.A.
(food & household products).... 43,000 82,343
Pirelli S.p.A. (industrial
components).................... 35,000 112,307
Riunione Adriatica di Sicurta
S.p.A. (insurance)............. 8,600 124,818
San Paolo IMI S.p.A.
(banking)...................... 3,000 53,085
Sirti S.p.A. (construction &
housing)....................... 28,000 169,171
Telecom Italia S.p.A.
(telecommunications)........... 95,111 812,685
Telecom Italia S.p.A. di Risp
(telecommunications)........... 47,093 296,799
Telecom Italia Mobile S.p.A.
(telecommunications)........... 114,000 842,825
Telecom Italia Mobile S.p.A. di
Risp (telecommunications)...... 69,000 325,313
Unicredito Italiano S.p.A.
(banking)...................... 79,000 468,926
Unione Immobiliare S.p.A.
(real estate).................. 132,000 68,953
------------
7,224,408
------------
JAPAN (11.2%)
Ajinomoto Co., Inc. (food &
household products) (b)........ 37,000 393,650
Bank of Tokyo-Mitsubishi, Ltd.
(banking)...................... 33,000 342,316
Bridgestone Corp.
(industrial components)........ 15,000 341,119
Denso Corp. (industrial
components) (b)................ 12,000 222,359
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------------------------
<S> <C> <C>
JAPAN (Continued)
Fanuc, Ltd. (electronic
components & instruments)
(b)............................ 2,000 $ 68,623
Fujitsu, Ltd. (data processing &
reproduction) (b).............. 21,000 280,210
Hitachi Corp., Ltd. (electrical
& electronics) (b)............. 54,000 335,135
Honda Motor Co., Ltd.
(automobiles) (b).............. 7,000 230,250
Industrial Bank of Japan, Ltd.
(The) (banking) (b)............ 62,000 286,390
Ito-Yokado Co., Ltd.
(merchandising) (b)............ 5,000 350,207
Kansai Electric Power Co., Inc.
(utilities-electrical & gas)
(b)............................ 9,200 201,879
Kirin Brewery Co., Ltd.
(beverages & tobacco) (b)...... 26,000 331,943
Komatsu, Ltd. (machinery &
engineering) (b)............... 48,000 252,362
Matsushita Electric Industrial
Co., Ltd. (appliances &
household durables) (b)........ 22,000 389,909
Mitsubishi Chemical Corp.
(chemicals) (b)................ 471 994
Mitsubishi Electric Corp.
(electrical & electronics)
(a)(b)......................... 104,000 327,333
Mitsubishi Estate Co., Ltd.
(real estate) (b).............. 22,000 197,588
Mitsubishi Heavy Industries,
Ltd. (machinery & engineering)
(b)............................ 29,000 113,130
Mitsui Fudosan Co., Ltd.
(real estate).................. 21,000 159,189
NEC Corp. (electrical &
electronics)................... 20,000 184,413
Nintendo Co., Ltd. (recreation &
other consumer goods).......... 4,000 388,331
Nippon Express Co., Ltd.
(transportation-road & rail)... 15,000 84,582
Nippon Oil Co., Ltd.
(energy sources)............... 56,000 195,619
Nippon Telegraph & Telephone
Corp. (telecommunications)..... 110 850,380
Nomura Securities Co., Ltd.
(financial services)........... 35,000 305,655
NTT Data Corp. (business &
public services)............... 76 378,011
NTT Mobile Communication
Network, Inc.
(telecommunications)........... 33 1,360,413
Olympus Optical Co., Ltd.
(electronic components &
instruments)................... 31,000 357,025
Osaka Gas Co., Ltd.
(utilities-electrical & gas)... 46,000 158,648
Rohm Co., Ltd. (electronic
components & instruments)...... 4,000 364,925
Sankyo Co., Ltd.
(health & personal care)....... 8,000 175,192
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
60
<PAGE> 63
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
JAPAN (Continued)
Sanyo Electric Co., Ltd.
(appliances & household
durables)...................... 55,000 $ 170,670
Sekisui Chemical Co., Ltd.
(building materials &
components).................... 6,000 40,429
Sharp Corp. (appliances &
household durables)............ 23,000 207,792
Shiseido Co., Ltd.
(health & personal care)....... 30,000 386,203
Sony Corp. (appliances &
household durables)............ 4,200 306,462
Sumitomo Bank, Ltd. (banking)... 19,000 195,407
Sumitomo Electric Industries
(industrial components)........ 19,000 214,105
Sumitomo Forestry Co., Ltd.
(building materials &
components).................... 52,000 373,436
Takeda Chemical Industries, Ltd.
(health & personal care)....... 10,000 385,671
TDK Corp. (electronic components
& instruments)................. 4,000 366,343
Tobu Railway Co., Ltd.
(transportation-road & rail)... 48,000 140,437
Tohoku Electric Power Co., Inc.
(utilities-electrical & gas)... 9,000 159,588
Tokyo Electric Power Co., Inc.
(utilities-electrical & gas)... 15,300 378,463
Tokyo Seimitsu Co., Ltd.
(electronic components &
instruments)................... 10,000 398,970
Toppan Printing Co., Ltd.
(business & public services)... 10,000 122,351
Toshiba Corp. (electrical &
electronics)................... 60,000 358,009
Tostem Corp. (building materials
& components).................. 18,000 357,477
Toyota Motor Corp.
(automobiles).................. 29,000 789,340
Yamanouchi Pharmaceutical Co.,
Ltd. (health & personal
care).......................... 24,000 774,534
------------
15,753,467
------------
NETHERLANDS (5.4%)
ABN AMRO Holding N.V.
(banking)...................... 30,600 644,068
Akzo Nobel N.V. (chemicals)..... 8,800 400,924
Elsevier N.V. (broadcasting &
publishing).................... 10,900 152,755
Heineken N.V. (beverages &
tobacco)....................... 9,100 547,940
ING Groep N.V. (financial
services)...................... 20,505 1,251,061
Koninklijke KPN N.V.
(telecommunications)........... 10,586 530,240
Royal Dutch Petroleum Co.
(energy sources)............... 46,300 2,306,778
TNT Post Group N.V.
(business & public services)... 10,286 331,600
Unilever CVA N.V. (food &
household products)............ 13,500 1,154,574
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
NETHERLANDS (Continued)
Wolters Kluwer CVA N.V.
(broadcasting & publishing).... 1,310 $ 280,475
------------
7,600,415
------------
NEW ZEALAND (1.4%)
Fletcher Challenge Building
(building materials &
components).................... 452,629 700,577
Telecom Corp. of New Zealand
Ltd. (telecommunications)...... 263,834 1,149,823
Telecom Corp. of New Zealand
Ltd. (telecommunications) (a)
(c)............................ 74,250 162,776
------------
2,013,176
------------
PORTUGAL (1.3%)
Banco Comercial Portugues, S.A.
Registered (banking)........... 10,200 313,583
Banco Espirito Santo e Comercial
de Lisboa, S.A. Registered
(banking)...................... 6,100 189,321
Electricidade de Portugal, S.A.
(utilities-electrical & gas)... 23,500 517,387
Jeronimo Martins & Filho SGPS,
S.A. (merchandising)........... 4,000 218,817
Portugal Telecom, S.A.
Registered
(telecommunications)........... 11,600 531,844
------------
1,770,952
------------
SPAIN (4.6%)
Acerinox, S.A. (metals-steel)... 4,620 107,769
Argentaria, Caja Postal y Banco
Hipotecario de Espana, S.A.
Registered (banking)........... 20,080 520,838
Autopistas Concesionaria
Espanola, S.A. (business &
public services)............... 11,893 198,100
Banco Bilbao Vizcaya, S.A.
Registered (banking)........... 54,840 861,210
Banco Central Hispanoamericano,
S.A. (banking)................. 40,380 480,228
Banco Santander, S.A. Registered
(banking)...................... 26,060 518,687
Corporacion Mapfre, S.A.
(insurance).................... 3,780 102,715
Endesa, S.A.
(utilities-electrical & gas)... 28,370 752,885
Fomento de Construcciones y
Contratas, S.A.
(construction & housing)....... 2,180 162,327
Gas Natural SDG, S.A.
(utilities-electrical & gas)... 4,060 442,728
Iberdrola, S.A.
(utilities-electrical & gas)... 36,370 681,537
Repsol, S.A. (energy sources)... 9,550 510,248
Telefonica, S.A.
(telecommunications)........... 26,260 1,169,515
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
61
<PAGE> 64
INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
SPAIN (Continued)
Telefonica, S.A. Bonus Rights
(telecommunications) (a)....... 26,260 $ 23,350
------------
6,532,137
------------
SWEDEN (3.0%)
Astra AB Series A
(health & personal care)....... 45,200 922,897
ForeningsSparbanken AB
(banking)...................... 13,300 344,578
Hennes & Mauritz AB Series B
(merchandising)................ 2,900 236,849
Skandia Forsakrings AB
(insurance).................... 14,800 226,412
Svenska Handelsbanken Series A
(banking)...................... 7,700 324,888
Telefonaktiebolaget LM Ericsson
Series B (electrical &
electronics)................... 81,200 1,933,437
Volvo AB Series B
(automobiles).................. 10,300 236,356
------------
4,225,417
------------
SWITZERLAND (7.8%)
Credit Suisse Group Registered
(banking)...................... 5,200 813,990
Nestle S.A. Registered (food &
household products)............ 900 1,959,255
Novartis S.A. Registered (health
& personal care)............... 1,263 2,482,816
Roche Holdings AG Genusscheine
(health & personal care)....... 200 2,440,514
Schweizerische
Rueckversicherungs Gesellschaft
Registered
(insurance).................... 400 1,042,898
UBS AG Registered (banking)..... 5,084 1,562,051
Zurich Allied AG Registered
(insurance).................... 1,000 740,454
------------
11,041,978
------------
UNITED KINGDOM (21.3%)
Abbey National PLC (banking)
(b)............................ 33,338 713,870
Allied Zurich PLC (insurance)
(b)............................ 21,703 324,804
Barclays PLC (banking) (b)...... 33,031 710,593
Bass PLC (leisure & tourism)
(b)............................ 104,703 1,472,901
BG PLC (utilities-
electrical & gas) (b).......... 120,167 759,248
Boots Co. PLC (merchandising)
(b)............................ 39,404 669,699
British Airways PLC
(transportation-airlines)
(b)............................ 96,104 650,784
British American Tobacco PLC
(beverages & tobacco) (b)...... 21,703 192,644
British Petroleum Co. PLC
(energy sources) (b)........... 107,340 1,601,972
British Telecommunications PLC
(telecommunications) (b)....... 142,236 2,140,518
Cable & Wireless PLC
(telecommunications) (b)....... 116,658 1,435,336
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
---------------------------
<S> <C> <C>
UNITED KINGDOM (Continued)
CGU PLC (insurance) (b)......... 38,124 $ 595,931
Diageo PLC (beverages & tobacco)
(b)............................ 79,623 894,880
EMI Group PLC (recreation &
other consumer goods) (b)...... 116,840 823,277
General Electric Co. PLC
(electrical & electronics)
(b)............................ 100,912 906,645
Glaxo Wellcome PLC
(health & personal care) (b)... 60,212 2,064,724
Granada Group PLC
(leisure & tourism) (b)........ 20,166 357,834
Great Universal Stores PLC (The)
(merchandising) (b)............ 48,686 509,919
HSBC Holdings PLC (banking)
(b)............................ 28,752 783,101
Imperial Chemical Industries PLC
(chemicals) (b)................ 105,460 910,660
Kingfisher PLC
(merchandising) (b)............ 43,556 471,045
Lloyds TSB Group PLC (banking)
(b)............................ 100,858 1,431,397
Marks & Spencer PLC
(merchandising) (b)............ 82,288 562,018
National Power PLC
(utilities-electrical & gas)
(b)............................ 28,450 251,349
National Westminster Bank PLC
(banking)...................... 40,180 774,140
Peninsular & Oriental Steam
Navigation Co. Deferred Stock
(The) (transportation-shipping)
(b)............................ 22,626 267,280
Prudential Corp. PLC
(insurance) (b)................ 47,209 713,593
Reed International PLC
(broadcasting & publishing)
(b)............................ 47,962 381,839
Rio Tinto PLC Registered
(metals-nonferrous) (b)........ 34,448 397,763
Royal Bank of Scotland Group PLC
(banking)...................... 48,500 780,313
Sainsbury (J.) PLC
(merchandising) (b)............ 56,459 439,388
Scottish Power PLC
(utilities-electrical & gas)
(b)............................ 47,860 490,119
SmithKline Beecham PLC
(health & personal care)....... 133,840 1,870,536
Unilever PLC (food & household
products) (b).................. 103,154 1,159,344
Vodafone Group PLC
(telecommunications) (b)....... 100,992 1,636,616
------------
30,146,080
------------
Total Common Stocks
(Cost $107,513,047)............ 136,054,217
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
62
<PAGE> 65
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENT (2.2%)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (2.2%)
UNITED STATES (2.2%)
Associates Corp. of North
America
5.08%, due 1/4/99
(financial services)........... $ 3,100,000 $ 3,098,688
------------
Total Short-Term Investment
(Cost $3,098,688).............. 3,098,688
------------
Total Investments
(Cost $110,611,735) (d)........ 98.5% 139,152,905(e)
Cash and Other Assets,
Less Liabilities............... 1.5% 2,152,126
------------ ------------
Net Assets...................... 100.0% $141,305,031
============ ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) Segregated or partially segregated as collateral for forward foreign
currency contracts.
(c) Installment receipt is a transaction with a set contract price which is
paid in installments over a period of time.
(d) The cost for Federal income tax purposes is $112,926,044.
(e) At December 31, 1998 net unrealized appreciation for securities was
$26,226,861, based on cost for Federal income tax purposes. This consisted
of aggregate gross unrealized appreciation for all investments on which
there was an excess of market value over cost of $30,897,887 and aggregate
gross unrealized depreciation for all investments on which there was an
excess of cost over market value of $4,671,026.
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...... $ 438,453 0.3%
Appliances & Household
Durables................... 1,074,834 0.7
Automobiles.................. 3,982,571 2.8
Banking...................... $ 19,963,330 14.1
Beverages & Tobacco.......... 2,575,708 1.8
Broadcasting & Publishing.... 1,607,004 1.1
Building Materials &
Components................. 3,157,686 2.2
Business & Public Services... 2,676,303 1.9
Chemicals.................... 3,540,659 2.5
Construction & Housing....... 331,498 0.2
Data Processing &
Reproduction............... 280,210 0.2
Electrical & Electronics..... 7,916,632 5.6
Electronic Components &
Instruments................ 1,555,885 1.1
Energy Sources............... 8,138,457 5.7
Financial Services........... 4,655,405 3.3
Food & Household Products.... 6,633,520 4.7
Forest Products & Paper...... 1,189,774 0.8
Health & Personal Care....... 14,657,693 10.4
Industrial Components........ 889,891 0.6
Insurance.................... 9,680,252 6.9
Leisure & Tourism............ 1,830,735 1.3
Machinery & Engineering...... 365,492 0.3
Merchandising................ 6,998,956 5.0
Metals-Nonferrous............ 1,073,623 0.8
Metals-Steel................. 107,769 0.1
Multi-Industry............... 190,081 0.1
Real Estate.................. 1,113,920 0.8
Recreation & Other Consumer
Goods...................... 1,211,608 0.9
Telecommunications........... 19,870,762 14.1
Textile & Apparel............ 230,857 0.2
Transportation-Airlines...... 849,785 0.6
Transportation-Road & Rail... 225,019 0.2
Transportation-Shipping...... 267,280 0.2
Utilities-Electrical & Gas... 9,871,253 7.0
------------ ------
139,152,905 98.5
Cash and Other Assets,
Less Liabilities........... 2,152,126 1.5
------------ ------
Net Assets................... $141,305,031 100.0%
============ ======
</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.
63
<PAGE> 66
INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $110,611,735)..... $ 139,152,905
Cash denominated in foreign
currencies (identified cost
$3,224,994)........................ 3,257,881
Cash................................. 287,523
Receivables:
Investment securities sold......... 581,465
Dividends and interest............. 474,446
Fund shares sold................... 14,084
Unrealized appreciation on forward
foreign currency contracts......... 192,434
Unamortized organization expense..... 2,265
--------------
Total assets................... 143,963,003
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 1,974,698
Custodian.......................... 23,000
MainStay Management................ 85,332
Transfer agent..................... 2,217
Accrued expenses..................... 54,189
Unrealized depreciation on forward
foreign currency contracts......... 518,536
--------------
Total liabilities.............. 2,657,972
--------------
Net assets........................... $ 141,305,031
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 11,903
Institutional Service Class........ 57
Additional paid-in capital........... 117,968,194
Accumulated distribution in excess of
net investment income.............. (1,496,798)
Accumulated distribution in excess of
net realized gain on investments... (3,422,703)
Net unrealized appreciation on
investments........................ 28,541,170
Net unrealized depreciation on
translation of other assets and
liabilities in foreign currencies
and forward foreign currency
contracts.......................... (296,792)
--------------
Net assets........................... $ 141,305,031
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 140,629,782
==============
Shares of capital stock
outstanding........................ 11,902,743
==============
Net asset value per share
outstanding........................ $ 11.81
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 675,249
==============
Shares of capital stock
outstanding........................ 57,595
==============
Net asset value per share
outstanding........................ $ 11.72
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 2,152,305
Interest........................... 633,970
--------------
Total income................... 2,786,275
--------------
Expenses:
Management......................... 1,104,413
Custodian.......................... 69,466
Professional....................... 52,964
Transfer agent..................... 26,706
Registration....................... 25,862
Shareholder communication.......... 22,772
Directors.......................... 2,927
Amortization of organization
expense.......................... 2,267
Service............................ 1,606
Miscellaneous...................... 28,622
--------------
Total expenses before
reimbursement................ 1,337,605
Expense reimbursement from
Manager.......................... (36,690)
--------------
Net expenses................... 1,300,915
--------------
Net investment income................ 1,485,360
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain from:
Security transactions.............. 3,455,663
Option transactions................ (131,742)
Foreign currency transactions...... 215,414
--------------
Net realized gain on investments and
foreign currency transactions...... 3,539,335
--------------
Net change in unrealized appreciation
on investments:
Security transactions.............. 21,531,002
Translation of other assets and
liabilities in foreign currencies
and forward foreign currency
contracts........................ (517,137)
--------------
Net unrealized gain on investments
and foreign currency
transactions....................... 21,013,865
--------------
Net realized and unrealized gain on
investments and foreign currency
transactions....................... 24,553,200
--------------
Net increase in net assets resulting
from operations.................... $ 26,038,560
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $296,522.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
64
<PAGE> 67
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 1,485,360 $ 1,587,348
Net realized gain (loss) on investments................. 3,455,663 (1,080,939)
Net realized loss on option transactions................ (131,742) --
Net realized gain on foreign currency transactions...... 215,414 10,328,021
Net change in unrealized appreciation on investments.... 21,531,002 2,187,439
Net change in unrealized appreciation on translation of
other assets and liabilities in foreign currencies and
forward foreign currency contracts..................... (517,137) (4,839,110)
-------------- --------------
Net increase in net assets resulting from operations.... 26,038,560 8,182,759
-------------- --------------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Institutional Class................................... (2,785,467) (9,819,650)
Institutional Service Class........................... (12,219) (50,906)
From net realized gain on investments:
Institutional Class................................... -- (2,944,160)
Institutional Service Class........................... -- (15,790)
In excess of net investment income:
Institutional Class................................... (1,254,408) --
Institutional Service Class........................... (5,503) --
-------------- --------------
Total dividends and distributions to shareholders... (4,057,597) (12,830,506)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 40,302,257 11,849,479
Institutional Service Class........................... 44,972 163,090
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 4,039,873 12,104,179
Institutional Service Class........................... 17,705 66,689
-------------- --------------
44,404,807 24,183,437
Cost of shares redeemed:
Institutional Class................................... (39,356,137) (31,841,602)
Institutional Service Class........................... (105,878) (318,224)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... 4,942,792 (7,976,389)
-------------- --------------
Net increase (decrease) in net assets................. 26,923,755 (12,624,136)
NET ASSETS:
Beginning of year......................................... 114,381,276 127,005,412
-------------- --------------
End of year............................................... $ 141,305,031 $ 114,381,276
============== ==============
Accumulated distribution in excess of net investment
income at end of year................................... $ (1,496,798) $ (236,887)
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
65
<PAGE> 68
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 9.93 $ 9.85
---------- ----------
Net investment income....................................... 0.13 0.11
Net realized and unrealized gain (loss) on investments...... 2.12 2.11
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. (0.03) (0.03)
---------- ----------
Total from investment operations............................ 2.22 2.19
---------- ----------
Less dividends and distributions:
From net investment income and net realized gain on foreign
currency transactions..................................... (0.24) (0.22)
From net realized gain on investments....................... -- --
In excess of net investment income.......................... (0.10) (0.10)
---------- ----------
Total dividends and distributions........................... (0.34) (0.32)
---------- ----------
Net asset value at end of year.............................. $ 11.81 $ 11.72
========== ==========
Total investment return..................................... 22.41% 22.20%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 1.14% 0.89%
Net expenses.............................................. 1.00% 1.25%
Expenses (before reimbursement)........................... 1.03% 1.28%
Portfolio turnover rate..................................... 51% 51%
Net assets at end of year (in 000's)........................ $ 140,630 $ 675
</TABLE>
- ------------
(a) Commencement of operations.
(b) Less than one cent per share.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
66
<PAGE> 69
MAINSTAY
INSTITUTIONAL FUNDS INC.
<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>
$ 10.63 $ 10.58 $ 10.35 $ 10.33 $ 10.00 $ 10.00
-------- -------- -------- -------- -------- --------
1.14 1.11 0.64 0.62 0.36 0.35
(0.10) (0.10) 0.09 0.09 0.17 0.16
(0.49) (0.52) 0.51 0.48 0.18 0.17
-------- -------- -------- -------- -------- --------
0.55 0.49 1.24 1.19 0.71 0.68
-------- -------- -------- -------- -------- --------
(0.96) (0.93) (0.84) (0.82) (0.10) (0.09)
(0.29) (0.29) (0.12) (0.12) (0.26) (0.26)
-- -- -- -- (0.00)(b) (0.00)(b)
-------- -------- -------- -------- -------- --------
(1.25) (1.22) (0.96) (0.94) (0.36) (0.35)
-------- -------- -------- -------- -------- --------
$ 9.93 $ 9.85 $ 10.63 $ 10.58 $ 10.35 $ 10.33
======== ======== ======== ======== ======== ========
5.44% 4.88% 12.09% 11.59% 7.17% 6.86%
1.23% 0.98% 0.83% 0.58% 1.05% 0.80%
1.00% 1.25% 1.00% 1.25% 1.00% 1.25%
1.04% 1.29% 1.07% 1.32% 1.07% 1.32%
37% 37% 23% 23% 26% 26%
$113,774 $ 607 $126,280 $ 725 $ 96,714 $ 213
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
67
<PAGE> 70
MULTI-ASSET FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
1998 MARKET RECAP
- - The Russian economic collapse, a weakening economic outlook in Latin America,
and ongoing economic woes in Asia resulted in global equity market volatility.
- - The near collapse of Long-Term Capital Management, a major leveraged hedge
fund, added to concerns about a liquidity crunch.
- - Fears of global recession and financial market instability prompted three
successive 0.25% interest-rate cuts by the Federal Reserve Board beginning in
late September, setting the stage for the equity markets' unexpectedly speedy
rebound in the fourth quarter.
- ------------------------------------------------------
1998 FUND RECAP
- - For the one-year period ended 12/31/98, the MainStay Institutional Multi-Asset
Fund returned 21.31% for Institutional Class shares and 21.00% for Service
Class shares.
- - The Fund benefited from shifting asset allocation to a more conservative
posture in the second and third quarters when the equity markets hit rough
spots.
- - Both share classes outperformed the average Lipper(*) flexible portfolio fund,
which returned 14.20% for the one-year period ended 12/31/98.
Thanks to low interest rates, nearly nonexistent inflation, and solid economic
growth, 1998 was the fourth consecutive year of double-digit gains in the major
U.S. stock indexes. However, events such as Russia's debt default, continuing
woes in Asia, and Latin America's budget crises made the path toward achieving
these gains quite bumpy. Liquidity concerns heightened as the markets in many
parts of the world experienced substantial "sell-offs" and a major leveraged
hedge fund flirted with insolvency.
The result was an August return for the S&P 500(+) Index that was one of the
10-worst monthly returns since the S&P 500's inception. The worldwide crisis was
also bad news for many international stocks, when markets throughout Europe,
Latin America, and the Pacific Rim fell by more than 15% in U.S. dollar terms
during the third quarter.
After a period of volatility that lasted through most of September, most markets
rebounded strongly. Spurred by better-than-expected U.S. corporate earnings
reports and a series of further interest-rate reductions by the Federal
Reserve Board, the fourth-quarter stock market sent a strong message--for many
investors, the economic and earnings outlook was upbeat. With technology
stocks leading the way, most major U.S. large-cap equity indexes finished the
year with the strongest fourth-quarter returns in some twenty years.
INFLATION An increase in the costs of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
LOCAL CURRENCY TERMS/U.S. DOLLAR TERMS Returns expressed in local currency terms
show what investors 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.
- --------------------------------------------------------------------------------
(*) Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns
with capital gains and dividends reinvested.
(+) "S&P 500(R)" is a registered trademark of The McGraw-Hill Companies, Inc.
The S&P 500 is an unmanaged index and is considered to be generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gain distributions. An investment cannot be made
directly into an index.
68
<PAGE> 71
European and Pacific Basin equities also ended the year in positive territory,
with record highs recorded in most European stock markets, which advanced on a
favorable low interest/low inflation rate environment, continued enthusiasm over
European Monetary Union, better-than-expected corporate earnings, and
significant merger and acquisition activity throughout Europe.
In large part due to the stock markets' volatility, the U.S. income-securities
market showed strong overall performance in 1998. During the first half of the
year, the Federal Reserve Board kept the targeted Fed Funds rate steady at 5.5%,
reflecting general optimism about the domestic economy's ability to sustain
growth without inflation. As turmoil in the world's financial markets grew in
the second half of the year, many investors increasingly fled riskier assets for
the relative safety of U.S. Treasuries. This helped boost the bond market and
drove prices higher. When the Federal Reserve Board stepped in to calm the
markets beginning in late September, lowering interest rates a total of 0.75% in
three rapid moves, the bond market responded by finishing the year with its best
returns since 1995.
GIVEN THIS BACKDROP, HOW DID THE MAINSTAY INSTITUTIONAL MULTI-ASSET FUND
PERFORM IN 1998?
For the year ended 12/31/98, the MainStay Institutional Multi-Asset Fund
returned 21.31% for Institutional Class shares and 21.00% for Service Class
shares. Both share classes significantly outperformed the average Lipper
flexible portfolio fund, which returned 14.20% for the year.
WHAT WERE THE KEY FACTORS THAT HELPED THE FUND OUTPERFORM ITS PEERS?
Primarily, the Fund's use of its multifactor asset-allocation model helped it
significantly outperform its benchmark for the year. The model evaluates several
factors including market volatility to determine the Fund's weighting in
domestic and foreign equities, as well as U.S. bond and cash exposures, given
the risk, expected return, and correlation relationships for the asset classes.
The Fund had an average exposure of 65% to equities, 19% to bonds, and 16% to
cash for 1998, but the asset-allocation mix shifted significantly throughout the
annual period.
HOW DID CHANGING MARKET CONDITIONS SPECIFICALLY IMPACT THE FUND'S
ASSET-ALLOCATION MIX OVER THE YEAR?
During the first quarter of 1998, on average, 76% of the Fund's assets were
allocated to equities, 11% to bonds, and 13% to cash--a mix that proved
advantageous to the Fund's performance in light of solid gains across all equity
markets. However, when our models detected anomalies in the risk-reward
relationship among the Fund's investable asset classes, it signaled a change in
the Fund's exposure. Thus, we shifted the Fund's allocation mix to a more
conservative posture in the second quarter, as expectations of reduced corporate
earnings and concern spread about the potential impact on U.S. markets of Asian
and emerging-market instability. The Fund's average allocation to equities
decreased to 62%, while the exposure to bonds increased to 25%, and the average
allocation to cash held steady at 13%.
During the third quarter, we moved the Fund's average allocation mix to an even
more conservative position, with 57% in equities, 18% in bonds, and 25% in cash.
The moves proved timely, especially in light of a significant correction in the
third quarter that sent all of the equity markets in which the Fund can invest
sliding into negative return territory. The U.S. bond market and the cash
market, as measured by the Salomon Smith Barney Broad Investment Grade (BIG)
Bond Index(++) and the Merrill Lynch 3-Month U.S. Treasury Bill Index,(sec.) on
the other hand, posted returns of 4.15% and 1.42%, respectively, in the third
quarter.
MERGERS AND ACQUISITIONS A merger is a combination of two companies, an
acquisition is the purchase of a company, division, or business unit. Companies
that engage in mergers and acquisitions often pay shareholders a premium, or an
amount over the current share price, to complete the transaction quickly and
under favorable terms.
FEDERAL FUNDS RATE The interest rate charged by banks with excess reserves at a
Federal Reserve district bank to banks needing overnight loans to meet reserve
requirements.
- --------------------------------------------------------------------------------
(++) The Salomon Smith Barney Broad Investment Grade (BIG) Bond Index is an
unmanaged index that is considered representative of the U.S. bond
market.
(sec.) The Merrill Lynch 3-Month U.S. Treasury Bill Index is comprised of a
single issue purchased at the beginning of the month and held for a full
month. The issue selected at each month-end rebalancing is the
outstanding Treasury Bill that matures closest to, but not beyond, 3
months from the rebalancing date.
69
<PAGE> 72
Investor confidence in the equity markets was sparked once again in the fourth
quarter, this time in response to a series of three Federal Reserve Board
interest-rate cuts of 0.25% each, which seemed to lead monetary policy efforts
by most countries to stave off economic recession. As the vast majority of the
U.S. and foreign equity markets rebounded, we reallocated the Fund's assets
according to its model, adopting an average mix of 68% in equities, 21% in
bonds, and 11% in cash. This move was especially beneficial in light of the
stock market's rise, which brought the strongest fourth-quarter returns in
twenty years to most major U.S. large-cap indexes.
HOW DID THE FUND'S BOND INVESTMENTS PERFORM?
Throughout 1998, the Fund's U.S. bond investments, which seek to track the
performance of the BIG Bond Index, contributed positively to performance. For
the one-year period ended 12/31/98, the BIG Bond Index returned 8.71%.
Throughout the year, investors seeking a safe haven from the volatile capital
markets scrambled for high-quality income securities. As a result, U.S.
Treasuries became the best-performing sector in the income-securities markets
during 1998, returning 10%. The heavy weighting of U.S. Treasury securities in
the BIG Bond Index (this sector represents 40% of the BIG Bond Index)
contributed to the strong relative performance of the income component of the
Fund.
WHICH SECTORS PROVIDED THE HIGHEST RETURNS?
The sector of the Fund's assets dedicated to stock index futures contracts of
the French CAC-40 Index, a narrow-based capitalization-weighted index of 40
companies listed on the Paris stock exchange, was the Fund's best performer in
1998. The CAC-40 Index had a U.S. dollar based return of 33.90% for the year.
The CAC-40 Index's outstanding return was primarily attributed to the
anticipated benefits of, and continued enthusiasm for, European Monetary Union.
During the year, the Fund allocated approximately 3% of its assets to stock
index futures contracts of the French CAC-40 Index.
U.S. equities, as represented by the S&P 500 Index, returned an impressive
28.58% for 1998, despite significant volatility through the second and third
quarters. Strong positive inflows to the market and effective monetary policy by
the Federal Reserve Board helped support the year's strong S&P 500 returns.
WERE THERE MARKETS THAT DIDN'T HAVE SUCH POSITIVE PERFORMANCE?
Yes. The Fund had 1% of its assets invested in futures contracts of Japan's
TOPIX Index. Plagued by economic uncertainty and recession, Japanese equities
declined 6.60% during 1998. The Fund also had a small amount of assets invested
in futures contracts of the Hong Kong Hang Seng Index, which declined 2.71% amid
the Asian economic crisis and talks of possible currency devaluation during
1998.(|)
WHAT IS YOUR OUTLOOK FOR 1999?
Navigating the financial markets will be even more challenging in 1999. It seems
almost inevitable that corporations will have disappointing earnings--not
because of operational inefficiencies but because investor expectations are
simply too high. Another 20% return for the U.S. equity market seems unlikely.
We believe the equity markets could experience even greater levels of volatility
as investors wrestle with the economic and political impact that monetary union
will have on European markets and the possible implications to the U.S. market
as a result of currency dislocation.
FUTURES CONTRACT An agreement to buy or sell a specific amount of a financial
instrument at a particular price on a stipulated future date.
DEVALUATION Lowering the value of a country's currency relative to gold and/or
the currencies of other nations. Devaluation may also result from a rise in the
value of other currencies relative to the currency of a particular country.
- --------------------------------------------------------------------------------
(|) All of the country-specific indexes mentioned are unmanaged and are
considered to be representative of the stock markets of their respective
countries.
70
<PAGE> 73
Despite this backdrop, monetary policy will continue to play a key role in
combating recession. We believe inflation will most likely remain at current
levels. These factors coupled with the fact that investors still seem to be
willing to pour money into the equity markets will provide a positive tone, at
least for now.
Of course, it is important to note that the Fund's portfolio is primarily model
driven with relative-value analysis determining the asset-allocation mix as well
as specific security purchases and sales. Still, wherever the markets may move,
the Fund will continue to seek 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.
JAMES A. MEHLING, CFA
Portfolio Manager
Monitor Capital Advisors, Inc.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
71
<PAGE> 74
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS
LIPPER FLEXIBLE PORTFOLIO AVERAGE
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
AVERAGE LIPPER
MULTI-ASSET FUND FLEXIBLE
INSTITUTIONAL CLASS PORTFOLIO FUND
------------------- --------------
<S> <C> <C>
12/31/90 10000 10000
3/31/91 10560 11132
6/30/91 10650 11154
9/30/91 11130 11710
12/31/91 11790 12542
3/31/92 11607 12554
6/30/92 11912 12572
9/30/92 12332 12990
12/31/92 12626 13559
3/31/93 13098 14108
6/30/93 13244 14321
9/30/93 13548 14806
12/31/93 13736 15027
3/31/94 13313 14590
6/30/94 13289 14444
9/30/94 13583 14850
12/31/94 13618 14710
3/31/95 14460 15599
6/30/95 15379 16758
9/30/95 16362 17689
12/31/95 17269 18363
3/31/96 18031 18903
6/30/96 18676 19380
9/30/96 18793 19827
12/31/96 20061 20842
3/31/97 20593 20805
6/30/97 23422 23002
9/30/97 24973 24557
12/31/97 25415 24689
3/31/98 28105 26798
6/30/98 28911 27122
9/30/98 27231 24993
12/31/98 30830 28115
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MULTI-ASSET FUND VS
LIPPER FLEXIBLE PORTFOLIO AVERAGE
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
AVERAGE LIPPER
MULTI-ASSET FUND FLEXIBLE
SERVICE CLASS PORTFOLIO FUND
-------------------- -----------------------
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 10560.00 11132.00
6/30/91 10650.00 11154.00
9/30/91 11130.00 11710.00
12/31/91 11790.00 12542.00
3/31/92 11607.00 12554.00
6/30/92 11912.00 12572.00
9/30/92 12332.00 12990.00
12/31/92 12626.00 13559.00
3/31/93 13098.00 14108.00
6/30/93 13244.00 14321.00
9/30/93 13548.00 14806.00
12/31/93 13736.00 15027.00
3/31/94 13313.00 14590.00
6/30/94 13289.00 14444.00
9/30/94 13583.00 14850.00
12/31/94 13618.00 14710.00
3/31/95 14473.00 15599.00
6/30/95 15379.00 16758.00
9/30/95 16349.00 17689.00
12/31/95 17254.00 18363.00
3/31/96 18000.00 18903.00
6/30/96 18629.00 19380.00
9/30/96 18732.00 19827.00
12/31/96 19995.00 20842.00
3/31/97 20511.00 20805.00
6/30/97 23315.00 23002.00
9/30/97 24831.00 24557.00
12/31/97 25255.00 24689.00
3/31/98 27915.00 26798.00
6/30/98 28682.00 27122.00
9/30/98 27011.00 24993.00
12/31/98 30558.00 28115.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Asset Fund Institutional Class 21.31% 21.31% 17.55% 15.10%
Multi-Asset Fund Service Class(+) 21.00% 21.00% 17.34% 14.97%
Average Lipper Flexible Portfolio Fund 14.20% 14.20% 14.31% 14.65%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996 1997 1998
17.90% 7.09% 8.79% -0.86% 26.81% 16.16% 26.69% 21.31%
Total Return %*
</TABLE>
Year end
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS TOP 5 INDUSTRY HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Microsoft Corp. 1.14% 1. United States Treasury Notes 10.14%
2. General Electric Co. 1.10% 2. Federal Home Loan Mortgage Corporation Gold 7.60%
3. Intel Corp. 0.65% 3. Financial -- Miscellaneous 5.75%
4. Wal-Mart Stores, Inc. 0.60% 4. Utilities -- Telephone 3.90%
5. Exxon Corp. 0.59% 5. Utilities -- Electric 3.42%
6. Merck & Co., Inc. 0.58%
7. International Business Machines Corp. 0.57%
8. Coca-Cola Co. (The) 0.54%
9. Pfizer Inc. 0.54%
10. Cisco Systems, Inc. 0.48%
- ----------------------------------------------------------------------------------------------------------------------
</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% on an annualized basis of the average daily net asset value of the
Service Class shares.
(+) 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%.
72
<PAGE> 75
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM BONDS (38.6%)+
CORPORATE BONDS (15.5%)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
BANKS (0.9%)
First Union Corp.
8.77%, due 11/15/04............. $ 1,000,000 $ 1,032,500
Morgan (J.P.) & Co., Inc.
8.50%, due 8/15/03.............. 500,000 563,750
National Bank of Canada Series B
8.125%, due 8/15/04 (d)......... 2,850,000 3,127,875
------------
4,724,125
------------
BROKERAGE (0.1%)
PaineWebber Group, Inc.
7.75%, due 9/1/02............... 400,000 419,500
------------
CHEMICALS (0.1%)
Rhone-Poulenc S.A.
7.75%, due 1/15/02 (d).......... 350,000 371,000
------------
CONSUMER FINANCIAL SERVICES (0.1%)
Bear Stearns Cos., Inc. (The)
6.625%, due 1/15/04............. 500,000 510,625
------------
FINANCIAL--MISCELLANEOUS (4.3%)
Ambac Financial Group Inc.
9.375%, due 8/1/11.............. 1,000,000 1,333,750
Crown Cork & Seal Finance PLC
7.00%, due 12/15/06 (d)......... 5,000,000 5,275,000
Daimler-Benz North America Corp.
Series A
7.375%, due 9/15/06............. 1,000,000 1,118,750
Ford Motor Credit Co.
7.00%, due 9/25/01.............. 1,600,000 1,664,000
MBIA Inc.
7.15%, due 7/15/27.............. 6,900,000 7,572,750
Morgan Stanley Group Inc.
7.50%, due 2/1/24............... 5,000,000 5,325,000
------------
22,289,250
------------
INDUSTRIAL (2.5%)
Bass America Inc.
6.625%, due 3/1/03.............. 2,250,000 2,311,875
Cox Communications Inc.
6.50%, due 11/15/02............. 1,000,000 1,028,750
Imperial Oil Ltd.
8.30%, due 8/20/01 (d).......... 6,000,000 6,442,500
Petroleum Geo-Services ASA
6.625%, due 3/30/08 (d)......... 1,000,000 992,500
Societe Nationale Elf Aquitane
8.00%, due 10/15/01 (d)......... 2,000,000 2,145,000
------------
12,920,625
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
CORPORATE BONDS (15.5%)
<S> <C> <C>
OIL--INTEGRATED DOMESTIC (0.1%)
Occidental Petroleum Corp.
10.125%, due 11/15/01........... $ 500,000 $ 553,750
------------
PAPER & FOREST PRODUCTS (0.1%)
Georgia-Pacific Corp.
9.125%, due 7/1/22.............. 500,000 540,000
------------
UTILITIES--ELECTRIC (3.4%)
Arkansas Power & Light Co.
6.00%, due 10/1/03.............. 3,000,000 3,033,750
Citizens Utilities Co.
7.45%, due 1/15/04.............. 1,000,000 1,083,750
Florida Power & Light Co.
6.875%, due 4/1/04.............. 500,000 512,500
Houston Lighting & Power Co.
Series C
6.50%, due 4/21/03.............. 8,500,000 8,818,750
Philadelphia Electric Co.
5.625%, due 11/1/01............. 1,000,000 1,008,750
Wisconsin Electric Power Co.
7.70%, due 12/15/27............. 3,000,000 3,258,750
------------
17,716,250
------------
UTILITIES--TELEPHONE (3.9%)
Chesapeake & Potomac Telephone
Co. VA
7.875%, due 1/15/22............. 8,750,000 10,478,125
GTE South Inc. Series C
6.00%, due 2/15/08.............. 1,300,000 1,337,375
New York Telephone Co.
6.125%, due 1/15/10............. 5,000,000 5,225,000
Northern Telecom Ltd.
6.875%, due 10/1/02 (d)......... 3,000,000 3,142,500
------------
20,183,000
------------
Total Corporate Bonds
(Cost $80,289,259).............. 80,228,125
------------
FOREIGN GOVERNMENT (0.2%)
CANADA (0.2%)
Manitoba (Province of)
9.625%, due 3/15/99 (d)......... 500,000 503,750
Quebec (Province of)
9.375%, due 4/1/99 (d).......... 500,000 504,375
------------
Total Foreign Government
(Cost $1,060,440)............... 1,008,125
------------
</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.
73
<PAGE> 76
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (22.9%)
PRINCIPAL
AMOUNT VALUE
----------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION GOLD
(MORTGAGE PASS-THROUGH SECURITIES)(7.6%)
6.00%, due 1/1/26-1/1/28........ $ 1,087,332 $ 1,074,420
6.50%, due 1/20/14 TBA (e)...... 10,000,000 10,143,750
7.00%, due 3/1/26-10/1/26....... 780,171 795,531
7.00%, due 1/20/14-1/14/29 TBA
(e)........................... 25,000,000 25,524,379
7.50%, due 7/1/11-9/1/11........ 650,357 668,852
7.75%, due 10/1/07.............. 487,050 507,141
8.00%, due 10/1/11-11/1/11...... 579,730 597,122
------------
39,311,195
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES)(0.9%)
6.50%, due 11/1/03.............. 714,155 723,082
7.00%, due 10/1/03-6/1/26....... 1,180,022 1,204,420
7.50%, due 7/1/11-10/1/11....... 538,823 554,146
8.00%, due 7/1/09-11/1/11....... 1,139,513 1,174,410
8.50%, due 6/1/26-10/1/26....... 315,547 330,535
9.00%, due 6/1/26-9/1/26........ 516,574 545,954
------------
4,532,547
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES)(2.7%)
6.00%, due 1/20/29 TBA (e)...... 11,000,000 10,900,318
7.00%, due 7/15/11-10/15/11..... 859,413 883,584
7.50%, due 3/15/26-6/15/26...... 696,896 718,674
8.00%, due 8/15/26-10/15/26..... 624,525 648,725
8.50%, due 11/15/26............. 278,100 294,960
9.00%, due 4/15/25-11/15/26..... 431,762 460,772
------------
13,907,033
------------
RESOLUTION FUNDING CORPORATION (0.3%)
(zero coupon), due 10/15/10..... 2,600,000 1,383,905
------------
UNITED STATES TREASURY BONDS (1.3%)
6.125%, due 11/15/27............ 1,500,000 1,676,037
6.25%, due 8/15/23.............. 1,000,000 1,118,703
8.125%, due 5/15/21............. 1,000,000 1,345,800
10.625%, due 8/15/15............ 1,000,000 1,587,204
11.875%, due 11/15/03........... 700,000 913,732
------------
6,641,476
------------
UNITED STATES TREASURY NOTES (10.1%)
4.75%, due 11/15/08............. 10,000,000 10,071,540
5.00%, due 1/31/99.............. 1,000,000 1,000,300
5.625%, due 12/31/02............ 8,500,000 8,782,948
5.75%, due 8/15/03.............. 2,300,000 2,401,430
6.375%, due 1/15/99............. 1,000,000 1,000,614
6.875%, due 3/31/00............. 23,000,000 23,605,774
7.00%, due 7/15/06.............. 2,100,000 2,396,253
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES (Continued)
7.50%, due 11/15/01-5/15/02..... $ 2,000,000 $ 2,162,393
7.875%, due 11/15/99............ 1,000,000 1,027,022
------------
52,448,274
------------
Total U.S. Government
& Federal Agencies
(Cost $116,723,194)............. 118,224,430(f)
------------
Total Long-Term Bonds
(Cost $198,072,893)............. 199,460,680
------------
<CAPTION>
COMMON STOCKS (33.1%)
<S> <C> <C>
SHARES
----------
AEROSPACE/DEFENSE (0.4%)
Boeing Co. (The)................. 17,021 555,310
General Dynamics Corp. .......... 2,231 130,792
Lockheed Martin Corp. ........... 3,360 284,760
Northrop Grumman Corp. .......... 1,110 81,169
Raytheon Co. Class B............. 5,856 311,832
Rockwell International Corp. .... 3,286 159,576
United Technologies Corp. ....... 3,954 429,998
------------
1,953,437
------------
AIRLINES (0.1%)
AMR Corp. (a).................... 3,118 185,131
Delta Air Lines, Inc. ........... 2,449 127,348
Southwest Airlines Co. .......... 5,657 126,929
US Airways Group, Inc. (a)....... 1,697 88,244
------------
527,652
------------
ALUMINUM (0.1%)
Alcan Aluminum Ltd. ............. 3,924 106,193
Aluminum Co. of America.......... 3,251 242,403
Reynolds Metals Co. ............. 1,289 67,914
------------
416,510
------------
AUTO PARTS & EQUIPMENT (0.1%)
Cooper Tire & Rubber Co. ........ 1,363 27,856
Genuine Parts Co. ............... 3,023 101,082
Goodyear Tire & Rubber Co.
(The)........................... 2,715 136,938
------------
265,876
------------
AUTOMOBILES (0.4%)
Ford Motor Co. .................. 20,707 1,215,242
General Motors Corp. ............ 11,139 797,135
------------
2,012,377
------------
BANKS--MAJOR REGIONAL (1.6%)
Bank of New York Co., Inc.
(The)........................... 12,929 520,392
Bank One Corp. .................. 19,975 1,019,973
BankBoston Corp. ................ 5,002 194,765
BB&T Corp. ...................... 5,045 203,377
Comerica Inc. ................... 2,714 185,061
Fifth Third Bancorp.............. 4,537 323,545
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
74
<PAGE> 77
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
---------------------------
<S> <C> <C>
BANKS--MAJOR REGIONAL (Continued)
Firstar Corp. ................... 5,000 $ 466,250
Fleet Financial Group, Inc. ..... 9,760 436,150
Huntington Bancshares Inc. ...... 3,620 108,826
KeyCorp.......................... 7,716 246,912
Mellon Bank Corp. ............... 4,467 307,106
Mercantile Bancorp Inc. ......... 2,495 115,082
National City Corp. ............. 5,590 405,275
Northern Trust Corp. ............ 1,942 169,561
PNC Bank Corp. .................. 5,185 280,638
Regions Financial Corp. ......... 3,546 142,948
Republic New York Corp. ......... 1,829 83,334
State Street Corp. .............. 2,815 195,818
Summit Bancorp................... 2,978 130,101
SunTrust Banks, Inc. ............ 5,351 409,352
Synovus Financial Corp. ......... 4,406 107,396
Union Planters Corp. ............ 2,329 105,533
U.S. Bancorp..................... 12,335 437,893
Wachovia Corp. .................. 3,585 313,463
Wells Fargo Co. ................. 27,608 1,102,595
------------
8,011,346
------------
BANKS--MONEY CENTER (0.8%)
BankAmerica Corp. ............... 29,731 1,787,576
Bankers Trust Corp. ............. 1,796 153,446
Chase Manhattan Corp. (The)...... 14,608 994,257
First Union Corp. ............... 16,850 1,024,691
Morgan (J.P.) & Co., Inc. ....... 3,049 320,336
------------
4,280,306
------------
BANKS--SAVINGS & LOANS (0.1%)
Golden West Financial Corp. ..... 1,059 97,097
Washington Mutual, Inc. ......... 10,121 386,496
------------
483,593
------------
BEVERAGES--ALCOHOLIC (0.2%)
Anheuser-Busch Cos., Inc. ....... 8,313 545,541
Brown-Forman Corp. Class B....... 1,222 92,490
Coors (Adolph) Co. Class B....... 718 40,522
Seagram Co. Ltd. (The)........... 6,723 255,474
------------
934,027
------------
BEVERAGES--SOFT DRINKS (0.8%)
Coca-Cola Co. (The).............. 42,088 2,814,635
Coca-Cola Enterprises Inc. ...... 6,675 238,631
PepsiCo, Inc. ................... 25,186 1,031,052
------------
4,084,318
------------
BROADCAST/MEDIA (0.4%)
CBS Corp. ....................... 12,022 393,721
Clear Channel Communications Inc.
(a)............................. 4,251 231,679
Comcast Corp. Special Class A.... 6,286 368,910
MediaOne Group Inc. (a).......... 10,475 492,325
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------
<S> <C> <C>
BROADCAST/MEDIA (Continued)
Tele-Communications, Inc. Series
A
TCI Group (a)................... 9,214 $ 509,649
------------
1,996,284
------------
BUILDING MATERIALS (0.1%)
Masco Corp. ..................... 5,771 165,916
Owens Corning.................... 877 31,079
Sherwin-Williams Co. (The)....... 2,980 87,537
------------
284,532
------------
CHEMICALS (0.5%)
Air Products & Chemicals,
Inc. ........................... 3,905 156,200
Dow Chemical Co. (The)........... 3,850 350,109
Du Pont (E.I.) De Nemours &
Co. ............................ 19,414 1,030,155
Eastman Chemical Co. ............ 1,411 63,142
Goodrich (B.F.) Co. (The)........ 1,195 42,871
Hercules Inc. ................... 1,572 43,034
Monsanto Co. .................... 10,682 507,395
Praxair, Inc. ................... 2,733 96,338
Rohm & Haas Co. ................. 2,887 86,971
Union Carbide Corp. ............. 2,357 100,172
------------
2,476,387
------------
CHEMICALS--DIVERSIFIED (0.1%)
Avery Dennison Corp. ............ 2,015 90,801
Engelhard Corp. ................. 2,539 49,510
FMC Corp. (a).................... 651 36,456
PPG Industries, Inc. ............ 3,107 180,983
------------
357,750
------------
CHEMICALS--SPECIALTY (0.0%) (b)
Grace (W.R.) & Co. (a)........... 1,314 20,613
Great Lakes Chemical Corp. ...... 1,005 40,200
Morton International, Inc. ...... 2,255 55,248
Nalco Chemical Co. .............. 1,237 38,347
Sigma-Aldrich Corp. ............. 1,789 52,552
------------
206,960
------------
COMMUNICATIONS--EQUIPMENT MANUFACTURERS (1.2%)
Andrew Corp. (a)................. 1,608 26,532
Ascend Communications, Inc.
(a)............................. 3,699 243,209
Cabletron Systems, Inc. (a)...... 2,849 23,860
Cisco Systems, Inc. (a).......... 26,921 2,498,605
General Instrument Corp. (a)..... 2,889 98,045
Lucent Technologies Inc. ........ 22,468 2,471,480
Northern Telecom Ltd. ........... 11,167 559,746
Scientific-Atlanta, Inc. ........ 1,291 29,451
Tellabs, Inc. (a)................ 3,359 230,301
3Com Corp. (a)................... 6,092 272,998
------------
6,454,227
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
75
<PAGE> 78
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES (2.1%)
Adobe Systems Inc. .............. 1,126 $ 52,640
America Online Inc. (a).......... 7,800 1,129,050
Autodesk, Inc. .................. 872 37,223
Automatic Data Processing,
Inc. ........................... 5,167 414,329
BMC Software, Inc. (a)........... 3,711 165,371
Ceridian Corp. (a)............... 1,373 95,853
Computer Associates
International, Inc. ............ 9,147 389,891
Computer Sciences Corp. (a)...... 2,653 170,953
Compuware Corp. (a).............. 3,900 304,688
Electronic Data Systems Corp. ... 8,410 422,603
Equifax Inc. .................... 2,533 86,597
First Data Corp. ................ 7,662 242,790
HBO & Co. ....................... 7,711 221,209
Microsoft Corp. (a).............. 42,532 5,898,657
Novell, Inc. (a)................. 6,066 109,946
Oracle Corp. (a)................. 16,587 715,314
Parametric Technology Corp.
(a)............................. 4,574 74,899
Paychex Inc. .................... 2,812 144,642
PeopleSoft Inc. (a).............. 3,909 74,027
Shared Medical Systems Corp. .... 478 23,840
------------
10,774,522
------------
COMPUTER SYSTEMS (1.7%)
Apple Computer, Inc. (a)......... 2,268 92,846
Compaq Computer Corp. ........... 28,959 1,214,468
Data General Corp. (a)........... 908 14,925
Dell Computer Corp. (a).......... 21,525 1,575,361
EMC Corp. (a).................... 8,486 721,310
Gateway 2000, Inc. (a)........... 2,692 137,797
Hewlett-Packard Co. ............. 17,804 1,216,236
International Business Machines
Corp. .......................... 15,964 2,949,349
Seagate Technology, Inc. (a)..... 4,203 127,141
Silicon Graphics, Inc. (a)....... 3,238 41,689
Sun Microsystems, Inc. (a)....... 6,445 551,853
Unisys Corp. (a)................. 4,239 145,981
------------
8,788,956
------------
CONGLOMERATES (0.1%)
Tenneco Inc. .................... 2,863 97,521
Textron Inc. .................... 2,881 218,776
------------
316,297
------------
CONSUMER FINANCE (0.1%)
Capital One Financial Corp. ..... 1,143 131,445
Countrywide Credit Industries,
Inc. ........................... 1,748 87,728
Household International, Inc. ... 8,460 335,228
Providian Financial Corp. ....... 2,437 182,812
------------
737,213
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
CONTAINERS--METAL & GLASS (0.0%)(b)
Ball Corp. ...................... 505 $ 23,104
Crown Cork & Seal Co., Inc. ..... 2,241 69,051
Owens-Illinois, Inc. (a)......... 2,610 79,931
------------
172,086
------------
CONTAINERS--PAPER (0.0%)(b)
Bemis Co., Inc. ................. 942 35,737
Temple-Inland Inc. .............. 940 55,754
------------
91,491
------------
COSMETICS/PERSONAL CARE (0.2%)
Alberto-Culver Co. Class B....... 945 25,220
Avon Products, Inc. ............. 4,545 201,116
Gillette Co. (The)............... 18,907 913,444
International Flavors &
Fragrances Inc. ................ 1,858 82,100
------------
1,221,880
------------
ELECTRIC POWER COMPANIES (0.8%)
Ameren Corp. .................... 2,222 94,852
American Electric Power Co.,
Inc. ........................... 3,288 154,741
Baltimore Gas & Electric Co. .... 2,509 77,465
Carolina Power & Light Co. ...... 2,489 117,139
Central & South West Corp. ...... 3,565 97,815
Cinergy Corp. ................... 2,655 91,266
Consolidated Edison, Inc. ....... 4,046 213,932
Dominion Resources, Inc. ........ 3,379 157,968
DTE Energy Co. .................. 2,481 106,373
Duke Energy Corp. ............... 6,212 397,956
Edison International............. 6,000 167,250
Entergy Corp. ................... 4,193 130,507
FirstEnergy Corp. ............... 4,063 132,301
FPL Group, Inc. ................. 3,219 198,371
GPU, Inc. ....................... 2,222 98,185
Houston Industries Inc. ......... 4,900 157,413
New Century Energies Inc. ....... 1,880 91,650
Niagara Mohawk Power Corp. (a)... 3,191 51,455
Northern States Power Co. ....... 2,542 70,541
PacifiCorp....................... 5,054 106,450
PECO Energy Co. ................. 3,740 155,677
PG&E Corp. ...................... 6,555 206,482
PP&L Resources, Inc. ............ 2,548 71,025
Public Service Enterprise Group
Inc. ........................... 4,033 161,320
Southern Co. (The)............... 11,966 347,762
Texas Utilities Co. ............. 4,734 221,019
Unicom Corp. .................... 3,748 144,532
------------
4,021,447
------------
ELECTRICAL EQUIPMENT (1.3%)
AMP Inc. ........................ 3,739 194,662
Emerson Electric Co. ............ 7,523 470,658
General Electric Co. (c)......... 55,836 5,698,762
Grainger (W.W.), Inc. ........... 1,727 71,886
Honeywell Inc. .................. 2,165 163,052
Raychem Corp. ................... 1,381 44,624
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
76
<PAGE> 79
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (Continued)
Solectron Corp. (a).............. 2,000 $ 185,875
Thomas & Betts Corp. ............ 855 37,032
------------
6,866,551
------------
ELECTRONICS--DEFENSE (0.0%) (b)
EG&G, Inc. ...................... 743 20,665
------------
ELECTRONICS--INSTRUMENTATION (0.0%) (b)
Perkin-Elmer Corp. (The)......... 858 83,709
Tektronix, Inc. ................. 862 25,914
------------
109,623
------------
ELECTRONICS--SEMICONDUCTORS (1.0%)
Advanced Micro Devices, Inc.
(a)............................. 2,462 71,244
Applied Materials, Inc. (a)...... 6,248 266,711
Intel Corp. ..................... 28,402 3,367,412
KLA-Tencor Corp. (a)............. 1,442 62,547
LSI Logic Corp. (a).............. 2,365 38,136
Micron Technology, Inc. (a)...... 3,593 181,671
Motorola, Inc. .................. 10,205 623,143
National Semiconductor Corp.
(a)............................. 2,767 37,354
Texas Instruments Inc. .......... 6,680 571,558
------------
5,219,776
------------
ENGINEERING & CONSTRUCTION (0.0%) (b)
Fluor Corp. ..................... 1,356 57,715
Foster Wheeler Corp. ............ 661 8,717
------------
66,432
------------
ENTERTAINMENT (0.5%)
King World Productions, Inc.
(a)............................. 1,203 35,413
Time Warner Inc. ................ 20,945 1,299,899
Viacom Inc. Class B (a).......... 5,897 436,378
Walt Disney Co. (The)............ 34,977 1,049,310
------------
2,821,000
------------
FINANCIAL--MISCELLANEOUS (1.4%)
American Express Co. ............ 7,813 798,879
American General Corp. .......... 4,333 337,974
Associates First Capital Corp.
Class A......................... 12,224 517,992
Citigroup Inc. .................. 38,780 1,919,610
Fannie Mae....................... 17,707 1,310,318
Franklin Resources Inc. ......... 4,372 139,904
Freddie Mac...................... 11,594 747,088
MBIA Inc. ....................... 1,625 106,539
MBNA Corp. ...................... 12,901 321,719
Morgan Stanley Dean Witter &
Co. ............................ 10,054 713,834
SLM Holding Corp. ............... 2,887 138,576
SunAmerica Inc. ................. 3,684 298,865
Transamerica Corp. .............. 1,110 128,205
------------
7,479,503
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
FOOD (0.7%)
Bestfoods........................ 4,931 $ 262,576
Campbell Soup Co. ............... 7,686 422,730
ConAgra, Inc. ................... 8,336 262,584
General Mills, Inc. ............. 2,627 204,249
Heinz (H.J.) Co. ................ 6,158 348,697
Hershey Foods Corp. ............. 2,435 151,427
Kellogg Co. ..................... 6,987 238,431
Quaker Oats Co. (The)............ 2,291 136,314
Ralston-Ralston Purina Group..... 5,301 171,620
Sara Lee Corp. .................. 15,582 439,218
Unilever N.V. ................... 10,971 909,907
Wrigley (Wm.) Jr. Co. ........... 1,969 176,349
------------
3,724,102
------------
FOOD & HEALTH CARE DISTRIBUTORS (0.1%)
Cardinal Health, Inc. ........... 3,347 253,954
SUPERVALU Inc. .................. 2,083 58,324
SYSCO Corp. ..................... 5,809 159,384
------------
471,662
------------
GOLD & PRECIOUS METALS MINING (0.1%)
Barrick Gold Corp. .............. 6,355 123,922
Battle Mountain Gold Co. ........ 3,978 16,409
Homestake Mining Co. ............ 4,041 37,127
Newmont Mining Corp. ............ 2,895 52,291
Placer Dome Inc. ................ 4,232 48,668
------------
278,417
------------
HARDWARE & TOOLS (0.0%) (b)
Black & Decker Corp. (The)....... 1,718 96,315
Snap-on Inc. .................... 976 33,977
Stanley Works (The).............. 1,550 43,013
------------
173,305
------------
HEALTH CARE--DIVERSIFIED (1.5%)
Abbott Laboratories.............. 25,836 1,265,964
Allergan, Inc. .................. 1,094 70,836
American Home Products Corp. .... 22,438 1,263,540
Bristol-Myers Squibb Co. ........ 16,992 2,273,742
Johnson & Johnson................ 22,992 1,928,454
Mallinckrodt Inc. ............... 1,234 38,023
Warner-Lambert Co. .............. 13,949 1,048,790
------------
7,889,349
------------
HEALTH CARE--DRUGS (1.8%)
Lilly (Eli) & Co. ............... 18,860 1,676,183
Merck & Co., Inc. ............... 20,370 3,008,394
Pfizer Inc. ..................... 22,364 2,805,284
Pharmacia & Upjohn, Inc. ........ 8,674 491,165
Schering-Plough Corp. ........... 25,065 1,384,841
------------
9,365,867
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
77
<PAGE> 80
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
HEALTH CARE--HMOs (0.1%)
Aetna Inc. ...................... 2,493 $ 196,012
Humana Inc. (a).................. 2,806 49,982
United Healthcare Corp. ......... 3,411 146,886
------------
392,880
------------
HEALTH CARE--HOSPITAL MANAGEMENT (0.1%)
Columbia/HCA Healthcare Corp. ... 11,058 273,686
Tenet Healthcare Corp. (a)....... 5,282 138,652
------------
412,338
------------
HEALTH CARE--MEDICAL PRODUCTS (0.3%)
Bard (C.R.), Inc. ............... 1,055 52,222
Bausch & Lomb Inc. .............. 858 51,480
Baxter International Inc. ....... 4,875 313,523
Becton, Dickinson & Co. ......... 4,219 180,099
Biomet, Inc. .................... 1,929 77,642
Boston Scientific Corp. (a)...... 6,681 179,134
Guidant Corp. ................... 2,556 281,799
Medtronic, Inc. ................. 8,330 618,503
St. Jude Medical, Inc. (a)....... 1,393 38,569
------------
1,792,971
------------
HEALTH CARE--MISCELLANEOUS (0.1%)
ALZA Corp. (a)................... 1,499 78,323
Amgen Inc. (a)................... 4,334 453,174
HCR Manor Care, Inc. (a)......... 1,853 54,432
HEALTHSOUTH Corp. (a)............ 7,153 110,424
------------
696,353
------------
HEAVY DUTY TRUCKS & PARTS (0.1%)
Cummins Engine Co., Inc. ........ 673 23,891
Dana Corp. ...................... 2,726 111,425
Eaton Corp. ..................... 1,181 83,482
ITT Industries, Inc. ............ 1,753 69,682
Navistar International Corp.
(a)............................. 1,215 34,628
PACCAR Inc. ..................... 1,321 54,326
------------
377,434
------------
HOMEBUILDING (0.0%) (b)
Centex Corp. .................... 985 44,387
Kaufman & Broad Home Corp. ...... 645 18,544
Pulte Corp. ..................... 598 16,632
------------
79,563
------------
HOTEL/MOTEL (0.1%)
Carnival Corp. .................. 10,200 489,600
Harrah's Entertainment, Inc.
(a)............................. 1,754 27,516
Hilton Hotels Corp. ............. 4,489 85,852
Marriott International, Inc.
Class A......................... 4,317 125,193
------------
728,161
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
HOUSEHOLD--FURNISHINGS & APPLIANCES (0.0%) (b)
Armstrong World Industries,
Inc. ........................... 660 $ 39,806
Maytag Corp. .................... 1,627 101,281
Whirlpool Corp. ................. 1,266 70,105
------------
211,192
------------
HOUSEHOLD PRODUCTS (0.7%)
Clorox Co. (The)................. 1,813 211,781
Colgate-Palmolive Co. ........... 5,149 478,213
Fort James Corp. ................ 3,782 151,280
Kimberly-Clark Corp. ............ 9,377 511,047
Procter & Gamble Co. (The)....... 22,632 2,066,584
------------
3,418,905
------------
HOUSEWARES (0.1%)
Fortune Brands, Inc. ............ 3,009 95,160
Newell Co. ...................... 2,793 115,211
Rubbermaid Inc. ................. 2,632 82,743
Tupperware Corp. ................ 970 15,944
------------
309,058
------------
INSURANCE BROKERS (0.1%)
Aon Corp. ....................... 2,913 161,307
Marsh & McLennan Cos., Inc. ..... 4,424 258,528
------------
419,835
------------
INSURANCE--LIFE (0.1%)
Conseco, Inc. ................... 5,213 159,322
Jefferson-Pilot Corp. ........... 1,810 135,750
Lincoln National Corp. .......... 1,713 140,145
Provident Cos., Inc. ............ 2,338 97,027
Torchmark Corp. ................. 2,428 85,739
UNUM Corp. ...................... 2,364 137,998
------------
755,981
------------
INSURANCE--MULTI-LINE (0.4%)
American International Group,
Inc. ........................... 17,871 1,726,785
CIGNA Corp. ..................... 3,712 286,984
Hartford Financial Services
Group Inc. (The)................ 4,003 219,665
------------
2,233,434
------------
INSURANCE--PROPERTY & CASUALTY (0.3%)
Allstate Corp. (The)............. 14,202 548,552
Chubb Corp. (The)................ 2,871 186,256
Cincinnati Financial Corp. ...... 2,811 102,953
Loews Corp. ..................... 2,071 203,476
MGIC Investment Corp. ........... 1,924 76,599
Progressive Corp. (The).......... 1,189 201,387
SAFECO Corp. .................... 2,442 104,853
St. Paul Cos., Inc. (The)........ 3,951 137,297
------------
1,561,373
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
78
<PAGE> 81
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
INVESTMENT BANK/BROKERAGE (0.2%)
Bear Stearns Cos., Inc. (The).... 2,000 $ 74,750
Lehman Brothers Holdings Inc. ... 2,049 90,284
Merrill Lynch & Co., Inc. ....... 5,825 388,819
Schwab (Charles) Corp. (The)..... 6,789 381,457
------------
935,310
------------
LEISURE TIME (0.0%) (b)
Brunswick Corp. ................. 1,727 42,743
Mirage Resorts, Inc. (a)......... 3,094 46,217
------------
88,960
------------
MACHINE TOOLS (0.0%) (b)
Milacron Inc. ................... 675 12,994
------------
MACHINERY--DIVERSIFIED (0.2%)
Briggs & Stratton Corp. ......... 362 18,055
Case Corp. ...................... 1,245 27,157
Caterpillar Inc. ................ 6,067 279,082
Cooper Industries, Inc. ......... 1,752 83,548
Deere & Co. ..................... 4,244 140,582
Harnischfeger Industries,
Inc. ........................... 793 8,079
Ingersoll-Rand Co. .............. 2,891 135,696
NACCO Industries, Inc. Class A... 101 9,292
Thermo Electron Corp. (a)........ 2,920 49,458
Timken Co. (The)................. 1,028 19,403
------------
770,352
------------
MANUFACTURED HOUSING (0.0%) (b)
Fleetwood Enterprises, Inc. ..... 614 21,336
------------
MANUFACTURING--DIVERSIFIED (0.4%)
Aeroquip-Vickers, Inc. .......... 429 12,843
AlliedSignal Inc. ............... 9,550 423,184
Crane Co. ....................... 1,225 36,980
Danaher Corp. ................... 2,256 122,529
Dover Corp. ..................... 3,825 140,091
Illinois Tool Works Inc. ........ 4,305 271,753
Johnson Controls, Inc. .......... 1,427 84,193
Millipore Corp. ................. 765 21,755
Pall Corp. ...................... 2,262 57,257
Parker-Hannifin Corp. ........... 1,886 61,767
Sealed Air Corp. (a)............. 1,421 72,560
Tyco International Ltd. ......... 10,905 822,646
------------
2,127,558
------------
METALS--MINING (0.0%) (b)
ASARCO Inc. ..................... 827 12,457
Cyprus Amax Minerals Co. ........ 1,554 15,540
Freeport-McMoRan Copper & Gold
Inc. Class B.................... 2,847 29,716
Inco Ltd. ....................... 2,910 30,737
Phelps Dodge Corp. .............. 1,063 54,080
------------
142,530
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
MISCELLANEOUS (0.5%)
AES Corp. (The) (a).............. 2,918 $ 138,240
AirTouch Communications, Inc.
(a)............................. 9,807 707,330
American Greetings Corp. Class
A............................... 1,239 50,876
Archer-Daniels-Midland Co. ...... 10,093 173,473
Corning Inc. .................... 3,937 177,165
Harcourt General, Inc. .......... 1,141 60,687
Harris Corp. .................... 1,441 52,777
Jostens, Inc. ................... 669 17,519
Minnesota Mining & Manufacturing
Co. ............................ 6,989 497,093
Nextel Communications, Inc.
Class A (a)..................... 4,870 115,054
Pioneer Hi-Bred International,
Inc. ........................... 4,163 112,401
Sprint Corp. (PCS Group) (a)..... 7,256 167,795
TRW Inc. ........................ 2,076 116,645
------------
2,387,055
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (0.2%)
Coastal Corp. (The).............. 3,560 124,377
Columbia Energy Group............ 1,367 78,944
Consolidated Natural Gas Co. .... 1,596 86,184
Eastern Enterprises.............. 318 13,912
Enron Corp. ..................... 5,582 318,523
NICOR Inc. ...................... 805 34,011
ONEOK, Inc. ..................... 548 19,797
Peoples Energy Corp. ............ 594 23,686
Sempra Energy.................... 4,108 104,241
Sonat, Inc. ..................... 1,859 50,309
Williams Cos., Inc. (The)........ 7,258 226,359
------------
1,080,343
------------
OFFICE EQUIPMENT & SUPPLIES (0.2%)
Moore Corp. Ltd. ................ 1,465 16,115
Pitney Bowes Inc. ............... 4,726 312,211
Xerox Corp. ..................... 5,581 658,558
------------
986,884
------------
OIL & GAS DRILLING (0.0%) (b)
Helmerich & Payne, Inc. ......... 849 16,449
Rowan Cos., Inc. (a)............. 1,559 15,590
------------
32,039
------------
OIL & GAS--EQUIPMENT & SERVICES (0.2%)
Baker Hughes Inc. ............... 5,548 98,130
Halliburton Co. ................. 7,481 221,625
McDermott International, Inc. ... 1,061 26,193
Schlumberger Ltd. ............... 9,260 427,118
------------
773,066
------------
OIL & GAS--EXPLORATION & PRODUCTION (0.1%)
Anadarko Petroleum Corp. ........ 1,991 61,472
Apache Corp. .................... 1,662 42,069
Burlington Resources Inc. ....... 3,105 111,198
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
79
<PAGE> 82
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
OIL & GAS--EXPLORATION & PRODUCTION (Continued)
Oryx Energy Co. (a).............. 1,752 $ 23,542
Union Pacific Resources Group,
Inc. ........................... 4,329 39,232
------------
277,513
------------
OIL--INTEGRATED DOMESTIC (0.2%)
Amerada Hess Corp. .............. 1,574 78,306
Ashland Inc. .................... 1,328 64,242
Atlantic Richfield Co. .......... 5,492 358,353
Kerr-McGee Corp. ................ 902 34,501
Occidental Petroleum Corp. ...... 6,141 103,629
Phillips Petroleum Co. .......... 4,544 193,688
Sunoco Inc. ..................... 1,609 58,025
Unocal Corp. .................... 4,088 119,319
USX-Marathon Group............... 5,238 157,795
------------
1,167,858
------------
OIL--INTEGRATED INTERNATIONAL (1.4%)
Chevron Corp. ................... 11,225 930,973
Exxon Corp. ..................... 41,704 3,049,605
Mobil Corp. ..................... 13,389 1,166,517
Royal Dutch Petroleum Co. ....... 36,574 1,750,980
Texaco Inc. ..................... 9,114 481,903
------------
7,379,978
------------
PAPER & FOREST PRODUCTS (0.2%)
Boise Cascade Corp. ............. 939 29,109
Champion International Corp. .... 1,613 65,326
Georgia-Pacific Group............ 1,570 91,943
International Paper Co. ......... 5,280 236,610
Louisiana-Pacific Corp. ......... 1,802 32,999
Mead Corp. (The)................. 1,773 51,971
Potlatch Corp. .................. 516 19,028
Union Camp Corp. ................ 1,207 81,472
Westvaco Corp. .................. 1,661 44,536
Weyerhaeuser Co. ................ 3,360 170,730
Willamette Industries, Inc. ..... 1,964 65,794
------------
889,518
------------
PHOTOGRAPHY/IMAGING (0.1%)
Eastman Kodak Co. ............... 5,530 398,160
IKON Office Solutions, Inc. ..... 2,332 19,968
Polaroid Corp. .................. 898 16,781
------------
434,909
------------
POLLUTION CONTROL (0.1%)
Browning-Ferris Industries,
Inc. ........................... 3,007 85,512
Waste Management, Inc. .......... 9,742 454,221
------------
539,733
------------
PUBLISHING (0.0%) (b)
McGraw-Hill Cos., Inc. (The)..... 1,634 166,464
Meredith Corp. .................. 882 33,406
------------
199,870
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
PUBLISHING--NEWSPAPER (0.2%)
Dow Jones & Co., Inc. ........... 1,581 $ 76,086
Gannett Co., Inc. ............... 4,938 326,834
Knight-Ridder, Inc. ............. 1,371 70,092
New York Times Co. (The) Class
A............................... 3,346 116,064
Times Mirror Co. (The) Class A... 1,345 75,320
Tribune Co. ..................... 2,249 148,434
------------
812,830
------------
RAILROADS (0.2%)
Burlington Northern Santa Fe
Corp. .......................... 8,066 272,227
CSX Corp. ....................... 3,786 157,119
Norfolk Southern Corp. .......... 6,427 203,656
Union Pacific Corp. ............. 4,244 191,245
------------
824,247
------------
RESTAURANTS (0.2%)
Darden Restaurants, Inc. ........ 2,363 42,534
McDonald's Corp. ................ 11,524 883,027
Tricon Global Restaurants, Inc.
(a)............................. 2,635 132,079
Wendy's International, Inc. ..... 2,227 48,576
------------
1,106,216
------------
RETAIL STORES--APPAREL (0.2%)
Gap, Inc. (The).................. 9,849 554,006
Limited, Inc. (The).............. 3,884 113,122
TJX Cos., Inc. (The)............. 5,308 153,932
------------
821,060
------------
RETAIL STORES--DEPARTMENT (0.2%)
Dillard's, Inc. Class A.......... 1,880 53,345
Federated Department Stores, Inc.
(a)............................. 3,662 159,526
Kohl's Corp. (a)................. 2,673 164,222
May Department Stores Co.
(The)........................... 3,949 238,421
Nordstrom, Inc. ................. 2,542 88,176
Penney (J.C.) Co., Inc. ......... 4,283 200,766
------------
904,456
------------
RETAIL STORES--DRUGS (0.1%)
Longs Drug Stores Corp. ......... 703 26,363
Rite Aid Corp. .................. 4,344 215,299
Walgreen Co. .................... 8,498 497,664
------------
739,326
------------
RETAIL STORES--FOOD (0.3%)
Albertson's, Inc. ............... 4,192 266,978
American Stores Co. ............. 4,651 171,796
Fred Meyer Inc. (a).............. 2,616 157,614
Great Atlantic & Pacific Tea Co.,
Inc. (The)...................... 590 17,479
Kroger Co. (The) (a)............. 4,428 267,894
Safeway Inc. (a)................. 8,286 504,928
Winn-Dixie Stores, Inc. ......... 2,510 112,636
------------
1,499,325
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
80
<PAGE> 83
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
RETAIL STORES--GENERAL MERCHANDISE (0.8%)
Dayton Hudson Corp. ............. 7,445 $ 403,891
Kmart Corp. (a).................. 8,440 129,237
Sears, Roebuck & Co. ............ 6,531 277,568
Wal-Mart Stores, Inc. ........... 38,390 3,126,386
------------
3,937,082
------------
RETAIL STORES--SPECIALTY (0.6%)
AutoZone, Inc. (a)............... 2,629 86,593
Circuit City Stores-Circuit City
Group........................... 1,679 83,845
Consolidated Stores Corp. (a).... 1,780 35,934
Costco Cos., Inc. (a)............ 3,654 263,773
CVS Corp. ....................... 6,622 364,210
Dollar General Corp. ............ 3,191 75,387
Home Depot, Inc. (The)........... 26,619 1,628,750
Lowe's Cos., Inc. ............... 5,842 299,037
Pep Boys-Manny, Moe & Jack
(The)........................... 989 15,515
Staples Inc. (a)................. 5,301 231,587
Tandy Corp. ..................... 1,752 72,161
Toys "R" Us, Inc. (a)............ 4,482 75,634
------------
3,232,426
------------
SHOES (0.0%) (b)
NIKE, Inc. Class B............... 4,890 198,351
Reebok International Ltd. (a).... 954 14,191
------------
212,542
------------
SPECIALIZED SERVICES (0.3%)
Block (H&R), Inc. ............... 1,737 78,165
Cendant Corp. (a)................ 14,715 280,505
Dun & Bradstreet Corp. (The)..... 2,946 92,983
Ecolab Inc. ..................... 2,271 82,182
IMS Health Inc. ................. 2,872 216,656
Interpublic Group of Cos., Inc.
(The)........................... 2,285 182,229
Laidlaw Inc. .................... 5,673 57,085
National Service Industries,
Inc. ........................... 763 28,994
Omnicom Group Inc. .............. 2,973 172,434
Service Corp. International...... 4,367 166,219
------------
1,357,452
------------
SPECIALTY PRINTING (0.0%) (b)
Deluxe Corp. .................... 1,397 51,078
Donnelley (R.R.) & Sons Co. ..... 2,502 109,619
------------
160,697
------------
STEEL (0.0%) (b)
Allegheny Teledyne Inc. ......... 3,398 69,447
Bethlehem Steel Corp. (a)........ 2,165 18,132
Nucor Corp. ..................... 1,546 66,864
USX-U.S. Steel Group............. 1,453 33,419
Worthington Industries, Inc. .... 1,708 21,350
------------
209,212
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
TELECOMMUNICATIONS--LONG DISTANCE (1.0%)
AT&T Corp. ...................... 30,806 $ 2,318,152
MCI WorldCom, Inc. (a)........... 31,282 2,244,483
Sprint Corp. (FON Group)......... 7,330 616,636
------------
5,179,271
------------
TELEPHONE (1.6%)
ALLTEL Corp. .................... 4,742 283,631
Ameritech Corp. ................. 18,709 1,185,683
Bell Atlantic Corp. ............. 26,452 1,502,804
BellSouth Corp. ................. 33,704 1,680,987
Frontier Corp. .................. 2,957 100,538
GTE Corp. ....................... 16,389 1,105,233
SBC Communications Inc. ......... 33,365 1,789,198
US West Inc. .................... 8,639 558,295
------------
8,206,369
------------
TEXTILES--APPAREL MANUFACTURERS (0.0%) (b)
Fruit of the Loom, Inc. Class A
(a)............................. 1,200 16,575
Liz Claiborne, Inc. ............. 1,246 39,327
Russell Corp. ................... 633 12,858
Springs Industries, Inc. Class
A............................... 361 14,959
V.F. Corp. ...................... 2,161 101,297
------------
185,016
------------
TOBACCO (0.5%)
Philip Morris Cos. Inc. ......... 41,393 2,214,525
RJR Nabisco Holdings Corp. ...... 5,549 164,736
UST Inc. ........................ 3,136 109,368
------------
2,488,629
------------
TOYS (0.0%) (b)
Hasbro, Inc. .................... 2,286 82,582
Mattel, Inc. .................... 5,047 115,135
------------
197,717
------------
TRANSPORTATION--MISCELLANEOUS (0.1%)
FDX Corp. (a).................... 2,479 220,631
Ryder System, Inc. .............. 1,274 33,124
------------
253,755
------------
Total Common Stocks
(Cost $113,647,085)............. 171,320,638
------------
<CAPTION>
SHORT-TERM
INVESTMENTS (37.2%)
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
COMMERCIAL PAPER (33.8%)
Bank Austria Commercial Paper
Inc. 5.87%, due 1/6/99 (c)...... $25,000,000 24,979,618
Consolidation Coal Co.
6.00%, due 1/22/99 (c).......... 7,756,000 7,728,854
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
81
<PAGE> 84
MULTI-ASSET FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
[CAPTION]
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
<S> <C> <C>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Cooperative Association of
Tractor Dealers Inc.
5.95%, due 1/5/99 (c)........... $ 8,000,000 $ 7,994,711
Equilon Enterprises, LLC
5.80%, due 1/14/99 (c).......... 28,000,000 27,941,356
Halifax PLC
5.93%, due 1/6/99 (c)........... 25,500,000 25,478,998
International Lease Finance Corp.
5.75%, due 1/5/99 (c)........... 6,100,000 6,096,103
Motiva Enterprises LLC
5.80%, due 1/15/99 (c).......... 30,000,000 29,932,333
Paribas Finance Inc.
5.98%, due 1/5/99 (c)........... 20,000,000 19,986,711
Sanwa Business Credit Corp.
6.10%, due 1/8/99 (c)........... 25,000,000 24,970,347
------------
Total Commercial Paper
(Cost $175,109,031)............. 175,109,031
------------
U.S. GOVERNMENT (3.4%)
United States Treasury Bills
4.43%, due 4/8/99 (c)........... 12,000,000 11,861,508
4.50%, due 4/1/99 (c)........... 5,900,000 5,837,832
------------
Total U.S. Government
(Cost $17,697,031).............. 17,699,340
------------
Total Short-Term Investments
(Cost $192,806,062)............. 192,808,371
------------
Total Investments
(Cost $504,526,040) (g)......... 108.9% 563,589,689(h)
Liabilities in Excess of
Cash and Other Assets........... (8.9) (46,287,896)
---------- -----------
Net Assets....................... 100.0% $517,301,793
========== ===========
</TABLE>
FUTURES CONTRACTS (-0.1%)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION)(i)
----------------------------
<S> <C> <C>
AUSTRALIA (0.1%)
Australian All Ordinaries
Index March 1999........... 245 $ 453,948
FRANCE (0.2%)
French CAC 40 Index
January 1999............... 455 946,899
HONG KONG (-0.1%)
Hong Kong Hang Seng Index
January 1999............... 158 (244,204)
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/
LONG (DEPRECIATION)(i)
----------------------------
<S> <C> <C>
JAPAN (-0.4%)
TOPIX Index
March 1999................. 389 $(2,356,228)
UNITED KINGDOM (0.1%)
Pound Sterling FTSE 100
Index
March 1999................. 262 756,063
-----------
Total Contracts Long
(Settlement Value
$99,753,893)............... (443,522)
-----------
</TABLE>
<TABLE>
<CAPTION>
CONTRACTS
SHORT
---------
<S> <C> <C>
UNITED STATES (0.0%) (b)
United States Treasury Bond
March 1999 (30 Year)....... 3 5,689
United States Treasury Note
March 1999 (5 Year)........ 7 5,399
March 1999 (10 Year)....... 5 4,950
-----------
Total Contracts Short
(Settlement Value
($1,772,531)) (f).......... 16,038
-----------
Total Futures Contracts
(Settlement Value
$97,981,362)............... $ (427,484)
===========
</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 bond.
(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 22.5% of net assets.
(g) The cost for Federal income tax purposes is $504,618,897.
(h) At December 31, 1998, net unrealized appreciation was $58,970,792, 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 $63,809,011 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $4,838,219.
(i) Represents the difference between the value of the contracts at the time
they were opened and the value at December 31, 1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
82
<PAGE> 85
MAINSTAY
INSTITUTIONAL FUNDS INC.
MULTI-ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $504,526,040)..... $ 563,589,689
Cash................................. 71,383
Receivables:
Dividends and interest............. 2,766,237
Fund shares sold................... 921,842
Variation margin receivable on
futures contracts.................. 100,364
--------------
Total assets................... 567,449,515
--------------
LIABILITIES:
Payables:
Investment securities purchased.... 46,715,381
Fund shares redeemed............... 2,974,065
MainStay Management................ 282,342
Custodian.......................... 38,000
Transfer agent..................... 30,860
Accrued expenses..................... 107,074
--------------
Total liabilities.............. 50,147,722
--------------
Net assets........................... $ 517,301,793
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share) 1 billion shares authorized
Institutional Class................ $ 32,589
Institutional Service Class........ 1,099
Additional paid-in capital........... 405,480,472
Accumulated undistributed net
investment income.................. 188,741
Accumulated undistributed net
realized gain on investments....... 52,472,652
Net unrealized appreciation on
investments........................ 58,636,165
Net unrealized appreciation on
foreign currency transactions...... 490,075
--------------
Net assets........................... $ 517,301,793
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 500,448,995
==============
Shares of capital stock
outstanding........................ 32,588,515
==============
Net asset value per share
outstanding........................ $ 15.36
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 16,852,798
==============
Shares of capital stock
outstanding........................ 1,099,471
==============
Net asset value per share
outstanding........................ $ 15.33
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 3,887,894
Interest........................... 12,574,074
--------------
Total income................... 16,461,968
--------------
Expenses:
Management......................... 3,114,621
Transfer agent..................... 315,311
Custodian.......................... 133,244
Professional....................... 78,376
Shareholder communication.......... 75,744
Registration....................... 50,166
Service............................ 37,268
Directors.......................... 11,568
Miscellaneous...................... 32,253
--------------
Total expenses................. 3,848,551
--------------
Net investment income................ 12,613,417
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain from:
Security transactions.............. 69,525,094
Futures transactions............... 19,827,374
Foreign currency transactions...... 161,741
--------------
Net realized gain on investments and
foreign currency transactions...... 89,514,209
--------------
Net change in unrealized appreciation
on investments:
Security transactions.............. (8,756,501)
Futures transactions............... (2,717,526)
Foreign currency transactions...... 472,784
--------------
Net unrealized loss on investments
and foreign currency
transactions....................... (11,001,243)
--------------
Net realized and unrealized gain on
investments and foreign currency
transactions....................... 78,512,966
--------------
Net increase in net assets resulting
from operations.................... $ 91,126,383
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $24,979.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
83
<PAGE> 86
MULTI-ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 12,613,417 $ 8,734,708
Net realized gain on investments........................ 89,352,468 45,016,603
Net realized gain (loss) on foreign currency
transactions........................................... 161,741 (32,358)
Net change in unrealized appreciation on investments.... (11,474,027) 35,097,668
Net change in unrealized appreciation on foreign
currency transactions.................................. 472,784 17,446
-------------- --------------
Net increase in net assets resulting from operations.... 91,126,383 88,834,067
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................... (12,168,160) (8,423,272)
Institutional Service Class........................... (369,777) (182,014)
From net realized gain on investments:
Institutional Class................................... (61,223,905) (37,506,931)
Institutional Service Class........................... (2,048,254) (890,648)
-------------- --------------
Total dividends and distributions to shareholders... (75,810,096) (47,002,865)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 62,917,440 45,388,650
Institutional Service Class........................... 6,958,317 4,026,989
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 73,392,054 45,930,203
Institutional Service Class........................... 2,416,225 1,072,662
-------------- --------------
145,684,036 96,418,504
Cost of shares redeemed:
Institutional Class................................... (65,656,399) (41,612,145)
Institutional Service Class........................... (2,755,471) (1,221,935)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 77,272,166 53,584,424
-------------- --------------
Net increase in net assets............................ 92,588,453 95,415,626
NET ASSETS:
Beginning of year......................................... 424,713,340 329,297,714
-------------- --------------
End of year............................................... $ 517,301,793 $ 424,713,340
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ 188,741 $ 37,010
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
84
<PAGE> 87
(THIS PAGE INTENTIONALLY LEFT BLANK)
85
<PAGE> 88
MULTI-ASSET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 14.83 $ 14.81
---------- ----------
Net investment income....................................... 0.43 0.39
Net realized and unrealized gain (loss) on investments...... 2.70 2.69
Net realized and unrealized gain (loss) on foreign currency
transactions.............................................. 0.02 0.02
---------- ----------
Total from investment operations............................ 3.15 3.10
---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.43) (0.39)
From net realized gain on investments....................... (2.19) (2.19)
In excess of net realized gain on investments............... -- --
---------- ----------
Total dividends and distributions........................... (2.62) (2.58)
---------- ----------
Net asset value at end of year.............................. $ 15.36 $ 15.33
========== ==========
Total investment return..................................... 21.31% 21.00%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 2.64% 2.39%
Net expenses.............................................. 0.80% 1.05%
Expenses (before reimbursement)........................... 0.80% 1.05%
Portfolio turnover rate..................................... 55% 55%
Net assets at end of year (in 000's)........................ $ 500,449 $ 16,853
</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.
86
<PAGE> 89
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 13.19 $ 13.19 $ 11.79 $ 11.79 $ 10.67 $ 10.67 $ 11.67
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.34 0.31 0.38 0.34 0.48 0.47 0.45
3.15 3.13 1.53 1.53 2.39 2.39 (0.55)
(0.00)(a) (0.00)(a) (0.00)(a) (0.00)(a) (0.01) (0.01) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
3.49 3.44 1.91 1.87 2.86 2.85 (0.10)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.34) (0.31) (0.38) (0.34) (0.48) (0.47) (0.45)
(1.51) (1.51) (0.13) (0.13) (1.18) (1.18) (0.42)
-- -- -- -- (0.08) (0.08) (0.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(1.85) (1.82) (0.51) (0.47) (1.74) (1.73) (0.90)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 14.83 $ 14.81 $ 13.19 $ 13.19 $ 11.79 $ 11.79 $ 10.67
========== ========== ========== ========== ========== ========== ==========
26.69% 26.30% 16.16% 15.89% 26.81% 26.70% (0.86%)
2.27% 2.02% 2.99% 2.74% 4.03% 3.78% 3.63%
0.76% 1.01% 0.70% 0.95% 0.70% 0.95% 0.70%
0.76% 1.01% 0.75% 1.00% 0.77% 1.02% 0.75%
19% 19% 103% 103% 261% 261% 128%
$ 414,824 $ 9,889 $ 323,790 $ 5,508 $ 273,351 $ 3,536 $ 229,079
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
87
<PAGE> 90
VALUE EQUITY FUND
- --------------------------------------------------------------------------------
- ------------------------------------------------------
1998 MARKET RECAP
- - In 1998, the U.S. stock market provided double-digit returns for the fourth
consecutive year, with advances dominated by large-capitalization growth
stocks in the technology and pharmaceutical sectors.
- - As the Asian financial crisis unfolded, low inflation, declining interest
rates, and falling commodity prices had a negative impact on economically
sensitive value sectors.
- - Amid extreme volatility in the equity markets, many investors virtually
ignored traditional value measures such as low price-to-earnings ratios and
instead sought refuge in the market's largest and most familiar names, with
little regard for valuation.
- - Although value stocks traditionally outperform in declining markets, investors
continued to focus on growth investments as many stock prices fell in the
third quarter of 1998.
- - A spirit of confidence by many investors was reflected in the high prices of
several Internet stocks with little history and virtually no earnings.
- ------------------------------------------------------
1998 FUND RECAP
- - The MainStay Institutional Value Equity Fund returned -8.10% for Institutional
Class shares and -8.30% for Service Class shares for the one-year period ended
12/31/98.
- - The Fund maintained its strict deep-value disciplines throughout 1998, despite
the preference by many investors for large-capitalization growth stocks.
- - The Fund had an overweighted position in electric utilities that provided
positive returns, but was hurt by energy investments, which suffered from
declining oil prices.
- - Purchasing financial services stocks after the market correction had a
positive impact on performance, while certain retail and sporting goods stock
purchases based on restructuring potential had a negative impact on the Fund
in 1998.
- - Both share classes underperformed the average Lipper(*) growth and income
fund, which returned 15.61% for the year.
As years go, 1998 was one of the most volatile in recent memory. Despite its ups
and downs, however, the S&P 500(+) Index closed the year with a 28.58% gain,
making 1998 the fourth year in a row domestic stocks in general have returned
more than 20%. About two-thirds of the market's gains, however, occurred in the
25 largest issues. Severe corrections among smaller-capitalization stocks were
largely overshadowed by tremendous gains in large technology and pharmaceutical
stocks.
As the Asian crisis unfolded, low inflation, declining interest rates,
and falling commodity prices helped focus the attention of many investors on
VOLATILITY Fluctuations in the price of securities or markets, up or down, over
a short period of time.
CORRECTION A shift in security prices, bringing them more in line with
historically appropriate levels.
- --------------------------------------------------------------------------------
(*) Lipper Inc. is an independent monitor of mutual fund performance. Results
do not reflect any deduction of sales charges and are based on total
returns with capital gains and dividends reinvested.
(+) "S&P 500(R) " is a registered trademark of The McGraw-Hill Companies, Inc.
The S&P 500 is an unmanaged index and is considered to be generally
representative of the U.S. stock market. Results assume the reinvestment of
all income and capital gain distributions. An investment cannot be made
directly into an index.
88
<PAGE> 91
growth stocks and had a negative impact on economically sensitive value
sectors. Extreme market volatility surrounding problems in Russia and Latin
America caused a general flight to quality, with many investors seeking a "safe
haven" in long-term U.S. government bonds and many of the stock market's largest
and most familiar names.
Throughout the year, many investors seemed to ignore traditional value measures,
preferring a "bigger is better" approach, regardless of cost or
price-to-earnings ratios. As a result, value stocks, which traditionally
outperform in declining markets, severely underperformed when the market tumbled
almost 20% at the end of August. Many smaller deep-value stocks experienced
their worst relative performance since the decade began.
In addition to ignoring traditional valuation criteria, many investors showed
enthusiasm for Internet stocks. Many of these issues had little history and
virtually no earnings, yet soared to record high prices, attracting a level of
attention that was reminiscent of biotechnology stocks in the early 1990s.
HOW DID THE MAINSTAY INSTITUTIONAL VALUE EQUITY FUND PERFORM IN THIS MARKET
ENVIRONMENT?
The MainStay Institutional Value Equity Fund returned -8.10% for Institutional
Class shares and -8.30% for Service Class shares for the one-year period ended
12/31/98. Both share classes underperformed the average Lipper growth and income
fund, which returned 15.61% for the year.
WHY DID THE FUND UNDERPERFORM ITS PEERS?
There were a variety of reasons, but the most significant ones have to do with
our value disciplines and the category with which the Fund was compared. By
virtually every measure, 1998 was a year for large-capitalization growth stocks.
Our value disciplines usually lead us to invest in smaller-capitalization value
names, which were among the worst-performing stocks in 1998. Because of the
Fund's pure value orientation, it generally underperformed funds that were
growth oriented in 1998. As a result, the Fund underperformed its peer group
which includes growth and income funds that pursue growth disciplines as well as
funds that pursue value disciplines.
Yet even within the narrower value stock universe, our deep-value approach
seemed to run contrary to the market's preference for large, familiar names,
regardless of cost or underlying value. We continued to seek stocks with low
price-to-earnings ratios and low price to cash flow ratios, even though in some
cases the market seemed to reward stocks with high prices and high
price-to-earnings ratios. Finally, our concentration in traditional value
sectors, such as energy and basic materials, contributed to the Fund's
underperformance as financial problems in Asia, Russia, and Latin America
unfolded, bringing lower prices for oil and other major commodities.
Fortunately, the declines in traditional deep-value sector stock prices helped
us add to many of the Fund's positions at what we believe to be very attractive
prices. So while the Fund underperformed its peers in 1998, we believe that the
Fund is positioned to lead its peers once investors recognize the attractiveness
of value stocks.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
COMMODITIES Bulk goods, such as grains, precious metals, industrial metals, and
foods traded on a commodities exchange.
GROWTH VERSUS VALUE Growth investments typically include stocks with rising
prices and positive earnings trends. Value stocks typically include equities
that are currently trading below their fair market value, even if they have the
potential to increase in value over time.
PRICE-TO-EARNINGS RATIO The price of a stock divided by its earnings per share.
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.
WEIGHTING The proportion of a portfolio allocated to a specific security or
sector, i.e., a fund is said to be overweighted in a sector when that portion of
the portfolio is greater than the sector's general relationship to the market as
a whole.
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.
89
<PAGE> 92
WHAT WERE SOME OF THE DECISIONS THAT HELPED THE FUND IN 1998?
Although the Fund is generally underweighted in technology stocks, one of our
most successful decisions was to purchase Adaptec, a major supplier in hardware
and software to speed data to the user. We purchased the stock for the Fund in
the second quarter, and when the Asian crisis caused a correction in the
technology sector, the stock dropped about 50%. At that time, we were even more
convinced that the stock was undervalued, so we doubled the Fund's position when
it fell to $10. By the end of 1998, Adaptec stock was trading well above the
Fund's average purchase price for the stock, which provided a significant gain
for the portfolio. The story reflects exactly what we try to do in the Fund--buy
at low prices and profit as value is realized.
Another significant decision for the Fund involved its investment in Philip
Morris. The Fund has bought and sold the stock many times over the years, but we
made a significant purchase for the Fund in the second quarter after the bulk of
the negative publicity about tobacco litigation had already driven down the
stock price. At the time, Philip Morris was one of the worst-performing stocks,
but we recognized that even discounting what we believed to be the risk to
investors as a result of existing and potential lawsuits, the company's assets
were worth more than the stock's value. Apparently the market finally realized
what we saw in the stock, which recovered substantially and was one of the
Fund's best-performing stocks in 1998.
A third positive decision was to add to the Fund's holdings of electric
utilities in the first half of the year, with stocks like Texas Utilities, FPL
Group, Inc., OGE Energy, Niagara Mohawk, and Energy East. The Fund's utility
stocks performed very well during the market correction in the third quarter,
actually increasing in value as the stock market declined nearly 20%. Later in
the year, we sold some of the Fund's utility holdings to take profits. One
significant sale was FPL Group, Inc., a Florida utility, which the Fund sold at
a market high, with a positive impact on the Fund's performance.
We reinvested the proceeds of the Fund's utility stock sales in financial
services stocks, including SLM Holding, Washington Mutual, MGIC Investments, and
Conseco, all of which appeared to be very undervalued on a relative basis. All
of these stocks were trading in the range of 10 to 11 times earnings, when the
price of stocks in general was nearing 25 times earnings. Each of these
financial services stocks had a positive impact on the Fund for the year.
WERE THERE MAJOR DECISIONS THAT HAD A NEGATIVE IMPACT?
Yes there were. As the price of oil declined, we purchased stocks of several
midsized energy companies, including Unocal, Union Pacific Resources, Noble
Affiliates, and Oryx for the Fund, believing that they were attractively priced.
The Asian financial crisis reduced manufacturing output, which had a negative
impact on the demand for oil and contributed to declining oil prices. We
continued to purchase more energy stocks for the Fund at successively lower
prices throughout the year. In retrospect, we believe our purchasing decisions
were premature, and the overall effect was negative in 1998. As industry
fundamentals shift and Asian economies begin to stabilize, we believe the Fund's
strong commitment to energy stocks should be rewarded.
WHAT OTHER SIGNIFICANT PURCHASES DID YOU MAKE FOR THE FUND IN 1998?
In the third quarter of 1998, we increased the Fund's HMO stock exposure with
the initial purchase of United Healthcare stock at what we believed to be
bargain basement prices, considering excellent management, strong financial
characteristics, and stock repurchases by the company. We bought the stock for
the Fund in the mid-$30 range and it has been up ever since, so we believe both
the selection and timing were positive for the portfolio.
A stock we bought that didn't work out as well was Toys "R" Us. Although the
company met all of our deep-value disciplines, management of the company failed
to deliver on its promises. Earnings have been disappointing and a promised
restructuring has not been successful to date. Although the Fund still holds the
stock, we're watching the situation closely.
WHAT OTHER SECURITIES DID YOU SELL DURING THE YEAR?
One of the Fund's successful sales was its position in Ford Motor Company. We
purchased the stock for the Fund at an attractive price and sold it in July at a
substantial profit. At the time, we believed the auto sector was fully valued,
and the stock did decline after we sold it. So we believe the sale was positive
for the portfolio.
A less successful sale was the stock of Coltec Industries, an aerospace and
industrial manufacturing company. When we purchased the stock for the
90
<PAGE> 93
Fund, we thought the company was an excellent value and might be a takeover
target. Although we were right on both counts, offers from two potential
acquirers failed to come close to our original cost. In December, since we no
longer believed that the management of the company was acting in the best
interests of its shareholders, we decided to cut the Fund's losses by selling
the shares. This had a negative impact on the Fund's performance.
On a more positive note, the Fund sold two deep-value stocks, Lexmark (a laser
printer company) and Allegiance (a health care provider), when they reached the
Fund's target values. The Fund sold Lexmark in the third quarter for a 69% gain
and Allegiance in July for a gain of 50%. These were two of the best performers
in the portfolio, and although both stocks rose after the Fund sold them, they
performed more like growth stocks than value candidates and were no longer
appropriate holdings for the Fund's portfolio.
WERE THERE OTHER SIGNIFICANT SALES DURING THE YEAR?
Yes, we sold the Fund's position in Tenneco, an automotive parts and packaging
company, as part of our decision to cut back on economically sensitive sectors.
This was a positive move for the portfolio as these sectors generally performed
poorly, even though the Fund took a small loss on the stock. In September, the
Fund sold its holdings in Crown Cork & Seal, a paper, glass, and plastic
container company that was suffering from its exposure to Asia and South
America. The company had lowered its earnings forecasts earlier in the year, and
the Fund sold based on fears that the company would do so again. Although the
Fund sold at a loss, the stock has continued to underperform.
The Fund also sold its position in American Airlines, which was positive not
only because the Fund made a profit, but also because the price fell after we
sold it. In the fourth quarter, the Fund sold its position in Columbia/HCA, a
health care provider that was suffering from continued disappointing earnings
and the inability to effectively restructure its operations. The stock was sold
at a loss and has continued to underperform.
BESIDES LEXMARK AND ALLEGIANCE, WHAT WERE THE FUND'S BEST-PERFORMING STOCKS?
We already mentioned that the Fund sold Ford shares at a substantial profit,
which made it the Fund's third-best performer. The Fund also profited from the
sale of its holdings in Echlin, an auto parts company, whose stock advanced
dramatically when the company was acquired by Dana Corporation, one of the
world's largest suppliers of automotive parts.
The Fund also earned a 49% return on U.S. West, as it benefited from the
reappraisal of the telecommunications group. Finally, the Fund's investment in
the insurance giant CIGNA provided a 37%(++) return, which contributed
positively to the Fund's overall performance.
WHAT ABOUT NEGATIVE PERFORMERS?
In a difficult market for value stocks, the Fund had more losers than winners.
Perhaps the worst cases were two stocks that the Fund purchased on their
restructuring potential. One was Venator, formerly known as Woolworth. We
believe the name change confused the market, and the company shifted into
athletic footwear, which is primarily manufactured in the Far East, when the
Asian market collapsed. The ensuing earnings disappointment was poorly received
by investors, and Venator stock lost over half of its value in 1998.
Another failed restructuring candidate was Callaway Golf, a manufacturer of golf
equipment, that simply failed to perform up to our expectations. The stock was
purchased at a very cheap relative price, but continued to decline throughout
the year as Asian conditions worsened.
Union Pacific Resources is a leveraged oil company whose stock the Fund bought
too early. The price declined 50% over the course of the year, and we have added
to the Fund's position, believing the market will see the company's value when
oil prices begin to stabilize.
Finally, Northwest Airlines, which is the principal air link between the United
States and the Far East, had a dismal year because the Asian crisis hurt its
sales and a labor strike reduced its profits. The Fund continues to hold the
stock, believing its long-term potential will be realized as Asia stabilizes and
the strike fades from recent memory.
AT YEAR END, WHERE WAS THE FUND OVERWEIGHTED AND UNDERWEIGHTED?
As of 12/31/98, the Fund was overweighted in financial services, energy,
electric utilities, basic materials, and HMOs. We believe that the disparity
between the prices of these stocks and their earnings potential gives them
better prospects than the market
- --------------------------------------------------------------------------------
(++) Return reflects performance for the one-year period ended 12/31/98.
91
<PAGE> 94
as a whole. Since stocks in technology, pharmaceuticals, and consumer staples
tend to have high prices and high price-to-earnings ratios, they don't fit our
value disciplines and were underweighted in the Fund's investment portfolio at
the end of 1998. The Fund has not participated in the rise of Internet stocks,
since they represent the exact opposite of what we look for in long-range
investments.
WHAT IS YOUR OUTLOOK FOR VALUE STOCKS?
In 1998, the Federal Reserve Board Chairman described the stock market's
performance as "irrational exuberance." When investors seem to ignore basic
fundamentals such as the relationships between price, company worth, cash flow,
and earnings, we tend to agree with his assessment. Ultimately, however, we
believe many investors will have to ask themselves if what they're buying is
worth the cost. At that point, we believe value stocks will once again become
desirable investments and that the Fund's deep-value portfolio may provide
attractive returns.
We believe we have already seen the beginnings of a global recession, with
problems throughout Asia, Russia, and Latin America. We have already seen some
stabilization in Asia and may see improvements in Latin America over time. We
believe that as signs of economic strength return, more investors will begin to
focus on stocks which represent value over time. It is important to remember
that value stocks have traditionally outperformed growth stocks over full market
cycles. Whatever changes the markets may bring, the Fund will continue to seek
to realize maximum long-term total return from a combination of capital growth
and income.
DENIS LAPLAIGE
Portfolio Manager
MacKay-Shields Financial Corporation
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
92
<PAGE> 95
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
VALUE EQUITY FUND VS
S&P 500 INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES S&P 500
-------------------------- -------
<S> <C> <C>
12/31/90 10000 10000
3/31/91 11550 11453
6/30/91 11830 11427
9/30/91 12870 12038
12/31/91 13660 13047
3/31/92 14695 12717
6/30/92 14637 12958
9/30/92 14847 13366
12/31/92 16489 14040
3/31/93 17465 14654
6/30/93 17670 14726
9/30/93 18680 15105
12/31/93 18945 15456
3/31/94 18976 14870
6/30/94 19068 14933
9/30/94 20015 15663
12/31/94 19177 15660
3/31/95 20866 17185
6/30/95 22191 18826
9/30/95 23632 20323
12/31/95 24819 21546
3/31/96 26401 22703
6/30/96 26728 23723
9/30/96 27605 24456
12/31/96 30380 26493
3/31/97 30208 27203
6/30/97 33749 31955
9/30/97 36525 34345
12/31/97 37255 35331
3/31/98 41149 40260
6/30/98 38689 41588
9/30/98 32040 37450
12/31/98 34238 45427
Value Equity Fund -- S&P 500 Index
Source: Lipper Analytical Services, Inc.
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
VALUE EQUITY FUND VS
S&P 500 INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
SERVICE CLASS SHARES S&P 500
-------------------- -------
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 11550.00 11453.00
6/30/91 11830.00 11427.00
9/30/91 12870.00 12038.00
12/31/91 13660.00 13047.00
3/31/92 14695.00 12717.00
6/30/92 14637.00 12958.00
9/30/92 14847.00 13366.00
12/31/92 16489.00 14040.00
3/31/93 17465.00 14654.00
6/30/93 17670.00 14726.00
9/30/93 18680.00 15105.00
12/31/93 18945.00 15456.00
3/31/94 18976.00 14870.00
6/30/94 19068.00 14933.00
9/30/94 20015.00 15663.00
12/31/94 19177.00 15660.00
3/31/95 20883.00 17185.00
6/30/95 22207.00 18826.00
9/30/95 23632.00 20323.00
12/31/95 24799.00 21546.00
3/31/96 26363.00 22703.00
6/30/96 26672.00 23723.00
9/30/96 27532.00 24456.00
12/31/96 30279.00 26493.00
3/31/97 30088.00 27203.00
6/30/97 33584.00 31955.00
9/30/97 36335.00 34345.00
12/31/97 37024.00 35331.00
3/31/98 40874.00 40260.00
6/30/98 38406.00 41588.00
9/30/98 31771.00 37450.00
12/31/98 33951.00 45427.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value Equity Fund Institutional Class -8.10% -8.10% 12.56% 16.62%
Value Equity Fund Service Class(+) -8.30% -8.30% 12.38% 16.50%
Average Lipper Growth & Income Fund 15.61% 15.61% 18.35% 17.72%
S&P 500 Stock Index 28.58% 28.58% 24.06% 20.83%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year End 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return%* 36.60% 20.71% 14.90% 1.22% 29.42% 22.41% 22.63% -8.1%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998)
- --------------------------------------------------
[Pie Chart]
Common Stocks Cash, Equivalents & Other Assets
<S> <C>
98.53 1.47++
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1998)
- -------------------------------------------------
<S> <C>
1. Philip Morris Cos. 3.31%
2. US West Inc. 2.79%
3. Washington Mutual, Inc. 2.76%
4. Texas Utilities Co. 2.59%
5. Toys "R" Us, Inc. 2.47%
6. Citigroup Inc. 2.45%
7. Allstate Corp. (The) 2.42%
8. CIGNA Corp. 2.25%
9. Bank One Corp. 2.22%
10. American Standard Cos. Inc. 2.00%
- -------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------
TOP 5 INDUSTRY
HOLDINGS
(% of net assets as of December 31, 1998)
- -------------------------------------------------------
<S> <C>
1. Oil & Gas Services 12.92%
2. Insurance 11.13%
3. Banks 7.42%
4. Electric Power Companies 6.80%
5. Financial -- Miscellaneous 5.88%
- --------------------------------------------------------
</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% on an annualized basis of the average daily net asset value of the
Service Class shares.
(+) 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.
93
<PAGE> 96
VALUE EQUITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS (98.5%)+
SHARES VALUE
-----------------------
<S> <C> <C>
AEROSPACE/DEFENSE (1.2%)
Northrop Grumman Corp. .......... 134,200 $ 9,813,375
------------
AIRLINES (0.8%)
Northwest Airlines Corp.
Class A (a)..................... 240,900 6,158,006
------------
ALUMINUM (1.9%)
Reynolds Metals Co............... 293,100 15,442,706
------------
AUTO PARTS & EQUIPMENT (3.4%)
LucasVarity PLC ADR (b).......... 419,800 14,063,300
Mark IV Industries, Inc.......... 1,057,125 13,742,625
------------
27,805,925
------------
BANKS (7.4%)
Bank One Corp.................... 351,980 17,972,979
BankAmerica Corp................. 242,120 14,557,465
Washington Federal, Inc.......... 196,500 5,244,094
Washington Mutual, Inc........... 585,200 22,347,325
------------
60,121,863
------------
BEVERAGES--ALCOHOLIC (1.9%)
Anheuser-Busch Cos., Inc......... 237,200 15,566,250
------------
BUILDING MATERIALS (0.4%)
Sherwin-Williams Co. (The)....... 102,200 3,002,125
------------
CHEMICALS (3.5%)
Agrium Inc....................... 814,300 7,074,231
Georgia Gulf Corp................ 603,400 9,692,113
IMC Global Inc................... 529,060 11,308,658
------------
28,075,002
------------
COMPUTERS--NETWORKING (1.8%)
Adaptec Inc. (a)................. 850,000 14,928,125
------------
CONSUMER FINANCE (0.6%)
Countrywide Credit Industries,
Inc............................. 91,000 4,567,062
------------
CONTAINERS--METAL & GLASS (1.5%)
Owens-Illinois Inc. (a).......... 402,100 12,314,312
------------
ELECTRIC POWER COMPANIES (6.8%)
Energy East Corp................. 167,000 9,435,500
Illinova Corp.................... 392,100 9,802,500
Niagara Mohawk Power Corp. (a)... 637,300 10,276,463
OGE Energy Corp. ................ 160,200 4,635,787
Texas Utilities Co. ............. 449,100 20,967,356
------------
55,117,606
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
ELECTRONICS (0.6%)
Raychem Corp..................... 147,200 $ 4,756,400
------------
FINANCIAL--MISCELLANEOUS (5.9%)
Citigroup Inc.................... 400,652 19,832,274
Equitable Cos., Inc. (The)....... 277,700 16,071,888
SLM Holding Corp................. 244,600 11,740,800
------------
47,644,962
------------
HEALTH CARE (4.3%)
Aetna Inc........................ 145,500 11,439,938
Columbia/HCA Healthcare Corp..... 323,200 7,999,200
United HealthCare Corp........... 355,000 15,287,188
------------
34,726,326
------------
HEAVY DUTY TRUCKS & PARTS (1.7%)
Dana Corp........................ 343,500 14,040,563
------------
HOTEL/MOTEL (1.7%)
Harrah's Entertainment, Inc.
(a)............................. 864,600 13,563,412
------------
INSURANCE (11.1%)
Allstate Corp. (The)............. 507,542 19,603,810
Chubb Corp....................... 206,400 13,390,200
CIGNA Corp....................... 236,000 18,245,750
Conseco, Inc..................... 526,500 16,091,156
MGIC Investment Corp............. 306,100 12,186,606
Transamerica Corp................ 92,900 10,729,950
------------
90,247,472
------------
LEISURE TIME (0.2%)
Callaway Golf Co................. 200,900 2,059,225
------------
MACHINERY--DIVERSIFIED (2.0%)
American Standard Cos. Inc.
(a)............................. 451,600 16,229,375
------------
NATURAL GAS DISTRIBUTORS & PIPELINES (3.6%)
Coastal Corp. (The).............. 426,200 14,890,362
Consolidated Natural Gas Co...... 153,600 8,294,400
KeySpan Energy................... 200,000 6,200,000
------------
29,384,762
------------
OIL & GAS SERVICES (12.9%)
Apache Corp...................... 422,300 10,689,469
Noble Affiliates, Inc............ 410,600 10,111,025
Occidental Petroleum Corp........ 534,900 9,026,437
Oryx Energy Co. (a).............. 763,100 10,254,156
Santa Fe Energy Resources, Inc.
(a)............................. 887,300 6,543,837
Seagull Energy Corp. (a)......... 1,228,700 7,756,169
Texaco Inc....................... 78,300 4,140,113
Tosco Corp....................... 539,000 13,946,625
Union Pacific Resources Group
Inc. ........................... 1,218,200 11,039,937
Unocal Corp. .................... 431,800 12,603,163
Valero Energy Corp. ............. 405,300 8,612,625
------------
104,723,556
------------
</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.
94
<PAGE> 97
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED)
SHARES VALUE
-----------------------
<S> <C> <C>
PAPER & FOREST PRODUCTS (1.1%)
Bowater Inc...................... 213,600 $ 8,851,050
------------
POLLUTION CONTROL (1.7%)
Browning-Ferris Industries
Inc............................. 497,300 14,141,969
------------
RAILROADS (1.1%)
CSX Corp......................... 223,000 9,254,500
------------
RETAIL (3.2%)
Federated Department Stores, Inc.
(a)............................. 336,300 14,650,069
Penney (J.C.) Co., Inc........... 160,500 7,523,437
Venator Group, Inc. (a).......... 528,000 3,399,000
------------
25,572,506
------------
RETAIL STORES--SPECIALTY (2.5%)
Toys "R" Us, Inc. (a)............ 1,184,700 19,991,813
------------
STEEL (0.7%)
UCAR International Inc. (a)...... 320,000 5,700,000
------------
TELECOMMUNICATIONS--LONG DISTANCE (1.9%)
AT&T Corp........................ 204,400 15,381,100
------------
TELEPHONE (4.0%)
Nippon Telegraph & Telephone
Corp. ADR (b)(c)................ 257,200 9,645,000
US West Inc...................... 350,000 22,618,750
------------
32,263,750
------------
TEXTILES--APPAREL MANUFACTURERS (2.3%)
Jones Apparel Group, Inc. (a).... 456,400 10,069,325
Liz Claiborne, Inc............... 261,000 8,237,813
------------
18,307,138
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
-----------------------
<S> <C> <C>
TOBACCO (4.8%)
Philip Morris Cos................ 502,000 $ 26,857,000
RJR Nabisco Holdings Corp........ 409,900 12,168,906
------------
39,025,906
------------
Total Common Stocks
(Cost $833,780,888)................... 798,778,142
------------
SHORT-TERM
INVESTMENTS (1.3%)
PRINCIPAL
AMOUNT
-----------
COMMERCIAL PAPER (1.3%)
American Express Credit Corp.
5.85%, due 1/5/99............... $ 6,000,000 5,996,099
Associates Corp. of North America
5.08%, due 1/4/99............... 4,125,000 4,123,253
------------
Total Short-Term Investments
(Cost $10,119,352).............. 10,119,352
------------
Total Investments
(Cost $843,900,240) (d)......... 99.8% 808,897,494(e)
Cash and Other Assets, Less
Liabilities..................... 0.2 1,835,183
---------- ----------
Net Assets....................... 100.0% $810,732,677
========== ============
</TABLE>
- ------------
(a) Non-income producing security.
(b) ADR--American Depository Receipt.
(c) Segregated as collateral for forward foreign currency contracts.
(d) The cost for Federal income tax purposes is $844,984,807.
(e) At December 31, 1998, net unrealized depreciation was $36,087,313, 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 $90,370,594 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $126,457,907.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
95
<PAGE> 98
VALUE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $843,900,240)..... $ 808,897,494
Receivables:
Investment securities sold......... 1,620,194
Dividends.......................... 1,912,497
Fund shares sold................... 752,656
--------------
Total assets................... 813,182,841
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 1,488,062
MainStay Management................ 579,587
Transfer agent..................... 56,295
Custodian.......................... 25,770
Accrued expenses..................... 97,571
Unrealized depreciation on forward
foreign currency contracts......... 202,879
--------------
Total liabilities.............. 2,450,164
--------------
Net assets........................... $ 810,732,677
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share) 1 billion shares authorized
Institutional Class................ $ 68,094
Institutional Service Class........ 828
Additional paid-in capital........... 854,450,788
Accumulated undistributed net
investment income.................. 7,156
Accumulated distribution in excess of
net realized gain on investments... (8,588,564)
Net unrealized depreciation on
investments........................ (35,002,746)
Net unrealized depreciation on
forward foreign currency
contracts.......................... (202,879)
--------------
Net assets........................... $ 810,732,677
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 800,993,063
==============
Shares of capital stock
outstanding........................ 68,093,903
==============
Net asset value per share
outstanding........................ $ 11.76
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 9,739,614
==============
Shares of capital stock
outstanding........................ 828,184
==============
Net asset value per share
outstanding........................ $ 11.76
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Dividends (a)...................... $ 16,935,634
Interest........................... 1,833,972
--------------
Total income................... 18,769,606
--------------
Expenses:
Management......................... 7,963,179
Transfer agent..................... 595,714
Shareholder communication.......... 157,349
Professional....................... 122,370
Custodian.......................... 76,203
Registration....................... 45,092
Service............................ 26,870
Directors.......................... 23,873
Miscellaneous...................... 38,594
--------------
Total expenses................. 9,049,244
--------------
Net investment income................ 9,720,362
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments..... 129,651,994
--------------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions.............. (210,699,021)
Forward foreign currency
transactions..................... (202,879)
--------------
Net unrealized loss on investments
and forward foreign currency
transactions....................... (210,901,900)
--------------
Net realized and unrealized loss on
investments........................ (81,249,906)
--------------
Net decrease in net assets resulting
from operations.................... $ (71,529,544)
==============
</TABLE>
- ------------
(a) Dividends recorded net of foreign withholding taxes of $113,694.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
96
<PAGE> 99
MAINSTAY
INSTITUTIONAL FUNDS INC.
VALUE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 9,720,362 $ 11,824,808
Net realized gain on investments........................ 129,651,994 153,566,785
Net change in unrealized appreciation on investments.... (210,699,021) 19,142,088
Net change in unrealized depreciation on forward foreign
currency transactions.................................. (202,879) --
-------------- --------------
Net increase (decrease) in net assets resulting from
operations............................................. (71,529,544) 184,533,681
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................... (9,628,522) (11,794,002)
Institutional Service Class........................... (90,474) (93,075)
From net realized gain on investments:
Institutional Class................................... (153,210,452) (143,738,757)
Institutional Service Class........................... (1,867,811) (1,600,702)
Distribution in excess of net realized gain on
Investments:
Institutional Class................................... (8,485,501) --
Institutional Service Class........................... (103,063) --
-------------- --------------
Total dividends and distributions to shareholders... (173,385,823) (157,226,536)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 85,177,154 182,364,147
Institutional Service Class........................... 1,986,558 4,997,992
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 171,050,165 155,256,205
Institutional Service Class........................... 2,062,197 1,693,777
-------------- --------------
260,276,074 344,312,121
Cost of shares redeemed:
Institutional Class................................... (197,456,599) (200,632,469)
Institutional Service Class........................... (2,401,236) (12,233,644)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 60,418,239 131,446,008
-------------- --------------
Net increase (decrease) in net assets................. (184,497,128) 158,753,153
NET ASSETS:
Beginning of year......................................... 995,229,805 836,476,652
-------------- --------------
End of year............................................... $ 810,732,677 $ 995,229,805
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ 7,156 $ 5,790
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
97
<PAGE> 100
VALUE EQUITY FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 16.36 $ 16.35
---------- ----------
Net investment income....................................... 0.18 0.14
Net realized and unrealized gain (loss) on investments...... (1.58) (1.57)
---------- ----------
Total from investment operations............................ (1.40) (1.43)
---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.18) (0.14)
From net realized gain on investments....................... (2.90) (2.90)
In excess of net realized gain on investments............... (0.12) (0.12)
---------- ----------
Total dividends and distributions........................... (3.20) (3.16)
---------- ----------
Net asset value at end of year.............................. $ 11.76 $ 11.76
========== ==========
Total investment return..................................... (8.10%) (8.30%)
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 1.04% 0.79%
Net expenses.............................................. 0.98% 1.23%
Portfolio turnover rate..................................... 76% 76%
Net assets at end of year (in 000's)........................ $ 800,993 $ 9,740
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
98
<PAGE> 101
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 15.87 $ 15.85 $ 14.43 $ 14.43 $ 11.58 $ 11.58 $ 12.40
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.23 0.16 0.25 0.23 0.21 0.20 0.17
3.31 3.32 2.98 2.96 3.20 3.20 (0.02)
---------- ---------- ---------- ---------- ---------- ---------- ----------
3.54 3.48 3.23 3.19 3.41 3.40 0.15
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.23) (0.16) (0.25) (0.23) (0.21) (0.20) (0.17)
(2.82) (2.82) (1.54) (1.54) (0.35) (0.35) (0.80)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(3.05) (2.98) (1.79) (1.77) (0.56) (0.55) (0.97)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 16.36 $ 16.35 $ 15.87 $ 15.85 $ 14.43 $ 14.43 $ 11.58
========== ========== ========== ========== ========== ========== ==========
22.63% 22.28% 22.41% 22.10% 29.42% 29.32% 1.22%
1.30% 1.05% 1.70% 1.45% 1.64% 1.39% 1.50%
0.93% 1.18% 0.92% 1.17% 0.93% 1.18% 0.92%
66% 66% 50% 50% 51% 51% 43%
$ 984,220 $ 11,010 $ 821,725 $ 14,752 $ 603,749 $ 3,213 $ 396,537
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
99
<PAGE> 102
BOND FUND
- -------------------------------------------------------------------------------
1998 MARKET RECAP
- - During the first half of 1998, domestic bond markets experienced the lowest
volatility in 15 years, but in the second half of the year, volatility was at
a 15-year high.
- - Throughout 1998, the bond markets were influenced by financial crises in many
parts of the world, modest inflation, low unemployment, falling commodity
prices, and a budget surplus that reduced Treasury security issuance.
- - In the last four months of the year, the Federal Reserve Board moved to reduce
interest rates three times.
- - In the second half of 1998, difficulties in Asia, Russia, and Brazil, along
with the near failure of a leading hedge fund, resulted in a flight to quality
by most investors that raised prices among high-quality, highly liquid
securities and reduced the yield on 30-year Treasury bonds to record lows.
1998 FUND RECAP
- - For the 12 months ended 12/31/98, the MainStay Institutional Bond Fund
returned 7.93% for Institutional Class shares and 7.73% for Service Class
shares.
- - The Fund benefited from a duration strategy that was long to neutral
throughout the year.
- - The Fund's overweighted position in 30-year Treasuries helped the Fund benefit
as the yield curve flattened in the second quarter and again in the second
half of 1998.
- - The Fund enhanced its returns by shifting the Fund's weighting in
mortgage-backed securities throughout the year.
- - Both share classes outperformed the average Lipper(*) intermediate U.S.
government fund, which returned 7.68% for the year ended 12/31/98.
<TABLE>
<S> <C>
Overall, 1998 was a year of extremes in the bond VOLATILITY Fluctuations
market, causing most investors to reevaluate in the price of
their tolerance for risk at several levels. The securities or markets,
first half of the year saw the lowest level of up or down, over a short
volatility in 15 years, while the second half of period of time.
the year reflected the highest volatility in 15
years. SUPPLY AND DEMAND In the
bond market, supply is
A variety of forces fueled the progress of the bond markets, influenced by the amount
including a budget surplus that reduced Treasury security of new securities issued
issuance and tightened supply, and a flight to quality in and the amount of bonds
the third quarter of 1998 that dramatically increased demand investors wish to sell.
for government bonds. With financial problems in Asia, Demand reflects the
Russia, and Latin America, and the near collapse of one of amount of bonds
the world's largest hedge funds, the rush to high-quality, investors wish to buy,
highly liquid issues drove government bond prices higher and which may decrease when
reduced 30-year Treasury yields to record lows. other markets offer
greater opportunities.
</TABLE>
- --------------------------------------------------------------------------------
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested.
100
<PAGE> 103
Meanwhile, modest inflation, low unemployment, and a strong U.S. dollar
provided a positive economic backdrop, but financial crises in many parts of
the world along with earnings disappointments at many leading corporations
caused wide swings in the stock market, eroding investor confidence during the
third quarter of 1998. In response, the Federal Reserve Board moved to reduce
interest rates three times in the third and fourth quarters, helping calm
investors and bring liquidity back to the marketplace.
Mortgage-backed securities had variable performance during the year, amid
shifting interest rates and prepayment concerns, but recovered strongly at the
end of the fourth quarter. Asset-backed securities generally showed positive
performance, particularly among highly rated, short-term issues, where the
likelihood of prepayment was low. Overall, corporate bonds had a
disappointing year, experiencing a substantial setback as investors
reconsidered their risk exposure in the third and fourth quarters of 1998.
During the year, market prices reflected most of the variables that had a major
effect in 1998, including expectations for continued low inflation, Asian and
emerging-market concerns, and anticipated action by the Federal Reserve Board.
HOW DID THE MAINSTAY INSTITUTIONAL BOND FUND PERFORM IN
THIS MARKET ENVIRONMENT?
The MainStay Institutional Bond Fund returned 7.93% for Institutional Class
shares and 7.73% for Service Class shares for the year ended 12/31/98. Both
share classes outperformed the average Lipper intermediate U.S. government
fund, which returned 7.68% for the year.
WHAT STRATEGIES HELPED THE FUND OUTPERFORM ITS PEERS?
We believe that the Fund's duration strategy was an important factor in
determining the Fund's performance. The Fund's strategy throughout the year was
to remain long to neutral. In the first half of the year, the Fund remained
long as interest rates headed lower and reduced duration as interest rates
rallied, which had a positive impact on performance. In the second half of the
year, the Fund's duration moved with the ebb and flow of the bond market, but
shortened in the fourth quarter, which had a marginally negative impact on
performance late in the quarter. Overall, however, the Fund's duration strategy
was positive for the portfolio.
The Fund's yield-curve strategy was also a positive contributor to performance.
The Fund remained overweighted in 30-year Treasuries, which helped the
portfolio throughout the year, but particularly in the second and fourth
quarters, when yield spreads between 2-year and 30-year Treasury bonds
narrowed, flattening the yield curve.
WHAT IS THE OVERALL QUALITY OF THE SECURITIES IN THE
FUND'S INVESTMENT PORTFOLIO?
As of December 31, 1998, the overall credit quality of the securities in the
Fund's investment portfolio was AA+,(+) which is high. The Fund's emphasis on
high quality proved beneficial when many investors rushed to government bonds
seeking a haven of relative security when the stock market dropped nearly 20%
in August. The uncertainty surrounding emerging markets and hedge funds helped
fuel the interest of many investors in high-grade bonds, and the Fund was well
positioned to take advantage of investor preferences during this period.
- --------------------------------------------------------------------------------
(+) Debt rated AA+ by Standard & Poor's differs from the highest rated issues
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong. The + indicates that the securities are
somewhat stronger than AA alone.
FLIGHT TO QUALITY When investors in general move to improve the credit quality
or liquidity of the securities they own, because of economic, industry, or
market concerns that suggest lower quality securities or those that are less
liquid are likely to be more vulnerable to negative market events.
HEDGE FUND A private investment partnership or off-shore investment corporation
that may take both long and short positions, use leverage and derivative
securities, and invest across many markets. Hedge funds may use high- risk or
speculative investment strategies and move large amounts of money in and out of
the markets quickly.
YIELD The income paid to investors over a specified period of time. Mutual fund
yields are expressed as a percentage of the fund's current price per share.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
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.
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.
101
<PAGE> 104
HOW DID THE FUND'S MORTGAGE-BACKED SECURITIES PERFORM?
Anticipating prepayments, the Fund entered the year underweighted in
high-coupon mortgage-backed securities, which was positive for performance. In
the second quarter, the Fund added bonds we believed would not be as
interest-rate sensitive and managed to take some profits as the market rallied.
Unfortunately, a second wave of prepayments hurt the Fund's holdings and an
overweighted position detracted from performance in the second quarter.
In the third quarter, we reduced the Fund to an underweighted position in
mortgage-backed securities, which proved beneficial as interest rates fell and
prepayments continued. During the fourth quarter, the Fund had an opportunity
to purchase mortgage-backed bonds at distressed prices from hedge funds that
were forced to liquidate their holdings. This contributed positively to
performance as the Federal Reserve Board moved to lower interest rates, which
helped restore investor confidence, bring order to the markets, and increase
demand for mortgage-backed securities.
WERE THERE OTHER STRATEGIES THAT CONTRIBUTED POSITIVELY TO
PERFORMANCE?
In the first half of the year, interest rates remained in a relatively narrow
range, so we used a variety of technical indicators to guide the Fund between
newer and older issues, which provided incremental gains.
HOW DID THE FUND'S CORPORATE BONDS PERFORM?
The Fund's corporate bonds had suffered a setback in the fourth quarter of
1997, and given the impact of the Asian crisis, corporate spreads widened
substantially in the first quarter of 1998. We increased the Fund's corporate
exposure in the second quarter, seeking high-quality domestic names with
minimal Asian exposure. With low volatility during this calm period, the
contribution to performance was slightly positive for the second quarter.
In the second half of 1998, the Fund focused primarily on securities of what we
believed to be capable media companies, utilities, retailers, and regional
banks. But with the financial problems in Russia and Brazil and difficulties at
major hedge funds, the corporate bond market as a whole underperformed. New
issuance all but stopped in the third quarter, and despite strong growth in
America's gross domestic product, corporate bonds provided their worst
performance in a decade. Although the Fund was positioned in high-quality,
highly liquid issues and in some of the top-performing sectors, the overall
movement of the corporate market had a negative impact on performance.
DID THE FUND INVEST IN ANY OTHER TYPES OF SECURITIES?
Yes, the Fund had relatively small allocations in agency securities,
asset-backed securities, collateralized mortgage obligations (CMOs), and
variable floating-rate notes. All of these positions contributed positively to
performance over the course of the year. Among asset-backed securities, the
Fund's concentration on high-quality, shorter-term issues provided a measure of
prepayment protection, which was a positive factor. The Fund's asset-backed
securities increased the portfolio's yield and provided AAA(++) quality.
DID THE FUND MAKE ANY DRAMATIC SHIFTS IN ITS SECTOR ALLOCATIONS DURING THE YEAR?
Over the course of the year, perhaps the largest shift in the Fund's asset
allocation was a decrease in Treasury holdings and an increase in
mortgage-backed securities. That change accelerated in the fourth quarter, when
hedge-fund liquidations made it possible to purchase mortgage-backed securities
at what we believed to be very attractive prices. The Fund took profits from
selling Treasuries to purchase mortgage-backed securities, and both the
purchases and sales had a positive impact on performance. While adding corporate
bonds was positive in the second quarter, over the remainder of the year the
addition did not work in the Fund's favor.
- --------------------------------------------------------------------------------
(++) Currently debt rated AAA has the highest rating assigned by Standard &
Poor's and according to Standard & Poor's, the obligor's capacity to meet
its financial commitment on the obligation is extremely strong. These
ratings are based solely on the creditworthiness of the bonds in the
portfolio and are not meant to represent the stability or safety of the
Fund.
WEIGHTING/OVERWEIGHTING 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.
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 2-year and 30-year Treasuries.
102
<PAGE> 105
WHAT IS YOUR OUTLOOK GOING FORWARD?
We believe that unless a major market shift occurs, the Federal Reserve Board is
likely to remain on hold temporarily, though it may move to ease interest rates
further as the year unfolds. We continue to believe that diversification will be
important for an investor's overall asset allocation, as was exhibited by the
inverse relationships between stocks and bonds in the second half of 1998 when
bonds outperformed stocks for a period of time. Within the income-securities
market, we believe value can be added with careful maturity selection as reduced
Treasury issuance and ongoing volatility continue to create potential
opportunities. We also anticipate reduced supply and higher demand for
mortgage-backed securities. The Fund is well positioned to take advantage of any
move in that direction. Whatever happens, we will continue to emphasize
high-quality investments as we seek to maximize total return, consistent with
liquidity, low risk to principal, and investment in debt securities.
RAVI AKHOURY
EDWARD MUNSHOWER
Portfolio Managers
MacKay-Shields Financial Corporation
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
103
<PAGE> 106
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL BOND FUND VS LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Lehman
Brothers
Bond Gov't/Corp
Fund Bond Index
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 10240.00 10270.00
6/30/91 10350.00 10425.00
9/30/91 10960.00 11025.00
12/31/91 11400.00 11613.00
3/31/92 11264.00 11439.00
6/30/92 11647.00 11902.00
9/30/92 12063.00 12484.00
12/31/92 12128.00 12494.00
3/31/93 12627.00 13075.00
6/30/93 12961.00 13468.00
9/30/93 13342.00 13913.00
12/31/93 13310.00 13873.00
3/31/94 12949.00 13439.00
6/30/94 12776.00 13272.00
9/30/94 12829.00 13338.00
12/31/94 12869.00 13388.00
3/31/95 13460.00 14055.00
6/30/95 14267.00 14967.00
9/30/95 14527.00 15253.00
12/31/95 15170.00 15963.00
3/31/96 14800.00 15590.00
6/30/96 14893.00 15663.00
9/30/96 15124.00 15939.00
12/31/96 15595.00 16426.00
3/31/97 15497.00 16285.00
6/30/97 16038.00 16878.00
9/30/97 16546.00 17469.00
12/31/97 16931.00 18029.00
3/31/98 17175.00 18303.00
6/30/98 17576.00 18783.00
9/30/98 18308.00 19713.00
12/31/98 18273.00 19738.00
Bond Fund Lehman Brothers Govt/Corp Bond Index
Source: Lipper Analytical Services, Inc.
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL BOND FUND VS LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Lehman
Brothers
Bond Gov't/Corp
Fund Bond Index
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 10240.00 10270.00
6/30/91 10350.00 10425.00
9/30/91 10960.00 11025.00
12/31/91 11400.00 11613.00
3/31/92 11264.00 11439.00
6/30/92 11647.00 11902.00
9/30/92 12063.00 12484.00
12/31/92 12128.00 12494.00
3/31/93 12627.00 13075.00
6/30/93 12961.00 13468.00
9/30/93 13342.00 13913.00
12/31/93 13310.00 13873.00
3/31/94 12949.00 13439.00
6/30/94 12776.00 13272.00
9/30/94 12829.00 13338.00
12/31/94 12869.00 13388.00
3/31/95 13446.00 14055.00
6/30/95 14253.00 14967.00
9/30/95 14512.00 15253.00
12/31/95 15128.00 15963.00
3/31/96 14759.00 15590.00
6/30/96 14836.00 15663.00
9/30/96 15052.00 15939.00
12/31/96 15525.00 16426.00
3/31/97 15394.00 16285.00
6/30/97 15934.00 16878.00
9/30/97 16425.00 17469.00
12/31/97 16799.00 18029.00
3/31/98 17025.00 18303.00
6/30/98 17424.00 18783.00
9/30/98 18136.00 19713.00
12/31/98 18099.00 19738.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN* AS OF
PERFORMANCE AS OF DECEMBER 31, 1998 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond Fund Institutional Class 7.93% 7.93% 6.54% 7.82%
Bond Fund Service Class(+) 7.73% 7.73% 6.34% 7.69%
Average Lipper Intermediate U.S.
Government Fund 7.68% 7.68% 5.91% 7.23%
Lehman Brothers Gov't/Corporate Bond Index 9.47% 9.47% 7.30% 8.87%
</TABLE>
<TABLE>
<S> <C> <C>
QUALITY BREAKDOWN(++)
(% of bonds as of December
YEAR-BY-YEAR PERFORMANCE 31, 1998)
- ------------------------------------------------------------------------------------------------
Government/Agency 56.24%
AAA 13.91%
AA 1.23%
A 17.91%
BBB 10.71%
-------
100.00%
</TABLE>
Institutional Class Shares
[Performance Chart]
<TABLE>
<CAPTION>
Year end 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return %* 14.0% 6.39% 9.74% -3.31% 17.88% 2.80% 8.57% 7.93%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ----------------------------------------------------------------------------------------------------
1. U.S. Treasury Note, 6/30/03, 5.375% 8.44%
2. U.S. Treasury Bond, 8/15/27, 6.375% 7.01%
3. U.S. Treasury Note, 2/28/02, 6.25% 5.84%
4. FNMA, 1/1/28, 7.00% 4.75%
5. FNMA, 3/15/01, 5.625% 3.50%
6. U.S. Treasury Bond, 11/15/27, 6.125% 3.32%
7. GNMA, 11/15/28, 7.50% 2.42%
8. U.S. Treasury Note, 11/30/00, 5.625% 2.18%
9. U.S. Treasury Note, 5/15/06, 6.875% 2.07%
10. FNMA, 4/15/03, 5.75% 2.03%
<CAPTION>
<S> <C> <C>
PORTFOLIO COMPOSITION TOP 5 INDUSTRY
(% of net assets as of December 31, 1998) HOLDINGS
(% of net assets as of December 31, 1998)
- ----------------------------------------------------------------------------------------------------
1. U.S. Government & Federal Agencies 55.71%
2. Commercial Mortgage Loans 4.89%
3. Financial Services 3.06%
4. Electric Utilities 2.96%
5. Food, Beverage & Tobacco 2.77%
AVERAGE MATURITY 9.7 YEARS
(as of 12/31/98)
</TABLE>
[Pie Chart]
<TABLE>
<CAPTION>
U.S. GOVERNMENT DOMESTIC OTHER ASSET-BACKED/ OTHER CASH, EQUIVALENTS
& FEDERAL BONDS MORTGAGE-BACKED BONDS AND OTHER ASSETS
AGENCIES SECURITIES
<S> <C> <C> <C> <C> <C>
55.71 22.28 15.75 5.31 0.95(sec.)
</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%
on an annualized basis of the average daily net asset value of the Service
Class shares.
+ 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.
sec. Adjusted for liabilities.
104
<PAGE> 107
MAINSTAY
INSTITUTIONAL FUNDS INC.
BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS (99.1%)+
ASSET-BACKED
SECURITIES (10.4%)
<S> <C> <C>
PRINCIPAL
AMOUNT VALUE
------------------------
AIRPLANE LEASES (2.0%)
Aircraft Lease Portfolio
Securitization Ltd.
Series 1996-1 Class CX
6.9125%, due 6/15/06 (b)....... $ 1,881,234 $ 1,879,466
Airplanes Pass-Through Trust
Series 1 Class C
8.15%, due 3/15/19............. 1,710,275 1,806,050
------------
3,685,516
------------
AUTO LEASES (2.4%)
Premier Auto Trust
Series 1998-4
Class A3 5.69%, due 6/8/02..... 2,235,000 2,246,890
Toyota Auto Lease Trust
Series 1998-1 B Class A1
5.35%, due 7/25/02............. 2,215,000 2,213,649
------------
4,460,539
------------
CONSUMER LOANS (1.9%)
Green Tree Recreational
Equipment & Consumer Trust
Series 1997-C Class A1 6.49%,
due 2/15/18.................... 3,435,832 3,469,159
------------
CREDIT CARD RECEIVABLES (1.0%)
Chase Credit Card Master Trust
Series 1997-2 Class A
6.30%, due 4/15/03............. 1,910,000 1,939,815
------------
EQUIPMENT LOANS (0.4%)
Newcourt Equipment Trust
Securities Series 1998-1 Class
A3
5.24%, due 12/20/02............ 670,000 665,411
------------
TRANSPORTATION (1.0%)
Federal Express
Pass-Through Certificate
Series 1998-1A Class A
6.72%, due 1/15/22............. 1,770,000 1,830,445
------------
UTILITY LOANS (1.8%)
Comed Transitional Funding Trust
Series 1998-1 Class A7
5.74%, due 12/25/10............ 3,370,000 3,368,955
------------
Total Asset-Backed Securities
(Cost $19,319,755)............. 19,419,840
------------
CORPORATE BONDS (22.3%)
BANKS (2.6%)
Banc One Corp.
7.60%, due 5/1/07.............. 2,110,000 2,367,969
- -------------------------------------------------------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
BANKS (Continued)
Capital One Bank
Series BKNT
6.375%, due 2/15/03............ $ 2,575,000 $ 2,542,426
------------
4,910,395
------------
CABLE (1.6%)
Cox Communications Inc.
6.80%, due 8/1/28.............. 2,950,000 3,105,553
------------
ELECTRIC UTILITIES (2.2%)
National Rural Utilities Corp.
6.20%, due 2/1/08.............. 2,165,000 2,270,414
Public Service Electric & Gas
Co.
Series UU
6.75%, due 3/1/06.............. 1,675,000 1,797,275
------------
4,067,689
------------
FINANCIAL SERVICES (3.1%)
Equitable Cos., Inc. (The)
7.00%, due 4/1/28.............. 830,000 868,213
Household Finance Corp.
5.875%, due 9/25/04............ 1,910,000 1,913,935
6.50%, due 11/15/08............ 810,000 842,400
Salomon, Smith Barney Holdings
Inc.
6.25%, due 5/15/03............. 695,000 706,565
Sears Roebuck Acceptance Corp.
Medium-Term Note
Series IV
6.36%, due 12/4/01............. 1,360,000 1,388,424
------------
5,719,537
------------
FOOD, BEVERAGE & TOBACCO (2.8%)
Coca-Cola Enterprises Inc.
6.95%, due 11/15/26............ 2,205,000 2,364,488
Philip Morris Cos., Inc.
6.15%, due 3/15/00 (d)......... 2,780,000 2,801,573
------------
5,166,061
------------
INSURANCE (0.9%)
Conseco, Inc.
6.40%, due 6/15/01 (e)......... 1,680,000 1,623,115
------------
MEDIA ENTERTAINMENT (1.5%)
Disney (Walt) Co. (The)
Medium-Term Note
5.62%, due 12/1/08............. 1,265,000 1,262,078
Time Warner, Inc.
8.375%, due 7/1/13............. 1,328,000 1,594,357
------------
2,856,435
------------
PAPER & FOREST PRODUCTS (0.8%)
Georgia-Pacific Corp.
7.25%, due 6/1/28.............. 1,440,000 1,459,224
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
105
<PAGE> 108
BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
REAL ESTATE (1.1%)
EOP Operating LP
6.50%, due 6/15/04............. $ 2,140,000 $ 2,100,566
------------
RETAIL (1.5%)
Albertson's, Inc.
Medium-Term Note
Series C
6.625%, due 6/1/28............. 1,380,000 1,418,930
Dayton Hudson Corp.
5.875%, due 11/1/08............ 1,480,000 1,502,466
------------
2,921,396
------------
SPECIALIZED SERVICES (0.8%)
WPP Finance (USA) Corp.
6.625%, due 7/15/05............ 1,440,000 1,432,829
------------
STEEL, ALUMINUM & OTHER METALS (0.6%)
Carpenter Technology Corp.
Medium-Term Note
Series B
6.275%, due 4/7/03............. 1,060,000 1,065,162
------------
TELECOMMUNICATION SERVICES (2.0%)
Lucent Technologies Inc.
5.50%, due 11/15/08............ 1,925,000 1,943,826
MCI WorldCom Inc.
6.125%, due 8/15/01............ 670,000 681,135
Sprint Capital Corp.
6.125%, due 11/15/08........... 1,095,000 1,118,871
------------
3,743,832
------------
TEXTILE & APPAREL (0.8%)
Tommy Hilfiger USA, Inc.
6.50%, due 6/1/03.............. 1,445,000 1,425,897
------------
Total Corporate Bonds
(Cost $40,818,769)............. 41,597,691
------------
MORTGAGE-BACKED SECURITIES (5.4%)
COMMERCIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE
OBLIGATIONS) (4.9%)
DLJ Commercial Mortgage Corp.
Series 1998-CF2 Class A1B
6.24%, due 11/12/31............ 1,885,000 1,921,531
LB Commercial Conduit
Mortgage Trust Series 1998-C4
Class A1B
6.21%, due 10/15/08............ 1,805,000 1,834,891
Merrill Lynch Mortgage
Investors, Inc. Series 1995-C2
Class A1
7.2778%, due 6/15/21 (a)(b).... 1,403,146 1,428,374
Mortgage Capital Funding, Inc.
Series 1998 MC3 Class A2
6.337%, due 11/18/31........... 1,380,000 1,406,096
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE
OBLIGATIONS) (Continued)
Nationslink Funding Corp. Series
1998-2 Class A1
6.001%, due 11/20/07........... $ 656,555 $ 661,479
SASCO Floating Rate Commercial
Mortgage Trust Series 1998-C3A
Class A1A
6.1744%, due 6/25/30 (a)(b).... 1,883,576 1,883,576
------------
9,135,947
------------
RESIDENTIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE
OBLIGATIONS) (0.5%)
Structured Asset Securities
Corp. Series 1996-2 Class A1
7.00%, due 8/25/26............. 848,440 849,594
------------
Total Mortgage-Backed Securities
(Cost $9,949,266).............. 9,985,541
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (55.7%)
FANNIE MAE-ACES (0.6%)
Series 1998-M1 Class A1
5.96%, due 5/25/07............. 1,103,711 1,113,026
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (6.4%)
5.25%, due 1/15/03............. 1,560,000 1,570,655
5.625%, due 3/15/01............ 6,435,000 6,539,697
5.75%, due 4/15/03 (c)......... 3,690,000 3,787,896
------------
11,898,248
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (MORTGAGE PASS-THROUGH
SECURITIES) (5.5%)
6.54%, due 1/1/05.............. 1,388,810 1,449,362
7.00%, due 1/1/28.............. 8,701,246 8,875,271
------------
10,324,633
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I (MORTGAGE
PASS-THROUGH SECURITIES) (6.1%)
7.00%, due 8/15/28............. 3,274,374 3,350,110
7.50%, due 11/15/28............ 4,389,918 4,524,381
8.00%, due 11/15/28............ 3,498,231 3,632,703
------------
11,507,194
------------
UNITED STATES TREASURY BONDS (13.9%)
6.125%, due 11/15/27 (c)....... 5,545,000 6,206,907
6.375%, due 8/15/27 (c)........ 11,380,000 13,079,831
7.625%, due 2/15/25............ 2,430,000 3,194,697
8.875%, due 8/15/17............ 2,429,000 3,421,465
------------
25,902,900
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
106
<PAGE> 109
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES (23.2%)
5.375%, due 6/30/03 (c)........ $ 15,315,000 $ 15,760,054
5.625%, due 11/30/00 (c)....... 3,990,000 4,061,062
6.25%, due 2/28/02-2/15/03
(c)............................ 13,730,000 14,390,645
6.375%, due 3/31/01............ 1,475,000 1,528,926
6.625%, due 5/15/07............ 380,000 427,321
6.875%, due 5/15/06............ 3,410,000 3,855,414
7.875%, due 11/15/04 (c)....... 2,795,000 3,238,259
------------
43,261,681
------------
Total U.S. Government & Federal
Agencies (Cost $103,723,068)... 104,007,682
------------
YANKEE BONDS (5.3%)
CONSUMER FINANCIAL SERVICES (1.9%)
Ford Capital Co. B.V. 9.50%, due
6/1/10......................... 2,700,000 3,472,065
------------
ELECTRIC UTILITIES (0.8%)
United Utilities PLC
6.45%, due 4/1/08.............. 1,425,000 1,466,738
------------
FINANCE (0.8%)
Fairfax Financial Holdings Ltd.
6.875%, due 4/15/08............ 1,450,000 1,431,759
------------
MULTI-INDUSTRIAL (0.8%)
Tyco International Group S.A.
7.00%, due 6/15/28............. 1,655,000 1,711,833
------------
OIL SERVICES (1.0%)
Petroleum Geo-Services ASA
7.125%, due 3/30/28............ 1,935,000 1,827,414
------------
Total Yankee Bonds
(Cost $9,876,370).............. 9,909,809
------------
Total Long-Term Investments
(Cost $183,687,228)............ 184,920,563
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
COMMERCIAL PAPER (1.4%)
Xerox Credit Corp.
5.10%, due 1/4/99.............. $ 2,685,000 $ 2,683,859
------------
Total Short-Term Investment
(Cost $2,683,859).............. 2,683,859
------------
Total Investments
(Cost $186,371,087) (f)........ 100.5% 187,604,422(g)
Liabilities in Excess of
Cash and Other Assets.......... (0.5) (912,632)
----------- ----------
Net Assets...................... 100.0% $186,691,790
=========== ==========
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(c) Represents securities out on loan or a portion of which is out on loan.
(d) Put Bond--May be redeemed prior to maturity for full face value.
(e) MOPPRS: Mandatory Par Put Remarketed Securities--Subject to mandatory tender
on remarketing dates.
(f) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(g) At December 31, 1998 net unrealized appreciation was $1,233,335, based on
cost for Federal income tax purposes. This consisted of aggregate gross
unrealized appreciation for all investments on which there was an excess of
market value over cost of $1,901,187 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $667,852.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
107
<PAGE> 110
BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $186,371,087)..... $ 187,604,422
Collateral held for securities loaned
at value (Note 6).................. 38,499,735
Receivables:
Interest........................... 2,114,868
Fund shares sold................... 1,097,977
Investment securities sold......... 855,297
--------------
Total assets................... 230,172,299
--------------
LIABILITIES:
Securities lending collateral, at
value (Note 6)..................... 38,499,735
Payables:
Fund shares redeemed............... 4,058,964
MainStay Management................ 112,725
Custodian.......................... 763,819
Transfer agent..................... 2,421
Accrued expenses..................... 42,845
--------------
Total liabilities.............. 43,480,509
--------------
Net assets........................... $ 186,691,790
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 18,397
Institutional Service Class........ 434
Additional paid-in capital........... 192,711,364
Accumulated undistributed net
investment income.................. 1,610
Accumulated net realized loss on
investments........................ (7,273,350)
Net unrealized appreciation on
investments........................ 1,233,335
--------------
Net assets........................... $ 186,691,790
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 182,402,261
==============
Shares of capital stock
outstanding........................ 18,396,881
==============
Net asset value per share
outstanding........................ $ 9.91
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 4,289,529
==============
Shares of capital stock
outstanding........................ 434,072
==============
Net asset value per share
outstanding........................ $ 9.88
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 11,581,029
------------
Expenses:
Management........................... 1,373,917
Professional......................... 49,692
Custodian............................ 34,583
Shareholder communication............ 31,055
Transfer agent....................... 28,905
Registration......................... 26,293
Service.............................. 8,980
Directors............................ 4,514
Miscellaneous........................ 17,440
------------
Total expenses before
reimbursement.................. 1,575,379
Expense reimbursement from Manager... (192,482)
------------
Net expenses..................... 1,382,897
------------
Net investment income.................. 10,198,132
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments....... 5,448,970
Net change in unrealized appreciation
on investments....................... (1,510,793)
------------
Net realized and unrealized gain on
investments.......................... 3,938,177
------------
Net increase in net assets resulting
from operations...................... $ 14,136,309
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
108
<PAGE> 111
MAINSTAY
INSTITUTIONAL FUNDS INC.
BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 10,198,132 $ 11,105,409
Net realized gain on investments........................ 5,448,970 1,673,440
Net change in unrealized appreciation on investments.... (1,510,793) 1,794,244
-------------- --------------
Net increase in net assets resulting from operations.... 14,136,309 14,573,093
-------------- --------------
Dividends to shareholders:
From net investment income:
Institutional Class................................... (9,963,260) (10,960,664)
Institutional Service Class........................... (233,262) (87,118)
-------------- --------------
Total dividends to shareholders..................... (10,196,522) (11,047,782)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 27,884,675 9,276,484
Institutional Service Class........................... 4,359,791 645,193
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Institutional Class................................... 9,817,383 10,960,664
Institutional Service Class........................... 181,161 86,673
-------------- --------------
42,243,010 20,969,014
Cost of shares redeemed:
Institutional Class................................... (43,075,789) (16,896,833)
Institutional Service Class........................... (1,791,909) (826,594)
-------------- --------------
Increase (decrease) in net assets derived from capital
share transactions................................... (2,624,688) 3,245,587
-------------- --------------
Net increase in net assets............................ 1,315,099 6,770,898
NET ASSETS:
Beginning of year......................................... 185,376,691 178,605,793
-------------- --------------
End of year............................................... $ 186,691,790 $ 185,376,691
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ 1,610 $ --
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
109
<PAGE> 112
BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 9.71 $ 9.68
---------- ----------
Net investment income....................................... 0.57 0.54
Net realized and unrealized gain (loss) on investments...... 0.20 0.20
---------- ----------
Total from investment operations............................ 0.77 0.74
---------- ----------
Less dividends from net investment income................... (0.57) (0.54)
---------- ----------
Net asset value at end of year.............................. $ 9.91 $ 9.88
========== ==========
Total investment return..................................... 7.93% 7.73%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 5.57% 5.32%
Net expenses.............................................. 0.75% 1.00%
Expenses (before reimbursement)........................... 0.86% 1.11%
Portfolio turnover rate..................................... 335% 335%
Net assets at end of year (in 000's)........................ $ 182,402 $ 4,290
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
110
<PAGE> 113
MAINSTAY
INSTITUTIONAL FUNDS INC
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.51 $ 9.49 $ 9.85 $ 9.83 $ 8.93 $ 8.93 $ 9.98
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.61 0.59 0.62 0.60 0.68 0.67 0.72
0.20 0.19 (0.34) (0.34) 0.92 0.90 (1.05)
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.81 0.78 0.28 0.26 1.60 1.57 (0.33)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.61) (0.59) (0.62) (0.60) (0.68) (0.67) (0.72)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 9.71 $ 9.68 $ 9.51 $ 9.49 $ 9.85 $ 9.83 $ 8.93
========== ========== ========== ========== ========== ========== ==========
8.57%. 8.21% 2.80% 2.62% 17.88% 17.55% (3.31%)
6.21% 5.96% 6.10% 5.85% 6.62% 6.37% 7.13%
0.75%. 1.00% 0.75% 1.00% 0.75% 1.00% 0.75%
0.85% 1.10% 0.86% 1.11% 0.86% 1.11% 0.82%
338% 338% 398% 398% 470% 470% 478%
$ 183,846 $ 1,531 $ 177,009 $ 1,597 $ 193,518 $ 749 $ 202,970
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
111
<PAGE> 114
INDEXED BOND FUND
- --------------------------------------------------------------------------------
1998 MARKET RECAP
- - The U.S. economy continued to expand in a favorable environment of solid
growth, low interest rates, and negligible inflation.
- - The Russian economic collapse, a weakening economic outlook in Latin America,
and ongoing economic woes in Asia fueled general investor demand for the
higher liquidity and perceived safety of U.S. Treasuries, driving prices
sharply higher.
- - The difficulties of Long-Term Capital Management, a major leveraged hedge
fund, and its subsequent bailout weighed heavily on investor sentiment.
- - The 30-year Treasury bond traded below 5%--its lowest yield since it was first
offered more than twenty years ago.
- - Fears of global recession and financial market instability prompted three
successive 0.25% interest-rate cuts by the Federal Reserve Board beginning in
late September.
1998 FUND RECAP
- - For the one-year period ended 12/31/98, the Mainstay Institutional Indexed
Bond Fund returned 8.21% for Institutional Class shares and 7.86% for Service
Class shares.
- - The Fund tracked the performance of the Salomon Smith Barney Broad Investment
Grade (BIG) Bond Index,(*) which had a return of 8.71% for the year ended
12/31/98.
- - Institutional Class shares outperformed and Service Class shares
underperformed the average Lipper(+) general U.S. government fund, which
returned 8.07% for the one-year period ended 12/31/98.
<TABLE>
<S> <C>
During the first half of the year, the Federal FEDERAL RESERVE BOARD
Reserve Board kept the targeted Fed Funds rate The seven-member
steady at 5.5%, reflecting general optimism governing board of the
about the domestic economy's ability to sustai Federal Reserve System
growth with the lowest inflation rate seen in which is the central
decades. This helped support the U.S. bond bank of the United
market's strong performance. States. The Board sets
policies on reserve
However, optimism turned to worry in early summer as requirements, bank
concerns mounted that financial turmoil overseas would regulations, and the
ultimately stall U.S. economic growth. Russia defaulted on discount rate, tightens
its debt, weak commodity prices dampened the economic or loosens the
outlook for Latin America, and the well-publicized economic availability of credit
instability in Asia continued. The bailout by a consortium in the economy, and
of Wall Street firms of the hedge fund Long-Term Capital regulates the purchase
Management added to investors' concerns. With global of securities on margin.
markets, including the U.S. equity market, rife with
volatility, many investors intensified their flight to
quality, investing
</TABLE>
- --------------------------------------------------------------------------------
* The Salomon Smith Barney Broad Investment Grade (BIG) Bond Index is an
unmanaged index that is considered representative of the U.S. bond market.
(+) Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns
with capital gains and dividends reinvested.
112
<PAGE> 115
in the relative safety of U.S. Treasuries. This, in turn, drove bond prices
higher and the entire Treasury yield curve down to near 5% or below. While U.S.
Treasuries performed strongly, corporate bonds and mortgage-backed securities
came under serious pressure. Credit quality spreads reached their widest levels
since the last recession.
Citing the prospective effects the global crisis could have on the U.S.
economy, the Federal Reserve Board stepped in by lowering interest rates in a
series of three cuts of 0.25% each between September 29 and November 17. The
moves worked to calm the financial markets, allowing the bond market to finish
the year with its best returns since 1995. Overall, the 2- to 30-year U.S.
Treasury yield curve steepened by 0.28% over the twelve months ended 12/31/98.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY INSTITUTIONAL
INDEXED BOND FUND PERFORM IN 1998?
For the one-year period ended 12/31/98, the MainStay Institutional Indexed Bond
Fund returned 8.21% for Institutional Class shares and 7.86% for Service Class
shares. Institutional Class shares outperformed and Service Class shares
underperformed the average Lipper general U.S. government fund, which returned
8.07% for the one-year period ended 12/31/98.
WHY DID THE FUND UNDERPERFORM THE BIG BOND INDEX?
The Fund seeks to track the BIG Bond Index, which returned 8.71% for the
one-year period ended 12/31/98. However, since the Fund incurs fees and
expenses that are not included in the BIG Bond Index, some underperformance
should be expected. The Fund also has to account for the timing and amount of
new investments and redemptions, which the Index does not. This may result in
tracking differences, although the Fund did track the BIG Bond Index within
acceptable tracking tolerances.
HOW DID THE DURATION OF THE FUND COMPARE WITH THE BIG BOND
INDEX?
The duration of the Fund closely tracked that of its benchmark, the BIG Bond
Index, at 4.7 years for the Fund versus 4.6 years for the BIG Bond Index as of
December 31, 1998.
DURING THE YEAR, WHICH SECTORS CONTRIBUTED MOST POSITIVELY
TO THE FUND'S PERFORMANCE?
The Treasury sector was the best-performing sector of the BIG Bond Index,
returning 10.00% for the year. Within that sector, longer-term Treasuries of 20
or more years provided the best overall performance, with returns of 14.16% for
1998. Low inflation, declining interest rates, and a flight to quality helped
to move yields lower and prices higher and fueled strong performance of U.S.
Treasury bonds during the year. Treasuries and government-sponsored bonds
accounted for 47% of the BIG Bond Index as of 12/31/98.
WHICH SECTOR PERFORMED THE WORST AND WHY?
The lower-rated investment-grade corporate bond sector, i.e. those corporate
bonds rated BBB,(++) was the worst-performing sector of the BIG Bond Index,
although it still provided a return of 6.79% for the year. A declining
interest-rate environment and investor preference for higher-quality issues
caused these bonds to lag the rest of the market. Mortgage-backed securities
also came under pressure, as prepayments increased and a number of hedge funds
and other leveraged players liquidated their mortgage positions in response to
the rally in the Treasury market. The mortgage sector accounted for 30% of the
BIG Bond Index at year end.
- --------------------------------------------------------------------------------
(++) Debt rated BBB is regarded by Standard & Poor's as having an adequate
capacity to pay interest and repay principal.
FEDERAL FUNDS RATE The interest rate charged by banks with excess reserves at a
Federal Reserve district bank to banks needing overnight loans to meet reserve
requirements.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
FLIGHT TO QUALITY When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, or market
concerns that suggest lower-quality securities or those that are less liquid are
likely to be more vulnerable to negative market events.
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 SPREADS The difference in yield of securities with different
issuers, characteristics, or credit quality.
DURATION A time 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.
113
<PAGE> 116
WHAT IS YOUR OUTLOOK FOR 1999?
While we do not anticipate a repeat of the dramatic rally the U.S. bond market
experienced in 1998, the global economic crisis continues to loom and we believe
strong momentum in the U.S. economy should carry into 1999. If these factors
occur, we believe this should provide a positive backdrop for inflation to stay
low and for the relative safe haven status of U.S. Treasuries to continue. We
believe that action by the Federal Reserve Board is probably on hold for the
foreseeable future.
Of course, as an index fund, we neither evaluate short-term fluctuations in the
Fund's performance nor manage according to a given outlook for the bond markets
or the economy in general. Regardless of what happens to interest rates or bond
prices, 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 Smith Barney Broad Investment Grade Bond Index.
JAMES A. MEHLING, CFA
Portfolio Manager
Monitor Capital Advisors, Inc.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
114
<PAGE> 117
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS
SALOMON SMITH BARNEY BIG BOND INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Indexed Salomon Smith
Bond Barney BIG
Fund Bond Index
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 10220.00 10263.00
6/30/91 10380.00 10448.00
9/30/91 10930.00 11043.00
12/31/91 11470.00 11599.00
3/31/92 11334.00 11464.00
6/30/92 11756.00 11930.00
9/30/92 12262.00 12444.00
12/31/92 12283.00 12477.00
3/31/93 12788.00 12998.00
6/30/93 13128.00 13358.00
9/30/93 13491.00 13710.00
12/31/93 13467.00 13716.00
3/31/94 13066.00 13330.00
6/30/94 12908.00 13201.00
9/30/94 12956.00 13272.00
12/31/94 13003.00 13326.00
3/31/95 13637.00 14000.00
6/30/95 14451.00 14857.00
9/30/95 14723.00 15137.00
12/31/95 15354.00 15794.00
3/31/96 15032.00 15518.00
6/30/96 15074.00 15594.00
9/30/96 15312.00 15886.00
12/31/96 15745.00 16365.00
3/31/97 15640.00 16280.00
6/30/97 16179.00 16866.00
9/30/97 16718.00 17426.00
12/31/97 17164.00 17940.00
3/31/98 17420.00 18229.00
6/30/98 17803.00 18650.00
9/30/98 18522.00 19424.00
12/31/98 18573.00 19504.00
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INDEXED BOND FUND VS
SALOMON SMITH BARNEY BIG BOND INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Indexed Salomon Smith
Bond Barney BIG
Fund Bond Index
<S> <C> <C>
12/31/90 10000.00 10000.00
3/31/91 10220.00 10263.00
6/30/91 10380.00 10448.00
9/30/91 10930.00 11043.00
12/31/91 11470.00 11599.00
3/31/92 11334.00 11464.00
6/30/92 11756.00 11930.00
9/30/92 12262.00 12444.00
12/31/92 12283.00 12477.00
3/31/93 12788.00 12998.00
6/30/93 13128.00 13358.00
9/30/93 13491.00 13710.00
12/31/93 13467.00 13716.00
3/31/94 13066.00 13330.00
6/30/94 12908.00 13201.00
9/30/94 12956.00 13272.00
12/31/94 13003.00 13326.00
3/31/95 13663.00 14000.00
6/30/95 14477.00 14857.00
9/30/95 14723.00 15137.00
12/31/95 15341.00 15794.00
3/31/96 15020.00 15518.00
6/30/96 15047.00 15594.00
9/30/96 15285.00 15886.00
12/31/96 15699.00 16365.00
3/31/97 15580.00 16280.00
6/30/97 16117.00 16866.00
9/30/97 16639.00 17426.00
12/31/97 17073.00 17940.00
3/31/98 17311.00 18229.00
6/30/98 17677.00 18650.00
9/30/98 18392.00 19424.00
12/31/98 18414.00 19504.00
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indexed Bond Fund Institutional Class 8.21% 8.21% 6.64% 8.04%
Indexed Bond Fund Service Class(+) 7.86% 7.86% 6.46% 7.93%
Average Lipper General U.S. Government Fund 8.07% 8.07% 6.15% 7.56%
Salomon Smith Barney BIG Bond Index 8.71% 8.71% 7.29% 8.70%
</TABLE>
<TABLE>
<S> <C> <C>
QUALITY BREAKDOWN(++)
(% of bonds as of December
YEAR-BY-YEAR PERFORMANCE 31, 1998)
- -------------------------------------------------------------------------------------------
Government/Agency 76.47%
AAA 3.50%
AA 4.64%
A 10.19%
BBB 4.82%
B 0.38%
-------
100.00%
</TABLE>
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year End 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return %* 14.70% 7.09% 9.64% -3.44% 18.07% 2.55% 9.01% 8.21%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------------
1. US Treasury Note, 10/31/01, 6.25% 3.39%
2. GNSF 30 YR 6% TBA, 1/21/29, 6.00% 2.48%
3. Federal Home Loan Bank, 8/25/99, 8.60% 2.25%
4. Viacom Inc., 8/1/22, 8.25% 2.05%
5. Orion Capital Trust I, 1/1/37, 8.73% 2.00%
6. Morgan Stanley Group Inc., 2/1/24, 7.50% 2.00%
7. US Treasury Note, 4/30/01, 6.25% 1.88%
8. Bayerische Landesbank, 2/9/06, 6.20% 1.87%
9. AT&T Corp., 12/1/31, 8.625% 1.74%
10. US Treasury Note, 11/15/01, 7.50% 1.61%
<CAPTION>
<S> <C> <C>
TOP 5 INDUSTRY HOLDINGS
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- --------------------------------------------------------------------------------------------------------
1. US Government & Federal Agencies 67.39%
2. Finance 6.25%
3. Banks 5.11%
4. Telecommunication Services 4.57%
5. Utilities-Electric 2.50%
AVERAGE MATURITY 15.1 YEARS
(as of 12/31/98)
</TABLE>
[Pie Chart]
<TABLE>
<CAPTION>
U.S. GOVERNMENT & DOMESTIC BONDS FOREIGN & OTHER BONDS
FEDERAL AGENCIES
<S> <C> <C> <C>
67.39 23.40 5.18
<CAPTION>
CASH, EQUIVALENTS & OTHERS
ASSETS
<S> <C>
4.03(sec.)
</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%
on an annualized basis of the average daily net asset value of the Service
Class shares.
+ 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.
sec. Adjusted for liabilities.
115
<PAGE> 118
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS (96.0%)+
CORPORATE BONDS (23.4%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
AUTOMOTIVE RENTALS (0.4%)
Hertz Corp.
7.00%, due 7/15/03............... $ 700,000 $ 720,125
------------
BANKS (1.5%)
First Union Corp.
8.77%, due 11/15/04.............. 1,000,000 1,032,500
Inter-American Development Bank
6.80%, due 10/15/25.............. 1,200,000 1,315,500
------------
2,348,000
------------
CHEMICALS (0.6%)
DuPont (E.I.) de Nemours & Co.
8.125%, due 3/15/04.............. 800,000 904,000
------------
COMPUTERS & OFFICE EQUIPMENT (0.8%)
Xerox Corp.
5.91%, due 4/1/37................ 1,250,000 1,267,188
------------
CONSUMER FINANCIAL SERVICES (0.7%)
General Motors Acceptance Corp.
8.40%, due 10/15/99.............. 500,000 511,745
KFW International Finance, Inc.
9.125%, due 5/15/01.............. 500,000 540,625
------------
1,052,370
------------
ENTERTAINMENT (0.4%)
Walt Disney Co. (The)
6.75%, due 3/30/06............... 600,000 649,500
------------
FINANCE (6.2%)
American Express Credit Corp.
6.125%, due 11/15/01............. 2,000,000 2,052,500
Commercial Credit Co.
8.70%, due 6/15/10............... 450,000 550,688
Finova Capital Corp.
6.19%, due 10/20/99.............. 1,000,000 1,005,925
Morgan Stanley Group Inc.
7.50%, due 2/1/24................ 3,000,000 3,195,000
Orion Capital Trust I
8.73%, due 1/1/37................ 3,000,000 3,202,500
------------
10,006,613
------------
FOOD, BEVERAGE & TOBACCO (0.4%)
Coca-Cola Enterprises, Inc.
8.50%, due 2/1/22................ 500,000 625,000
------------
INDUSTRIAL (0.8%)
USA Waste Services, Inc.
7.00%, due 10/1/04............... 1,300,000 1,363,375
------------
MACHINERY (0.4%)
Caterpillar, Inc.
9.00%, due 4/15/06............... 500,000 605,000
------------
- ------------
+ Percentages indicated are based on Fund net assets.
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
OIL & GAS (0.3%)
Texaco Capital, Inc.
9.75%, due 3/15/20............... $ 350,000 $ 490,875
------------
PAPER & FOREST PRODUCTS (0.4%)
Scott Paper Co.
7.00%, due 8/15/23............... 650,000 697,938
------------
RETAIL--GENERAL MERCHANDISE (1.2%)
Limited, Inc.
7.50%, due 3/15/23............... 1,900,000 1,888,125
------------
STEEL (0.7%)
USX Corp.
7.20%, due 2/15/04............... 1,100,000 1,138,500
------------
TELECOMMUNICATIONS SERVICES (4.6%)
AT&T Corp.
8.625%, due 12/1/31.............. 2,500,000 2,793,750
Cox Communications, Inc.
6.50%, due 11/15/02.............. 1,200,000 1,234,500
Viacom, Inc.
8.25%, due 8/1/22................ 3,000,000 3,288,750
------------
7,317,000
------------
TRANSPORTATION (0.8 %)
Ryder System, Inc.
9.875%, due 5/15/17.............. 1,000,000 1,238,750
------------
UTILITIES--ELECTRIC (2.5%)
Duke Power Co.
7.00%, due 7/1/33................ 2,000,000 2,067,500
Pennsylvania Power & Light Co.
7.30%, due 3/1/24................ 1,000,000 1,047,500
Texas Utility Electric Co.
8.25%, due 4/1/04................ 800,000 893,000
------------
4,008,000
------------
UTILITIES--TELEPHONE (0.7%)
United Telecommunication, Inc.
9.50%, due 4/1/03................ 1,000,000 1,156,250
------------
Total Corporate Bonds
(Cost $36,279,613)............... 37,476,609
------------
INTERNATIONAL
CORPORATE BONDS (3.2%)
BANKS (3.2%)
ABN Amro Bank, NV
Chicago Branch
7.55%, due 6/28/06............... 800,000 875,000
Bayerische Landesbank
Girozentrale
New York Branch
6.20%, due 2/9/06................ 2,900,000 2,990,625
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
116
<PAGE> 119
MAINSTAY
INSTITUTIONAL FUNDS INC.
[CAPTION]
<TABLE>
<CAPTION>
INTERNATIONAL
CORPORATE BONDS (CONTINUED)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
BANKS (Continued)
International Bank for
Reconstruction &
Development
7.125%, due 9/27/99.............. $1,200,000 $ 1,219,500
------------
5,085,125
------------
Total International Corporate Bonds
(Cost $4,852,941)............................ 5,085,125
------------
U.S. GOVERNMENT &
FEDERAL AGENCIES (67.4%)
FEDERAL HOME LOAN BANK (2.3%)
8.60%, due 8/25/99............... 3,525,000 3,605,811
------------
FEDERAL HOME LOAN BANK (MEDIUM TERM NOTE) (0.9%)
8.00%, due 9/11/01............... 1,400,000 1,508,209
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION
(MORTGAGE PASS-THROUGH
SECURITIES) (7.0%)
6.00%, due 9/1/02-10/1/02........ 1,536,305 1,547,826
6.50%, due 10/1/01-3/1/27........ 3,002,444 3,031,851
7.00%, due 8/1/03-12/1/27........ 4,009,113 4,089,931
7.50%, due 9/1/11-3/1/27......... 1,910,204 1,962,890
8.00%, due 7/1/26................ 513,073 531,031
------------
11,163,529
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (0.6%)
zero coupon, due 7/5/14.......... 2,500,000 1,046,018
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MEDIUM TERM NOTE) (0.3%)
5.83%, due 12/10/99.............. 500,000 504,127
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(MORTGAGE PASS-THROUGH SECURITIES) (13.0%)
5.50%, due 3/1/05................ 1,189,071 1,183,126
6.50%, due 7/1/03-2/1/28......... 5,897,358 5,953,315
7.00%, due 5/1/11-1/1/28......... 3,138,170 3,203,665
7.50%, due 11/1/26-1/1/28........ 1,870,025 1,920,866
8.00%, due 7/1/07-1/1/28......... 6,062,706 6,271,437
9.50%, due 3/1/16-9/1/19......... 2,158,768 2,303,811
------------
20,836,220
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITIES) (7.6%)
6.00%, due 1/21/29 TBA (a)....... 4,000,000 3,963,752
7.00%, due 3/15/07-12/15/27...... 2,560,362 2,624,402
7.50%, due 8/15/08-11/15/26...... 2,302,480 2,376,593
8.00%, due 6/15/26-9/15/27....... 2,164,125 2,247,984
8.50%, due 7/15/26-11/15/26...... 922,433 978,355
------------
12,191,086
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
PRIVATE EXPORT FUNDING CORPORATION (0.7%)
8.35%, due 1/31/01............... $1,000,000 $ 1,066,250
------------
TENNESSEE VALLEY AUTHORITY (1.5%)
Power Board 1994 Series A
7.85%, due 6/15/44............... 2,200,000 2,367,750
------------
UNITED STATES TREASURY BONDS (15.7%)(b)(c)
5.25%, due 11/15/28.............. 1,000,000 1,023,731
6.00%, due 2/15/26............... 500,000 546,643
6.125%, due 11/15/27............. 1,100,000 1,229,094
6.25%, due 8/15/23............... 700,000 783,092
6.625%, due 2/15/27.............. 1,100,000 1,298,350
6.875%, due 8/15/25.............. 500,000 607,203
7.125%, due 2/15/23.............. 600,000 738,208
7.25%, due 5/15/16............... 500,000 605,566
7.50%, due 11/15/16-11/15/24..... 1,200,000 1,512,333
7.625%, due 11/15/22-2/15/25..... 800,000 1,046,557
8.00%, due 11/15/21.............. 1,000,000 1,336,723
8.125%, due 8/15/19-5/15/21...... 1,300,000 1,743,454
8.50%, due 2/15/20............... 400,000 555,426
8.75%, due 5/15/17-8/15/20....... 1,500,000 2,118,026
8.875%, due 2/15/19.............. 600,000 854,407
9.375%, due 2/15/06.............. 530,000 676,873
9.875%, due 11/15/15............. 600,000 902,198
10.375%, due 11/15/12............ 500,000 692,318
11.25%, due 2/15/15.............. 400,000 660,971
11.75%, due 2/15/01.............. 1,700,000 1,940,190
11.875%, due 11/15/03............ 500,000 652,666
12.75%, due 11/15/10............. 400,000 582,273
13.125%, due 5/15/01............. 1,000,000 1,188,350
13.375%, due 8/15/01............. 1,200,000 1,455,774
14.25%, due 2/15/02.............. 300,000 382,463
------------
25,132,889
------------
UNITED STATES TREASURY NOTES (16.0%)
5.625%, due 12/31/02............. 400,000 413,315
5.75%, due 10/31/00-8/15/03...... 2,200,000 2,282,225
6.125%, due 9/30/00-8/15/07...... 2,100,000 2,248,958
6.25%, due 4/30/01-2/15/03....... 9,200,000 9,587,609
6.375%, due 3/31/01-8/15/02...... 1,500,000 1,573,755
6.50%, due 10/15/06.............. 1,200,000 1,334,363
6.75%, due 4/30/00............... 700,000 718,373
6.875%, due 3/31/00.............. 1,600,000 1,642,141
7.50%, due 11/15/01-2/15/05...... 3,750,000 4,084,152
7.75%, due 2/15/01............... 500,000 530,936
8.50%, due 2/15/00............... 1,100,000 1,145,498
------------
25,561,325
------------
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
117
<PAGE> 120
INDEXED BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
U.S. GOVERNMENT &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
UNITED STATES TREASURY NOTES (1.8%)
(Secured Stripped Bonds)
zero coupon, due 2/15/01........ $1,000,000 $ 908,141
zero coupon, due 2/15/05........ 2,500,000 1,875,110
zero coupon, due 2/15/27........ 600,000 134,510
------------
2,917,761
------------
Total U.S. Government &
Federal Agencies
(Cost $103,092,239).............. 107,900,975(d)
------------
YANKEE BONDS (2.0%)
BANKS (0.5%)
Australia & New Zealand
Banking Group, Ltd.
7.55%, due 9/15/06............... 700,000 750,750
------------
CONSUMER FINANCIAL SERVICES (0.4%)
Japan Financial Corp.
8.70%, due 7/30/01............... 600,000 652,500
------------
FOREIGN GOVERNMENT (0.8%)
Ontario Hydro
7.45%, due 3/31/13............... 500,000 583,125
Quebec (Province of)
7.50%, due 7/15/23............... 600,000 681,000
------------
1,264,125
------------
UTILITIES--TELEPHONE (0.3%)
Northern Telecom
8.75%, due 6/12/01............... 500,000 538,125
------------
Total Yankee Bonds
(Cost $2,906,709)................ 3,205,500
------------
Total Long-Term Investments
(Cost $147,131,502).............. 153,668,209
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.2%)
U.S. GOVERNMENT (5.2%)
United States Treasury Bills
zero coupon, due 4/1/99 (b)...... 7,900,000 7,816,757
United States Treasury Bills
zero coupon, due 4/8/99 (c)...... 500,000 494,230
------------
Total Short-Term Investments
(Cost $8,308,313)................ 8,310,987
------------
Total Investments
(Cost $155,439,815) (g).......... 101.2% 161,979,196(h)
Liabilities in Excess of Cash and
Other Assets..................... (1.2) (1,854,425)
--------- ----------
Net Assets........................ 100.0% $160,124,771
========= ==========
</TABLE>
<TABLE>
<CAPTION>
FUTURES CONTRACTS (0.0%)(e)
CONTRACTS UNREALIZED
LONG (DEPRECIATION)(f)
-----------------------------
<S> <C> <C>
United States Treasury Note
March 1999 (5 Year)....... 16 $ (3,426)
United States Treasury Note
March 1999 (10 Year)...... 13 (2,653)
United States Treasury Bond
March 1999 (30 Year)...... 8 (7,674)
--------
Total Futures Contracts
(Settlement Value
$4,398,535)............... $(13,753)
========
</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 or partially segregated as collateral for TBA.
(c) 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 70.1 % 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, 1998.
(g) The cost stated also represents the aggregate cost for Federal income tax
purposes.
(h) At December 31, 1998 net unrealized appreciation was $6,539,381, 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 $7,088,162 and aggregate unrealized depreciation
for all investments on which there was an excess of cost over market value
of $548,781.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
118
<PAGE> 121
MAINSTAY
INSTITUTIONAL FUNDS INC.
INDEXED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $155,439,815)..... $ 161,979,196
Cash................................. 70,710
Receivables:
Interest........................... 2,240,579
Fund shares sold................... 90,490
--------------
Total assets................... 164,380,975
--------------
LIABILITIES:
Payables:
Investment securities purchased.... 3,962,500
Fund shares redeemed............... 167,491
MainStay Management................ 49,144
Custodian.......................... 11,648
Transfer agent..................... 2,306
Accrued expenses..................... 61,101
Variation margin on futures
contracts.......................... 2,014
--------------
Total liabilities.............. 4,256,204
--------------
Net assets........................... $ 160,124,771
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 14,300
Institutional Service Class........ 355
Additional paid-in capital........... 155,220,172
Accumulated net realized loss on
investments........................ (1,635,684)
Net unrealized appreciation on
investments........................ 6,525,628
--------------
Net assets........................... $ 160,124,771
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 156,244,190
==============
Shares of capital stock
outstanding........................ 14,300,122
==============
Net asset value per share
outstanding........................ $ 10.93
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 3,880,581
==============
Shares of capital stock
outstanding........................ 355,243
==============
Net asset value per share
outstanding........................ $ 10.92
==============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 10,238,145
------------
Expenses:
Management........................... 744,747
Professional......................... 45,767
Custodian............................ 45,451
Registration......................... 37,318
Transfer agent....................... 27,508
Shareholder communication............ 23,980
Pricing Service...................... 22,101
Service.............................. 8,837
Directors............................ 3,511
Miscellaneous........................ 16,945
------------
Total expenses before
reimbursement.................. 976,165
Expense reimbursement from Manager... (222,581)
------------
Net expenses..................... 753,584
------------
Net investment income.................. 9,484,561
------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Security transactions................ 68,759
Futures transactions................. (135,817)
------------
Net realized loss on investments....... (67,058)
------------
Net change in unrealized appreciation
on investments:
Security transactions................ 2,305,816
Futures transactions................. (13,061)
------------
Net unrealized gain on investments..... 2,292,755
------------
Net realized and unrealized gain on
investments.......................... 2,225,697
------------
Net increase in net assets resulting
from operations...................... $ 11,710,258
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
119
<PAGE> 122
INDEXED BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 9,484,561 $ 7,845,428
Net realized loss on investments........................ (67,058) (147,749)
Net change in unrealized appreciation on investments.... 2,292,755 2,570,186
-------------- --------------
Net increase in net assets resulting from operations.... 11,710,258 10,267,865
-------------- --------------
Dividends to shareholders:
From net investment income:
Institutional Class................................... (9,236,677) (7,646,229)
Institutional Service Class........................... (219,665) (184,643)
-------------- --------------
Total dividends to shareholders..................... (9,456,342) (7,830,872)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 61,976,290 26,987,386
Institutional Service Class........................... 1,367,196 1,425,561
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Institutional Class................................... 9,210,122 7,626,166
Institutional Service Class........................... 219,629 184,643
-------------- --------------
72,773,237 36,223,756
Cost of shares redeemed:
Institutional Class................................... (35,070,585) (28,549,926)
Institutional Service Class........................... (768,339) (1,420,783)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 36,934,313 6,253,047
-------------- --------------
Net increase in net assets............................ 39,188,229 8,690,040
NET ASSETS:
Beginning of year......................................... 120,936,542 112,246,502
-------------- --------------
End of year............................................... $ 160,124,771 $ 120,936,542
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ -- $ 2,820
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
120
<PAGE> 123
(THIS PAGE INTENTIONALLY LEFT BLANK)
121
<PAGE> 124
INDEXED BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 10.74 $ 10.74
---------- ----------
Net investment income....................................... 0.69 0.66
Net realized and unrealized gain (loss) on investments...... 0.19 0.18
---------- ----------
Total from investment operations............................ 0.88 0.84
---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.69) (0.66)
From net realized gain on investments....................... -- --
---------- ----------
Total dividends and distributions........................... (0.69) (0.66)
---------- ----------
Net asset value at end of year.............................. $ 10.93 $ 10.92
========== ==========
Total investment return..................................... 8.21% 7.86%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 6.37% 6.12%
Net expenses.............................................. 0.50% 0.75%
Expenses (before reimbursement)........................... 0.65% 0.90%
Portfolio turnover rate..................................... 14% 14%
Net assets at end of year (in 000's)........................ $ 156,244 $ 3,881
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
122
<PAGE> 125
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.52 $ 10.52 $ 10.99 $ 10.99 $ 10.06 $ 10.06 $ 11.08
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.73 0.70 0.76 0.74 0.82 0.81 0.65
0.22 0.22 (0.48) (0.48) 1.00 1.00 (1.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.95 0.92 0.28 0.26 1.82 1.81 (0.38)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.73) (0.70) (0.75) (0.73) (0.82) (0.81) (0.64)
-- -- -- -- (0.07) (0.07) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.73) (0.70) (0.75) (0.73) (0.89) (0.88) (0.64)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 10.74 $ 10.74 $ 10.52 $ 10.52 $ 10.99 $ 10.99 $ 10.06
========== ========== ========== ========== ========== ========== ==========
9.01%. 8.75% 2.55% 2.34% 18.07% 17.97% (3.44%)
6.60% 6.35% 6.21% 5.96% 6.38% 6.13% 6.13%
0.50%. 0.75% 0.50% 0.75% 0.50% 0.75% 0.50%
0.65% 0.90% 0.65% 0.90% 0.63% 0.88% 0.61%
32% 32% 312% 312% 284% 284% 274%
$ 117,922 $ 3,015 $ 109,482 $ 2,764 $ 163,219 $ 471 $ 169,404
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
123
<PAGE> 126
INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
1998 MARKET RECAP
- - International bond markets experienced unusual levels of volatility in 1998,
as problems in Asia, Russia, and Latin America caused a flight to quality by
most investors and severe setbacks for most emerging markets.
- - The approach of European Monetary Union created opportunities to take
advantage of converging bond prices and yields in core European markets, which
generally showed strong performance as most European central banks moved to
lower interest rates.
- - European nations that will not participate in European Monetary Union provided
diversification opportunities and generally strong returns.
- - The Japanese yen's weakness reversed in midyear, as the U.S. dollar lost its
strength against most major currencies.
1998 FUND RECAP
- - The MainStay Institutional International Bond Fund returned 12.53% for
Institutional Class shares and 12.30% for Service Class shares for the
one-year period ended 12/31/98.
- - The Fund overweighted European bonds, including bonds of nations that will
participate in European Monetary Union and nations that will not. Both had a
positive impact on performance.
- - The Fund avoided Japanese bonds throughout the year, which caused it to miss
opportunities created by a stronger yen in the second half of 1998.
- - Small positions in emerging markets detracted from the Fund's performance and
have been reduced or eliminated.
- - Both share classes outperformed the average Lipper(*) international income
fund, which returned 11.91% for the year ended 12/31/98.
Overall, 1998 was a year of extreme volatility in the international bond
markets. Financial difficulties in emerging Asian markets were compounded by a
recession in Japan and difficulties in Russia and Brazil. The result was a
general flight to quality, with most investors seeking refuge in the
highest-quality securities of established market economies. Most emerging
markets, even those with little or no ties to troubled markets, suffered severe
setbacks.
VOLATILITY Fluctuations in the price of securities or markets, up or down, over
a short period of time.
Among nations planning to participate in European Monetary Union, a general
convergence of bond yields provided early investment opportunities that
decreased as the year progressed. Bonds of nations that did not plan to
participate in European Monetary Union also showed strong performance as
investors sought ways to diversify their European holdings. In an effort to
stabilize volatile markets, many European central banks lowered interest rates
in the second half of the year, which contributed to strong bond performance
throughout Europe.
- --------------------------------------------------------------------------------
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested.
124
<PAGE> 127
Japanese bonds continued to provide extremely low yields, but in the middle of
1998, the yen began to strengthen against the U.S. dollar and European
currencies, creating opportunities for investors with yen exposure.
Commodity-linked currencies, including Canadian, Australian, and New Zealand
dollars, tended to focus on the pervading weakness of commodity markets and
each declined relative to the U.S. dollar.
HOW DID THE MAINSTAY INSTITUTIONAL INTERNATIONAL BOND FUND PERFORM IN THIS
MARKET ENVIRONMENT?
The MainStay Institutional International Bond Fund returned 12.53% for
Institutional Class shares and 12.30% for Service Class shares for the one-year
period ended 12/31/98. Both share classes outperformed the average Lipper
international income fund, which returned 11.91% for the year.
WHAT WERE SOME OF THE BETTER DECISIONS YOU MADE FOR THE FUND IN 1998?
Undoubtedly, the best decision we made was to take an overweighted position in
the U.K. Since Britain has opted out of European Monetary Union, it provides
one of the few European investment diversification opportunities in a major
world currency. The U.K. was suffering from an economic slowdown, and by the
end of the year, its manufacturing sector was in recession. Fortunately, the
U.K. government has made the Bank of England an independent central bank, which
had a positive impact on bonds in the first half of the year. In fact, bond
prices climbed even as official interest rates were rising, simply on the
belief by most investors that having a strong, independent central bank could
help the country avert a major recession. Later in the year, the Bank of
England moved to lower interest rates, as did several other European central
banks.
Anticipating that the British yield curve would become steeper, the Fund
concentrated on shorter-term U.K. bonds, generally under 10 years. As rates
declined and the yield curve moved as we predicted, the Fund benefited with
returns of almost 20% on U.K. bonds in local currency terms.
The Fund also had strong success with Irish gilt bonds, which we purchased for
the Fund anticipating the strong convergence in interest rates with the
approach of European Monetary Union. The results were positive for the Fund,
with returns of about 14% for the bonds, which were sold in the fourth quarter
to take profits.
WHAT OTHER DECISIONS HAD A POSITIVE IMPACT ON THE FUND'S PERFORMANCE?
Most of the Fund's investment decisions were positive, with a heavy
overweighting in Europe, where virtually every major market provided
double-digit returns. In addition to the U.K., another non-EMU nation that
provided superior results was Sweden, which benefited from lower-than-expected
inflation. This allowed the Swedish central bank to lower interest rates and
helped the market as a whole return 12.5% in local terms.
One decision that wasn't country specific was the decision to extend the Fund's
duration in the second half of the year. Since most of the countries where the
Fund was invested lowered interest rates, the Fund's longer duration strategy
worked in its favor. Of course, that didn't mean the Fund simply purchased long
bonds across the board. As the Fund's overweighted position in short- and
intermediate-term U.K. bonds illustrates, we try to invest in the maturities we
believe will be most advantageous for the Fund in each country. So while the
Fund added 30-year Danish bonds that extended the Fund's duration and
contributed positively to performance, we also purchased 10-year Italian
government bonds that also
RECESSION A downturn in economic activity, typically defined by at least two
consecutive quarters of decline in a country's gross domestic product.
FLIGHT TO QUALITY When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, or market
concerns that suggest lower-quality securities or those that are less liquid are
likely to be more vulnerable to negative market events.
EMERGING MARKETS Countries with smaller or more recently established capital
markets.
EUROPEAN MONETARY UNION (EMU) A system that allows participating European
countries to operate with a common currency or monetary unit.
YIELD The income paid to investors over a specified period of time. Mutual fund
yields are expressed as a percentage of the fund's current price per share.
COMMODITIES Bulk goods, such as grains, precious metals, industrial metals, and
foods traded on a commodities exchange.
WEIGHTING The proportion of a portfolio allocated to a specific security,
sector, or country, 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.
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.
125
<PAGE> 128
provided strong performance for the Fund. We chose Italy to take advantage of
the convergence of interest rates and selected 10-year bonds because we felt
they were the best value for that portion of the yield curve when we were
purchasing these securities for the Fund.
WERE THERE ANY DECISIONS YOU MADE THAT HAD A NEGATIVE IMPACT ON THE PORTFOLIO?
First, the Fund had a small exposure to emerging markets, which seemed
appropriate at the beginning of the year, but became increasingly problematic
for the Fund as difficulties in Asia were followed by weaknesses in Russia and
Latin America. Although the emerging-market debt the Fund held was not debt of
particularly troubled markets, with the general flight to quality, virtually
all emerging markets declined, and some of the Fund's holdings suffered
substantial reversals. We have sold the Fund's Argentine debt and have reduced
its exposure in Mexico and Panama, which we believe were positive decisions for
the Fund.
Throughout 1998, the Fund also avoided Japanese debt entirely. While Japanese
bonds have provided unsatisfactory yields, as the Japanese yen strengthened in
the second half of the year, the Fund's absence from that market had a negative
impact on performance.
In addition, the Fund had investments in New Zealand bonds that were up 13% for
the year in local terms, but the Fund's exposure to the New Zealand dollar
reduced the return to about 4% in U.S. dollar terms. The Fund's Norwegian
investments, made in the second half of the year, had a slightly positive
impact during the time the Fund owned them. While the returns on Norwegian
bonds were positive, they were a drag on performance when other European bonds
were providing double-digit returns.
HOW DID FOREIGN CURRENCIES AFFECT THE FUND?
Generally speaking, the Fund had positive results from its currency exposure.
European currencies strengthened about 7.6% against the U.S. dollar over the
course of the year, which had a positive effect on the Fund's total return. In
the second half of 1998, European currencies weakened against the yen and the
Fund participated in the yen's advance through the forwards market, with a
proxy hedge of European currency exposure. The trade was a contrarian move that
reflected our belief that the general negative sentiment about the yen--as well
as euphoria over the new European currency, the euro--were both excessive. As
the yen strengthened, the proxy hedge contributed positively to the Fund's
performance.
Commodity-linked currencies, particularly Canadian, Australian, and New Zealand
dollars, all suffered from the general weakness of commodity prices in 1998.
Each of these currencies declined about 7% relative to the U.S. dollar, which
had a negative impact on the Fund's performance.
DID THE FUND OWN OTHER COMMODITY-LINKED INVESTMENTS?
After the substantial declines of prices in the commodity markets, in the third
and fourth quarters, we decided to increase the Fund's exposure to certain
commodity-linked economies. The Fund took a 3% position in Norwegian bonds,
which were flat for the year, but we believe the bonds are well positioned
going forward. If Norway decides to cut interest rates--as we believe they
will--or if oil prices rise, the bonds could be strong performers in 1999.
LOCAL CURRENCY TERMS Returns expressed in local currency terms show what
investors using that currency would have earned, without any adjustment for
differences in currency values.
GILTS Bonds issued by the British government. Gilts are the equivalent of
Treasury securities in the United States in that they are perceived to have no
risk of default. Income earned from investing in gilts is therefore guaranteed,
though mutual fund shares that own them are not.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
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.
PROXY HEDGE A transaction in the forwards market that seeks to offset
investment risk by substituting exposure to one foreign currency with exposure
to another.
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).
126
<PAGE> 129
WHAT DO YOU THINK WERE INVESTORS' BIGGEST CONCERNS IN 1998?
From the beginning of the year, most investors were concerned about risk. The
fallout in Asia in late 1997 underscored the need for caution, and when Russia
and Brazil faced substantial problems in the third quarter of 1998, the result
was a sudden and pronounced flight to quality by most investors. Generally
speaking, that had a positive impact on the Fund, since we were not invested in
Asia, Russia, or Brazil, and the Fund's emerging-market exposure was minimal.
Also, the Fund invests primarily in government bonds, which were the primary
beneficiaries of the flight to quality.
WERE THERE INVESTMENTS THAT DIDN'T BENEFIT AS MUCH?
Given the Fund's primary emphasis on bonds positioned for markets with lower
interest rates, we believed it would be prudent to hedge that positioning in the
event rates should rise. We took that hedge in the form of Danish
mortgage-backed securities, which underperformed the rest of the portfolio,
gaining only about 8% during the year.
Mortgage-backed bonds tend to underperform when rates decline because
prepayments of the underlying mortgages by borrowers are likely to increase. The
general flight to quality also had an impact on the bonds, as all products
offering higher yields than government bonds tended to underperform in the
risk-averse environment. We have continued to hold the Danish mortgage-backed
bonds believing that eventually interest rates will go back up. In the meantime,
the bonds are providing a measure of diversification for the Fund and added
exposure to non-EMU countries.
ARE THERE OTHER NON-EMU EUROPEAN COUNTRIES WHERE THE FUND HAS INVESTED?
Yes, there are. Late in the year, we added Greek bonds to the Fund's portfolio.
While Greece is a member of the European Community, it did not qualify for
participation in European Monetary Union. Since we anticipate that the nation
will qualify in the next couple of years, we see the same kind of opportunities
there that the Fund capitalized on in Ireland during 1998. Sweden, Denmark, and
Norway are other economically strong non-EMU countries that provide the Fund
with opportunities to diversify its currency exposure.
LOOKING BACK OVER 1998, IS THERE ANYTHING YOU WOULD HAVE DONE DIFFERENTLY?
Sure. We would have sold all of the Fund's emerging-market debt in May. At the
time, we had no way of knowing the extent of the problems Russia and Brazil
would face or how widespread the effects would be.
Even with hindsight, we would have found it difficult to invest the Fund's
assets in Japanese bonds. With yields of only about 0.50%, we simply did not
believe they were consistent with the Fund's pursuit of competitive overall
return commensurate with an acceptable level of risk. Given the strengthening of
the yen in the second half of 1998, however, we may begin to consider Japanese
securities going forward.
WHAT ELSE DO YOU ANTICIPATE FOR 1999?
While the markets are inherently unpredictable, in light of recent events we
have good reason to anticipate continued volatility. We believe that the initial
enthusiasm over the introduction of the euro in January 1999 will probably cool
down, and eventually the idea of subjecting national interests to the "greater
good of Europe" may begin to wear on some EMU participants. If so, Europe may
face internal conflicts that could impact the market. We are also looking at
nations that may seek membership in the European Community such as the Czech
Republic, Poland, and Hungary.
As the global economic crisis runs its course, we will continue to seek to
provide total return by investing primarily in a portfolio of non-U.S.
(primarily government) debt securities. For the immediate future, we will remain
cautious about emerging markets and other potential trouble spots around the
globe.
JOSEPH PORTERA
Portfolio Manager
MacKay-Shields Financial Corporation
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.
127
<PAGE> 130
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS
SALOMON SMITH BARNEY NON-US DOLLAR WORLD GOV'T BOND INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES SB NON-US$ WD GV BD INDX
-------------------------- ------------------------
<S> <C> <C>
1/31/90 10000 10000
3/31/91 10318 11174
6/30/91 9969 11092
9/30/91 10831 12275
12/31/91 11868 13561
3/31/92 11420 12905
6/30/92 12478 14117
9/30/92 13133 15160
12/31/92 12779 14208
3/31/93 13608 15053
6/30/93 14045 15491
9/30/93 14381 16326
12/31/93 14640 16357
3/31/94 14701 16675
6/30/94 14785 16958
9/30/94 15048 17238
12/31/94 15094 17336
3/31/95 16287 19840
6/30/95 16800 20810
9/30/95 17011 20304
12/31/95 17881 20726
3/31/96 18185 20376
6/30/96 18778 20458
9/30/96 19611 21125
12/31/96 20441 21572
3/31/97 19889 20326
6/30/97 20589 20901
9/30/97 21160 20945
12/31/97 20978 20654
3/31/98 21228 20738
6/30/98 21666 21085
9/30/98 23044 23111
12/31/98 23606 24329
</TABLE>
THE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/31/90.(+)
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
INTERNATIONAL BOND FUND VS
SALOMON SMITH BARNEY NON-US DOLLAR WORLD GOV'T BOND INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
SERVICE CLASS SHARES SB NON-US$ WD GV BD INDX
-------------------- ------------------------
<S> <C> <C>
1/31/90 10000 10000
3/31/91 10318 11174
6/30/91 9969 11092
9/30/91 10831 12275
12/31/91 11868 13561
3/31/92 11420 12905
6/30/92 12478 14117
9/30/92 13133 15160
12/31/92 12779 14208
3/31/93 13608 15053
6/30/93 14045 15491
9/30/93 14381 16326
12/31/93 14640 16357
3/31/94 14701 16675
6/30/94 14785 16958
9/30/94 15048 17238
12/31/94 15094 17336
3/31/95 16287 19840
6/30/95 16800 20810
9/30/95 16996 20304
12/31/95 17850 20726
3/31/96 18155 20376
6/30/96 18716 20458
9/30/96 19549 21125
12/31/96 20363 21572
3/31/97 19793 20326
6/30/97 20473 20901
9/30/97 21025 20945
12/31/97 20825 20654
3/31/98 21074 20738
6/30/98 21490 21085
9/30/98 22863 23111
12/31/98 23386 24329
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ------------------------------------------------------------------------------------------------------------------------
International Bond Fund Institutional Class(+) 12.53% 12.53% 10.03% 10.11%
International Bond Fund Service Class(+) 12.30% 12.30% 9.82% 9.99%
Average Lipper International Income Fund 11.91% 11.91% 6.55% 7.86%
Salomon Smith Barney Non-U.S. Dollar World 17.79% 17.79% 8.26% 10.48%
Gov't Bond Index
</TABLE>
- --------------------------------------------------------
TOP 10 HOLDINGS
(% of net assets as of December 31, 1998)
1. Federal National Mortgage Association Series 7.15%
EMTN, 6/7/02, 6.875%
2. Buoni Poliennali del Tesoro, 7/1/01, 8.25% 6.08%
3. Canadian Government Series VR22, 3/1/01, 4.99%
7.50%
4. Norddeutsche landesbank Series 5, 7/7/08, 4.91%
4.75%
5. Deutsche Pfanderbriefe Hypobank Series G3, 4.73%
2/3/05, 5.00%
6. United Kingdom Treasury Bonds, 12/7/15, 8.00% 4.44%
7. European Investment Bank, 12/7/08, 6.25% 4.15%
8. Finnish Government Series RG, 3/15/04, 9.50% 3.61%
9. Kingdom of Denmark, 11/10/24, 7.00% 3.56%
10. Nykredit Series ANN1, 10/1/29, 6.00% 3.09%
QUALITY BREAKDOWN(++)
(% of bonds as of December 31, 1998)
Government/Agency 9.29%
AAA 59.66%
AA 25.75%
A 3.17%
BBB 0.96%
BB 1.09%
B 0.08%
------
100.00%
-------------------------------------
TOP 10 COUNTRIES (% of net
assets as of December 31,
1998)
1. United Kingdom 19.15%
2. Germany 18.32%
3. Italy 10.32%
4. Denmark 8.80%
5. Canada 5.99%
6. New Zealand 3.81%
7. Finland 3.62%
8. Australia 3.18%
9. Sweden 3.14%
10. Greece 2.76%
[Pie Chart]
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998)
FOREIGN & OTHER BONDS CASH, EQUIVALENTS & OTHER FOREIGN CORPORATE BOND - US
ASSETS DOLLAR
<S> <C> <C> <C>
85.63% 12.97%(sec.) 1.33%
<CAPTION>
FOREIGN GOVERNMENT BOND -
US DOLLAR
<S> <C>
0.07%
</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%
on an annualized basis of the average daily net asset value of the Service
Class shares.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT UPON REDEMPTION, SHARES MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
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.
(sec.) Adjusted for liabilities.
128
<PAGE> 131
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS*
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM BONDS (87.0%)+
CORPORATE BONDS (24.2%)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
DENMARK (3.1%)
Nykredit
Series ANN1
6.00%, due 10/1/29.......... DK 12,562,000 $ 1,937,289
-----------
GERMANY (13.2%)
Bayerische VBK New York
4.50%, due 6/24/02.......... DM 1,049,000 649,094
Deutsche Pfandbriefe Hypobank
Series G3
5.00%, due 2/3/05........... 4,393,000 2,791,226
Discover Card Offerings
Series DM
5.25%, due 6/20/08.......... 2,600,000 1,635,146
Euronet Services Inc.
Series DTCU
(zero coupon), due 7/1/06
12.375%, beginning
7/1/02 (d).................. 725 130,584
Norddeutsche Landesbank
Series 5
4.75%, due 7/7/08........... 4,962,000 3,084,327
-----------
8,290,377
-----------
SWEDEN (1.3%)
Banque Nationale de Paris
Medium-Term Notes Series E
11.00%, due 11/4/99......... SK 6,050,000 785,567
-----------
UNITED KINGDOM (5.3%)
European Investment Bank
6.25%, due 12/7/08..........Pound 1,433,000 2,606,665
Halifax PLC Sterling
9.375%, due 5/15/21......... 310,000 748,695
-----------
3,355,360
-----------
UNITED STATES (1.3%)
Conproca S.A.
12.00%, due 6/16/10 (c)..... $ 470,000 441,800
TPSA Finance BV
7.75%, due 12/10/08 (c)..... 400,000 396,000
-----------
837,800
-----------
Total Corporate Bonds
(Cost $15,208,147).......... 15,206,393
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
GOVERNMENTS &
FEDERAL AGENCIES (62.7%)
<S> <C> <C>
AUSTRALIA (3.2%)
Australian Government
Series 808
8.75%, due 8/15/08.......... A$ 764,000 $ 600,899
Series 904
9.00%, due 9/15/04.......... 1,891,000 1,398,378
-----------
1,999,277
-----------
CANADA (6.0%)
Canadian Government
Series WH31
6.00%, due 6/1/08........... C$ 890,000 628,703
Series VR22
7.50%, due 3/1/01........... 4,554,000 3,132,479
-----------
3,761,182
-----------
DENMARK (5.7%)
Kingdom of Denmark
5.00%, due 8/15/05.......... DK 3,500,000 578,589
7.00%, due 11/10/24......... 11,126,000 2,237,661
8.00%, due 5/15/03.......... 4,214,000 768,131
-----------
3,584,381
-----------
FINLAND (3.6%)
Finnish Government
Series RG
9.50%, due 3/15/04.......... FM 9,000,000 2,269,537
-----------
GERMANY (5.1%)
Bundesobligation
Series 123
4.50%, due 5/17/02 (a)...... DM 2,215,000 1,380,518
Republic of Deutschland
Series 98
5.625%, due 1/4/28.......... 2,705,000 1,830,377
-----------
3,210,895
-----------
GREECE (2.8%)
Hellenic Republic
8.90%, due 4/1/03........... GRD 145,700,000 545,259
8.90%, due 3/21/04.......... 311,100,000 1,188,337
-----------
1,733,596
-----------
ITALY (10.3%)
Buoni Poliennali del Tesoro
5.00%, due 5/1/08........... IL 2,485,000,000 1,617,611
6.50%, due 11/1/27.......... 1,380,000,000 1,044,025
8.25%, due 7/1/01........... 5,640,000,000 3,819,464
-----------
6,481,100
-----------
</TABLE>
- ------------
+ Percentages indicated are based on Fund net assets.
* Investments are grouped by currency denomination.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
129
<PAGE> 132
INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
GOVERNMENTS &
FEDERAL AGENCIES (CONTINUED)
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C> <C>
NETHERLANDS (1.9%)
Netherlands Government
6.50%, due 4/15/03.......... NLG 2,035,000 $ 1,212,326
-----------
NEW ZEALAND (3.8%)
New Zealand Government
Series 709
7.00%, due 7/15/09.......... N$ 1,000,000 591,486
Series 1106
8.00%, due 11/15/06......... 2,928,000 1,797,143
-----------
2,388,629
-----------
NORWAY (2.7%)
Norwegian Government
5.50%, due 5/15/09.......... NK 4,297,000 570,601
7.00%, due 5/31/01.......... 8,422,000 1,132,402
-----------
1,703,003
-----------
SPAIN (1.9%)
Spanish Government
6.00%, due 1/31/08.......... SP 147,540,000 1,192,591
-----------
SWEDEN (1.9%)
Swedish Government
Series 1040
6.50%, due 5/5/08........... SK 8,200,000 1,185,846
-----------
UNITED KINGDOM (13.8%)
Federal National Mortgage
Association
Series EMTN
6.875%, due 6/7/02.......... Pound Sterling 2,564,000 4,487,628
7.125%, due 8/10/99......... 360,000 604,135
United Kingdom Treasury Bonds
8.00%, due 12/7/00.......... 450,000 790,263
8.00%, due 12/7/15.......... 1,180,000 2,784,917
-----------
8,666,943
-----------
Total Governments &
Federal Agencies
(Cost $38,567,379).......... 39,389,306
-----------
YANKEE BONDS (0.1%)
UNITED STATES (0.1%)
Innova S de R.L.
12.875%, due 4/1/07......... $ 65,000 44,850
-----------
Total Yankee Bonds
(Cost $66,950).............. 44,850
-----------
Total Long-Term Bonds
(Cost $53,842,476).......... 54,640,549
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
SHORT-TERM INVESTMENTS (9.4%)
COMMERCIAL PAPER (9.2%)
<S> <C> <C>
UNITED STATES (9.2%)
American Express Credit Corp.
5.85%, due 1/8/99........... $ 650,000 $ 649,261
Associates Corp. of North
America
5.08%, due 1/4/99........... 2,385,000 2,383,991
Xerox Credit Corp.
5.20%, due 1/4/99........... 2,715,000 2,713,824
-----------
Total Commercial Paper
(Cost $5,747,076)........... 5,747,076
-----------
CORPORATE BONDS (0.2%)
UNITED STATES (0.2%)
Nacional Financiera S.N.C.
6.219%, due 3/15/99 (b)..... $ 155,000 155,000
-----------
Total Corporate Bonds
(Cost $155,124)............. 155,000
-----------
Total Short-Term Investments
(Cost $5,902,200)........... 5,902,076
-----------
Total Investments
(Cost $59,744,676) (e)...... 96.4% 60,542,625(f)
Cash and Other Assets,
Less Liabilities............ 3.6 2,239,978
---------------- -----------
Net Assets................... 100.0% $62,782,603
================ ===========
</TABLE>
- ------------
(a) Partially segregated as collateral for forward foreign currency contracts.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(c) May be sold to institutional investors only.
(d) 725 Units--each unit reflects $1,000 principal amount of 12.375% Senior
Discounted Notes plus 3 warrants to acquire 1.05 shares of Common Stock at
$2.00 per share at a future date.
(e) The cost for Federal income tax purposes is $59,752,129.
(f) At December 31, 1998 net unrealized appreciation for securities was
$790,496, based on cost for Federal income tax purposes. This consisted of
aggregate gross unrealized appreciation for all investments on which there
was an excess of market value over cost of $1,345,297, and aggregate gross
unrealized depreciation for all investments on which there was an excess of
cost over market value of $554,801.
(g) The following abbreviations are used in the above portfolio:
A$ --Australian Dollar
C$ --Canadian Dollar
DK --Danish Krone
DM --Deutsche Mark
NLG--Dutch Guilder
FM --Finnish Markka
GRD--Greek Drachma
IL --Italian Lira
N$ --New Zealand Dollar
NK --Norwegian Krone
Pound Sterling --Pound Sterling
SP --Spanish Peseta
SK --Swedish Krona
$ --U.S. Dollar
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
130
<PAGE> 133
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $59,744,676)...... $ 60,542,625
Cash denominated in foreign
currencies (identified cost
$522,150).......................... 522,673
Cash................................. 364,313
Receivables:
Interest........................... 1,333,951
Unrealized appreciation on forward
foreign currency contracts......... 243,739
Unamortized organization expense..... 759
--------------
Total assets................... 63,008,060
--------------
LIABILITIES:
Payables:
Fund shares redeemed............... 58,759
MainStay Management................ 35,170
Custodian.......................... 10,800
Transfer agent..................... 2,124
Accrued expenses..................... 42,387
Unrealized depreciation on forward
foreign currency contracts......... 76,217
--------------
Total liabilities.............. 225,457
--------------
Net assets........................... $ 62,782,603
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 5,925
Institutional Service Class........ 22
Additional paid-in capital........... 60,798,587
Accumulated undistributed net
investment income.................. 235,222
Accumulated undistributed net
realized gain on investments....... 774,964
Net unrealized appreciation on
investments........................ 797,949
Net unrealized appreciation on
translation of other assets and
liabilities in foreign currencies
and forward foreign currency
contracts.......................... 169,934
--------------
Net assets........................... $ 62,782,603
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 62,548,655
==============
Shares of capital stock
outstanding........................ 5,924,807
==============
Net asset value per share
outstanding........................ $ 10.56
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 233,948
==============
Shares of capital stock
outstanding........................ 22,241
==============
Net asset value per share
outstanding........................ $ 10.52
==============
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME:
Income:
Interest (a)....................... $ 3,613,231
--------------
Total income................... 3,613,231
--------------
Expenses:
Management......................... 440,402
Professional....................... 43,837
Custodian.......................... 30,397
Transfer agent..................... 27,596
Registration....................... 27,181
Shareholder communication.......... 8,897
Directors.......................... 1,285
Amortization of organization
expense.......................... 759
Service............................ 586
Miscellaneous...................... 13,050
--------------
Total expenses before
reimbursement................ 593,990
Expense reimbursement from
Manager.......................... (70,444)
--------------
Net expenses................... 523,546
--------------
Net investment income................ 3,089,685
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Security transactions.............. 1,420,414
Option transactions................ (52,912)
Foreign currency transactions...... 597,311
--------------
Net realized gain on investments and
foreign currency transactions...... 1,964,813
--------------
Net change in unrealized appreciation
(depreciation) on investments:
Security transactions.............. 1,431,603
Translation of other assets and
liabilities in foreign currencies
and forward foreign currency
contracts........................ 149,867
--------------
Net unrealized gain on investments
and foreign currency
transactions....................... 1,581,470
--------------
Net realized and unrealized gain on
investments and foreign currency
transactions....................... 3,546,283
--------------
Net increase in net assets resulting
from operations.................... $ 6,635,968
==============
</TABLE>
- ------------
(a) Interest recorded net of foreign withholding taxes of $326.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
131
<PAGE> 134
INTERNATIONAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................... $ 3,089,685 $ 2,993,215
Net realized gain on investments........................ 1,420,414 1,535,035
Net realized loss on option transactions................ (52,912) --
Net realized gain on foreign currency transactions...... 597,311 1,308,158
Net change in unrealized appreciation (depreciation) on
investments............................................ 1,431,603 (4,098,551)
Net change in unrealized appreciation on translation of
other assets and liabilities in foreign currencies and
forward foreign currency contracts..................... 149,867 (382,945)
-------------- --------------
Net increase in net assets resulting from operations.... 6,635,968 1,354,912
-------------- --------------
Dividends and distributions to shareholders:
From net investment income and net realized gain on
foreign currency transactions:
Institutional Class................................... (3,476,092) (4,197,703)
Institutional Service Class........................... (12,646) (19,891)
From net realized gain on investments:
Institutional Class................................... (645,156) (1,539,271)
Institutional Service Class........................... (2,456) (7,516)
-------------- --------------
Total dividends and distributions to shareholders... (4,136,350) (5,764,381)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 11,263,450 1,477,297
Institutional Service Class........................... 21,938 58,930
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 4,116,548 5,736,968
Institutional Service Class........................... 14,879 27,401
-------------- --------------
15,416,815 7,300,596
Cost of shares redeemed:
Institutional Class................................... (3,932,796) (6,192,594)
Institutional Service Class........................... (49,589) (54,357)
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 11,434,430 1,053,645
-------------- --------------
Net increase (decrease) in net assets................. 13,934,048 (3,355,824)
NET ASSETS:
Beginning of year......................................... 48,848,555 52,204,379
-------------- --------------
End of year............................................... $ 62,782,603 $ 48,848,555
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ 235,222 $ 89,876
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
132
<PAGE> 135
(THIS PAGE INTENTIONALLY LEFT BLANK)
133
<PAGE> 136
INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 10.05 $ 10.01
---------- ----------
Net investment income....................................... 0.56 0.53
Net realized and unrealized gain (loss) on investments...... 0.71 0.71
Net realized and unrealized gain on foreign currency
transactions.............................................. (0.01) (0.01)
---------- ----------
Total from investment operations............................ 1.26 1.23
---------- ----------
Less dividends and distributions:
From net investment income and net realized gain on foreign
currency transactions..................................... (0.63) (0.60)
From net realized gain on investments....................... (0.12) (0.12)
---------- ----------
Total dividends and distributions........................... (0.75) (0.72)
---------- ----------
Net asset value at end of year.............................. $ 10.56 $ 10.52
========== ==========
Total investment return..................................... 12.53% 12.30%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 5.61% 5.36%
Net expenses.............................................. 0.95% 1.20%
Expenses (before reimbursement)........................... 1.08% 1.33%
Portfolio turnover rate..................................... 299% 299%
Net assets at end of year (in 000's)........................ $ 62,549 $ 234
</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.
134
<PAGE> 137
MAINSTAY
INSTITUTIONAL FUNDS INC.
<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>
$ 11.10 $ 11.07 $ 11.16 $ 11.14 $ 10.00 $ 10.00
---------- ---------- ---------- ---------- ---------- ----------
1.01 0.98 1.21 1.19 0.70 0.70
(1.11) (1.13) 0.11 0.11 1.12 1.10
0.40 0.41 0.27 0.26 0.02 0.02
---------- ---------- ---------- ---------- ---------- ----------
0.30 0.26 1.59 1.56 1.84 1.82
---------- ---------- ---------- ---------- ---------- ----------
(0.99) (0.96) (1.37) (1.35) (0.55) (0.55)
(0.36) (0.36) (0.28) (0.28) (0.13) (0.13)
---------- ---------- ---------- ---------- ---------- ----------
(1.35) (1.32) (1.65) (1.63) (0.68) (0.68)
---------- ---------- ---------- ---------- ---------- ----------
$ 10.05 $ 10.01 $ 11.10 $ 11.07 $ 11.16 $ 11.14
========== ========== ========== ========== ========== ==========
2.62% 2.27% 14.32% 14.08% 18.46% 18.26%
5.86% 5.61% 6.02% 5.77% 6.61% 6.36%
0.95% 1.20% 0.95% 1.20% 0.95% 1.20%
1.10% 1.35% 1.08% 1.33% 1.03% 1.28%
186% 186% 57% 57% 92% 92%
$ 48,613 $ 235 $ 51,980 $ 225 $ 44,388 $ 6
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
135
<PAGE> 138
MONEY MARKET FUND
- --------------------------------------------------------------------------------
1998 MARKET RECAP
- - The Federal Reserve Board moved to lower interest rates a total of 0.75% in a
series of three rapid cuts of 0.25% each--on September 29, October 15, and
November 17.
- - Continued crises in world economies--including Asian economic instability,
Russia's debt default, and lower commodity prices that dampened the Latin
American economic outlook--generally caused credit spreads over Treasury
securities to widen as investors required more of a risk premium.
- - The Federal Reserve-orchestrated bailout of Long-Term Capital Management, a
major leveraged hedge fund, added to concerns about a liquidity crunch.
- - Volatility in equity markets led many investors to flee riskier assets for the
greater liquidity and perceived safety of U.S. Treasuries.
- - While U.S. Treasuries rallied dramatically due to increased demand, the money
market yield curve remained relatively flat throughout the year as investors
anticipated easier Federal Reserve Board policy.
1998 FUND RECAP
- - For the 12 months ended 12/31/98, the MainStay Institutional Money Market Fund
returned 5.25% for Institutional Class shares, 4.99% for Service Class shares,
and 4.99% for Sweep Shares Class shares.(*)
- - All share classes underperformed the average Lipper(*) institutional money
market fund, which returned 5.30% for the one-year period ended 12/31/98.
- - In anticipation of lower interest rates, the Fund maintained an average
weighted maturity for most of the annual period that was 5 to 10 days longer
than that of the average money market fund.
Turmoil overseas dominated the money markets during 1998 and set the stage for a
dramatic turnaround in investor confidence. Economic uncertainty in Asia,
Russia, Latin America, and other foreign markets drew quality-conscious
investors to the U.S. bond market in general and to U.S. Treasuries in
particular. As the demand for U.S. Treasury securities grew, prices moved
sharply higher, and yields declined to their lowest levels in decades in a late
summer rally. Domestically, the combination of a strong economy and low
inflation allowed the Federal Reserve Board to keep interest rates unchanged at
5.5% through the first half of the year. But during the third quarter, many
investors began to focus more
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
- --------------------------------------------------------------------------------
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested. Performance figures for Sweep Shares
Class shares include the historical performance of Service Class shares from
1/1/98 through 12/7/98.
136
<PAGE> 139
heavily on the political problems in the Clinton Administration and on the
impact foreign turmoil might have on U.S. economic growth. In addition, a major
leveraged hedge fund required a bailout by a consortium of Wall Street firms.
The announcement of this Fed-orchestrated bailout package forced corporate
credit spreads to widen significantly and liquidity to decrease. This, in turn,
led to a further rally in the price of U.S. Treasuries, along with significant
buying of high-quality domestic paper.
Investor confidence improved when the Federal Reserve Board lowered interest
rates a total of three-quarters of one percent in a series of three rapid moves
between September and November. Through all of these turbulent forces, the
money market yield curve remained relatively flat throughout the year.
GIVEN THIS CONTEXT, HOW DID THE MAINSTAY INSTITUTIONAL MONEY MARKET FUND
PERFORM IN 1998?
For the 12 months ended 12/31/98, the MainStay Institutional Money Market Fund
returned 5.25% for Institutional Class shares, 4.99% for Service Class shares,
and 4.99% for Sweep Shares Class shares.(*) All share classes underperformed
the average Lipper institutional money market fund, which returned 5.30% for
the year.
WHAT WERE THE PRIMARY FACTORS AFFECTING THE FUND'S PERFORMANCE?
During most of 1998, in anticipation of lower interest rates, the Fund's
average weighted maturity ranged between 50 and 76 days and was targeted to be
5 to 10 days longer than that of the average money market fund. This proved to
be a positive strategy overall, although the Fund's performance was hurt
slightly in the middle of the year, as the market began looking for interest
rates to ease and the yield curve moved from a flattened position to an
inverted one. Fund performance was once again helped at the end of the year
when the Federal Reserve Board lowered interest rates more aggressively than
many had expected.
HOW DID ISSUE SELECTION HELP THE FUND DURING THE YEAR?
In an environment that offered little opportunity to add value by extending
duration, the Fund sought securities that offered yield advantages without
adding substantial risk. For example, during the first half of 1998, the Fund
was heavily invested in high-quality domestic issuers of corporate and
asset-backed commercial paper, which contributed positively to the Fund's
performance. As yields on commercial paper became less attractive during the
second half of 1998, the Fund reduced its allocation to this sector in favor of
high-quality asset-backed securities and floating-rate securities to help
enhance performance. Each of these sectors had solid relative performance and
some of the securities were purchased at lower prices after credit spreads had
widened.
WERE THERE OTHER SECTORS IN WHICH THE FUND INVESTED?
Yes, the Fund increased its allocation to U.S. Treasuries and government agency
securities. Although these securities underperformed commercial paper during
the second half of the year, they played an important role in the portfolio.
First, they helped to replace some of the liquidity that was lost when the Fund
reduced its holdings in commercial paper. Second, they provided an important
hedge while the Fund waited for more attractive alternatives to become
available.
CREDIT SPREADS The difference in yield of securities with different issuers,
characteristics, or credit quality.
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.
INVERTED YIELD CURVE When a surge in demand for short- term credit drives up
short- term rates on instruments like Treasury bills and money- market
securities, while long- term rates move up more slowly, since borrowers are not
willing to commit themselves to paying high interest rates for many years.
DURATION A time 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.
COMMERCIAL PAPER Short-term obligations with maturities ranging from 2 to 270
days, issued by banks, corporations, and other borrowers to investors with
temporarily idle cash.
ASSET-BACKED SECURITIES Securities backed by loan paper or an anticipated
income stream from the sale of merchandise or services. The securities 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.
137
<PAGE> 140
WHAT WERE THE FUND'S MOST SIGNIFICANT PURCHASES DURING 1998?
Perhaps the two most interesting securities the Fund purchased were Caterpillar
Financial Asset Trust 1998-A Class A-1 and Asset-Backed Securities Investment
Trust 1997-E Class N, both asset-backed securities. The first, purchased in
July, outperformed commercial paper while maintaining high quality for the
portfolio. The second, purchased in August, offered what we believed was solid
relative value versus both commercial paper and other available floating-rate
securities--and it outperformed the securities available for purchase at that
time in both of those sectors. Asset-backed securities with such high-quality
collateral pools are seldom available.
WERE THERE ANY SIGNIFICANT SALES DURING THE REPORTING PERIOD?
No. Most of the Fund's securities were held to maturity.
HOW DID YOU SEEK TO MANAGE RISK IN THE PORTFOLIO DURING THE YEAR?
Generally speaking, the Fund's assets are managed to emphasize safety,
liquidity, and income--in that order. As a result, the Fund was overweighted in
high-quality, domestic issues of commercial paper as well as U.S. Treasuries
and government agency securities. The Fund was likewise underweighted in
commercial paper from foreign issuers. While a more aggressive allocation might
have yielded higher returns, the Fund's focus on domestic holdings helped to
shield it somewhat from the volatility caused by global crises in 1998.
WHAT IS YOUR OUTLOOK FOR 1999?
Throughout 1998, inflation remained low and economic growth continued at a solid
pace. We expect this scenario to continue into early 1999, although both
economic growth and corporate earnings may weaken later in the year. We believe
the global economic crisis is ongoing. We also believe that all of this should
provide a favorable environment for the money markets and a positive backdrop
for the safe-haven status of U.S. Treasuries to continue. We would not be
surprised to see the Federal Reserve Board move to cut interest rates further in
the coming months.
Given this outlook, we intend to focus the Fund's maturity on the longer end of
its range, which is 30 to 75 days on average. We also intend to maintain the
Fund's overall portfolio allocation as it stood at the end of 1998, which
includes 10% floating-rate securities and 10% corporate bonds. However, we will
continue to monitor both yield and quality spreads between U.S. government
agency securities, U.S. Treasuries, and their alternatives and make adjustments
to the portfolio accordingly. We may seek to increase the Fund's allocation to
asset-backed securities, but only if we find domestic issuers with high-quality
collateral pools. Of course, we will also seek to take advantage of any
attractive issue-specific value opportunities should they arise.
Whatever happens, the Fund will seek to provide a high level of current income
while preserving capital and maintaining liquidity.
DAVID CLEMENT
Portfolio Manager
New York Life Insurance Company
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.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
138
<PAGE> 141
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Money Market Fund Lipper Institutional Money Market
Average Index
<S> <C> <C>
12/31/90 10000 10000
3/31/91 10162 10168
6/30/91 10313 10318
9/30/91 10461 10465
12/31/91 10595 10599
3/31/92 10707 10708
6/30/92 10808 10809
9/30/92 10899 10898
12/31/92 10983 10982
3/31/93 11063 11063
6/30/93 11140 11141
9/30/93 11220 11221
12/31/93 11303 11303
3/31/94 11383 11387
6/30/94 11479 11487
9/30/94 11600 11608
12/31/94 11738 11751
3/31/95 11903 11913
6/30/95 12071 12083
9/30/95 12234 12251
12/31/95 12399 12419
3/31/96 12556 12577
6/30/96 12732 12732
9/30/96 12870 12894
12/31/96 13032 13058
3/31/97 13193 13220
6/30/97 13363 13392
9/30/97 13540 13570
12/31/97 13720 13752
3/31/98 13897 13932
6/30/98 14076 14114
9/30/98 14260 14302
12/31/98 14439 14481
MONEY MARKET FUND--Lipper Institutional Money Market Average Index
Source: Lipper Analytical Services, Inc.
</TABLE>
THESE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
MONEY MARKET FUND VS
LIPPER INSTITUTIONAL MONEY MARKET AVERAGE
SERVICE CLASS AND SWEEP SHARES CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Money Market Fund Lipper Institutional Money Market
Average Index
<S> <C> <C>
12/31/90 10000 10000
3/31/91 10162 10168
6/30/91 10313 10318
9/30/91 10461 10465
12/31/91 10595 10599
3/31/92 10707 10708
6/30/92 10808 10809
9/30/92 10899 10898
12/31/92 10983 10982
3/31/93 11063 11063
6/30/93 11140 11141
9/30/93 11220 11221
12/31/93 11303 11303
3/31/94 11383 11387
6/30/94 11479 11487
9/30/94 11600 11608
12/31/94 11738 11751
3/31/95 11903 11913
6/30/95 12066 12083
9/30/95 12222 12251
12/31/95 12379 12419
3/31/96 12528 12577
6/30/96 12732 12732
9/30/96 12826 12894
12/31/96 12979 13058
3/31/97 13131 13220
6/30/97 13292 13392
9/30/97 13460 13570
12/31/97 13630 13752
3/31/98 13798 13932
6/30/98 13967 14114
9/30/98 14141 14302
12/31/98 14309 14481
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Fund Institutional Class(+) 5.25% 5.25% 5.03% 4.70%
Money Market Fund Service Class(+) 4.99% 4.99% 4.84% 4.58%
Money Market Fund Sweep Shares Class(+) 4.99% 4.99% 4.84% 4.58%
Average Lipper Institutional Money Market Fund 5.30% 5.30% 5.15% 4.88%
</TABLE>
YEAR-BY-YEAR PERFORMANCE
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASS SHARES
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
Year End 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return%* 5.95% 3.66% 2.89% 3.88% 5.63% 5.11% 5.27% 5.25%
</TABLE>
[Pie Chart]
<TABLE>
<CAPTION>
COMMERCIAL PAPER MEDIUM TERM NOTES BANK NOTES OTHER
---------------- ----------------- ---------- -----
<S> <C> <C> <C>
68.74% 6.04% 9.18% 16.04%
</TABLE>
<TABLE>
<S> <C> <C>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------
1. Salomon Smith Barney Holdings Inc. 4.29%
2. Society of New York Hospital Fund Inc. 4.19%
3. Morgan, (J.P.) & Co., Inc. 4.07%
4. Sheffields Receivables Corp. 3.95%
5. Morgan Stanley, Dean Witter,
Discover & Co. 3.25%
6. Sears Roebuck Acceptance Corp. 3.22%
7. Greenwood Trust Co. 2.62%
8. Asset-Backed Securities Investment 2.59%
Trust
9. Chrysler Financial Corp. 2.51%
10. Riverwoods Funding Corp. 2.45%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO COMPOSITION TOP 5 INDUSTRY
(% of net assets as of December 31, 1998) HOLDINGS
(% of net assets as of December 31, 1998)
- ---------------------------------------------------------------------------------------------------
1. Finance 23.43%
2. Special Purpose Entity Finance 9.69%
3. Banks 8.80%
4. Brokerage 8.52%
5. Auto Manufacturing 7.22%
AVERAGE MATURITY 65 DAYS
(as of 12/31/98)
</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 and Sweep Shares Class shares, include
the service fee of .25% on an annualized basis of the average daily net asset
values of the Service Class and Sweep Shares Class shares. In addition, Sweep
Shares Class shares are sold with an annual 12b-1 fee of .25%.
+ Performance figures for the Sweep Shares Class, first offered to the public on
12/8/98, include the historical performance of the Service Class from the
Fund's inception (1/1/95) up to December 7, 1998. 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 Classes after these dates
will vary based on differences in their expense structures.
The Money Market Fund had an effective 7-day yield with a current 7-day yield
of 4.98% and 4.86%, respectively, for the Institutional Class; 4.72% and
4.61%, respectively, for the Service Class; and 4.63% and 4.53%, respectively,
for the Sweep Shares Class, all as of 12/31/98. 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 4.80% and 4.69%,
respectively, for the Institutional Class; 4.54% and 4.45%, respectively, for
the Service Class; and 4.46% and 4.36%, respectively, for the Sweep Shares
Class. These expense limitations are voluntary and may be terminated or
revised at any time.
Investments in the Money Market Fund are not insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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 and Sweep Shares Class shares, first offered 1/1/95 and 12/8/98,
respectively, are sold with no initial or contingent deferred sales charge but
are subject to an annual shareholder service fee of .25%. In addition, Sweep
Shares Class shares are sold with an annual 12b-1 fee of .25%.
139
<PAGE> 142
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (100.7%)+
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
ASSET-BACKED SECURITIES (3.3%)
Asset-Backed Securities Investment
Trust Series 1997-E Class N
5.54%, due 8/15/99 (a)(b)(d)..... $7,900,000 $ 7,900,000
Caterpillar Financial Asset Trust
Series 1998-A Class A1
5.64%, due 7/26/99 (d)........... 2,201,598 2,201,598
------------
10,101,598
------------
BANK NOTES (9.2%)
Comerica Bank Detroit, Michigan
5.424%, due 7/19/99 (b)(d)....... 5,000,000 4,998,390
First Union National Bank NC
5.14%, due 4/5/99 (d)............ 7,000,000 7,000,000
5.28%, due 11/23/99 (b)(d)....... 3,000,000 3,000,000
Greenwood Trust Co.
5.15%, due 2/5/99 (d)............ 8,000,000 8,000,000
Key Bank, NA
5.16%, due 9/15/99 (b)(d)........ 5,000,000 4,997,176
------------
27,995,566
------------
CERTIFICATES OF DEPOSIT (2.6%)
PNC Bank U.S.
5.50%, due 7/27/99 (b)(d)........ 5,000,000 4,997,873
Swiss Bank Corp. New York
5.69%, due 1/7/99 (d)............ 2,750,000 2,749,969
------------
7,747,842
------------
COMMERCIAL PAPER (68.7%)
Centric Capital Corp.
5.00%, due 5/4/99 (a)............ 2,333,000 2,293,145
5.07%, due 4/6/99 (a)............ 5,000,000 4,933,104
Chrysler Financial Corp.
5.15%, due 1/19/99............... 7,719,000 7,699,124
Columbus Southern Power
5.55%, due 1/4/99................ 6,000,000 5,997,225
6.25%, due 1/5/99................ 1,450,000 1,448,993
6.60%, due 1/6/99................ 7,000,000 6,993,583
Countrywide Home Loans Inc.
5.28%, due 2/16/99............... 5,000,000 4,966,267
Deere & Co.
4.99%, due 3/16/99............... 7,000,000 6,928,199
Finova Capital Corp.
5.30%, due 3/26/99............... 5,000,000 4,938,167
Ford Motor Credit Co.
4.83%, due 6/7/99................ 5,000,000 4,894,781
4.91%, due 4/26/99............... 7,000,000 6,890,207
General Electric Capital Corp.
5.04%, due 4/12/99............... 7,000,000 6,901,020
5.50%, due 2/2/99................ 7,000,000 6,965,778
General Motors Acceptance Corp.
5.16%, due 1/25/99............... 5,000,000 4,982,800
Holy Cross Health System
5.15%, due 3/11/99............... 6,385,000 6,321,975
Johnson Controls Inc.
5.40%, due 2/12/99 (a)........... 2,890,000 2,871,793
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
COMMERCIAL PAPER (Continued)
Market Street Funding Corp.
5.50%, due 1/13/99 (a)........... $4,406,000 $ 4,397,922
Massachusetts College of Pharmacy
& Allied Health Sciences
5.15%, due 2/18/99............... 1,011,000 1,004,058
Morgan (J.P.) & Co. Inc.
5.25%, due 2/19/99............... 12,519,000 12,429,541
Morgan Stanley, Dean Witter,
Discover & Co.
5.27%, due 2/26/99............... 228,000 226,131
5.30%, due 2/26/99............... 9,760,000 9,679,534
New England Loan Marketing Corp.
6.10%, due 1/5/99................ 4,176,000 4,173,170
Paccar Financial Corp.
4.70%, due 5/27/99............... 5,000,000 4,904,695
Park Avenue Receivables Corp.
5.05%, due 4/14/99 (a)........... 5,175,000 5,100,228
Riverwoods Funding Corp.
5.00%, due 3/5/99................ 6,000,000 5,947,500
5.35%, due 1/22/99............... 7,500,000 7,476,594
Salomon Smith Barney Holdings Inc.
5.10%, due 4/19/99............... 13,289,000 13,085,678
Sears Roebuck Acceptance Corp.
4.90%, due 5/12/99 (d)........... 10,000,000 9,821,694
Sheffield Receivables Corp.
5.35%, due 1/27/99............... 12,093,000 12,046,274
Society of New York Hospital Fund
Inc. 5.30%, due 2/25/99.......... 12,875,000 12,770,748
Three Rivers Funding Corp.
5.40%, due 1/12/99 (a)........... 3,823,000 3,816,692
5.55%, due 1/7/99 (a)............ 5,000,000 4,995,375
UBS Finance (DE) Inc.
4.81%, due 5/3/99................ 7,000,000 6,885,896
4.85%, due 5/24/99............... 5,000,000 4,903,674
------------
209,691,565
------------
CORPORATE BOND (0.9%)
Northern States Power Minnesota
5.50%, due 2/1/99 (d)............ 2,820,000 2,819,744
------------
CORPORATE NOTES (4.0%)
Associates Corp. of North America
6.00%, due 3/15/99 (d)........... 1,345,000 1,345,624
Chrysler Financial Corp.
5.63%, due 1/15/99 (d)........... 1,770,000 1,769,945
Deere (John) Capital Corp.
6.00%, due 2/1/99 (d)............ 2,025,000 2,025,638
Eaton Corp.
6.38%, due 4/1/99 (d)............ 5,000,000 5,006,820
Greyhound Financial
6.75%, due 3/25/99 (d)........... 1,000,000 1,001,752
Merrill Lynch & Co. Inc.
6.38%, due 3/30/99 (d)........... 1,000,000 1,001,408
------------
12,151,187
------------
MEDIUM-TERM NOTES (6.0%)
Air Products & Chemicals
6.21%, due 3/17/99 (d)........... 2,750,000 2,752,772
</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.
140
<PAGE> 143
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
SHORT-TERM
INVESTMENTS (CONTINUED)
PRINCIPAL AMORTIZED
AMOUNT COST
----------------------
<S> <C> <C>
MEDIUM-TERM NOTES (Continued)
Beneficial Corp., Series C
9.72%, due 1/19/99 (d)........... $1,000,000 $ 1,001,891
Caterpillar Financial Service
Corp. Series E
6.76%, due 1/15/99 (d)........... 1,000,000 1,000,325
Chrysler Financial Corp., Series Q
5.28%, due 2/16/99 (d)........... 1,570,000 1,568,963
General Motors Acceptance Corp.
5.87%, due 1/12/99 (d)........... 2,000,000 2,000,042
8.37%, due 2/3/99 (d)............ 1,100,000 1,102,380
International Business Machines
Credit Corp.
5.73%, due 5/21/99 (d)........... 5,000,000 5,000,625
Morgan Stanley, Dean Witter,
Discover & Co.
5.72%, due 2/5/99 (b)(d)......... 2,000,000 2,000,455
Virginia Electric Co., Series F
6.35%, due 7/2/99 (d)............ 2,000,000 2,005,939
------------
18,433,392
------------
MUNICIPAL BOND (3.3%)
California Pollution Control
Finance Authority Series 97-A
5.35%, due 2/12/99 (a)(c)(d)..... 10,000,000 10,000,000
------------
U.S GOVERNMENT & FEDERAL AGENCIES (2.7%)
Federal Home Loan Bank
Discount Note
4.65%, due 6/2/99................ 2,000,000 1,960,733
Federal Home Loan Mortgage Corp.
Discount Note
4.80%, due 3/5/99................ 456,000 452,170
Federal National Mortgage
Association (Discount Note)
4.75%, due 4/7/99.............. 346,000 341,617
4.80%, due 3/3/99.............. 475,000 471,137
4.80%, due 3/15/99............. 1,727,000 1,710,191
5.33%, due 1/19/99............. 355,000 354,054
United States Treasury Bill
4.38%, due 7/1/99................ 2,900,000 2,836,210
4.39%, due 5/20/99............... 151,000 148,440
------------
8,274,552
------------
Total Short-Term Investments
(Amortized Cost $307,215,446)
(e).............................. 100.7% 307,215,446
Liabilities in Excess of Cash and
Other Assets..................... (0.7) (2,156,412)
---------- ------------
Net Assets........................ 100.0% $305,059,034
========== ============
</TABLE>
- ------------
(a) May be sold to institutional investors only.
(b) Floating rate. Rate shown is the rate in effect at December 31, 1998.
(c) Variable rate. Rate shown is the rate in effect at December 31, 1998.
(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.......... $ 22,017,881 7.2%
Banks....................... 26,849,339 8.8
Brokerage................... 25,993,206 8.5
Capital Goods............... 8,200,312 2.7
Chemicals................... 2,752,772 0.9
Commercial Banks............ 12,651,515 4.2
Diversified Financial
Services.................. 18,113,087 6.0
Diversified Manufacturing... 5,006,820 1.6
Education................... 1,004,058 0.3
Finance..................... 71,470,512 23.4
U.S. Government & Federal
Agencies.................. 8,274,552 2.7
Health Care................. 6,321,975 2.1
Instruments & Controls...... 2,871,793 0.9
Machinery................... 6,928,199 2.3
State Commercial Banks...... 12,429,541 4.1
State Government............ 12,770,748 4.2
Retail...................... 9,821,694 3.2
Special Purpose Finance..... 29,567,263 9.7
Truckers.................... 4,904,695 1.6
Utilities-Electric.......... 19,265,484 6.3
----------- ---------
307,215,446 100.7
Liabilities in Excess of
Cash and Other Assets..... (2,156,412) (0.7)
----------- ---------
Net Assets.................. $305,059,034 100.0%
=========== =========
</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.
141
<PAGE> 144
MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $307,215,446)..... $ 307,215,446
Interest receivable.................. 1,095,184
Other assets......................... 24,510
--------------
Total assets................... 308,335,140
--------------
LIABILITIES:
Payables:
Custodian.......................... 1,939,145
MainStay Management................ 77,325
Transfer agent..................... 3,119
Accrued expenses..................... 109,722
Dividend payable..................... 1,146,795
--------------
Total liabilities.............. 3,276,106
--------------
Net assets........................... $ 305,059,034
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
12 billion shares authorized
Institutional Class................ $ 194,365
Institutional Service Class........ 103,765
Sweep Shares Class................. 6,957
Additional paid-in capital........... 304,781,202
Accumulated net realized loss on
investments........................ (27,255)
--------------
Net assets........................... $ 305,059,034
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 194,337,754
==============
Shares of capital stock
outstanding........................ 194,365,010
==============
Net asset value per share
outstanding........................ $ 1.00
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 103,764,649
==============
Shares of capital stock
outstanding........................ 103,764,649
==============
Net asset value per share
outstanding........................ $ 1.00
==============
Sweep Shares Class
Net assets applicable to outstanding
shares............................. $ 6,956,631
==============
Shares of capital stock
outstanding........................ 6,956,631
==============
Net asset value per share
outstanding........................ $ 1.00
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 15,605,964
------------
Expenses:
Management........................... 1,386,536
Service - Institutional Service
Class.............................. 204,779
Service - Sweep Shares Class......... 107
Shareholder communication............ 152,814
Professional......................... 89,900
Registration......................... 44,420
Transfer agent....................... 35,893
Custodian............................ 31,093
Directors............................ 6,903
Pricing Service...................... 2,197
Distribution - Sweep Shares Class.... 107
Miscellaneous........................ 19,819
------------
Total expenses before
reimbursement.................. 1,974,568
Expense reimbursement from Manager... (383,039)
------------
Net expenses..................... 1,591,529
------------
Net investment income.................. 14,014,435
------------
REALIZED GAIN ON INVESTMENTS:
Net realized loss on investments....... (22,863)
------------
Net increase in net assets resulting
from operations...................... $ 13,991,572
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
142
<PAGE> 145
MAINSTAY
INSTITUTIONAL FUNDS INC.
MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 14,014,435 $ 10,768,396
Net realized gain (loss) on investments................. (22,863) (497)
-------------- --------------
Net increase in net assets resulting from operations.... 13,991,572 10,767,899
-------------- --------------
Dividends and distributions to shareholders:
From net investment income:
Institutional Class................................... (10,021,538) (8,228,621)
Institutional Service Class........................... (3,989,833) (2,539,775)
Sweep Shares Class.................................... (3,064) --
From net realized gain on investments:
Institutional Class................................... -- (2,265)
Institutional Service Class........................... -- (742)
-------------- --------------
Total dividends and distributions to shareholders... (14,014,435) (10,771,403)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 267,338,520 383,541,801
Institutional Service Class........................... 92,388,730 90,078,559
Sweep Shares Class.................................... 7,085,440 --
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Institutional Class................................... 10,079,609 7,733,123
Institutional Service Class........................... 3,866,077 2,386,943
-------------- --------------
380,758,376 483,740,426
Cost of shares redeemed:
Institutional Class................................... (273,376,385) (311,712,755)
Institutional Service Class........................... (56,718,408) (62,901,724)
Sweep Shares Class.................................... (128,810) --
-------------- --------------
Increase in net assets derived from capital share
transactions......................................... 50,534,773 109,125,947
-------------- --------------
Net increase in net assets............................ 50,511,910 109,122,443
NET ASSETS:
Beginning of year......................................... 254,547,124 145,424,681
-------------- --------------
End of year............................................... $ 305,059,034 $ 254,547,124
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
143
<PAGE> 146
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE SWEEP SHARES
CLASS CLASS CLASS
------------- ------------- -----------------
DECEMBER 8, 1998*
YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1998
----------------------------- -----------------
<S> <C> <C> <C>
Net asset value at beginning of year........................ $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Net investment income....................................... 0.05 0.05 0.00(a)
---------- ---------- ----------
Less dividends and distributions:
From net investment income.................................. (0.05) (0.05) (0.00)(a)
From net realized gain on investments....................... -- -- --
---------- ---------- ----------
Total dividends and distributions........................... (0.05) (0.05) (0.00)(a)
---------- ---------- ----------
Net asset value at end of year.............................. $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total investment return..................................... 5.25% 4.99% 0.31%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 5.12% 4.87% 4.62%+
Net expenses.............................................. 0.50% 0.75% 1.00%+
Expenses (before reimbursement)........................... 0.63% 0.88% 1.13%+
Net assets at end of year (in 000's)........................ $ 194,338 $ 103,765 $ 6,957
</TABLE>
- ------------
* Sweep Shares Class first offered on December 8, 1998.
(a) Less than one cent per share.
+ Annualized.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
144
<PAGE> 147
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
0.05 0.05 0.05 0.05 0.05 0.05 0.04
-------- -------- -------- -------- -------- -------- --------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.04)
(0.00)(a) (0.00)(a) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.04)
-------- -------- -------- -------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
5.27% 5.01% 5.11% 4.85% 5.63% 5.46% 3.88%
5.18% 4.93% 5.00% 4.75% 5.48% 5.23% 3.89%
0.50% 0.75% 0.50% 0.75% 0.50% 0.75% 0.50%
0.61% 0.86% 0.67% 0.92% 0.73% 0.98% 0.68%
$190,319 $ 64,228 $110,760 $ 34,664 $ 67,869 $ 2,784 $ 65,106
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
145
<PAGE> 148
SHORT-TERM BOND FUND
1998 MARKET RECAP
- - In 1998, domestic bond markets were influenced in various ways by financial
crises in many parts of the world, modest inflation, low unemployment, falling
commodity prices, and a budget surplus that reduced Treasury issuance.
- - During the first half of 1998, the short end of the yield curve was relatively
quiet and exhibited low volatility, while during the second half of the year,
volatility increased as Federal Reserve Board moves led to lower short-term
interest rates.
- - Financial difficulties in Asia, Russia, and Brazil resulted in a flight to
quality by most investors that raised demand for high-quality, highly liquid
securities.
- - In the third quarter, problems at a major hedge fund disrupted market
activity, making it difficult for most issuers to raise money in the capital
markets.
- - In the fourth quarter, many central banks around the world reduced rates to
bring stability to troubled markets.
1998 FUND RECAP
- - For the 12 months ended 12/31/98, the MainStay Institutional Short-Term Bond
Fund returned 6.37% for Institutional Class shares and 5.98% for Service Class
shares.
- - In the first half of the year, the Fund benefited from Treasury investments.
As yield spreads widened the Fund increased its exposure to agency securities.
- - Asset-backed securities added quality and yield to the portfolio.
- - Both share classes outperformed the average Lipper(*) short U.S. government
fund, which returned 5.83% for the year ended 12/31/98. Institutional Class
shares ranked in the top 30% of all Lipper peer funds and Service Class shares
outperformed approximately 50% of their Lipper peers.
Overall, 1998 was a year of extremes in the bond markets, causing most investors
to reevaluate their tolerance for risk at several levels. The first half of the
year saw the lowest level of volatility in 15 years, while the second half of
the year reflected the highest volatility in 15 years.
A variety of forces fueled the progress of the short-term bond market,
including a budget surplus that reduced Treasury security issuance and
tightened supply, and a flight to quality in the third quarter of 1998 that
dramatically increased demand for government bonds. With financial problems in
Asia, Russia, and Latin America, and the near collapse of one of the world's
largest hedge funds, investors rushed to purchase high-quality, highly liquid
issues, which was generally positive for the short-term bond market.
VOLATILITY Fluctuations in the price of securities or markets, up or down, over
a short period of time.
SUPPLY AND DEMAND In the bond market, supply is influenced by the amount of new
securities issued and the amount of bonds investors wish to sell. Demand
reflects the amount of bonds investors wish to buy, which may decrease when
other markets offer greater opportunities.
* Lipper Inc. is an independent monitor of mutual fund performance. Results do
not reflect any deduction of sales charges and are based on total returns with
capital gains and dividends reinvested.
146
<PAGE> 149
Meanwhile, modest inflation, low unemployment, and a strong U.S. dollar
provided a positive economic backdrop. However, financial crises in many parts
of the world, along with earnings disappointments at many leading corporations
caused wide swings in the stock market, eroding confidence in the markets by
most investors during the third quarter of 1998. Successive moves by the
Federal Reserve Board to reduce interest rates in the third and fourth quarters
helped stabilize the markets. Many European central banks also moved to reduce
short-term interest rates, even before European Monetary Union officially began
in January 1999.
HOW DID THE MAINSTAY INSTITUTIONAL SHORT-TERM BOND FUND PERFORM IN THIS MARKET
ENVIRONMENT?
The MainStay Institutional Short-Term Bond Fund returned 6.37% for
Institutional Class shares and 5.98% for Service Class shares for the year
ended 12/31/98. Both share classes outperformed the average Lipper short U.S.
government fund, which returned 5.83% for the year. Institutional Class shares
ranked in the top 30% of all Lipper peer funds and Service Class shares
outperformed approximately 50% of their Lipper peers.
WHAT WAS THE PRIMARY FACTOR AFFECTING THE FUND'S PERFORMANCE?
The primary factor was credit quality. The Fund was invested predominantly in
U.S. governments, which was the best-performing income sector in 1998. During
the third quarter, as financial difficulties in Russia contributed to the near
demise of a major hedge fund, investors reevaluated and repriced credit risk at
all levels. A flight to quality ensued, generating incredible demand for
Treasuries. The Fund benefited from this shift to quality since it had over 90%
of its assets invested in government securities.
DID THE FUND CHANGE ITS MIX OF INVESTMENTS OVER THE COURSE OF THE YEAR?
Yes it did. In the first half of the year, the Fund invested primarily in
short-term Treasury securities, but increased its weighting among agency
securities as they became more attractively priced. During the second half of
the year, the Fund increased agency-security exposure as the flight to quality
caused agency securities to underperform Treasuries, thereby allowing the Fund
to buy agency securities at attractive prices. Over the course of the year, the
Fund more than tripled its weighting in agency securities from 5% to about 17%,
with a positive impact on performance.
WHAT TYPE OF ASSET-BACKED SECURITIES DID THE FUND OWN IN 1998?
Very high-quality, highly liquid ones. The Fund favored shorter-term
asset-backed securities which offered better prepayment protection in a
declining interest-rate environment. Since asset-backed securities offered
yield advantages over Treasuries, they were an important contributor to
performance. We were particularly attracted to securities backed by auto loans,
credit-card receivables, and residential mortgages with shorter maturities.
FLIGHT TO QUALITY When investors in general move to improve the quality or
liquidity of the securities they own, because of economic, industry, or market
concerns that suggest lower-quality securities or those that are less liquid
are likely to be more vulnerable to negative market events.
HEDGE FUND A private investment partnership or off-shore investment corporation
that may take both long and short positions, use leverage and derivative
securities, and invest across many markets. Hedge funds may use high- risk or
speculative investment strategies and move large amounts of money in and out of
the markets quickly.
LIQUIDITY Securities are said to be liquid when they can be easily bought or
sold in large volume without substantially affecting their price. Some
securities, such as private placements or stocks that have few shares
outstanding are considered illiquid either because there are few market
participants interested in buying or selling the securities or because
purchases and sales may cause wide price swings.
INFLATION An increase in the cost of goods and services over time. As prices
rise, the purchasing power of the dollar declines.
AGENCY SECURITIES Securities issued by U.S. government- sponsored entities and
federally related institutions.
147
<PAGE> 150
WHAT IS THE CREDIT QUALITY OF SECURITIES IN THE FUND'S PORTFOLIO?
Most of the Fund's investments during 1998 were in U.S. Treasury and agency
securities, which are of higher quality than AAA.(+) The Fund holds some
mortgage-backed and asset-backed securities, CMOs, and corporate issues. Yet
the focus during 1998 was on very high quality and very liquid investments.
DID THE FUND HAVE ANY PROBLEM SECURITIES DURING 1998?
No it did not. In the short-term bond market, the Fund focused on the
highest-quality securities, which was a plus in a market where investors were
reevaluating risk at several levels. The Fund did not own any emerging-market
debt or any securities from Russia or Brazil. Given the problems in Asia,
Russia, and Latin America, and the difficulties at a major hedge fund, the
MainStay Institutional Short-Term Bond Fund's focus on high quality proved
beneficial to shareholders throughout the year.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We expect that the Federal Reserve Board will not make any further moves during
the early part of 1999, but believe it may have a bias toward easing interest
rates later in the year. We will manage the portfolio accordingly. While we
remain optimistic, recent developments illustrate that risk is a major investor
concern and changes can easily occur in the short-term bond market as a result
of international developments or problems with corporate earnings. Whatever
happens, the Fund will continue to seek to maximize total return, consistent
with liquidity, preservation of capital, and investment in short-term debt
securities.
RAVI AKHOURY
EDWARD MUNSHOWER
Portfolio Managers
MacKay-Shields Financial Corporation
ASSET-BACKED SECURITIES Securities backed by loan paper or an anticipated income
stream from the sale of merchandise or services. The securities 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.
MORTGAGE-BACKED SECURITIES Securities representing interests in "pools" of
mortgages in which principal and interest payments by the holders of the
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).
COLLATERALIZED MORTGAGE OBLIGATION (CMO) A mortgage- backed bond that separates
mortgage pools into different maturity classes, called tranches, which offer
different payouts over different periods.
- --------------------------------------------------------------------------------
Past performance is no guarantee of future results.
(+) Currently debt rated AAA has the highest rating assigned by Standard &
Poor's and according to Standard & Poor's, the obligor's capacity to meet
its financial commitment on the obligation is extremely strong. These
ratings are based solely on the creditworthiness of the bonds in the
portfolio and are not meant to represent the stability or safety of the
Fund.
148
<PAGE> 151
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
SHORT-TERM BOND FUND VS
SALOMON SMITH BARNEY 1-3 YEAR TREASURY INDEX
INSTITUTIONAL CLASS SHARES
[Institutional Class Shares Graph]
<TABLE>
<CAPTION>
Short-Term Saloman Smith Barney
Bond Fund 1-3 Year Treasury Index
<S> <C> <C>
12/31/90 10000 10000
3/31/91 10220 10220
6/30/91 10420 10419
9/30/91 10760 10768
12/31/91 11130 11166
3/31/92 11140 11180
6/30/92 11455 11501
9/30/92 11749 11844
12/31/92 11791 11870
3/31/93 12079 12124
6/30/93 12214 12261
9/30/93 12383 12434
12/31/93 12459 12510
3/31/94 12374 12447
6/30/94 12374 12453
9/30/94 12495 12573
12/31/94 12473 12577
3/31/95 12885 12989
6/30/95 13258 13397
9/30/95 13444 13591
12/31/95 13754 13927
3/31/96 13797 13985
6/30/96 13939 14131
9/30/96 14152 14365
12/31/96 14415 14636
3/31/97 14506 14735
6/30/97 14810 15055
9/30/97 15069 15350
12/31/97 15299 15608
3/31/98 15511 15834
6/30/98 15723 16078
9/30/98 16163 16573
12/31/98 16273 16699
</TABLE>
THE GRAPHS ASSUME A $10,000 INVESTMENT MADE ON 1/2/91.
$10,000 INVESTED IN MAINSTAY INSTITUTIONAL
SHORT-TERM BOND FUND VS
SALOMON SMITH BARNEY 1-3 YEAR TREASURY INDEX
SERVICE CLASS SHARES
[Service Class Shares Graph]
<TABLE>
<CAPTION>
Short-Term Saloman Smith Barney
Bond Fund 1-3 Year Treasury Index
<S> <C> <C>
12/31/90 10000 10000
3/31/91 10220 10220
6/30/91 10420 10419
9/30/91 10760 10768
12/31/91 11130 11166
3/31/92 11140 11180
6/30/92 11455 11501
9/30/92 11749 11844
12/31/92 11791 11870
3/31/93 12079 12124
6/30/93 12214 12261
9/30/93 12383 12434
12/31/93 12459 12510
3/31/94 12374 12447
6/30/94 12374 12453
9/30/94 12495 12573
12/31/94 12473 12577
3/31/95 12885 12989
6/30/95 13245 13397
9/30/95 13418 13591
12/31/95 13728 13927
3/31/96 13756 13985
6/30/96 13884 14131
9/30/96 14083 14365
12/31/96 14340 14636
3/31/97 14415 14735
6/30/97 14719 15055
9/30/97 14976 15350
12/31/97 15198 15608
3/31/98 15392 15834
6/30/98 15587 16078
9/30/98 16008 16573
12/31/98 16107 16699
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN* SEC AVERAGE ANNUAL TOTAL RETURN*
PERFORMANCE AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------------------------
YEAR TO DATE ONE YEAR FIVE YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Bond Fund Institutional Class 6.37% 6.37% 5.49% 6.27%
Short-Term Bond Fund Service Class(+) 5.98% 5.98% 5.27% 6.13%
Average Lipper Short U.S. Government Fund 5.83% 5.83% 5.03% 5.86%
Salomon Smith Barney 1-3 Year Treasury Index 6.98% 6.98% 5.94% 6.61%
</TABLE>
<TABLE>
<CAPTION>
QUALITY BREAKDOWN(++)
YEAR-BY-YEAR PERFORMANCE (% of bonds as of December 31, 1998)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INSTITUTIONAL CLASS SHARES Government/Agency 92.24%
AAA 3.86%
AA 1.61%
A 1.33%
BBB 0.96%
----
100.00%
</TABLE>
[PERFORMANCE CHART]
<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
1998 6.37
</TABLE>
<TABLE>
<S> <C> <C>
PORTFOLIO COMPOSITION TOP 10 HOLDINGS
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- ----------------------------------------------------------------------------------------------------------
1. U.S. Treasury Note, 4/30/00, 6.75% 19.62%
2. FNMA, 3/15/01, 5.63% 17.76%
3. U.S. Treasury Note, 8/31/01, 6.50% 13.18%
4. U.S. Treasury Note, 10/31/00, 5.75% 11.31%
5. U.S. Treasury Note, 8/31/00, 6.25% 10.91%
6. U.S. Treasury Note, 11/30/00, 5.63% 9.22%
7. U.S. Treasury Note, 11/15/01, 7.50% 4.57%
8. U.S. Treasury Note, 2/15/00, 5.875% 3.26%
9. GNMA PL# 780910, 11/25/28, 8.00% 2.06%
10. Wal-Mart Stores, 2/1/10, 5.65% 1.69%
<CAPTION>
<S> <C> <C>
TOP 5 INDUSTRY HOLDINGS
PORTFOLIO COMPOSITION
(% of net assets as of December 31, 1998) (% of net assets as of December 31, 1998)
- -------------------------------------------------------------------------------------------------------
1. U.S. Government & Federal Agencies 96.74%
2. Retail 1.69%
3. Recreational Vehicles 1.56%
4. Food, Beverage & Tobacco 1.39%
5. Residential Mortgage Loans 1.29%
AVERAGE MATURITY 1.9 YEARS
(as of 12/31/98)
</TABLE>
[Pie Chart]
<TABLE>
<S> <C>
U.S. GOVERNMENT & AGENCY BONDS 96.74%
DOMESTIC BONDS 4.05%
OTHER ASSET-BACKED/MORTGAGE-BACKED SECURITIES -4.88%(sec.)
CASH, EQUIVALENTS & OTHER ASSETS 4.09%
</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%
on an annualized basis of the average daily net asset values of the Service
Class shares.
+ 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.
sec. Adjusted for liabilities.
149
<PAGE> 152
SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
LONG-TERM INVESTMENTS (104.9%)+
ASSET-BACKED
SECURITIES (2.8%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
AUTO LEASES (1.2%)
Toyota Auto Lease Trust
Series 1998-B Class A1
5.35%, due 7/25/02............... $ 520,000 $ 519,683
-----------
RECREATIONAL VEHICLES (1.6%)
Fleetwood Credit Corp.
Grantor Trust
Series 1996-A Class A
6.75%, due 10/17/11.............. 670,768 679,347
-----------
Total Asset-Backed Securities
(Cost $1,190,355)................ 1,199,030
-----------
CORPORATE BONDS (4.1%)
FOOD, BEVERAGE & TOBACCO (1.4%)
Philip Morris Cos., Inc.
6.15%, due 3/15/00 (b)........... 600,000 604,656
-----------
RETAIL (1.7%)
Wal-Mart Stores, Inc.
5.65%, due 2/1/00 (b)............ 730,000 733,270
-----------
TELECOMMUNICATION SERVICES (1.0%)
MCI WorldCom Inc.
6.125%, due 8/15/01.............. 435,000 442,230
-----------
Total Corporate Bonds
(Cost $1,769,549)................ 1,780,156
-----------
MORTGAGE-BACKED SECURITY (1.3%)
RESIDENTIAL MORTGAGE LOANS (COLLATERALIZED MORTGAGE
OBLIGATION) (1.3%)
Structured Asset Securities Corp.
Series 1996-2 Class A1
7.00%, due 8/25/26............... 559,609 560,371
-----------
Total Mortgage-Backed Security
(Cost $563,195).................. 560,371
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT & FEDERAL AGENCIES (96.7%)
PRINCIPAL
AMOUNT VALUE
----------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (17.8%)
5.625%, due 3/15/01 (a).......... $ 7,600,000 $ 7,723,652
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION I
(MORTGAGE PASS-THROUGH SECURITY) (2.0%)
8.00%, due 11/15/28.............. 862,445 895,597
-----------
UNITED STATES TREASURY NOTES (76.9%)
5.625%, due 11/30/00............. 3,940,000 4,010,171
5.75%, due 10/31/00 (a).......... 4,825,000 4,916,965
5.875%, due 2/15/00.............. 1,400,000 1,418,158
6.25%, due 8/31/00 (a)........... 4,630,000 4,747,185
6.375%, due 3/31/01.............. 365,000 378,344
6.50%, due 8/31/01 (a)........... 5,480,000 5,730,874
6.75%, due 4/30/00 (a)........... 8,315,000 8,533,269
7.50%, due 11/15/01.............. 1,850,000 1,989,324
7.75%, due 11/30/99.............. 1,685,000 1,730,815
-----------
33,455,105
-----------
Total U.S. Government &
Federal Agencies
(Cost $41,872,893)............... 42,074,354
-----------
Total Long Term Investments
(Cost $45,395,992)............... 45,613,911
-----------
Total Investments
(Cost $45,395,992) (c)........... 104.9% 45,613,911(d)
Liabilities in Excess of
Cash and Other Assets............ (4.9) (2,121,043)
---------- -----------
Net Assets........................ 100.0% $43,492,868
========== ===========
</TABLE>
- ------------
(a) Represents securities out on loan or a portion which is out on loan.
(b) Put Bond--May be redeemed prior to maturity for full face value.
(c) The cost for Federal income tax purposes is $45,406,174.
(d) At December 31, 1998 net unrealized appreciation was $207,737, 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 $261,265 and aggregate gross unrealized
depreciation for all investments on which there was an excess of cost over
market value of $53,528.
- ------------
+ 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.
150
<PAGE> 153
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value
(identified cost $45,395,992)...... $ 45,613,911
Collateral held for securities loaned
at value (Note 6).................. 8,475,647
Receivables:
Investment securities sold......... 814,595
Interest........................... 635,885
Fund shares sold................... 112,699
--------------
Total assets................... 55,652,737
--------------
LIABILITIES:
Securities lending collateral, at
value (Note 6)..................... 8,475,647
Payables:
Fund shares redeemed............... 3,024,394
Custodian.......................... 607,731
MainStay Management................ 9,648
Transfer agent..................... 2,340
Accrued expenses..................... 40,109
--------------
Total liabilities.............. 12,159,869
--------------
Net assets........................... $ 43,492,868
==============
COMPOSITION OF NET ASSETS:
Capital stock (par value of $.001 per
share)
1 billion shares authorized
Institutional Class................ $ 4,479
Institutional Service Class........ 135
Additional paid-in capital........... 50,360,383
Accumulated net realized loss on
investments........................ (7,090,048)
Net unrealized appreciation on
investments........................ 217,919
--------------
Net assets........................... $ 43,492,868
==============
Institutional Class
Net assets applicable to outstanding
shares............................. $ 42,219,411
==============
Shares of capital stock
outstanding........................ 4,479,005
==============
Net asset value per share
outstanding........................ $ 9.43
==============
Institutional Service Class
Net assets applicable to outstanding
shares............................. $ 1,273,457
==============
Shares of capital stock
outstanding........................ 135,351
==============
Net asset value per share
outstanding........................ $ 9.41
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Interest............................. $ 2,842,304
------------
Expenses:
Management........................... 260,453
Professional......................... 34,105
Transfer agent....................... 27,678
Registration......................... 27,239
Custodian............................ 11,419
Shareholder communication............ 7,692
Service.............................. 3,348
Pricing Service...................... 3,090
Directors............................ 1,059
Miscellaneous........................ 15,661
------------
Total expenses before
reimbursement.................. 391,744
Expense reimbursement from Manager... (127,949)
------------
Net expenses..................... 263,795
------------
Net investment income.................. 2,578,509
------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments....... 26,879
Net change in unrealized appreciation
on investments....................... 84,111
------------
Net realized and unrealized gain on
investments.......................... 110,990
------------
Net increase in net assets resulting
from operations...................... $ 2,689,499
============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
151
<PAGE> 154
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income................................... $ 2,578,509 $ 3,208,385
Net realized gain (loss) on investments................. 26,879 (245,150)
Net change in unrealized appreciation on investments.... 84,111 107,487
-------------- --------------
Net increase in net assets resulting from operations.... 2,689,499 3,070,722
-------------- --------------
Dividends to shareholders:
From net investment income:
Institutional Class................................... (2,516,800) (3,108,772)
Institutional Service Class........................... (67,925) (95,584)
-------------- --------------
Total dividends to shareholders..................... (2,584,725) (3,204,356)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares:
Institutional Class................................... 17,781,967 19,252,118
Institutional Service Class........................... 791,418 803,378
Net asset value of shares issued to shareholders in
reinvestment of dividends:
Institutional Class................................... 2,516,797 3,108,769
Institutional Service Class........................... 67,923 95,581
-------------- --------------
21,158,105 23,259,846
Cost of shares redeemed:
Institutional Class................................... (24,848,447) (33,366,279)
Institutional Service Class........................... (1,081,302) (720,752)
-------------- --------------
Decrease in net assets derived from capital share
transactions......................................... (4,771,644) (10,827,185)
-------------- --------------
Net decrease in net assets............................ (4,666,870) (10,960,819)
NET ASSETS:
Beginning of year......................................... 48,159,738 59,120,557
-------------- --------------
End of year............................................... $ 43,492,868 $ 48,159,738
============== ==============
Accumulated undistributed net investment income at end of
year.................................................... $ -- $ 4,103
============== ==============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
152
<PAGE> 155
(THIS PAGE INTENTIONALLY LEFT BLANK)
153
<PAGE> 156
SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios)
<TABLE>
<CAPTION>
INSTITUTIONAL
INSTITUTIONAL SERVICE
CLASS CLASS
------------- -------------
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
<S> <C> <C>
Net asset value at beginning of year........................ $ 9.39 $ 9.38
---------- ----------
Net investment income....................................... 0.56 0.53
Net realized and unrealized gain (loss) on investments...... 0.04 0.03
---------- ----------
Total from investment operations............................ 0.60 0.56
---------- ----------
Less dividends from net investment income................... (0.56) (0.53)
---------- ----------
Net asset value at end of year.............................. $ 9.43 $ 9.41
========== ==========
Total investment return..................................... 6.37% 5.98%
Ratios (to average net assets)/Supplemental Data:
Net investment income..................................... 5.95% 5.70%
Net expenses.............................................. 0.60% 0.85%
Expenses (before reimbursement)........................... 0.89% 1.14%
Portfolio turnover rate..................................... 125% 125%
Net assets at end of year (in 000's)........................ $ 42,219 $ 1,273
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
154
<PAGE> 157
MAINSTAY
INSTITUTIONAL FUNDS INC.
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL SERVICE INSTITUTIONAL
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
------------- ------------- ------------- ------------- ------------- ------------- -------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
----------------------------- ----------------------------- ----------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.48 $ 9.46 $ 9.68 $ 9.67 $ 9.37 $ 9.37 $ 10.33
-------- -------- -------- -------- -------- -------- --------
0.67 0.64 0.66 0.64 0.65 0.64 0.97
(0.09) (0.08) (0.20) (0.21) 0.31 0.30 (0.96)
-------- -------- -------- -------- -------- -------- --------
0.58 0.56 0.46 0.43 0.96 0.94 0.01
-------- -------- -------- -------- -------- -------- --------
(0.67) (0.64) (0.66) (0.64) (0.65) (0.64) (0.97)
-------- -------- -------- -------- -------- -------- --------
$ 9.39 $ 9.38 $ 9.48 $ 9.46 $ 9.68 $ 9.67 $ 9.37
======== ======== ======== ======== ======== ======== ========
6.13% 5.98% 4.81% 4.46% 10.27% 10.07% 0.11%
6.24% 5.99% 5.85% 5.60% 6.38% 6.13% 5.90%
0.60% 0.85% 0.60% 0.85% 0.60% 0.85% 0.60%
0.82% 1.07% 0.79% 1.04% 0.82% 1.07% 0.72%
153% 153% 195% 195% 171% 171% 269%
$ 46,674 $ 1,485 $ 57,805 $ 1,316 $ 50,902 $ 1,128 $ 62,340
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
155
<PAGE> 158
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, 1998 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. In addition, the Money
Market Fund offers a third class of shares, the Money Market Fund Sweep Shares
Class. The Company has adopted a Shareholder Services Plan with respect to the
Institutional Service Class of each Fund and a Shareholder Services Plan for the
Money Market Fund Sweep Class. 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
for that class 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 Money Market Fund Sweep Shares Class bears a shareholder service fee at
an annual rate of 0.25% of the average daily net assets of the outstanding Money
Market Fund Sweep Shares Class under the Shareholder Services Plan for that
Class. The Money Market Fund Sweep Shares Class also bear the payment of fees
for services in support of distribution activities under a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act ("Distribution Plan").
The distribution of Money Market Fund Sweep Shares Class commenced on December
8, 1998.
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.
156
<PAGE> 159
MAINSTAY
INSTITUTIONAL FUNDS INC.
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.
There are certain risks involved in investing in foreign securities that are
in addition to the usual risks inherent in domestic instruments. These risks
include those resulting from future adverse political and economic developments
and possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions.
- --------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- --------------------------------------------------------------------------------
The following is a summary of significant accounting policies followed by the
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 current market value of total 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.
157
<PAGE> 160
NOTES TO FINANCIAL STATEMENTS (Continued)
(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.
(D)
STATEMENT OF POSITION 93-2. The following table discloses the current year
reclassifications between accumulated undistributed net investment income (loss)
and accumulated undistributed net realized gain (loss) on investments and
paid-in capital arising from permanent differences; net assets at December 31,
1998 are not affected.
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED
ACCUMULATED ACCUMULATED NET REALIZED
UNDISTRIBUTED UNDISTRIBUTED GAIN (LOSS)
NET NET REALIZED ON
INVESTMENT GAIN (LOSS) FOREIGN ADDITIONAL
INCOME ON CURRENCY PAID-IN
(LOSS) INVESTMENTS TRANSACTIONS CAPITAL
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
EAFE Index Fund.................................... $ 183,895 $ (184,386) $ 491 $ --
Growth Equity Fund................................. 2,571,953 -- -- (2,571,953)
Indexed Equity Fund................................ 152,295 (152,295) -- --
International Equity Fund.......................... 1,312,326 (1,096,911) (215,414) (1)
Multi-Asset Fund................................... 76,251 (76,251) -- --
Indexed Bond Fund.................................. (31,039) 33,309 -- (2,270)
International Bond Fund............................ 544,399 52,912 (597,311) --
Short-Term Bond Fund............................... 2,113 -- -- (2,113)
</TABLE>
The reclassifications for the Funds are primarily due to foreign currency gain
(loss), distributions in excess of net investment income, gain on sales of
passive foreign investment companies, paydown gain (loss), and net operating
losses.
(E)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions are
recorded on the ex-dividend date. For Money Market Fund, dividends are declared
daily and paid monthly. Each of the other Funds intends to declare and pay, as a
dividend, substantially all of their net investment income and net realized
gains no less frequently than once a year. Income dividends and capital gain
distributions are determined in accordance with Federal tax regulations, which
may differ from generally accepted accounting principles. These "book/tax
differences" are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal tax basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for Federal tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains.
(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.
158
<PAGE> 161
MAINSTAY
INSTITUTIONAL FUNDS INC.
(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.
The investment income and expenses (other than expenses incurred under the
Shareholder Services Plans and the Distribution 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 period. The changes in net assets arising from
changes in exchange rates and the changes in net assets resulting from changes
in market prices are not separately presented. 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 period. However, gains and losses from certain foreign currency
transactions are treated as ordinary income for Federal income tax purposes.
Net realized gain (loss) on foreign currency transactions represents net
gains and losses on forward currency transactions, net currency gains and losses
realized as a result of differences between the amounts of security sale
proceeds or purchase cost, dividends, interest and withholding taxes as recorded
on the Fund's books, and the U.S. dollar equivalent amount actually received or
paid. Net currency gains or losses from valuing such foreign currency
denominated assets and liabilities at period-end exchange rates are reflected in
unrealized foreign exchange gains or losses.
EAFE INDEX FUND
Foreign cash held at December 31, 1998:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ----------------------------------------- ---------- ----------
<S> <C> <C> <C>
Pound Sterling Pound Sterling 11,000 $ 16,833 $ 18,303
========== ==========
</TABLE>
159
<PAGE> 162
NOTES TO FINANCIAL STATEMENTS (Continued)
INTERNATIONAL EQUITY FUND
Foreign cash held at December 31, 1998:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ----------------------------------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Australian Dollar A$ (645,769) $ (392,711) $ (396,114)
Belgian Franc BF 1,802 52 52
Canadian Dollar C$ 15,463 10,146 10,067
Deutsche Mark DM 4,835,477 2,871,875 2,903,125
Dutch Guilder NLG 1,053,787 559,089 561,510
French Franc FF 5,783 1,029 1,035
Irish Punt IP 17,645 26,388 26,309
Italian Lira IL 3,834,661 2,272 2,324
Japanese Yen Yen 4,486,725 38,088 39,775
New Zealand Dollar N$ 38,895 20,299 20,548
Norwegian Krone NK 12 2 2
Pound Sterling Pound 33,952 56,475 56,489
Swedish Krona SK 260 32 32
Spanish Peseta SP 4,637,506 31,958 32,727
---------- ----------
$3,224,994 $3,257,881
========== ==========
</TABLE>
INTERNATIONAL BOND FUND
Foreign cash held at December 31, 1998:
<TABLE>
<CAPTION>
CURRENCY COST VALUE
- ----------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Canadian Dollar C$ 26,617 $ 17,363 $ 17,329
Deutsche Mark DM 738,434 441,605 443,344
French Franc FF 61 11 11
New Zealand Dollar N$ 117,323 63,164 61,982
Swedish Krona SK 54 7 7
---------- ----------
$ 522,150 $ 522,673
========== ==========
</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).
160
<PAGE> 163
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL EQUITY FUND
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT AMOUNT CONTRACT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
------------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- ----------------------------------
Australian Dollar vs. U.S. Dollar, expiring
1/13/99............................................ A$ 3,240,800 $ 2,034,624 $ 46,438
Deutsche Mark vs. Irish Punt, expiring 1/4/99........ DM 17,184,893 IP 6,909,207 (15,789)
Deutsche Mark vs. U.S. Dollar, expiring 3/31/99...... DM 36,595,000 $ 21,990,205 (79,178)
Irish Punt vs. Deutsche Mark, expiring 1/4/99........ IP 6,909,207 DM 17,207,000 29,065
Japanese Yen vs. U.S. Dollar, expiring 1/19/99....... Yen 1,553,056,740 $ 13,380,000 (423,569)
New Zealand Dollar vs. U.S. Dollar, expiring
1/15/99............................................ N$ 3,790,000 $ 2,032,778 30,009
</TABLE>
<TABLE>
<CAPTION>
CONTRACT AMOUNT CONTRACT AMOUNT
PURCHASED SOLD
------------------ ------------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
- ----------------------------------
Canadian Dollar vs. U.S. Dollar, expiring 1/25/99.... C$ 13,040,000 $ 8,403,213 86,922
---------
Net unrealized depreciation on forward foreign
currency contracts................................. ($326,102)
=========
</TABLE>
INTERNATIONAL BOND FUND
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT AMOUNT CONTRACT AMOUNT APPRECIATION/
SOLD PURCHASED (DEPRECIATION)
---------------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
- ----------------------------------
Australian Dollar vs. U.S. Dollar, expiring
1/13/99............................................ A$ 2,541,000 $ 1,590,680 $ 31,812
Danish Krone vs. Deutsche Mark, expiring 3/22/99..... DK 25,800,000 DM 6,767,084 16,774
Deutsche Mark vs. Irish Punt, expiring 1/4/99........ DM 11,815,783 IP 4,750,188 (11,395)
Deutsche Mark vs. Norwegian Krone, expiring
3/15/99............................................ DM 966,251 NK 4,475,000 1,395
Deutsche Mark vs. U.S. Dollar, expiring 3/31/99...... DM 15,840,000 $ 9,518,373 (34,272)
Irish Punt vs. Deutsche Mark, expiring 1/4/99........ IP 4,750,188 DM 11,832,650 21,524
New Zealand Dollar vs. U.S. Dollar, expiring
1/15/99............................................ N$ 4,647,000 $ 2,500,280 44,642
Norwegian Krone vs. Deutsche Mark, expiring
3/15/99............................................ NK 18,020,000 DM 3,849,605 (30,510)
Pound Sterling vs. Deutsche Mark, expiring 3/30/99... Pound 3,828,000 DM 10,680,886 88,127
Swedish Krona vs. Deutsche Mark, expiring 3/29/99.... SK 6,115,000 DM 1,278,486 13,535
</TABLE>
<TABLE>
<CAPTION>
CONTRACT AMOUNT CONTRACT AMOUNT
PURCHASED SOLD
------------------ ------------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY BUY CONTRACTS
- ----------------------------------
Australian Dollar vs. U.S. Dollar, expiring
1/13/99............................................ A$ 301,000 $ 184,700 (40)
Canadian Dollar vs. U.S. Dollar, expiring 1/25/99.... C$ 3,890,000 $ 2,506,787 25,930
---------
Net unrealized appreciation on forward foreign
currency contracts................................. $ 167,522
=========
</TABLE>
161
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS (Continued)
VALUE EQUITY FUND
Forward foreign currency contracts open at December 31, 1998:
<TABLE>
<CAPTION>
CONTRACT AMOUNT CONTRACT AMOUNT UNREALIZED
SOLD PURCHASED (DEPRECIATION)
-------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C>
FOREIGN CURRENCY SALE CONTRACTS
--------------------------------
Japanese Yen vs. U.S. Dollar, expiring
3/16/99....................................... Yen 1,083,617,500 $ 9,500,000 $(202,879)
---------
Net unrealized depreciation on forward foreign
currency contracts............................ $(202,879)
=========
</TABLE>
(L)
PURCHASED AND WRITTEN OPTIONS. The Fund may write covered call and put options
on its portfolio securities or foreign currencies. Premiums are received and are
recorded as liabilities. The liabilities are subsequently adjusted to reflect
the current value of the options written. Premiums received from writing options
which expire are treated as realized gains. Premiums received from writing
options which are exercised or are cancelled in closing purchase transactions
are added to the proceeds or netted against the amount paid on the transaction
to determine the realized gain or loss. By writing a covered call option, a Fund
foregoes in exchange for the premium the opportunity for capital appreciation
above the exercise price should the market price of the underlying security or
foreign currency increase. By writing a covered put option, a Fund, in exchange
for the premium, accepts the risk of a decline in the market value of the
underlying security or foreign currency below the exercise price.
The Fund may purchase call and put options on its portfolio securities or
foreign currencies. The Fund may purchase call options to protect against an
increase in the price of the security or foreign currency it anticipates
purchasing. The Fund may purchase put options on its securities or foreign
currencies to protect against a decline in the value of the security or foreign
currency or to close out covered written put positions. Risks may arise from an
imperfect correlation between the change in market value of the securities or
foreign currencies held by the Fund and the prices of options relating to the
securities or foreign currencies purchased or sold by the Fund and from the
possible lack of a liquid secondary market for an option. The maximum exposure
to loss for any purchased option is limited to the premium initially paid for
the option.
INTERNATIONAL EQUITY FUND
Purchased option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options--assigned........................................... (13,050,000) $(176,175)
Options--purchased.......................................... 34,743,000 387,030
Options--sold............................................... (4,473,500) (45,138)
Options--expired............................................ (17,219,500) (165,717)
----------- ---------
Options outstanding at December 31, 1998.................... -- --
=========== =========
</TABLE>
Short sale option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options--short sale......................................... (13,050,000) $ (78,300)
Options--buybacks........................................... 13,050,000 78,300
----------- ---------
Options outstanding at December 31, 1998.................... -- --
=========== =========
</TABLE>
162
<PAGE> 165
MAINSTAY
INSTITUTIONAL FUNDS INC.
INTERNATIONAL BOND FUND
Purchased option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options--assigned........................................... (6,069,000) $ (81,932)
Options--purchased.......................................... 15,138,000 170,303
Options--sold............................................... (1,948,500) (19,660)
Options--expired............................................ (7,120,500) (68,711)
----------- ---------
Options outstanding at December 31, 1998.................... -- --
=========== =========
</TABLE>
Short sale option activity for the year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUM
----------- ---------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options--short sale......................................... (6,069,000) $ (36,414)
Options--buybacks........................................... 6,069,000 36,414
----------- ---------
Options outstanding at December 31, 1998.................... -- --
=========== =========
</TABLE>
(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).
(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.
163
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 3-- Fees and Related Party Policies:
- --------------------------------------------------------------------------------
(A)
MANAGER AND SUB-ADVISERS. MainStay Management, Inc. (the "Manager"), 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 Financial Corporation ("MacKay-Shields"), a registered
investment adviser and an indirect wholly-owned subsidiary of New York Life,
serves as sub-adviser to the Growth Equity Fund, International Equity Fund,
Value Equity Fund, Bond Fund, International Bond Fund and the Short-Term Bond
Fund under a Sub-Advisory Agreement with the Manager. New York Life serves as
sub-adviser to the Money Market Fund under a Sub-Advisory agreement with the
Manager. Monitor Capital Advisors Inc. ("Monitor Capital"), a registered
investment adviser and an indirect wholly-owned subsidiary of New York Life,
serves as sub-adviser to the EAFE Index Fund, Indexed Equity Fund, Multi-Asset
Fund and Indexed Bond Fund under a Sub-Advisory Agreement with the Manager.
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>
EAFE Index Fund................ .95%
Growth Equity Fund............. .85%
Indexed Equity Fund............ .50%
International Equity Fund...... .85%
Multi-Asset Fund............... .65%
Value Equity Fund.............. .85%
Bond Fund...................... .75%
Indexed Bond Fund.............. .50%
International Bond Fund........ .80%
Money Market Fund.............. .50%
Short-Term Bond Fund........... .60%
</TABLE>
Pursuant to the terms of the Sub-Advisory Agreements between the Manager 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>
EAFE Index Fund................ .15%
Growth Equity Fund............. .25%
Indexed Equity Fund............ .10%
International Equity Fund...... .35%
Multi-Asset Fund............... .15%
Value Equity Fund.............. .25%
Bond Fund...................... .20%
Indexed Bond Fund.............. .10%
International Bond Fund........ .30%
Money Market Fund.............. .10%
Short-Term Bond Fund........... .15%
</TABLE>
The Manager voluntarily agreed to assume a portion of the Fund's operating
expenses for the year ended December 31, 1998, for the following Funds to the
extent the total expenses (excluding service fees and distribution fees) on an
annualized basis exceeded the indicated percentages:
<TABLE>
<S> <C>
EAFE Index Fund................ .94%
Indexed Equity Fund............ .30%
International Equity Fund...... 1.00%
Bond Fund...................... .75%
Indexed Bond Fund.............. .50%
International Bond Fund........ .95%
Money Market Fund.............. .50%
Short-Term Bond Fund........... .60%
</TABLE>
In connection with the voluntary expense limitations, the Manager assumed
the following expenses for the year ended December 31, 1998:
<TABLE>
<S> <C>
EAFE Index Fund............ $ 257,925
Indexed Equity Fund........ 3,269,934**
International Equity
Fund..................... 36,690
Bond Fund.................. 192,482
Indexed Bond Fund.......... 222,581
International Bond Fund.... 70,444
Money Market Fund.......... 383,039
Short-Term Bond Fund....... 127,949
</TABLE>
- ------------
** For the Indexed Equity Fund the Manager assumed $2,643,549, Monitor Capital
the sub-adviser assumed $626,385.
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, 1999, after which they may be terminated or revised at anytime.
164
<PAGE> 167
MAINSTAY
INSTITUTIONAL FUNDS INC.
(B)
SERVICE AND DISTRIBUTION FEES. In accordance with the Shareholder Services Plan
for the Institutional Service Class shares and the Shareholder Services Plan for
the Money Market Fund Sweep Shares Class, 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 and
to Money Market Fund Sweep Shares Class shareholders, respectively. 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 and the Money
Market Sweep Shares Class of the Money Market Fund.
The Company, with respect to the Money Market Fund Sweep Shares Class, has
adopted a Distribution Plan in accordance with the provisions of Rule 12b-1
under the Investment Company Act of 1940. Pursuant to the Distribution Plan,
NYLIFE Securities Inc., NYLIFE Distributors Inc., or any other broker-dealer or
other financial institution is entitled to receive a monthly service fee from
the Money Market Fund at an annual rate of 0.25% of the average daily net assets
of the Fund's Money Market Fund Sweep Shares Class for services in support of
distribution activities.
(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)
TRANSFER, DIVIDEND DISBURSING AND SHAREHOLDER SERVICING AGENT. MainStay
Shareholder Services Inc. ("MSS"), an indirect wholly-owned subsidiary of New
York Life, is the Fund's transfer, dividend disbursing and shareholder servicing
agent. MSS has entered into an agreement with Boston Financial Data Services
("BFDS"), by which BFDS will perform certain of the services for which MSS is
responsible. Prior to May 1, 1998, BFDS acted as transfer, dividend disbursing
and shareholder servicing agent. Transfer agent expenses paid to MSS for the
period May 1, 1998 through December 31, 1998 were as follows:
<TABLE>
<S> <C>
EAFE Index Fund.............. $ 17,876
Growth Equity Fund........... 238,005
Indexed Equity Fund.......... 29,983
International Equity Fund.... 17,765
Multi-Asset Fund............. 247,196
Value Equity Fund............ 447,308
Bond Fund.................... 19,448
Indexed Bond Fund............ 18,274
International Bond Fund...... 16,966
Money Market Fund............ 25,738
Short-Term Bond Fund......... 18,712
</TABLE>
(E)
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.
(F)
CAPITAL. The Funds have been advised that at December 31, 1998 affiliates of
New York Life owned a significant number of shares of the Funds with the
following market values:
<TABLE>
<S> <C>
EAFE Index Fund.......... $ 41,888,058
Growth Equity Fund....... 864,302,510
Indexed Equity Fund...... 1,215,469,038
International Equity
Fund................... 108,727,796
Multi-Asset Fund......... 359,641,185
Value Equity Fund........ 665,957,327
Bond Fund................ 155,022,686
Indexed Bond Fund........ 129,742,077
International Bond
Fund................... 51,769,266
Money Market Fund........ 136,188,807
Short-Term Bond Fund..... 15,489,779
</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.
165
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS (Continued)
(G)
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, 1998, these fees were as follows:
<TABLE>
<S> <C>
EAFE Index Fund............... $ 3,144
Growth Equity Fund............ 43,823
Indexed Equity Fund........... 65,352
International Equity Fund..... 6,588
Multi-Asset Fund.............. 25,620
Value Equity Fund............. 52,780
Bond Fund..................... 9,929
Indexed Bond Fund............. 7,868
International Bond Fund....... 2,934
Money Market Fund............. 41,308
Short-Term Bond Fund.......... 2,390
</TABLE>
- --------------------------------------------------------------------------------
NOTE 4-- Federal Income Tax:
- --------------------------------------------------------------------------------
At December 31, 1998, 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, 1998 as if they arose on January 1, 1999.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS
AVAILABLE THROUGH AMOUNT (000'S) DEFERRED (000'S)
----------------- -------------- ----------------
<S> <C> <C> <C>
International Equity Fund............... 2006 $ 672 $2,687*
======= ======
Value Equity Fund....................... $ 0 $7,506
======= ======
Bond Fund............................... 2002 $ 5,088
2004 1,625
-------
$ 6,713 $ 102
======= ======
Indexed Bond Fund....................... 2004 $ 1,439
2005 44
2006 111
-------
$ 1,594 $ 55
======= ======
Money Market Fund....................... 2006 $ 27
=======
Short-Term Bond Fund.................... 2001 $ 114
2002 4,478
2003 1,770
2004 485
2005 173
-------
$ 7,020 $ 60
======= ======
</TABLE>
The Bond Fund and the Short-Term Bond Fund utilized $5,775,935 and $49,492,
respectively, of capital loss carryforwards during the current year.
* International Equity Fund capital loss deferral includes post October 1, 1998
foreign currency exchange loss deferral of $272,790.
166
<PAGE> 169
MAINSTAY
INSTITUTIONAL FUNDS INC.
- --------------------------------------------------------------------------------
NOTE 5-- Financial Investments:
- --------------------------------------------------------------------------------
The EAFE Index Fund's, International Equity Fund's, Multi-Asset Fund's,
International Bond Fund's and Value Equity Fund's use of foreign currency
exchange 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 foreign currency exchange contracts reflects each Fund's
exposure at period end to credit loss in the event of a counterparty's failure
to perform its obligations.
The EAFE Index Fund's and Multi-Asset Fund's use of forward foreign currency
exchange contracts are intended to minimize the risk of loss to the Fund from
adverse changes in the relationship between U.S. dollar and foreign currencies.
The International Equity Fund, Value 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.
167
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 6-- Portfolio Securities Loaned:
- --------------------------------------------------------------------------------
At December 31, 1998, the Bond Fund and Short-Term Bond Fund had portfolio
securities with a fair market value of $45,561,549 and $10,265,340,
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 and Short-Term Bond Funds, in
the form of U.S. Government obligations, had a value of $8,700,000 and
$2,072,500 respectively at December 31, 1998.
BOND FUND
Investments made with cash collateral at December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Associates First Capital
5.622%, due 4/5/99........................................ $5,000,000 $ 5,000,000
Bankers Trust
5.15%, due 2/3/99......................................... 9,000,000 8,992,962
Greenwich Funding
5.677%, due 1/20/99....................................... 8,000,000 7,962,333
Lexington Parker
5.17%, due 1/27/99........................................ 145,000 144,440
-----------
22,099,735
-----------
REPURCHASE AGREEMENTS
Goldman Sachs & Co.
5.60%, due 12/31/99
(Collateralized by
$2,198,000 Millennium America
7.625%, due 11/15/26 Market Value $2,064,115
$1,000,000 The Coastal Corporation
10.25%, due 10/15/04 Market Value $1,190,870
$6,000,000 Burlington Northern
7.29%, due 6/1/36 Market Value $6,615,000)................ 8,000,000 8,000,000
Prudential Securities Inc.
5.60%, due 12/31/99
(Collateralized by
$1,523,510 Wilshire Mortgage Loan Trust,
6.985%, due 10/5/29 Market Value $1,523,510
$1,205,780 USX Corporation
9.125%, due 1/15/13 Market Value $1,432,603
$1,224,490 Midland Realty Acceptance Corp.
7.475%, due 8/25/28 Market Value $1,340,388
$379,347 GE Capital Mortgage Services, Inc.
7.59%, due 6/25/28 Market Value $376,939
$2,351,265 Amresco Commercial Mortgage Funding
7.64%, due 6/17/29 Market Value $2,351,265
$1,512,245 Amresco Residential Securities Mortgage Loans
6.090%, due 6/25/28 Market Value $1,471,077).............. 8,400,000 8,400,000
-----------
16,400,000
-----------
$38,499,735
===========
</TABLE>
168
<PAGE> 171
MAINSTAY
INSTITUTIONAL FUNDS INC.
SHORT-TERM BOND FUND
Investments made with cash collateral at December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- -----------
<S> <C> <C>
SHORT-TERM COMMERCIAL PAPER
Bankers Trust
5.15%, due 2/3/99......................................... $2,000,000 $ 1,998,436
Broadway Capital
5.158%, due 1/11/99....................................... 770,000 768,788
Greenwich Funding
5.50%, due 1/29/99........................................ 1,825,000 1,808,423
-----------
4,575,647
-----------
REPURCHASE AGREEMENTS
Goldman Sachs & Co.
5.60%, due 12/31/99
(Collateralized by
$3,950,000 Ras Laffan Gas
8.294%, due 3/15/14 Market Value $3,189,625).............. 2,000,000 2,000,000
Prudential Securities Inc.
5.60%, due 12/31/99
(Collateralized by
$344,603 Wilshire Mortgage Loan Trust,
6.985%, due 10/5/29 Market Value $344,603
$272,736 USX Corporation
9.125%, due 1/15/13 Market Value $324,041
$276,968 Midland Realty Acceptance Corp.
7.475%, due 8/25/28 Market Value $303,183
$85,805 GE Capital Mortgage Services, Inc.
7.59%, due 6/25/28 Market Value $85,260
$531,834 Amresco Commercial Mortgage Funding
7.64%, due 6/17/29 Market Value $531,834
$342,050 Amresco Residential Securities Mortgage Loans
6.090%, due 6/25/28 Market Value $332,744)................ 1,900,000 1,900,000
-----------
3,900,000
-----------
$ 8,475,647
===========
</TABLE>
Net income earned on securities lending amounted to $101,780 and $17,414,
net of broker fees and rebates, respectively, for the year ended December 31,
1998 which is included as interest income on the Statement of Operations.
- --------------------------------------------------------------------------------
NOTE 7-- Line of Credit:
- --------------------------------------------------------------------------------
The Funds, with the exception of the Money Market Fund, maintain a line of
credit of $375,000,000 with the custodian in order to secure a source of funds
for temporary purposes to meet unanticipated or excessive shareholder
redemption requests. The Funds pay a commitment fee, at an annual rate of .065%
of the average commitment amount, regardless of usage. Such commitment fees are
allocated amongst the Funds based upon net assets and other factors. Interest
on revolving credit loans is charged based upon the Federal Funds Advances
rate. There were no borrowings on the line of credit at December 31, 1998.
169
<PAGE> 172
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
NOTE 8--Purchases and Sales of Securities (in 000's):
- --------------------------------------------------------------------------------
During the year ended December 31, 1998, 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
securities $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
All others 14,906 14,258 227,999 232,117 320,012 91,782 72,128 57,670
-----------------------------------------------------------------------------------------
Total $ 14,906 $ 14,258 $227,999 $232,117 $320,012 $ 91,782 $ 72,128 $ 57,670
=========================================================================================
</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
Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- -------------
Year ended Year ended Year ended
1998 1997 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,636 8 766 9 4,734 119
Shares issued in
reinvestment of
dividends and
distributions 442 3 1,467 12 1,838 28
---------------------------------------------------------------------------------------------
3,078 11 2,233 21 6,572 147
Shares redeemed (2,690) (10) (3,202) (6) (4,977) (93)
---------------------------------------------------------------------------------------------
Net increase (decrease) 388 1 (969) 15 1,595 54
=============================================================================================
<CAPTION>
Growth Equity
Fund
Institutional Institutional
Class Service Class
------------- -------------
Year ended
1997
-----------------------------
<S> <C> <C>
Shares sold 7,615 160
Shares issued in
reinvestment of
dividends and
distributions 2,018 28
-----------------------------
9,633 188
Shares redeemed (6,715) (78)
-----------------------------
Net increase (decrease) 2,918 110
=============================
</TABLE>
<TABLE>
<CAPTION>
Multi-Asset Value Equity
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- -------------
Year ended Year ended Year ended
1998 1997 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 3,875 443 3,058 260 5,203 125
Shares issued in
reinvestment of
dividends and
distributions 4,797 158 3,152 74 14,874 179
---------------------------------------------------------------------------------------------
8,672 601 6,210 334 20,077 304
Shares redeemed (4,061) (169) (2,779) (84) (12,155) (150)
---------------------------------------------------------------------------------------------
Net increase (decrease) 4,611 432 3,431 250 7,922 154
=============================================================================================
<CAPTION>
Value Equity
Fund
Institutional Institutional
Class Service Class
------------- -------------
Year ended
1997
-----------------------------
<S> <C> <C>
Shares sold 10,407 287
Shares issued in
reinvestment of
dividends and
distributions 9,661 105
-----------------------------
20,068 392
Shares redeemed (11,665) (649)
-----------------------------
Net increase (decrease) 8,403 (257)
=============================
</TABLE>
<TABLE>
<CAPTION>
International Bond Money Market
Fund Fund
Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- -------------
Year ended Year ended Year ended
1998 1997 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,062 2 137 5 267,338 92,389
Shares issued in
reinvestment of
dividends and
distributions 392 2 567 3 10,080 3,866
---------------------------------------------------------------------------------------------
1,454 4 704 8 277,418 96,255
Shares redeemed (369) (5) (546) (5) (273,376) (56,718)
---------------------------------------------------------------------------------------------
Net increase (decrease) 1,085 (1) 158 3 4,042 39,536
=============================================================================================
<CAPTION>
Money Market
Fund
Institutional
Sweep Shares Class*
-------------------
<S> <C>
Shares sold 7,086
Shares issued in
reinvestment of
dividends and
distributions --
-------------------
7,086
Shares redeemed (129)
-------------------
Net increase (decrease) 6,957
===================
</TABLE>
* Sweep Shares Class first offered on December 8, 1998.
170
<PAGE> 173
MAINSTAY
INSTITUTIONAL FUNDS INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Multi-Asset Value Equity Bond Indexed Bond International Bond
Fund Fund Fund Fund Fund
Purchases Sales Purchases Sales Purchases Sales Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 80,979 $ -- $ -- $ -- $434,031 $413,650 $ 43,035 $ 14,748 $ -- $ --
113,574 177,349 683,923 743,322 157,955 172,593 22,876 5,653 154,410 140,628
- --------------------------------------------------------------------------------------------------------------------
$194,553 $177,349 $683,923 $743,322 $591,986 $586,243 $ 65,911 $ 20,401 $154,410 $140,628
====================================================================================================================
<CAPTION>
Short-Term Bond
Fund
Purchases Sales
- -------------------------
<S> <C> <C>
$ 51,584 $ 43,780
2,462 9,712
- -------------------------
$ 54,046 $ 53,492
=========================
</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
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11,881 806 12,006 404 3,583 4 1,051 14
1,778 41 1,180 16 343 2 1,247 7
- ---------------------------------------------------------------------------------------------------------------------------------
13,659 847 13,186 420 3,926 6 2,298 21
(5,280) (264) (6,821) (187) (3,477) (10) (2,721) (28)
- ---------------------------------------------------------------------------------------------------------------------------------
8,379 583 6,365 233 449 (4) (423) (7)
=================================================================================================================================
</TABLE>
<TABLE>
<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
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2,773 435 944 67 5,611 123 2,458 131
998 19 1,129 9 847 20 710 17
- ---------------------------------------------------------------------------------------------------------------------------------
3,771 454 2,073 76 6,458 143 3,168 148
(4,316) (178) (1,737) (86) (3,138) (69) (2,590) (130)
- ---------------------------------------------------------------------------------------------------------------------------------
(545) 276 336 (10) 3,320 74 578 18
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Money Market Short-Term Bond
Fund (Continued) Fund
Institutional Institutional Institutional Institutional Institutional Institutional
Class Service Class Class Service Class Class Service Class
------------- ------------- ------------- ------------- ------------- -------------
Year ended Year ended Year ended
1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
383,542 90,079 1,826 81 1,988 82
7,733 2,387 268 7 331 10
- -------------------------------------------------------------------------------------------------
391,275 92,466 2,094 88 2,319 92
(311,713) (62,902) (2,584) (111) (3,450) (73)
- -------------------------------------------------------------------------------------------------
79,562 29,564 (490) (23) (1,131) 19
=================================================================================================
</TABLE>
171
<PAGE> 174
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, 1998, 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, 1998 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.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
February 26, 1999
172
<PAGE> 175
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
MainStay Shareholder Services
Inc.
CUSTODIAN
The Bank of New York
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
LEGAL COUNSEL
Dechert Price & Rhoads
<PAGE> 176
[LOGO]
MAINSTAY
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 MainStay Institutional Funds Inc. 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.
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
subsidiary of New York Life Insurance Company.
02-010-1298
