UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number 811-04550
THE MAINSTAY FUNDS
(Exact name of Registrant as specified in charter)
51 Madison Avenue, New York, NY 10010
(Address of principal executive offices) (Zip code)
J. Kevin Gao, Esq.
169 Lackawanna Avenue
Parsippany, New Jersey 07054
(Name and address of agent for service)
Registrant’s telephone number, including area code: (212) 576-7000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2013
FORM N-CSR
Item 1. | Reports to Stockholders. |
MainStay Unconstrained Bond Fund
Message from the President and Annual Report
October 31, 2013
This Page Intentionally Left Blank
Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 0.05 4.76 | %
|
| 10.48 11.50 | %
|
| 5.72 6.21 | %
|
| 1.52 1.52 | %
| ||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 0.23 4.96 |
|
| 10.70 11.72 |
|
| 5.82 6.31 |
| | 1.33 1.33 | | ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| –0.95 4.05 |
|
| 10.41 10.68 |
|
| 5.42 5.42 |
| | 2.27 2.27 | | ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 3.05 4.05 |
|
| 10.66 10.66 |
|
| 5.41 5.41 |
| | 2.27 2.27 | | ||||||
Class I Shares4 | No Sales Charge | 5.32 | 12.00 | 6.64 | 1.08 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class A shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Barclays U.S. Aggregate Bond Index5 | –1.08 | % | 6.09 | % | 4.78 | % | ||||||
Bank of America Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index6 | 0.30 | 0.62 | 2.14 | |||||||||
Morningstar Nontraditional Bond Category Average7 | 1.23 | 7.84 | 4.46 |
5. | The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasurys, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. The Barclays U.S. Aggregate Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The Bank of America Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index represents the London InterBank Offered Rate (“LIBOR”) with |
a constant 3-month average maturity. LIBOR is a composite of interest rates at which banks borrow from one another in the London market, and it is a widely used benchmark for short-term interest rates. An investment cannot be made directly in an index. |
7. | The Morningstar nontraditional bond category average contains funds that pursue strategies divergent in one or more ways from conventional practice in the broader bond-fund universe. Morningstar category averages are equal-weighted returns based on constituents of the category at the end of the period. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Unconstrained Bond Fund |
Cost in Dollars of a $1,000 Investment in MainStay Unconstrained Bond Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 999.10 | $ | 6.25 | $ | 1,019.00 | $ | 6.31 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,000.90 | $ | 5.55 | $ | 1,019.70 | $ | 5.60 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 995.50 | $ | 10.01 | $ | 1,015.20 | $ | 10.11 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 995.40 | $ | 10.01 | $ | 1,015.20 | $ | 10.11 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,002.20 | $ | 4.29 | $ | 1,020.90 | $ | 4.33 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.24% for Investor Class, 1.10% for Class A, 1.99% for Class B and Class C and 0.85% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
Corporate Bonds | 70.3 | % | ||
Short-Term Investment | 11.4 | |||
Loan Assignments & Participations | 6.9 | |||
Other Assets, Less Liabilities | 3.5 | |||
Convertible Bonds | 3.2 | |||
Foreign Bonds | 2.0 | |||
Asset-Backed Securities | 1.1 | |||
U.S. Government & Federal Agencies | 1.0 |
Convertible Preferred Stocks | 0.9 | % | ||
Common Stocks | 0.6 | |||
Foreign Government Bonds | 0.4 | |||
Warrants | 0.2 | |||
Mortgage-Backed Securities | 0.1 | |||
Futures Contracts Short | –0.6 | |||
Corporate Bond Sold Short | –1.0 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings or Issuers Held as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Targa Resources Partners, L.P. / Targa Resources Partners Finance Corp., 4.25%–7.875%, due 10/15/18–11/15/23 |
2. | Federal Home Loan Mortgage Corporation, 0.50%, due 9/14/15 |
3. | General Motors Co. |
4. | First Data Corp., 7.375%–10.625%, due 6/15/19–6/15/21 |
5. | Caesars Entertainment Operating Co., Inc., 4.488%–9.00%, due 1/26/18–2/15/20 |
6. | American International Group, Inc., 4.875%–5.75%, due 3/15/67 |
7. | Bank of America Corp. |
8. | Freescale Semiconductor, Inc., 5.00%–9.25%, due 4/15/18–1/15/22 |
9. | Clear Channel Communications, Inc., 3.818%–9.00%, due 1/29/16–3/1/21 |
10. | Liberty Mutual Group, Inc., 4.25%–10.75%, due 6/15/23–6/15/88 |
8 | MainStay Unconstrained Bond Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, CFA, Louis N. Cohen, CFA, and Taylor Wagenseil of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Unconstrained Bond Fund perform relative to its benchmarks and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Unconstrained Bond Fund returned 4.76% for Investor Class shares, 4.96% for Class A shares and 4.05% for Class B shares and Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund’s Class I shares returned 5.32%. For the 12 months ended October 31, 2013, all share classes outperformed the –1.08% return of the Barclays U.S. Aggregate Bond Index,1 which is the Fund’s broad-based securities-market index; the 0.30% return of the Bank of America Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index,1 which is the Fund’s secondary benchmark; and the 1.23% return of the Morningstar Nontraditional Bond Category Average,2 which is an additional benchmark for the Fund. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s outperformance relative to the Barclays U.S. Aggregate Bond Index was primarily driven by an overweight position in spread product,3 specifically high-yield corporate bonds. In light of a continuing low interest-rate environment, investors continued to hunger for yield and return, moving them to invest in riskier asset classes. High-yield corporate bonds and equities benefited from this demand. Stocks generally rose, and companies did not disappoint with their earnings. During the reporting period, the durability of corporate earnings had a positive influence on corporate-bond performance across the ratings spectrum.
Lower-risk assets, such as U.S. Treasury securities and agency mortgages, underperformed spread product during the reporting period. Fortunately, the Fund’s underweight positions in these asset classes helped the Fund’s performance relative to the Barclays U.S. Aggregate Bond Index. Additionally, we used U.S. Treasury futures to further reduce the Fund’s already short duration relative to that of the Barclays U.S. Aggregate Bond Index. This hedge helped the Fund’s performance as interest rates rose during the reporting period.
During the reporting period, how was the Fund’s performance materially affected by investments in derivatives?
During the reporting period, the Fund used U.S. Treasury futures to hedge the duration. The Fund’s short position in these contracts, which had a negative rate of return, was accretive to the overall Fund’s performance.
What was the Fund’s duration4 strategy during the reporting period?
The Fund’s duration was shorter than that of the Barclays U.S. Aggregate Bond Index, in large part because of the Fund’s overweight position in high-yield corporate bonds. These bonds tend to have shorter durations than investment-grade corporate bonds. They also tend to have a lower correlation to U.S. Treasury securities, so they have a lower sensitivity to interest rates but are not immune to interest-rate changes. To further insulate the Fund from a potential rise in interest rates, we increased the Fund’s exposure to a short position in U.S. Treasury futures. This position shortened the Fund’s already short duration relative to the Barclays U.S. Aggregate Bond Index. Exposure to lower-duration high-yield corporate bonds had a positive impact on the Fund’s performance, while exposure to U.S. Treasury futures had a minimal impact on performance during the reporting period.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
There were many macro factors to consider during the reporting period, including the Federal Reserve’s suggestion that it might taper its bond purchases, and the Fund experienced some periods of volatility. Nevertheless, we did not make any material changes to the Fund’s positioning. Since the Fund’s inception, we have judged the Federal Reserve’s accommodative monetary policy, along with improving economic data, to be a positive for spread products such as high-yield corporate bonds. In addition, improving profitability signaled that many corporations were doing more with less: less leverage, less short-term debt and smaller funding gaps. In our opinion, improving credit fundamentals would support narrower spreads—or less compensa- tion for assuming credit risk—alongside a favorable balance of supply and demand for corporate debt. For these reasons, we have maintained a risk profile that is relatively higher than that of the Barclays U.S. Aggregate Bond Index, specifically through the Fund’s relative overweight position in high-yield corporate bonds.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on the Morningstar Nontraditional Bond Category Average. |
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time. The term “spread product” may refer to securities or asset classes that typically trade at a spread to comparable U.S. Treasury securities. |
4. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
mainstayinvestments.com | 9 |
During the reporting period, which market segments were the strongest contributors to the Fund’s performance and which market segments were particu- larly weak?
An overweight position in high-yield corporate bonds was the driving force behind the Fund’s outperformance of the Barclays U.S. Aggregate Bond Index. (The Index consists entirely of investment-grade bonds.) Within the high-yield corporate bond sector, holdings in industries that tend to be more cyclical—such as financials, gaming, homebuilders, building materials and steel—were among the Fund’s strongest performers. To a lesser degree, positions in convertible bonds and bank loans were positive contributors to the Fund’s relative performance. Though the Fund’s position in investment-grade credit performed well relative to the Barclays U.S. Aggregate Bond Index, investment-grade corporate bonds underperformed high-yield corporate bonds during the reporting period.
With an overweight position in high-yield corporate bonds came underweight positions in U.S. Treasury securities and agency mortgages. These underweight sector positions contributed positively to the Fund’s relative performance, as U.S. Treasury securities and agency mortgages posted negative absolute returns during the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
While there were no significant changes in the Fund’s overall positioning during the reporting period, we added some positions and eliminated others. The Fund purchased bonds of U.S. Airways Group, Valeant Pharmaceuticals International and Sprint. We bought bonds of U.S. Airways Group as we believed that the fundamental landscape for airlines had improved. With consolidation and more revenue from ancillary services, airlines have been able to book relatively solid results. The Valeant Pharmaceuticals International bonds were issued to fund the company’s acquisition of Bausch and Lomb. The Sprint bonds were issued to fund a comprehensive capital-expenditure program, as the telecommunications company was being acquired
by Softbank, an investment-grade company. We believed that the bonds from Valeant Pharmaceuticals International and Sprint were issued at attractive levels.
During the reporting period, the Fund sold positions in oil & gas exploration & production company Plains Exploration & Production and telecommunications equipment company Lucent Technologies. We sold the Fund’s Plains Exploration & Production bonds after the company was upgraded to investment-grade following its acquisition by Freeport-McMoRan Copper & Gold. The bonds of Lucent Technologies rebounded during the reporting period, as the company refinanced debt and produced better results. The bonds, however, rose to a level that in our view made them an unattractive holding given their long duration and relatively tight spread.
How did the Fund’s sector weightings change during the reporting period?
Aside from the purchases and sales already mentioned, we made no significant changes to the Fund’s sector weightings relative to the Barclays U.S. Aggregate Bond Index. Instead, we maintained the Fund’s positioning as we sought to take advantage of a market where we believed credit spreads would continue to tighten. Any modest changes in sector weightings were driven by individual security selection rather than sector rotation.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund maintained its emphasis on spread product, with high-yield corporate bonds remaining the most substantially overweight sector relative to the Barclays U.S. Aggregate Bond Index. As of the same date, the Fund held underweight positions relative to the Index in sectors that are more rate-sensitive, such as U.S. Treasury securities and agency mortgage-backed securities. As of October 31, 2013, the Fund had a shorter duration than the Barclays U.S. Aggregate Bond Index.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Unconstrained Bond Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Long-Term Bonds 85.0%† Asset-Backed Securities 1.1% |
| |||||||
Airlines 0.2% |
| |||||||
Continental Airlines, Inc. | ||||||||
Series 2004-ERJ1, Class A | $ | 93,101 | $ | 103,342 | ||||
Northwest Airlines, Inc. | 345,012 | 376,926 | ||||||
United Air Lines, Inc. | 536,983 | 616,188 | ||||||
|
| |||||||
1,096,456 | ||||||||
|
| |||||||
Home Equity 0.7% | ||||||||
Carrington Mortgage Loan Trust | 510,767 | 428,384 | ||||||
Citigroup Mortgage Loan Trust | 294,121 | 222,861 | ||||||
Equifirst Loan Securitization Trust | 94,228 | 92,264 | ||||||
First NLC Trust | 454,905 | 228,119 | ||||||
GSAA Home Equity Trust | 958,012 | 465,541 | ||||||
Home Equity Loan Trust | 235,638 | 218,814 | ||||||
HSI Asset Securitization Corp. Trust | 374,729 | 335,103 | ||||||
JP Morgan Mortgage Acquisition Corp. | 269,470 | 191,162 | ||||||
Master Asset Backed Securities Trust | 119,383 | 49,639 | ||||||
Merrill Lynch Mortgage Investors Trust | 696,043 | 472,349 | ||||||
Morgan Stanley ABS Capital I, Inc. | ||||||||
Series 2006-HE6, Class A2B | 394,958 | 230,743 | ||||||
Series 2006-HE8, Class A2B | 213,448 | 113,275 |
Principal Amount | Value | |||||||
Home Equity (continued) | ||||||||
Morgan Stanley ABS Capital I, Inc. (continued) |
| |||||||
Series 2007-HE4, Class A2A | $ | 107,566 | $ | 47,090 | ||||
Series 2007-NC2, Class A2FP | 422,110 | 227,011 | ||||||
Renaissance Home Equity Loan Trust | 910,794 | 506,474 | ||||||
Securitized Asset Backed Receivables LLC Trust | 527,852 | 295,757 | ||||||
Soundview Home Equity Loan Trust | ||||||||
Series 2007-OPT1, Class 2A1 | 457,592 | 339,859 | ||||||
Series 2006-EQ2, Class A2 | 296,395 | 182,568 | ||||||
Specialty Underwriting & Residential Finance Trust | 1,230,652 | 655,567 | ||||||
|
| |||||||
5,302,580 | ||||||||
|
| |||||||
Student Loans 0.2% | ||||||||
Keycorp Student Loan Trust | 1,997,002 | 1,834,835 | ||||||
|
| |||||||
Total Asset-Backed Securities |
| 8,233,871 | ||||||
|
| |||||||
Convertible Bonds 3.2% | ||||||||
Airlines 0.2% | ||||||||
Airtran Holdings, Inc. | 647,000 | 1,044,905 | ||||||
United Airlines, Inc. | 356,000 | 662,382 | ||||||
|
| |||||||
1,707,287 | ||||||||
|
| |||||||
Biotechnology 0.2% | ||||||||
Cubist Pharmaceuticals, Inc. | 278,000 | 301,283 | ||||||
Gilead Sciences, Inc. | 307,000 | 968,393 | ||||||
|
| |||||||
1,269,676 | ||||||||
|
| |||||||
Coal 0.0%‡ | ||||||||
Alpha Natural Resources, Inc. | 246,000 | 231,855 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Commercial Services 0.1% | ||||||||
Hertz Global Holdings, Inc. | $ | 95,000 | $ | 264,991 | ||||
ServiceSource International, Inc. | 667,000 | 667,000 | ||||||
|
| |||||||
931,991 | ||||||||
|
| |||||||
Computers 0.1% | ||||||||
EMC Corp. | 411,000 | 621,383 | ||||||
|
| |||||||
Distribution & Wholesale 0.1% | ||||||||
WESCO International, Inc. | 178,000 | 541,120 | ||||||
|
| |||||||
Entertainment 0.1% | ||||||||
International Game Technology | 470,000 | 519,938 | ||||||
|
| |||||||
Environmental Controls 0.1% | ||||||||
Covanta Holding Corp. | 603,000 | 684,028 | ||||||
|
| |||||||
Health Care—Products 0.2% | ||||||||
Teleflex, Inc. | 788,000 | 1,228,295 | ||||||
|
| |||||||
Health Care—Services 0.0%‡ | ||||||||
WellPoint, Inc. | 276,000 | 359,835 | ||||||
|
| |||||||
Home Builders 0.0%‡ | ||||||||
Ryland Group, Inc. (The) | 117,000 | 108,810 | ||||||
|
| |||||||
Household Products & Wares 0.1% | ||||||||
Jarden Corp. | 534,000 | 708,885 | ||||||
|
| |||||||
Insurance 0.0%‡ | ||||||||
Radian Group, Inc. | 140,000 | 210,875 | ||||||
|
| |||||||
Internet 0.2% | ||||||||
At Home Corp. | 504,238 | 50 | ||||||
Move, Inc. | 113,000 | 132,069 |
Principal Amount | Value | |||||||
Internet (continued) | ||||||||
priceline.com, Inc. | ||||||||
0.35%, due 6/15/20 (c) | $ | 316,000 | $ | 346,020 | ||||
1.00%, due 3/15/18 | 532,000 | 707,227 | ||||||
Shutterfly, Inc. | 261,000 | 278,781 | ||||||
|
| |||||||
1,464,147 | ||||||||
|
| |||||||
Iron & Steel 0.1% | ||||||||
Allegheny Technologies, Inc. | 275,000 | 285,141 | ||||||
Steel Dynamics, Inc. | 36,000 | 40,747 | ||||||
United States Steel Corp. | 190,000 | 198,906 | ||||||
|
| |||||||
524,794 | ||||||||
|
| |||||||
Lodging 0.1% | ||||||||
MGM Resorts International | 317,000 | 389,118 | ||||||
|
| |||||||
Machinery—Diversified 0.1% | ||||||||
Chart Industries, Inc. | 560,000 | 939,400 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
Liberty Interactive LLC | 223,000 | 117,075 | ||||||
|
| |||||||
Metal Fabricate & Hardware 0.1% | ||||||||
RTI International Metals, Inc. | 521,000 | 562,029 | ||||||
|
| |||||||
Mining 0.0%‡ | ||||||||
Alcoa, Inc. | 76,000 | 110,200 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 0.1% | ||||||||
Danaher Corp. | 484,000 | 1,014,887 | ||||||
|
| |||||||
Oil & Gas 0.1% | ||||||||
Alon USA Energy, Inc. | 190,000 | 204,131 | ||||||
Cobalt International Energy, Inc. | 268,000 | 275,203 | ||||||
|
| |||||||
479,334 | ||||||||
|
| |||||||
Oil & Gas Services 0.2% | ||||||||
JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.) | 709,000 | 1,161,980 |
12 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Oil & Gas Services (continued) | ||||||||
SEACOR Holdings, Inc. | $ | 105,000 | $ | 135,516 | ||||
Subsea 7 S.A. | ||||||||
1.00%, due 10/5/17 | 200,000 | 209,540 | ||||||
3.50%, due 10/13/14 | 200,000 | 277,600 | ||||||
|
| |||||||
1,784,636 | ||||||||
|
| |||||||
Pharmaceuticals 0.2% | ||||||||
Biomarin Pharmaceutical, Inc. | 311,000 | 323,634 | ||||||
Salix Pharmaceuticals, Ltd. | 489,000 | 642,730 | ||||||
Teva Pharmaceutical Finance Co. LLC | 515,000 | 537,853 | ||||||
|
| |||||||
1,504,217 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.1% | ||||||||
Host Hotels & Resorts, L.P. | 430,000 | 626,725 | ||||||
SL Green Operating Partnership, L.P. | 454,000 | 578,566 | ||||||
|
| |||||||
1,205,291 | ||||||||
|
| |||||||
Semiconductors 0.2% | ||||||||
Intel Corp. | 386,000 | 505,662 | ||||||
Microchip Technology, Inc. | 99,000 | 164,835 | ||||||
Novellus Systems, Inc. | 381,000 | 636,508 | ||||||
Rambus, Inc. | 119,000 | 119,446 | ||||||
Xilinx, Inc. | 202,000 | 322,190 | ||||||
|
| |||||||
1,748,641 | ||||||||
|
| |||||||
Software 0.4% | ||||||||
Bottomline Technologies, Inc. | 339,000 | 420,572 | ||||||
Cornerstone OnDemand, Inc. | 578,000 | 660,004 | ||||||
Medidata Solutions, Inc. | 364,000 | 442,942 | ||||||
NetSuite, Inc. | 344,000 | 380,550 | ||||||
Nuance Communications, Inc. | 611,000 | 599,544 | ||||||
Salesforce.com, Inc. | 307,000 | 335,781 | ||||||
Workday, Inc. | 166,000 | 188,514 | ||||||
|
| |||||||
3,027,907 | ||||||||
|
|
Principal Amount | Value | |||||||
Telecommunications 0.1% |
| |||||||
Ciena Corp. | $ | 245,000 | $ | 356,322 | ||||
JDS Uniphase Corp. | 459,000 | 483,958 | ||||||
|
| |||||||
840,280 | ||||||||
|
| |||||||
Transportation 0.0%‡ |
| |||||||
XPO Logistics, Inc. | 170,000 | 241,931 | ||||||
|
| |||||||
Total Convertible Bonds |
| 25,077,865 | ||||||
|
| |||||||
Corporate Bonds 70.3% | ||||||||
Advertising 0.4% |
| |||||||
Lamar Media Corp. | 3,525,000 | 3,357,562 | ||||||
|
| |||||||
Aerospace & Defense 1.5% |
| |||||||
Alliant Techsystems, Inc. | 3,300,000 | 3,522,750 | ||||||
B/E Aerospace, Inc. | 3,250,000 | 3,339,375 | ||||||
Ducommun, Inc. | 782,000 | 873,885 | ||||||
TransDigm, Inc. |
| |||||||
7.50%, due 7/15/21 | 1,250,000 | 1,362,500 | ||||||
7.75%, due 12/15/18 | 815,000 | 876,125 | ||||||
Triumph Group, Inc. | 1,305,000 | 1,415,925 | ||||||
|
| |||||||
11,390,560 | ||||||||
|
| |||||||
Airlines 0.8% |
| |||||||
Continental Airlines, Inc. |
| |||||||
7.875%, due 1/2/20 | 474,962 | 505,834 | ||||||
9.798%, due 10/1/22 | 637,725 | 711,064 | ||||||
Delta Air Lines, Inc. |
| |||||||
Series 2011-1 Class A Pass Through Trust | 1,243,310 | 1,336,558 | ||||||
Series 2010-1 Class A Pass Through Trust | 340,494 | 373,692 | ||||||
Series 2010-2 Class B Pass Through Trust | 612,000 | 645,660 | ||||||
U.S. Airways, Inc. Class A | 2,776,703 | 2,915,539 | ||||||
|
| |||||||
6,488,347 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Auto Manufacturers 2.0% |
| |||||||
Chrysler Group LLC / CG Co-Issuer, Inc. | $ | 4,590,000 | $ | 5,192,437 | ||||
Ford Motor Co. |
| |||||||
6.625%, due 10/1/28 | 229,000 | 262,716 | ||||||
8.90%, due 1/15/32 | 3,009,000 | 3,888,910 | ||||||
¨General Motors Co. | 3,000,000 | 3,060,000 | ||||||
Navistar International Corp. | 2,931,000 | 2,993,284 | ||||||
|
| |||||||
15,397,347 | ||||||||
|
| |||||||
Auto Parts & Equipment 1.6% |
| |||||||
Dana Holding Corp. | 4,750,000 | 4,856,875 | ||||||
Goodyear Tire & Rubber Co. (The) | 3,325,000 | 3,516,187 | ||||||
Schaeffler Finance B.V. | 3,475,000 | 3,466,313 | ||||||
Tomkins LLC / Tomkins, Inc. | 440,000 | 481,800 | ||||||
|
| |||||||
12,321,175 | ||||||||
|
| |||||||
Banks 7.0% |
| |||||||
AgriBank FCB | 500,000 | 652,427 | ||||||
Banco de Bogota S.A. | 2,900,000 | 2,871,000 | ||||||
Banco do Brasil S.A. | 2,900,000 | 2,871,000 | ||||||
Banco Santander Mexico S.A. | 2,615,000 | 2,500,594 | ||||||
Bangkok Bank PCL | 250,000 | 264,467 | ||||||
¨Bank of America Corp. |
| |||||||
3.30%, due 1/11/23 | 510,000 | 489,476 | ||||||
5.625%, due 7/1/20 | 3,590,000 | 4,114,172 | ||||||
7.625%, due 6/1/19 | 420,000 | 523,599 | ||||||
Bank of America NA | 2,828,000 | 3,259,570 | ||||||
Barclays Bank PLC | 2,037,000 | 2,173,530 | ||||||
BBVA Bancomer S.A. | 2,150,000 | 2,332,750 | ||||||
CIT Group, Inc. |
| |||||||
4.25%, due 8/15/17 | 330,000 | 346,087 | ||||||
5.00%, due 5/15/17 | 2,003,000 | 2,153,225 | ||||||
Discover Bank | 2,445,000 | 2,886,398 | ||||||
Emigrant Bancorp, Inc. | 398,000 | 401,980 |
Principal Amount | Value | |||||||
Banks (continued) |
| |||||||
Fifth Third Capital Trust IV | $ | 3,350,000 | $ | 3,308,125 | ||||
Goldman Sachs Group, Inc. (The) | 3,327,000 | 3,245,705 | ||||||
JPMorgan Chase & Co. | 3,650,000 | 4,024,125 | ||||||
LBG Capital No.1 PLC | 4,726,000 | 5,021,375 | ||||||
Mellon Capital III | £ | 2,950,000 | 4,715,838 | |||||
Mizuho Capital Investment, Ltd. | $ | 1,092,000 | 1,179,382 | |||||
Morgan Stanley | 1,287,000 | 1,324,914 | ||||||
RBS Citizens Financial Group, Inc. | 2,270,000 | 2,229,605 | ||||||
Royal Bank of Scotland Group PLC | 856,000 | 993,449 | ||||||
|
| |||||||
53,882,793 | ||||||||
|
| |||||||
Beverages 0.3% | ||||||||
Embotelladora Andina S.A. | 1,980,000 | 2,035,486 | ||||||
|
| |||||||
Building Materials 1.1% | ||||||||
Associated Materials LLC / AMH New Finance, Inc. | 1,223,000 | 1,304,024 | ||||||
Cemex Espana Luxembourg | 2,460,000 | 2,681,400 | ||||||
Masco Corp. | 2,250,000 | 2,565,000 | ||||||
Texas Industries, Inc. | 840,000 | 928,200 | ||||||
USG Corp. | ||||||||
6.30%, due 11/15/16 | 615,000 | 658,050 | ||||||
9.75%, due 1/15/18 | 363,000 | 426,525 | ||||||
|
| |||||||
8,563,199 | ||||||||
|
| |||||||
Chemicals 1.1% | ||||||||
Dow Chemical Co. (The) | 1,084,000 | 1,403,013 | ||||||
Hexion U.S. Finance Corp. / Hexion Nova Scotia Finance ULC | 1,223,000 | 1,259,690 | ||||||
Huntsman International LLC | 3,568,000 | 4,005,080 | ||||||
Rockwood Specialties Group, Inc. | 1,753,000 | 1,801,207 | ||||||
|
| |||||||
8,468,990 | ||||||||
|
|
14 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Coal 0.7% | ||||||||
Alpha Natural Resources, Inc. | $ | 1,560,000 | $ | 1,341,600 | ||||
Arch Coal, Inc. | 792,000 | 602,910 | ||||||
Cloud Peak Energy Resources LLC / Cloud Peak Energy Finance Corp. | 2,162,000 | 2,270,100 | ||||||
Peabody Energy Corp. | 1,025,000 | 1,153,125 | ||||||
|
| |||||||
5,367,735 | ||||||||
|
| |||||||
Commercial Services 2.0% | ||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | ||||||||
5.50%, due 4/1/23 | 2,122,000 | 2,079,560 | ||||||
8.25%, due 1/15/19 | 1,223,000 | 1,333,070 | ||||||
Hertz Corp. (The) | 1,630,000 | 1,809,300 | ||||||
Iron Mountain, Inc. | ||||||||
6.00%, due 8/15/23 | 2,600,000 | 2,645,500 | ||||||
7.75%, due 10/1/19 | 431,000 | 478,949 | ||||||
8.375%, due 8/15/21 | 1,293,000 | 1,396,440 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | ||||||||
6.50%, due 8/1/39 (e)(g)(h)(k) | 5,000 | 74 | ||||||
9.75%, due 1/15/49 (e)(g)(h)(k) | 160,000 | 2,352 | ||||||
Rent-A-Center, Inc. | 3,800,000 | 3,562,500 | ||||||
United Rentals North America, Inc. | 1,849,000 | 2,066,257 | ||||||
|
| |||||||
15,374,002 | ||||||||
|
| |||||||
Computers 0.9% | ||||||||
NCR Corp. | 3,815,000 | 3,757,775 | ||||||
SunGard Data Systems, Inc. | ||||||||
6.625%, due 11/1/19 | 1,050,000 | 1,097,250 | ||||||
7.625%, due 11/15/20 | 1,895,000 | 2,063,181 | ||||||
|
| |||||||
6,918,206 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.4% | ||||||||
Albea Beauty Holdings S.A. | 2,635,000 | 2,773,337 | ||||||
|
| |||||||
Diversified Financial Services 0.8% | ||||||||
Ford Holdings LLC | 127,000 | 175,708 | ||||||
GE Capital Trust II | € | 2,100,000 | 2,997,316 | |||||
GE Capital Trust IV Series Reg S | 1,223,000 | 1,677,133 |
Principal Amount | Value | |||||||
Diversified Financial Services (continued) |
| |||||||
General Electric Capital Corp. | £ | 815,000 | $ | 1,396,937 | ||||
|
| |||||||
6,247,094 | ||||||||
|
| |||||||
Electric 1.1% | ||||||||
Abu Dhabi National Energy Co. | $ | 2,500,000 | 2,350,000 | |||||
CMS Energy Corp. | 533,000 | 687,262 | ||||||
Great Plains Energy, Inc. | ||||||||
4.85%, due 6/1/21 | 750,000 | 801,719 | ||||||
5.292%, due 6/15/22 (d) | 663,000 | 723,677 | ||||||
NRG Energy, Inc. | 1,970,000 | 2,122,675 | ||||||
Puget Energy, Inc. | 905,000 | 976,297 | ||||||
Wisconsin Energy Corp. | 833,280 | 854,112 | ||||||
|
| |||||||
8,515,742 | ||||||||
|
| |||||||
Engineering & Construction 0.2% | ||||||||
MasTec, Inc. | 1,704,000 | 1,625,190 | ||||||
|
| |||||||
Entertainment 0.5% | ||||||||
Isle of Capri Casinos, Inc. | 1,174,000 | 1,259,115 | ||||||
Mohegan Tribal Gaming Authority | 2,377,000 | 2,561,218 | ||||||
United Artists Theatre Circuit, Inc. | 24,387 | 17,071 | ||||||
|
| |||||||
3,837,404 | ||||||||
|
| |||||||
Finance—Auto Loans 0.8% | ||||||||
Banque PSA Finance S.A. | 1,900,000 | 1,929,070 | ||||||
Ford Motor Credit Co. LLC | ||||||||
8.00%, due 12/15/16 | 22,000 | 26,133 | ||||||
8.125%, due 1/15/20 | 3,361,000 | 4,261,856 | ||||||
|
| |||||||
6,217,059 | ||||||||
|
| |||||||
Finance—Commercial 0.2% | ||||||||
Textron Financial Corp. | 1,860,000 | 1,646,100 | ||||||
|
| |||||||
Finance—Consumer Loans 1.0% | ||||||||
HSBC Finance Capital Trust IX | 4,575,000 | 4,720,851 | ||||||
SLM Corp. | ||||||||
4.75%, due 3/17/14 | € | 815,000 | 1,116,838 | |||||
6.25%, due 1/25/16 | $ | 408,000 | 444,210 | |||||
8.00%, due 3/25/20 | 408,000 | 466,140 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Finance—Consumer Loans (continued) |
| |||||||
Springleaf Finance Corp. | $ | 1,000,000 | $ | 985,000 | ||||
|
| |||||||
7,733,039 | ||||||||
|
| |||||||
Finance—Credit Card 0.3% | ||||||||
American Express Co. | 2,139,000 | 2,283,382 | ||||||
|
| |||||||
Finance—Investment Banker/Broker 0.2% |
| |||||||
Jefferies Group LLC | ||||||||
5.125%, due 1/20/23 | 813,000 | 824,179 | ||||||
6.45%, due 6/8/27 | 1,100,000 | 1,146,937 | ||||||
|
| |||||||
1,971,116 | ||||||||
|
| |||||||
Finance—Other Services 0.4% | ||||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. | ||||||||
6.00%, due 8/1/20 (c) | 1,200,000 | 1,230,000 | ||||||
7.75%, due 1/15/16 (j) | 2,180,000 | 2,245,400 | ||||||
|
| |||||||
3,475,400 | ||||||||
|
| |||||||
Food 3.0% | ||||||||
ARAMARK Corp. | 4,250,000 | 4,451,875 | ||||||
Grupo Bimbo S.A.B. de C.V. | 2,504,000 | 2,556,802 | ||||||
JBS Finance II, Ltd. | 650,000 | 680,875 | ||||||
JBS USA LLC / JBS USA Finance, Inc. | 2,519,000 | 2,701,627 | ||||||
Kerry Group Financial Services | 2,795,000 | 2,611,696 | ||||||
Minerva Luxembourg S.A. | 2,500,000 | 2,425,000 | ||||||
Post Holdings, Inc. | 3,185,000 | 3,396,006 | ||||||
Smithfield Foods, Inc. | ||||||||
6.625%, due 8/15/22 | 845,000 | 889,363 | ||||||
7.75%, due 7/1/17 | 1,361,000 | 1,582,162 | ||||||
Virgolino de Oliveira Finance, Ltd. | 2,250,000 | 1,800,000 | ||||||
|
| |||||||
23,095,406 | ||||||||
|
| |||||||
Forest Products & Paper 0.7% |
| |||||||
Domtar Corp. | 1,363,000 | 1,705,556 | ||||||
International Paper Co. | 693,000 | 864,955 | ||||||
MeadWestvaco Corp. | 1,800,000 | 2,165,348 | ||||||
Norske Skogindustrier A.S.A. | 815,000 | 391,200 | ||||||
|
| |||||||
5,127,059 | ||||||||
|
|
Principal Amount | Value | |||||||
Hand & Machine Tools 0.2% |
| |||||||
Mcron Finance Sub LLC / Mcron Finance Corp. | $ | 1,635,000 | $ | 1,810,762 | ||||
|
| |||||||
Health Care—Products 0.6% |
| |||||||
Alere, Inc. | 1,323,000 | 1,437,109 | ||||||
Kinetic Concepts, Inc. / KCI U.S.A., Inc. | 2,825,000 | 3,185,187 | ||||||
|
| |||||||
4,622,296 | ||||||||
|
| |||||||
Health Care—Services 1.6% |
| |||||||
CHS / Community Health Systems, Inc. | 4,000,000 | 4,160,000 | ||||||
DaVita HealthCare Partners, Inc. | 650,000 | 667,062 | ||||||
Fresenius Medical Care U.S. Finance, Inc. | 2,500,000 | 2,806,250 | ||||||
HCA, Inc. |
| |||||||
5.875%, due 3/15/22 | 2,500,000 | 2,631,250 | ||||||
7.50%, due 2/15/22 | 2,000,000 | 2,247,500 | ||||||
|
| |||||||
12,512,062 | ||||||||
|
| |||||||
Home Builders 3.9% |
| |||||||
Beazer Homes USA, Inc. |
| |||||||
7.25%, due 2/1/23 | 1,000,000 | 965,000 | ||||||
8.125%, due 6/15/16 (j) | 819,000 | 907,043 | ||||||
9.125%, due 6/15/18 (j) | 1,700,000 | 1,814,750 | ||||||
D.R. Horton, Inc. | 4,250,000 | 4,409,375 | ||||||
K Hovnanian Enterprises, Inc. | 4,110,000 | 4,377,150 | ||||||
KB Home |
| |||||||
7.25%, due 6/15/18 | 1,500,000 | 1,635,000 | ||||||
8.00%, due 3/15/20 | 2,250,000 | 2,475,000 | ||||||
Lennar Corp. | 204,000 | 227,970 | ||||||
MDC Holdings, Inc. | 1,608,000 | 1,676,046 | ||||||
Shea Homes, L.P. / Shea Homes Funding Corp. | 3,183,000 | 3,525,172 | ||||||
Standard Pacific Corp. |
| |||||||
8.375%, due 5/15/18 | 815,000 | 945,400 | ||||||
8.375%, due 1/15/21 | 2,750,000 | 3,155,625 | ||||||
Toll Brothers Finance Corp. | 3,850,000 | 4,340,875 | ||||||
|
| |||||||
30,454,406 | ||||||||
|
| |||||||
Household Products & Wares 1.0% |
| |||||||
Jarden Corp. | 3,823,000 | 4,147,955 |
16 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Household Products & Wares (continued) |
| |||||||
Reynolds Group Issuer, Inc. |
| |||||||
7.875%, due 8/15/19 | $ | 1,025,000 | $ | 1,132,625 | ||||
9.875%, due 8/15/19 | 2,089,000 | 2,310,956 | ||||||
|
| |||||||
7,591,536 | ||||||||
|
| |||||||
Insurance 3.6% |
| |||||||
Allstate Corp. (The) | 713,000 | 750,504 | ||||||
¨American International Group, Inc. |
| |||||||
4.875%, due 3/15/67 (a) | € | 4,000,000 | 5,323,735 | |||||
Series A2 | £ | 450,000 | 704,934 | |||||
Chubb Corp. (The) | $ | 1,955,000 | 2,130,950 | |||||
Farmers Exchange Capital | 603,000 | 696,637 | ||||||
¨Liberty Mutual Group, Inc. |
| |||||||
4.25%, due 6/15/23 | 390,000 | 390,024 | ||||||
7.00%, due 3/7/67 (a)(c) | 2,900,000 | 3,016,000 | ||||||
7.80%, due 3/7/87 (c) | 453,000 | 493,770 | ||||||
10.75%, due 6/15/88 (a)(c) | 938,000 | 1,425,760 | ||||||
Lincoln National Corp. | 3,537,000 | 3,651,953 | ||||||
Oil Insurance, Ltd. | 3,652,000 | 3,324,657 | ||||||
Pacific Life Insurance Co. |
| |||||||
7.90%, due 12/30/23 (c) | 1,150,000 | 1,488,338 | ||||||
9.25%, due 6/15/39 (c) | 504,000 | 706,975 | ||||||
Progressive Corp. (The) | 612,000 | 660,960 | ||||||
Swiss Re Capital I, L.P. | 571,000 | 608,115 | ||||||
XL Group PLC | 2,336,000 | 2,291,616 | ||||||
|
| |||||||
27,664,928 | ||||||||
|
| |||||||
Iron & Steel 1.9% |
| |||||||
AK Steel Corp. | 3,900,000 | 4,290,000 | ||||||
Allegheny Ludlum Corp. | 693,000 | 734,123 | ||||||
APERAM | 1,601,000 | 1,649,030 | ||||||
ArcelorMittal | 3,100,000 | 3,371,250 | ||||||
Cliffs Natural Resources, Inc. |
| |||||||
3.95%, due 1/15/18 | 786,000 | 795,948 | ||||||
5.90%, due 3/15/20 | 1,140,000 | 1,191,241 | ||||||
Severstal Oao Via Steel Capital S.A. | 3,000,000 | 2,921,250 | ||||||
|
| |||||||
14,952,842 | ||||||||
|
|
Principal Amount | Value | |||||||
Leisure Time 0.1% |
| |||||||
Royal Caribbean Cruises, Ltd. | $ | 675,000 | $ | 772,875 | ||||
|
| |||||||
Lodging 1.2% |
| |||||||
¨Caesars Entertainment Operating Co., Inc. | 3,019,000 | 2,830,312 | ||||||
MGM Resorts International |
| |||||||
6.75%, due 10/1/20 | 1,994,000 | 2,173,460 | ||||||
8.625%, due 2/1/19 | 825,000 | 968,344 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. |
| |||||||
6.75%, due 5/15/18 | 90,000 | 106,528 | ||||||
7.15%, due 12/1/19 | 2,341,000 | 2,856,095 | ||||||
|
| |||||||
8,934,739 | ||||||||
|
| |||||||
Media 1.7% |
| |||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 978,000 | 1,036,680 | ||||||
¨Clear Channel Communications, Inc. |
| |||||||
5.50%, due 12/15/16 | 2,900,000 | 2,486,750 | ||||||
9.00%, due 3/1/21 | 1,405,000 | 1,415,538 | ||||||
Clear Channel Worldwide Holdings, Inc. | 2,763,000 | 2,949,502 | ||||||
COX Communications, Inc. | 2,241,000 | 2,402,285 | ||||||
DISH DBS Corp. |
| |||||||
6.75%, due 6/1/21 | 765,000 | 828,113 | ||||||
7.125%, due 2/1/16 (j) | 815,000 | 900,575 | ||||||
Time Warner Cable, Inc. | 1,087,000 | 1,295,421 | ||||||
|
| |||||||
13,314,864 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 0.1% |
| |||||||
Mueller Water Products, Inc. | 557,000 | 623,840 | ||||||
|
| |||||||
Mining 1.6% |
| |||||||
Aleris International, Inc. |
| |||||||
7.625%, due 2/15/18 | 839,000 | 889,340 | ||||||
7.875%, due 11/1/20 | 2,463,000 | 2,610,780 | ||||||
FMG Resources August 2006 Pty., Ltd. | 2,100,000 | 2,331,000 | ||||||
Novelis, Inc. |
| |||||||
8.375%, due 12/15/17 | 734,000 | 785,380 | ||||||
8.75%, due 12/15/20 | 1,223,000 | 1,360,588 | ||||||
Rio Tinto Finance USA, Ltd. | 1,500,000 | 1,964,686 | ||||||
Vedanta Resources PLC | 2,565,000 | 2,641,950 | ||||||
|
| |||||||
12,583,724 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Miscellaneous—Manufacturing 0.1% |
| |||||||
Polypore International, Inc. | $ | 815,000 | $ | 861,863 | ||||
|
| |||||||
Office Furnishings 0.2% |
| |||||||
Interface, Inc. | 1,674,000 | 1,820,475 | ||||||
|
| |||||||
Oil & Gas 6.4% |
| |||||||
Berry Petroleum Co. | 3,523,000 | 3,707,957 | ||||||
Chesapeake Energy Corp. | 2,445,000 | 2,756,737 | ||||||
Concho Resources, Inc. |
| |||||||
5.50%, due 4/1/23 | 1,014,000 | 1,052,025 | ||||||
6.50%, due 1/15/22 | 750,000 | 819,375 | ||||||
7.00%, due 1/15/21 | 2,002,000 | 2,232,230 | ||||||
Denbury Resources, Inc. | 4,030,000 | 4,302,025 | ||||||
ENI S.p.A. | 2,000,000 | 2,064,200 | ||||||
EP Energy LLC / EP Energy Finance, Inc. | 3,400,000 | 3,927,000 | ||||||
Frontier Oil Corp. | 571,000 | 613,825 | ||||||
Hilcorp Energy I, L.P. / Hilcorp Finance Co. | ||||||||
7.625%, due 4/15/21 (c) | 1,223,000 | 1,326,955 | ||||||
8.00%, due 2/15/20 (c) | 1,000,000 | 1,085,000 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | ||||||||
6.50%, due 5/15/19 | 2,250,000 | 2,244,375 | ||||||
7.75%, due 2/1/21 | 815,000 | 841,488 | ||||||
MEG Energy Corp. | 1,032,000 | 1,077,150 | ||||||
Murphy Oil USA, Inc. | 3,693,000 | 3,748,395 | ||||||
Petrobras Global Finance B.V. | 2,600,000 | 2,402,644 | ||||||
Plains Exploration & Production Co. | ||||||||
6.125%, due 6/15/19 | 2,250,000 | 2,459,547 | ||||||
6.875%, due 2/15/23 | 500,000 | 553,750 | ||||||
Precision Drilling Corp. | ||||||||
6.50%, due 12/15/21 | 1,136,000 | 1,209,840 | ||||||
6.625%, due 11/15/20 (j) | 2,417,000 | 2,574,105 | ||||||
QEP Resources, Inc. | 3,350,000 | 3,274,625 | ||||||
Rosneft Finance S.A. | 1,405,000 | 1,605,213 | ||||||
SM Energy Co. | 1,970,000 | 1,925,675 |
Principal Amount | Value | |||||||
Oil & Gas (continued) | ||||||||
Swift Energy Co. | ||||||||
7.125%, due 6/1/17 | $ | 750,000 | $ | 765,000 | ||||
8.875%, due 1/15/20 | 658,000 | 687,610 | ||||||
|
| |||||||
49,256,746 | ||||||||
|
| |||||||
Oil & Gas Services 1.6% | ||||||||
Basic Energy Services, Inc. | 4,350,000 | 4,513,125 | ||||||
CGG | ||||||||
6.50%, due 6/1/21 | 600,000 | 624,000 | ||||||
9.50%, due 5/15/16 | 1,075,000 | 1,130,094 | ||||||
Dresser-Rand Group, Inc. | 1,292,000 | 1,372,750 | ||||||
Hornbeck Offshore Services, Inc. | ||||||||
5.00%, due 3/1/21 | 4,255,000 | 4,180,537 | ||||||
5.875%, due 4/1/20 | 848,000 | 871,320 | ||||||
|
| |||||||
12,691,826 | ||||||||
|
| |||||||
Packaging & Containers 0.8% | ||||||||
Ardagh Packaging Finance PLC | 1,000,000 | 1,077,500 | ||||||
Ardagh Packaging Finance PLC / Ardagh MP Holdings USA, Inc. | 2,000,000 | 1,990,000 | ||||||
Ball Corp. | 2,648,000 | 2,879,700 | ||||||
|
| |||||||
5,947,200 | ||||||||
|
| |||||||
Pharmaceuticals 0.7% | ||||||||
Perrigo Co. | 2,745,000 | 2,683,858 | ||||||
Valeant Pharmaceuticals International | 2,500,000 | 2,775,000 | ||||||
|
| |||||||
5,458,858 | ||||||||
|
| |||||||
Pipelines 4.5% | ||||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | ||||||||
4.875%, due 5/15/23 | 3,560,000 | 3,542,200 | ||||||
5.875%, due 4/15/21 | 600,000 | 643,500 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | 3,381,000 | 3,550,050 | ||||||
Energy Transfer Partners, L.P. | ||||||||
4.65%, due 6/1/21 (j) | 1,490,000 | 1,560,301 | ||||||
7.60%, due 2/1/24 (c) | 662,000 | 817,006 | ||||||
Kinder Morgan, Inc. | 3,838,000 | 3,855,309 | ||||||
MarkWest Energy Partners, L.P. / MarkWest Energy Finance Corp. | 1,223,000 | 1,339,185 | ||||||
Panhandle Eastern Pipe Line Co., L.P. | 2,037,000 | 2,505,370 |
18 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Pipelines (continued) | ||||||||
Regency Energy Partners, L.P. / Regency Energy Finance Corp. | $ | 1,750,000 | $ | 1,890,000 | ||||
Spectra Energy Partners, L.P. | 1,269,000 | 1,334,229 | ||||||
¨Targa Resources Partners, L.P. / Targa | ||||||||
4.25%, due 11/15/23 (c) | 5,160,000 | 4,824,600 | ||||||
5.25%, due 5/1/23 | 1,625,000 | 1,625,000 | ||||||
6.375%, due 8/1/22 | 875,000 | 931,875 | ||||||
7.875%, due 10/15/18 | 1,170,000 | 1,269,450 | ||||||
Tesoro Logistics, L.P. / Tesoro Logistics Finance Corp. | 3,500,000 | 3,622,500 | ||||||
Williams Cos., Inc. (The) | 2,000,000 | 1,838,832 | ||||||
|
| |||||||
35,149,407 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.7% | ||||||||
Geo Group, Inc. (The) | 1,223,000 | 1,294,851 | ||||||
Host Hotels & Resorts, L.P. | ||||||||
3.75%, due 10/15/23 | 472,000 | 447,739 | ||||||
5.875%, due 6/15/19 | 1,875,000 | 2,034,499 | ||||||
Ventas Realty, L.P. / Ventas Capital Corp. | 1,421,000 | 1,378,614 | ||||||
|
| |||||||
5,155,703 | ||||||||
|
| |||||||
Retail 1.5% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | 1,200,000 | 1,296,000 | ||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | ||||||||
6.25%, due 8/20/19 | 1,460,000 | 1,562,200 | ||||||
6.50%, due 5/20/21 | 741,000 | 792,870 | ||||||
Brinker International, Inc. | 1,875,000 | 1,875,711 | ||||||
CVS Caremark Corp. | ||||||||
4.75%, due 5/18/20 | 2,445,000 | 2,716,635 | ||||||
5.789%, due 1/10/26 (c)(g) | 76,631 | 84,184 | ||||||
Macy’s Retail Holdings, Inc. | 1,925,000 | 1,922,463 | ||||||
Suburban Propane Partners L.P. / Suburban Energy Finance Corp. | 934,000 | 1,002,882 | ||||||
|
| |||||||
11,252,945 | ||||||||
|
| |||||||
Semiconductors 0.8% | ||||||||
¨Freescale Semiconductor, Inc. |
| |||||||
5.00%, due 5/15/21 (c) | 2,950,000 | 2,868,875 |
Principal Amount | Value | |||||||
Semiconductors (continued) | ||||||||
¨Freescale Semiconductor, Inc. (continued) |
| |||||||
6.00%, due 1/15/22 (c) | $ | 1,709,000 | $ | 1,728,226 | ||||
9.25%, due 4/15/18 (c) | 1,239,000 | 1,339,669 | ||||||
|
| |||||||
5,936,770 | ||||||||
|
| |||||||
Software 0.9% | ||||||||
Fidelity National Information Services, Inc. | 489,000 | 538,642 | ||||||
¨First Data Corp. | ||||||||
7.375%, due 6/15/19 (c) | 3,502,000 | 3,769,028 | ||||||
8.875%, due 8/15/20 (c) | 550,000 | 613,250 | ||||||
10.625%, due 6/15/21 (c) | 1,749,000 | 1,877,989 | ||||||
|
| |||||||
6,798,909 | ||||||||
|
| |||||||
Telecommunications 4.1% | ||||||||
CC Holdings GS V LLC / Crown Castle GS III Corp. | 2,203,000 | 2,180,798 | ||||||
CommScope, Inc. | 2,930,000 | 3,215,675 | ||||||
GTP Towers Issuer LLC | 1,650,000 | 1,701,304 | ||||||
Hughes Satellite Systems Corp. | 1,695,000 | 1,856,025 | ||||||
Intelsat Luxembourg S.A. | 2,035,000 | 2,146,925 | ||||||
MetroPCS Wireless, Inc. | 1,386,000 | 1,496,880 | ||||||
SBA Tower Trust | 2,860,000 | 2,912,129 | ||||||
Sprint Capital Corp. | ||||||||
6.90%, due 5/1/19 | 612,000 | 659,430 | ||||||
8.75%, due 3/15/32 | 2,060,000 | 2,229,950 | ||||||
Sprint Communications, Inc. | 1,800,000 | 1,930,500 | ||||||
Sprint Corp. | 2,000,000 | 2,155,000 | ||||||
T-Mobile USA, Inc. | 2,000,000 | 2,120,000 | ||||||
Telefonica Emisiones SAU | ||||||||
4.57%, due 4/27/23 | 2,550,000 | 2,541,572 | ||||||
5.462%, due 2/16/21 | 396,000 | 419,568 | ||||||
Verizon Communications, Inc. | 3,573,000 | 3,876,662 | ||||||
|
| |||||||
31,442,418 | ||||||||
|
| |||||||
Transportation 1.5% | ||||||||
Bristow Group, Inc. | 2,990,000 | 3,139,500 | ||||||
CHC Helicopter S.A. | 3,234,000 | 3,492,720 | ||||||
Hapag-Lloyd A.G. | 500,000 | 523,750 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Transportation (continued) | ||||||||
PHI, Inc. | $ | 3,119,000 | $ | 3,329,532 | ||||
Ukraine Railways via Shortline PLC | 1,700,000 | 1,445,000 | ||||||
|
| |||||||
11,930,502 | ||||||||
|
| |||||||
Total Corporate Bonds | 543,655,226 | |||||||
|
| |||||||
Foreign Bonds 2.0% | ||||||||
Ireland 0.3% | ||||||||
UT2 Funding PLC | € | 1,440,000 | 1,906,280 | |||||
|
| |||||||
Liberia 0.1% | ||||||||
Royal Caribbean Cruises, Ltd. | 525,000 | 718,521 | ||||||
|
| |||||||
Luxembourg 0.3% | ||||||||
Ageas Hybrid Financing S.A. | 1,825,000 | 2,521,256 | ||||||
|
| |||||||
United Kingdom 1.3% | ||||||||
Barclays Bank PLC | £ | 449,000 | 956,897 | |||||
Canada Square Operations Ltd. | 2,450,000 | 3,889,045 | ||||||
Rexam PLC | € | 978,000 | 1,400,912 | |||||
Santander UK PLC | £ | 2,700,000 | 3,852,968 | |||||
|
| |||||||
10,099,822 | ||||||||
|
| |||||||
Total Foreign Bonds | 15,245,879 | |||||||
|
| |||||||
Foreign Government Bonds 0.4% | ||||||||
Cayman Islands 0.0%‡ | ||||||||
Government of the Cayman Islands | $ | 200,000 | 224,000 | |||||
|
| |||||||
Colombia 0.0%‡ | ||||||||
Republic of Colombia | 200,000 | 244,500 | ||||||
|
| |||||||
El Salvador 0.1% | ||||||||
Republic of El Salvador | ||||||||
7.65%, due 6/15/35 | 163,000 | 172,372 |
Principal Amount | Value | |||||||
El Salvador (continued) | ||||||||
Republic of El Salvador (continued) | ||||||||
8.25%, due 4/10/32 (c) | $ | 163,000 | $ | 185,820 | ||||
|
| |||||||
358,192 | ||||||||
|
| |||||||
Indonesia 0.1% | ||||||||
Republic of Indonesia | 300,000 | 328,500 | ||||||
|
| |||||||
Philippines 0.0%‡ | ||||||||
Republic of Philippines | 150,000 | 180,000 | ||||||
|
| |||||||
Portugal 0.2% | ||||||||
Portugal Obrigacoes do Tesouro OT | € | 1,500,000 | 1,850,823 | |||||
|
| |||||||
Total Foreign Government Bonds | 3,186,015 | |||||||
|
| |||||||
Loan Assignments & Participations 6.9% (l) | ||||||||
Advertising 0.4% | ||||||||
Acosta, Inc. | $ | 3,241,875 | 3,247,954 | |||||
|
| |||||||
Airlines 0.3% |
| |||||||
U.S. Airways Group, Inc. | 2,000,000 | 2,000,714 | ||||||
United Airlines, Inc. | 621,875 | 625,140 | ||||||
|
| |||||||
2,625,854 | ||||||||
|
| |||||||
Auto Parts & Equipment 0.3% |
| |||||||
Allison Transmission, Inc. | 1,995,000 | 2,006,846 | ||||||
|
| |||||||
Building Materials 0.1% |
| |||||||
Quikrete Holdings, Inc. | 1,000,000 | 1,019,167 | ||||||
|
| |||||||
Chemicals 0.2% |
| |||||||
PQ Corp. | 1,488,750 | 1,498,055 | ||||||
|
|
20 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Loan Assignments & Participations (continued) | ||||||||
Diversified Financial Services 0.3% |
| |||||||
Springleaf Financial | $ | 2,500,000 | $ | 2,511,457 | ||||
|
| |||||||
Electric 0.3% |
| |||||||
Calpine Corp. | 1,072,500 | 1,077,497 | ||||||
NRG Energy, Inc. | 1,044,750 | 1,042,850 | ||||||
|
| |||||||
2,120,347 | ||||||||
|
| |||||||
Entertainment 0.4% |
| |||||||
Scientific Games | 3,000,000 | 3,001,071 | ||||||
|
| |||||||
Food 0.6% |
| |||||||
Del Monte Foods Co. | 2,673,633 | 2,674,970 | ||||||
HJ Heinz Co. | 1,995,000 | 2,008,139 | ||||||
|
| |||||||
4,683,109 | ||||||||
|
| |||||||
Hand & Machine Tools 0.5% |
| |||||||
Milacron LLC | 4,185,733 | 4,170,037 | ||||||
| �� | |||||||
Health Care—Services 0.0%‡ |
| |||||||
Community Health Systems, Inc. | 172,741 | 173,221 | ||||||
|
| |||||||
Lodging 0.6% |
| |||||||
¨Caesars Entertainment Operating Co., Inc. | 3,500,000 | 3,203,046 | ||||||
MGM Resorts | 992,500 | 991,259 | ||||||
|
| |||||||
4,194,305 | ||||||||
|
| |||||||
Machinery 0.4% |
| |||||||
Gardner Denver, Inc. | 3,250,000 | 3,250,370 | ||||||
|
|
Principal Amount | Value | |||||||
Media 0.2% |
| |||||||
Charter Communications Operating, LLC | $ | 15,504 | $ | 15,338 | ||||
¨Clear Channel Communications, Inc. |
| |||||||
Term Loan B | 484,400 | 469,781 | ||||||
Term Loan D | 1,428,771 | 1,365,548 | ||||||
|
| |||||||
1,850,667 | ||||||||
|
| |||||||
Mining 0.9% |
| |||||||
FMG Resources August 2006 Pty., Ltd. | 1,831,500 | 1,834,414 | ||||||
Noranda Aluminum Acquisition Corp. | 2,537,121 | 2,315,123 | ||||||
Novelis, Inc. | 1,556,024 | 1,561,860 | ||||||
Oxbow Carbon LLC | 1,000,000 | 1,017,500 | ||||||
|
| |||||||
6,728,897 | ||||||||
|
| |||||||
Oil & Gas 0.8% |
| |||||||
MEG Energy Corp. | 2,940,066 | 2,952,928 | ||||||
Quicksilver Resources, Inc. | 2,850,000 | 2,788,249 | ||||||
|
| |||||||
5,741,177 | ||||||||
|
| |||||||
Pharmaceuticals 0.3% |
| |||||||
Valeant Pharmaceuticals International, Inc. | 2,233,125 | 2,260,481 | ||||||
|
| |||||||
Real Estate 0.0%‡ |
| |||||||
Realogy Corp. | 99,794 | 99,794 | ||||||
|
| |||||||
Software 0.3% |
| |||||||
BMC Software Finance, Inc. | 2,000,000 | 2,018,334 | ||||||
|
| |||||||
Total Loan Assignments & Participations |
| 53,201,143 | ||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Mortgage-Backed Securities 0.1% | ||||||||
Commercial Mortgage Loans |
| |||||||
Banc of America Commercial Mortgage, Inc. | $ | 365,798 | $ | 315,181 | ||||
Bayview Commercial Asset Trust | 55,488 | 46,899 | ||||||
Deutsche ALT-A Securities, Inc. Alternate Loan Trust | 144,659 | 131,559 | ||||||
WaMu Mortgage Pass-Through Certificates | 195,435 | 162,746 | ||||||
Wells Fargo Mortgage Backed Securities Trust | 237,712 | 226,752 | ||||||
|
| |||||||
Total Mortgage-Backed Securities |
| 883,137 | ||||||
|
| |||||||
U.S. Government & Federal Agencies 1.0% | ||||||||
¨Federal Home Loan Mortgage Corporation 1.0% |
| |||||||
0.50%, due 9/14/15 | 7,650,000 | 7,654,162 | ||||||
|
| |||||||
Government National Mortgage Association |
| |||||||
6.00%, due 8/15/32 | 1 | 1 | ||||||
|
| |||||||
United States Treasury Notes 0.0%‡ |
| |||||||
2.125%, due 8/15/21 | 70,000 | 69,891 | ||||||
|
| |||||||
Total U.S. Government & Federal Agencies |
| 7,724,054 | ||||||
|
| |||||||
Total Long-Term Bonds |
| 657,207,190 | ||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.6% | ||||||||
Auto Manufacturers 0.3% |
| |||||||
¨General Motors Co. (k) | 45,730 | 1,689,724 | ||||||
Motors Liquidation Co. GUC Trust (k) | 11,598 | 421,007 | ||||||
|
| |||||||
2,110,731 | ||||||||
|
| |||||||
Banks 0.3% |
| |||||||
Citigroup, Inc. | 41,400 | 2,019,492 | ||||||
|
|
Shares | Value | |||||||
Building Materials 0.0%‡ |
| |||||||
U.S. Concrete, Inc. (e)(k) | 16,290 | $ | 355,936 | |||||
|
| |||||||
Total Common Stocks |
| 4,486,159 | ||||||
|
| |||||||
Convertible Preferred Stocks 0.9% | ||||||||
Aerospace & Defense 0.1% |
| |||||||
United Technologies Corp. | 12,500 | 791,000 | ||||||
|
| |||||||
Auto Manufacturers 0.1% |
| |||||||
¨General Motors Co. | 8,550 | 438,786 | ||||||
|
| |||||||
Auto Parts & Equipment 0.0%‡ |
| |||||||
Goodyear Tire & Rubber Co. (The) | 5,900 | 353,646 | ||||||
|
| |||||||
Banks 0.2% |
| |||||||
¨Bank of America Corp. | 781 | 841,527 | ||||||
Wells Fargo & Co. | 800 | 911,200 | ||||||
|
| |||||||
1,752,727 | ||||||||
|
| |||||||
Food 0.0%‡ |
| |||||||
Post Holdings, Inc. (c) | 1,700 | 185,190 | ||||||
|
| |||||||
Hand & Machine Tools 0.1% |
| |||||||
Stanley Black & Decker, Inc. | 6,100 | 778,970 | ||||||
| �� | |||||||
Insurance 0.1% |
| |||||||
Maiden Holdings, Ltd. | 2,500 | 116,975 | ||||||
MetLife, Inc. | 24,075 | 691,675 | ||||||
|
| |||||||
808,650 | ||||||||
|
| |||||||
Iron & Steel 0.2% |
| |||||||
ArcelorMittal | 48,000 | 1,143,840 | ||||||
|
| |||||||
Oil & Gas 0.1% |
| |||||||
Energy XXI Bermuda, Ltd. | 600 | 186,187 | ||||||
Sanchez Energy Corp. (c) | 2,700 | 192,122 | ||||||
|
| |||||||
378,309 | ||||||||
|
| |||||||
Total Convertible Preferred Stocks |
| 6,631,118 | ||||||
|
|
22 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Number of Warrants | Value | |||||||
Warrants 0.2% | ||||||||
Auto Manufacturers 0.2% |
| |||||||
¨General Motors Co. |
| |||||||
Strike Price $10.00 | 34,575 | $ | 961,185 | |||||
Strike Price $18.33 | 34,575 | 676,979 | ||||||
|
| |||||||
1,638,164 | ||||||||
|
| |||||||
Media 0.0%‡ |
| |||||||
ION Media Networks, Inc. |
| |||||||
Second Lien | 11 | 0 | (n) | |||||
Unsecured Debt | 11 | 0 | (n) | |||||
|
| |||||||
0 | (n) | |||||||
|
| |||||||
Total Warrants |
| 1,638,164 | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 11.4% | ||||||||
Repurchase Agreement 11.4% |
| |||||||
State Street Bank and Trust Co. | $ | 88,394,012 | 88,394,012 | |||||
|
| |||||||
Total Short-Term Investment |
| 88,394,012 | ||||||
|
| |||||||
Total Investments, Before Investments | 98.1 | % | 758,356,643 | |||||
|
| |||||||
Long-Term Bond Sold Short (1.0%) Corporate Bond Sold Short (1.0%) |
| |||||||
Corporate Bond Sold Short (1.0%) |
| |||||||
Apparel (1.0%) | ||||||||
Levi Strauss & Co. | (6,800,000 | ) | (7,463,000 | ) | ||||
Total Investment Sold Short | (1.0 | )% | (7,463,000 | ) | ||||
|
| |||||||
Total Investments, Net of Investments | 97.1 | 750,893,643 | ||||||
Other Assets, Less Liabilities | 2.9 | 22,361,706 | ||||||
Net Assets | 100.0 | % | $ | 773,255,349 |
Contracts Short | Unrealized (Depreciation) (o) | |||||||
Futures Contracts (0.6%) | ||||||||
United States Treasury Notes | (130 | ) | $ | (451,263 | ) | |||
United States Treasury Notes | (1,051 | ) | (774,457 | ) | ||||
United States Treasury Notes | (1,487 | ) | (3,279,764 | ) | ||||
|
| |||||||
Total Futures Contracts Short |
| (4,505,484 | ) | |||||
|
| |||||||
Total Futures Contracts |
| $ | (4,505,484 | ) |
‡ | Less than one-tenth of a percent. |
(a) | Floating rate—Rate shown is the rate in effect as of October 31, 2013. |
(b) | Subprime mortgage investment or other asset-backed security. The total market value of these securities as of October 31, 2013 is $5,302,580, which represents 0.7% of the Fund's net assets. |
(c) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(d) | Step coupon—Rate shown is the rate in effect as of October 31, 2013. |
(e) | Illiquid security—The total market value of these securities as of October 31, 2013 is $422,382, which represents 0.1% of the Fund's net assets. |
(f) | Issue in default. |
(g) | Fair valued security—The total market value of these securities as of October 31, 2013, is $103,731, which represents less than one-tenth of a percent of the Fund's net assets. |
(h) | Restricted security. |
(i) | Synthetic Convertible Bond—Security structured by an investment bank that provides exposure to a specific company's stock, represents 0.2% of the Fund's net assets. |
(j) | Security, or a portion thereof, is maintained in a segregated account at the Fund’s custodian as collateral for securities Sold Short (See Note 2(P)). |
(k) | Non-income producing security. |
(l) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the weighted average interest rate of all contracts within the floating rate loan facility as of October 31, 2013. |
(m) | Collateral strip rate—A bond whose interest is based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect as of October 31, 2013. |
(n) | Less than one dollar. |
(o) | Represents the difference between the value of the contracts at the time they were opened and the value as of October 31, 2013. |
(p) | As of October 31, 2013, cash in the amount of $1,792,800 is on deposit with a broker for futures transactions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 23 |
Portfolio of Investments October 31, 2013 (continued)
(q) | As of October 31, 2013, cost is $737,744,115 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 27,976,779 | ||
Gross unrealized depreciation | (7,364,251 | ) | ||
|
| |||
Net unrealized appreciation | $ | 20,612,528 | ||
|
|
The following abbreviations are used in the above portfolio:
£—British Pound Sterling
€—Euro
As of October 31, 2013, the Fund held the following foreign currency forward contracts:
Foreign Currency Sale Contracts | Expiration Date | Counterparty | Contract Amount Sold | Contract Amount Purchased | Unrealized Appreciation (Depreciation) | |||||||||||||||||||
Euro vs U.S. Dollar | 12/17/13 | JPMorgan Chase Bank | EUR 14,258,000 | USD 19,002,625 | USD | (357,616 | ) | |||||||||||||||||
Pound Sterling vs. U.S. Dollar | 12/17/13 | JPMorgan Chase Bank | GBP 9,919,000 | 15,734,221 | (164,761 | ) | ||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| USD | (522,377 | ) |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted Prices in Markets for (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 8,233,871 | $ | — | $ | 8,233,871 | ||||||||
Convertible Bonds (b) | — | 25,077,815 | 50 | 25,077,865 | ||||||||||||
Corporate Bonds (c) | — | 543,551,545 | 103,681 | 543,655,226 | ||||||||||||
Foreign Bonds | — | 15,245,879 | — | 15,245,879 | ||||||||||||
Foreign Government Bonds | — | 3,186,015 | — | 3,186,015 | ||||||||||||
Loan Assignments & Participations (d) | — | 53,101,349 | 99,794 | 53,201,143 | ||||||||||||
Mortgage-Backed Securities | — | 883,137 | — | 883,137 | ||||||||||||
U.S. Government & Federal Agencies | — | 7,724,054 | — | 7,724,054 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 657,003,665 | 203,525 | 657,207,190 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks | 4,486,159 | — | — | 4,486,159 | ||||||||||||
Convertible Preferred Stocks | 6,259,741 | 371,377 | — | 6,631,118 | ||||||||||||
Warrants (e) | 1,638,164 | — | 0 | (d) | 1,638,164 | |||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 88,394,012 | — | 88,394,012 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 12,384,064 | $ | 745,769,054 | $ | 203,525 | $ | 758,356,643 | ||||||||
|
|
|
|
|
|
|
|
24 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Liability Valuation Inputs
Description | Quoted Prices in (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities Sold Short (a) | ||||||||||||||||
Long-Term Bonds Sold Short | ||||||||||||||||
Corporate Bonds Sold Short | $ | — | $ | (7,463,000 | ) | $ | — | $ | (7,463,000 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities Sold Short | — | (7,463,000 | ) | — | (7,463,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (f) | — | (522,377 | ) | — | (522,377 | ) | ||||||||||
Futures Contracts Short (f) | (4,505,484 | ) | — | — | (4,505,484 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | (4,505,484 | ) | (522,377 | ) | — | (5,027,861 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities Sold Short and Other Financial Instruments | $ | (4,505,484 | ) | $ | (7,985,377 | ) | $ | — | $ | (12,490,861 | ) | |||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $50 is held in Internet within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $2,426, $17,071 and $84,184 are held in Commercial Services, Entertainment and Retail, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 security valued at $99,794 represents a Loan Assignment & Participation whose value was obtained from an independent pricing service which used a single broker quote to measure such value as referenced in the Portfolio of Investments. |
(e) | The Level 3 securities valued at less than one dollar are held in Media within the Warrants section of the Portfolio of Investments. |
(f) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
As of October 31, 2013, a convertible preferred stock with a value of $392,906 was transferred from Level 1 to Level 2 as the price of this security was based on evaluated bid pricing compared with the prior year price which was based on quoted prices. The value as of October 31, 2013, for this security is based on an evaluated bid price in active markets for identical investments.
During the year ended October 31, 2013, a security with a total value of $119,693 transferred from Level 2 to Level 3. The transfer occurred as a result of the value for certain Loan Assignments & Participations obtained from the independent pricing service which were derived based on single broker quote.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers in to Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at October 31, 2013 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Internet | $ | 50 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 50 | $ | — | ||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Auto Manufacturers | 1,137 | — | — | — | — | (1,137 | )(b) | — | — | — | — | |||||||||||||||||||||||||||||
Commercial Services | 2,640 | — | — | (214 | ) | — | — | — | — | 2,426 | (214 | ) | ||||||||||||||||||||||||||||
Entertainment | 24,511 | 877 | 836 | 1,475 | — | (10,628 | ) | — | — | 17,071 | (877 | ) | ||||||||||||||||||||||||||||
Retail | 90,612 | (108 | ) | (109 | ) | (1,859 | ) | — | (4,352 | ) | — | — | 84,184 | (1,450 | ) | |||||||||||||||||||||||||
Loan Assignments & Participations |
| |||||||||||||||||||||||||||||||||||||||
Real Estate | — | 1,767 | 1,311 | (2,678 | ) | — | (20,299 | ) | 119,693 | — | 99,794 | (2,678 | ) | |||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Media | 1,003 | — | (31,487 | ) | 30,484 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (b) | — | — | — | — | — | — | — | 0 | (c) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 119,953 | $ | 2,536 | $ | (29,499 | ) | $ | 26,071 | $ | — | $ | (35,279 | ) | $ | 119,693 | $ | — | $ | 203,525 | $ | (5,219 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Sales include security that was written off during the year. |
(c) | Less than one dollar. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 669,962,631 | ||
Repurchase agreement, at value (identified cost $88,394,012) | 88,394,012 | |||
Cash collateral on deposit at broker | 1,792,800 | |||
Cash denominated in foreign currencies | 513,809 | |||
Cash | 8,477 | |||
Receivables: | ||||
Fund shares sold | 22,183,019 | |||
Dividends and interest | 10,095,091 | |||
Investment securities sold | 1,749,786 | |||
Other assets | 42,800 | |||
|
| |||
Total assets | 794,742,425 | |||
|
| |||
Liabilities | ||||
Investments sold short (proceeds $6,809,632) | 7,463,000 | |||
Payables: | ||||
Investment securities purchased | 11,164,122 | |||
Fund shares redeemed | 906,027 | |||
Manager (See Note 3) | 365,379 | |||
Interest on investments sold short | 239,086 | |||
NYLIFE Distributors (See Note 3) | 174,367 | |||
Transfer agent (See Note 3) | 120,602 | |||
Broker fees and charges on short sales | 42,859 | |||
Shareholder communication | 35,864 | |||
Variation margin on futures contracts | 24,148 | |||
Professional fees | 17,941 | |||
Custodian | 5,248 | |||
Trustees | 1,519 | |||
Accrued expenses | 5,412 | |||
Dividend payable | 399,125 | |||
Unrealized depreciation on foreign currency forward contracts | 522,377 | |||
|
| |||
Total liabilities | 21,487,076 | |||
|
| |||
Net assets | $ | 773,255,349 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 833,706 | ||
Additional paid-in capital | 759,603,504 | |||
|
| |||
760,437,210 | ||||
Distributions in excess of net investment income | (72,263 | ) | ||
Accumulated net realized gain (loss) on investments, investments sold short, futures transactions and foreign currency transactions | (2,294,084 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | 16,347,084 | |||
Net unrealized appreciation (depreciation) on investments sold short | (653,368 | ) | ||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (509,230 | ) | ||
|
| |||
Net assets | $ | 773,255,349 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 28,340,590 | ||
|
| |||
Shares of beneficial interest outstanding | 3,034,034 | |||
|
| |||
Net asset value per share outstanding | $ | 9.34 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.78 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 317,916,834 | ||
|
| |||
Shares of beneficial interest outstanding | 34,270,951 | |||
|
| |||
Net asset value per share outstanding | $ | 9.28 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.72 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 19,254,447 | ||
|
| |||
Shares of beneficial interest outstanding | 2,084,131 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.24 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 113,183,427 | ||
|
| |||
Shares of beneficial interest outstanding | 12,260,103 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.23 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 294,560,051 | ||
|
| |||
Shares of beneficial interest outstanding | 31,721,410 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.29 | ||
|
|
26 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 27,006,558 | ||
Dividends | 403,246 | |||
|
| |||
Total income | 27,409,804 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 3,123,506 | |||
Distribution/Service—Investor Class (See Note 3) | 67,386 | |||
Distribution/Service—Class A (See Note 3) | 587,153 | |||
Distribution/Service—Class B (See Note 3) | 184,373 | |||
Distribution/Service—Class C (See Note 3) | 768,108 | |||
Transfer agent (See Note 3) | 572,525 | |||
Interest on investments sold short | 517,027 | |||
Registration | 98,619 | |||
Shareholder communication | 92,368 | |||
Broker fees and charges on short sales | 88,929 | |||
Professional fees | 73,953 | |||
Custodian | 31,787 | |||
Trustees | 10,880 | |||
Miscellaneous | 17,643 | |||
|
| |||
Total expenses | 6,234,257 | |||
|
| |||
Net investment income (loss) | 21,175,547 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | (3,153,929 | ) | ||
Futures transactions | 2,020,039 | |||
Foreign currency transactions | (405,489 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | (1,539,379 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 9,684,321 | |||
Investments sold short | (35,472 | ) | ||
Futures contracts | (4,313,465 | ) | ||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (431,534 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts and foreign currency transactions | 4,903,850 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, investments sold short, futures transactions and foreign currency transactions | 3,364,471 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 24,540,018 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 27 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 21,175,547 | $ | 20,023,806 | ||||
Net realized gain (loss) on investments, futures transactions, investments sold short, swap transactions and foreign currency transactions | (1,539,379 | ) | 2,938,912 | |||||
Net change in unrealized appreciation (depreciation) on investments, investments sold short, futures contracts, swap contracts and foreign currency transactions | 4,903,850 | 19,495,517 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 24,540,018 | 42,458,235 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,079,562 | ) | (1,099,420 | ) | ||||
Class A | (9,897,802 | ) | (9,264,000 | ) | ||||
Class B | (612,922 | ) | (684,741 | ) | ||||
Class C | (2,568,418 | ) | (2,334,598 | ) | ||||
Class I | (6,993,037 | ) | (7,148,524 | ) | ||||
|
| |||||||
Total dividends to shareholders | (21,151,741 | ) | (20,531,283 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 536,959,441 | 150,767,499 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 17,368,631 | 16,294,896 | ||||||
Cost of shares redeemed | (189,205,998 | ) | (204,697,285 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 365,122,074 | (37,634,890 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | 368,510,351 | (15,707,938 | ) | |||||
Net Assets | ||||||||
Beginning of year | 404,744,998 | 420,452,936 | ||||||
|
| |||||||
End of year | $ | 773,255,349 | $ | 404,744,998 | ||||
|
| |||||||
Distributions in excess of net investment income at end of year | $ | (72,263 | ) | $ | (307,796 | ) | ||
|
|
28 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.28 | $ | 8.78 | $ | 9.12 | $ | 8.47 | $ | 7.20 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.39 | 0.44 | 0.43 | 0.52 | 0.40 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.50 | (0.32 | ) | 0.68 | 1.50 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.44 | 0.95 | 0.11 | 1.15 | 1.92 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.38 | ) | (0.45 | ) | (0.45 | ) | (0.50 | ) | (0.62 | ) | ||||||||||
Return of capital | — | — | — | — | (0.03 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.38 | ) | (0.45 | ) | (0.45 | ) | (0.50 | ) | (0.65 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.34 | $ | 9.28 | $ | 8.78 | $ | 9.12 | $ | 8.47 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 4.76 | % | 10.98 | % | 1.33 | % | 13.97 | % | 28.35 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.12 | % | 4.89 | % | 4.85 | % | 5.93 | % | 5.26 | % | ||||||||||
Net expenses (excluding short sale expenses) | 1.15 | % | 1.19 | % | 1.24 | % | 1.41 | % | 1.42 | % | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.27 | % | 1.52 | % | 1.42 | % | 1.45 | % | 1.70 | % | ||||||||||
Short sale expenses | 0.12 | % | 0.33 | % | 0.18 | % | — | — | ||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 28,341 | $ | 24,551 | $ | 20,415 | $ | 16,654 | $ | 12,200 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.22 | $ | 8.73 | $ | 9.06 | $ | 8.42 | $ | 7.16 | ||||||||||
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|
| |||||||||||
Net investment income (loss) (a) | 0.40 | 0.45 | 0.45 | 0.54 | 0.41 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.49 | (0.31 | ) | 0.67 | 1.49 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.45 | 0.95 | 0.14 | 1.16 | 1.92 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.39 | ) | (0.46 | ) | (0.47 | ) | (0.52 | ) | (0.62 | ) | ||||||||||
Return of capital | — | — | — | — | (0.04 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.39 | ) | (0.46 | ) | (0.47 | ) | (0.52 | ) | (0.66 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.28 | $ | 9.22 | $ | 8.73 | $ | 9.06 | $ | 8.42 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 4.96 | % | 11.26 | % | 1.54 | % | 14.19 | % | 28.56 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.25 | % | 5.08 | % | 5.04 | % | 6.19 | % | 5.41 | % | ||||||||||
Net expenses (excluding short sale expenses) | 1.00 | % | 1.00 | % | 1.03 | % | 1.18 | % | 1.27 | % | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 1.12 | % | 1.33 | % | 1.22 | % | 1.21 | % | 1.37 | % | ||||||||||
Short sale expenses | 0.12 | % | 0.33 | % | 0.19 | % | — | — | ||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 317,917 | $ | 192,009 | $ | 169,649 | $ | 109,694 | $ | 60,555 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 29 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.18 | $ | 8.70 | $ | 9.03 | $ | 8.39 | $ | 7.14 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.31 | 0.37 | 0.36 | 0.45 | 0.34 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.48 | (0.31 | ) | 0.68 | 1.48 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.37 | 0.86 | 0.05 | 1.08 | 1.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.56 | ) | ||||||||||
Return of capital | — | — | — | — | (0.03 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.59 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.24 | $ | 9.18 | $ | 8.70 | $ | 9.03 | $ | 8.39 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 4.05 | % | 10.15 | % | 0.59 | % | 13.13 | % | 27.35 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.38 | % | 4.14 | % | 4.10 | % | 5.15 | % | 4.54 | % | ||||||||||
Net expenses (excluding short sales expenses) | 1.90 | % | 1.94 | % | 1.99 | % | 2.16 | % | 2.17 | % | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 2.02 | % | 2.27 | % | 2.16 | % | 2.20 | % | 2.46 | % | ||||||||||
Short sale expenses | 0.12 | % | 0.33 | % | 0.17 | % | — | — | ||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 19,254 | $ | 17,591 | $ | 16,754 | $ | 19,352 | $ | 19,176 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.18 | $ | 8.69 | $ | 9.03 | $ | 8.39 | $ | 7.14 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.31 | 0.37 | 0.36 | 0.46 | 0.34 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.49 | (0.32 | ) | 0.67 | 1.48 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.36 | 0.87 | 0.04 | 1.08 | 1.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.56 | ) | ||||||||||
Return of capital | — | — | — | — | (0.03 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.31 | ) | (0.38 | ) | (0.38 | ) | (0.44 | ) | (0.59 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.23 | $ | 9.18 | $ | 8.69 | $ | 9.03 | $ | 8.39 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 4.05 | % | 10.16 | % | 0.48 | % | 13.14 | % | 27.36 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.34 | % | 4.14 | % | 4.09 | % | 5.23 | % | 4.50 | % | ||||||||||
Net expenses (excluding short sale expenses) | 1.90 | % | 1.94 | % | 1.99 | % | 2.16 | % | 2.17 | % | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 2.02 | % | 2.27 | % | 2.19 | % | 2.20 | % | 2.45 | % | ||||||||||
Short sale expenses | 0.12 | % | 0.33 | % | 0.20 | % | — | — | ||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 113,183 | $ | 59,159 | $ | 50,280 | $ | 28,334 | $ | 12,948 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
30 | MainStay Unconstrained Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.23 | $ | 8.73 | $ | 9.07 | $ | 8.42 | $ | 7.17 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.41 | 0.47 | 0.46 | 0.58 | 0.43 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.51 | (0.31 | ) | 0.66 | 1.48 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.01 | (0.00 | )‡ | (0.05 | ) | 0.02 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.47 | 0.99 | 0.15 | 1.19 | 1.93 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.41 | ) | (0.49 | ) | (0.49 | ) | (0.54 | ) | (0.64 | ) | ||||||||||
Return of capital | — | — | — | — | (0.04 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.41 | ) | (0.49 | ) | (0.49 | ) | (0.54 | ) | (0.68 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.29 | $ | 9.23 | $ | 8.73 | $ | 9.07 | $ | 8.42 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 5.32 | % | 11.41 | % | 1.79 | % | 14.59 | % | 28.78 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.45 | % | 5.32 | % | 5.20 | % | 6.57 | % | 5.75 | % | ||||||||||
Net expenses (excluding short sale expenses) | 0.75 | % | 0.76 | % | 0.78 | % | 0.92 | % | 0.95 | % | ||||||||||
Expenses (including short sales expenses, before waiver/reimbursement) | 0.87 | % | 1.08 | % | 1.02 | % | 0.95 | % | 1.12 | % | ||||||||||
Short sale expenses | 0.12 | % | 0.32 | % | 0.24 | % | — | — | ||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 26 | % | 80 | % | 154 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 294,560 | $ | 111,435 | $ | 163,356 | $ | 5,183 | $ | 319 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | The portfolio turnover rates not including mortgage dollar rolls was 117% for the year ended October 31, 2009. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 31 |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Unconstrained Bond Fund, (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A and Class B shares commenced operations on February 28, 1997. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek total return by investing primarily in domestic and foreign debt securities.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund's securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The
Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
32 | MainStay Unconstrained Bond Fund |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund held securities with a value of $103,731 that were fair valued in such a manner.
Equity securities and Exchange Traded Funds, whether sold short or purchased, are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund's Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values measured on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
Loan assignments, participations and commitments are valued at the average of bid quotations obtained from the engaged independent pricing agent and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by single broker quotes obtained from the pricing agent with significant unobservable inputs and are generally categorized as Level 3 in the hierarchy. For these loan assignments, participations and commitments the Manager may consider additional factors such as liquidity of the Fund’s investments. As of October 31, 2013, the Fund held securities with a value of $99,794 that were valued by single broker quotes and/or deemed to be illiquid.
Credit default swaps are valued at prices supplied by a pricing agent or brokers selected by the Fund’s Manager in consultation with the Fund’s Subadvisor whose prices reflect broker/dealer supplied valuations and electronic data processing techniques. Swaps are marked-to-market daily and the change in value, if any, is recorded as unrealized appreciation or depreciation. These securities are generally categorized as Level 2 in the hierarchy.
The valuation techniques and significant amounts of unobservable inputs used in the fair valuation measurement of the Fund’s Level 3 securities are outlined in the tables below. A significant increase or decrease in any of those inputs in isolation would result in a significantly higher or lower fair value measurement.
mainstayinvestments.com | 33 |
Notes to Financial Statements (continued)
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund’s Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund's liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor measure the liquidity of the Fund's investments; in doing so, the Manager or Subadvisor may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund's tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Foreign Taxes. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least monthly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) 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 financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and/or interest rate risk in the normal course of investing in these
34 | MainStay Unconstrained Bond Fund |
transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund's investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(J) Loan Assignments, Participations and Commitments. The Fund may invest in loan assignments and loan participations (“loans”). Loans are agreements to make money available (a “commitment”) to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments. The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower (“intermediate participants”). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. As of October 31, 2013, the Fund did not hold any unfunded commitments.
(K) Swap Contracts. The Fund may enter into credit default, interest rate, index and currency exchange rate swap contracts (“swaps”) for the purpose of attempting to obtain a desired return at a lower cost to the Fund, rather than directly investing in an instrument yielding that desired return or to hedge against credit and interest rate risk. In a typical swap transaction, two parties agree to exchange the returns (or differentials in rates of returns) earned or realized on a particular investment or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount. The payments may be adjusted for transaction costs, interest payments, the amount of interest paid on the investment or instrument or other factors. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap.
Credit default swaps, in particular, are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Such periodic payments are accrued daily and recorded as a realized gain or loss. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers.
Swaps are “marked-to-market” daily based upon quotations from pricing agents, brokers, or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation. Any payments made or received upon entering a swap would be amortized or accreted over the life of the swap and recorded as a realized gain or loss. Early termination of a swap is recorded as a realized gain or loss.
The Fund bears the risk of loss of the amount expected to be received under a swap in the event of the default or bankruptcy of the swap counterparty. The Fund may be able to eliminate its exposure under a swap either by assignment or other disposition, or by entering into an offsetting swap with the same party or a similar creditworthy party. Swaps are not actively traded on financial markets. Entering into swaps involves elements of credit, market, and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibilities that there will be no liquid market for these swaps, that the counterparty to the swaps may default on its obligation to perform or disagree as to the meaning of the contractual terms in the swaps and that there may be unfavorable changes in interest rates, the price of the index or the security underlying these transactions. As of October 31, 2013, the Fund did not hold any swap contracts.
(L) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation 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. Cash movement occurs on settlement date. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund may enter into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
mainstayinvestments.com | 35 |
Notes to Financial Statements (continued)
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund's exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(M) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in 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, and |
(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(N) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants, if such warrants are
not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights.
(O) Dollar Rolls. The Fund may enter into dollar roll transactions in which it sells mortgage-backed securities (“MBS”) from its portfolio to a counterparty from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. The dollar roll transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the dollar rolls are removed from the portfolio and a realized gain or loss is recognized. The securities the Fund has agreed to acquire are included at market value in the Portfolio of Investments and liabilities for such purchase commitments are included as payables for investments purchased. During the roll period, the Fund foregoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the forward price for the future as well as by the earnings on the cash proceeds of the initial sale. Dollar rolls may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. Dollar roll transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll period, while substantially similar, could be inferior to what was initially sold to the counterparty.
(P) Securities Sold Short. The Fund may engage in sale of securities they do not own (“short sales”) as part of its investment strategy. When the Fund enters into a short sale, it must segregate the cash proceeds from the security sold short or other securities as collateral for its obligation to deliver the security upon conclusion of the sale. During the period a short position is open, depending on the nature and type of security, short positions held are reflected as liabilities and are marked to market in accordance with the valuation methodologies previously detailed (See Note 2(A)). Liabilities for securities sold short are closed out by purchasing the applicable securities for delivery to the counterparty broker. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon termination of a short sale if the market price on the date the short position is closed out is less or greater, respectively, than the proceeds originally received. Any such gain or loss may be offset, completely or in part, by the change in the value of the hedged investments. Interest on short positions held is accrued daily while dividends declared on short positions existing on the record date are recorded on the ex-dividend date. Both the interest and dividends paid on short sales are recorded as expenses on the Statement of Operations. Short sales involve risk of loss in excess of the related amounts reflected on the Statement of Assets and Liabilities.
(Q) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund's cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or
36 | MainStay Unconstrained Bond Fund |
irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(R) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 5)
(S) Concentration of Risk. The Fund’s principal investments include high-yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(T) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(U) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Asset Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Warrants | Investments in securities, at value | $ | — | $ | 1,638,164 | $ | — | $ | 1,638,164 | |||||||||
|
| |||||||||||||||||
Total Fair Value | $ | — | $ | 1,638,164 | $ | — | $ | 1,638,164 | ||||||||||
|
|
Liability Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (a) | $ | — | $ | — | $ | (4,505,484 | ) | $ | (4,505,484 | ) | |||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (522,377 | ) | — | — | (522,377 | ) | |||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | (522,377 | ) | $ | — | $ | (4,505,484 | ) | $ | (5,027,861 | ) | |||||||
|
|
(a) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only current day's variation margin is reported within the Statement of Assets and Liabilities. |
mainstayinvestments.com | 37 |
Notes to Financial Statements (continued)
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | — | $ | — | $ | 2,020,039 | $ | 2,020,039 | |||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | (321,547 | ) | — | — | (321,547 | ) | |||||||||||
|
| |||||||||||||||||
Total Realized Gain (Loss) | $ | (321,547 | ) | $ | — | $ | 2,020,039 | $ | 1,698,492 | |||||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | — | $ | 714,320 | $ | — | $ | 714,320 | |||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | — | — | (4,313,465 | ) | (4,313,465 | ) | |||||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (438,939 | ) | — | — | (438,939 | ) | |||||||||||
|
| |||||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (438,939 | ) | $ | 714,320 | $ | (4,313,465 | ) | $ | (4,038,084 | ) | |||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||||
Warrants | — | 69,172 | — | 69,172 | ||||||||||||
Futures Contracts Long | — | — | 160 | 160 | ||||||||||||
Futures Contracts Short | — | — | (1,535 | ) | (1,535 | ) | ||||||||||
Forward Contracts Long | $ | 21,726,638 | $ | — | $ | — | $ | 21,726,638 | ||||||||
Forward Contracts Short | $ | (26,593,641 | ) | $ | — | $ | — | $ | (26,593,641 | ) | ||||||
|
|
(1) | Amount disclosed represents the weighted average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or the
“Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.60% up to $500 million; 0.55% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund's average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in
38 | MainStay Unconstrained Bond Fund |
excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.61% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $3,123,506.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund's shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $25,440 and $161,882, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $61, $5,832, $32,566 and $16,272, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund's transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses
incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 60,750 | ||
Class A | 177,833 | |||
Class B | 41,548 | |||
Class C | 173,475 | |||
Class I | 118,919 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 12,666,210 | 4.0 | % |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accum Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||
$539,481 | $ | (6,772,146 | ) | $ | (399,125 | ) | $ | 19,449,929 | $ | 12,818,139 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments, mark to market of futures contracts, debt versus equity adjustments, modified debt instruments and contingent payment debt instruments (CPDI). The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$211,727 | $ | (211,727 | ) | $ | — |
The reclassifications for the Fund are primarily due to foreign currency gain (loss), defaulted bond adjustments, return of capital distributions received, reclassification of consent fees and debt versus equity adjustments and CPDI.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period.
mainstayinvestments.com | 39 |
Notes to Financial Statements (continued)
However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $6,772,146 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No
capital gain distributions shall be made until any capital loss carryfor wards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2017 Unlimited | $
| 473 60 |
| $
| — 6,239 |
| ||
Total | $ | 533 | $ | 6,239 |
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 21,151,741 | $ | 20,531,283 |
Note 5–Restricted Securities
As of October 31, 2013, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Principal Amount/Number of Warrants/Shares | Cost | 10/31/13 Value | Percent of Net Assets | |||||||||||||||
At Home Corp. | 7/25/01 | $ | 504,238 | $ | 8,348 | $ | 50 | 0.0 | %‡ | |||||||||||
ION Media Networks, Inc. | 12/20/10 | 11 | — | — | (a) | 0.0 | ‡ | |||||||||||||
Warrant, Unsecured Debt, Expires 12/18/16 | 3/12/10 | 11 | 34 | — | (a) | 0.0 | ‡ | |||||||||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | 1/23/08 | 5,000 | — | 74 | 0.0 | ‡ | ||||||||||||||
Corporate Bond 9.75% | 9/4/09 | 160,000 | — | 2,352 | 0.0 | ‡ | ||||||||||||||
Total | $ | 8,382 | $ | 2,476 | 0.0 | %‡ |
‡ | Less than one-tenth of a percent. |
(a) | Less than one dollar. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds
Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of U.S. government securities were $21,988 and $14,314, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $373,717 and $95,483, respectively.
40 | MainStay Unconstrained Bond Fund |
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 953,290 | $ | 8,941,118 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 111,036 | 1,037,427 | ||||||
Shares redeemed | (615,979 | ) | (5,761,901 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 448,347 | 4,216,644 | ||||||
Shares converted into Investor Class (See Note 1) | 267,504 | 2,503,603 | ||||||
Shares converted from Investor Class (See Note 1) | (327,795 | ) | (3,066,080 | ) | ||||
|
| |||||||
Net increase (decrease) | 388,056 | $ | 3,654,167 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 645,626 | $ | 5,806,996 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 117,500 | 1,052,185 | ||||||
Shares redeemed | (386,730 | ) | (3,460,373 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 376,396 | 3,398,808 | ||||||
Shares converted into Investor Class (See Note 1) | 267,436 | 2,409,801 | ||||||
Shares converted from Investor Class (See Note 1) | (322,045 | ) | (2,917,361 | ) | ||||
|
| |||||||
Net increase (decrease) | 321,787 | $ | 2,891,248 | |||||
|
| |||||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 19,841,663 | $ | 183,880,705 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 881,190 | 8,164,324 | ||||||
Shares redeemed | (7,533,681 | ) | (69,786,432 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 13,189,172 | 122,258,597 | ||||||
Shares converted into Class A (See Note 1) | 380,806 | 3,537,523 | ||||||
Shares converted from Class A (See Note 1) | (131,904 | ) | (1,227,175 | ) | ||||
|
| |||||||
Net increase (decrease) | 13,438,074 | $ | 124,568,945 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 6,407,382 | $ | 57,237,916 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 783,280 | 6,966,213 | ||||||
Shares redeemed | (6,213,341 | ) | (55,242,568 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 977,321 | 8,961,561 | ||||||
Shares converted into Class A (See Note 1) | 510,146 | 4,547,209 | ||||||
Shares converted from Class A (See Note 1) | (92,202 | ) | (841,580 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,395,265 | $ | 12,667,190 | |||||
|
|
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 692,585 | $ | 6,423,923 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 56,233 | 519,654 | ||||||
Shares redeemed | (391,635 | ) | (3,614,466 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 357,183 | 3,329,111 | ||||||
Shares converted from Class B (See Note 1) | (188,867 | ) | (1,747,871 | ) | ||||
|
| |||||||
Net increase (decrease) | 168,316 | $ | 1,581,240 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 622,150 | $ | 5,562,910 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 64,184 | 567,924 | ||||||
Shares redeemed | (332,778 | ) | (2,938,588 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 353,556 | 3,192,246 | ||||||
Shares converted from Class B (See Note 1) | (364,335 | ) | (3,198,069 | ) | ||||
|
| |||||||
Net increase (decrease) | (10,779 | ) | $ | (5,823 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 7,432,245 | $ | 68,600,894 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 209,833 | 1,934,961 | ||||||
Shares redeemed | (1,829,732 | ) | (16,894,460 | ) | ||||
|
| |||||||
Net increase (decrease) | 5,812,346 | $ | 53,641,395 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 1,767,987 | $ | 15,711,137 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 173,766 | 1,539,397 | ||||||
Shares redeemed | (1,279,580 | ) | (11,345,180 | ) | ||||
|
| |||||||
Net increase (decrease) | 662,173 | $ | 5,905,354 | |||||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 29,088,460 | $ | 269,112,801 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 616,901 | 5,712,265 | ||||||
Shares redeemed | (10,063,639 | ) | (93,148,739 | ) | ||||
|
| |||||||
Net increase (decrease) | 19,641,722 | $ | 181,676,327 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 7,440,219 | $ | 66,448,540 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 696,110 | 6,169,177 | ||||||
Shares redeemed | (14,758,457 | ) | (131,710,576 | ) | ||||
|
| |||||||
Net increase (decrease) | (6,622,128 | ) | $ | (59,092,859 | ) | |||
|
|
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund's management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com | 41 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Unconstrained Bond Fund (the “Fund”), formerly the MainStay Flexible Bond Opportunities Fund, one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Unconstrained Bond Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
42 | MainStay Unconstrained Bond Fund |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $221,657 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 1.1% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or subsitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures
and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com | 43 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
44 | MainStay Unconstrained Bond Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 45 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
46 | MainStay Unconstrained Bond Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 47 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32039 MS322-13 | MSUB11-12/13 NL016 |
MainStay Government Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an
e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –7.04 –2.66 | %
|
| 3.12 4.07 | %
|
| 3.16 3.64 | %
|
| 1.16 1.16 | %
| ||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –6.89 –2.50 |
|
| 3.25 4.21 |
|
| 3.25 3.72 |
|
| 1.02 1.02 |
| ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First | With sales charges Excluding sales charges |
| –8.15 –3.40 |
|
| 2.93 3.28 |
|
| 2.89 2.89 |
|
| 1.91 1.91 |
| ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| –4.36 –3.41 |
|
| 3.29 3.29 |
|
| 2.88 2.88 |
|
| 1.91 1.91 |
| ||||||
Class I Shares4 | No Sales Charge | –2.24 | 4.51 | 4.13 | 0.77 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Barclays U.S. Government Bond Index5 | –1.37 | % | 4.15 | % | 4.37 | % | ||||||
Morningstar Intermediate Government Category Average6 | –1.66 | 4.67 | 3.91 |
5. | The Barclays U.S. Government Bond Index consists of publicly issued debt of the U.S. Treasury and government agencies. The Barclays U.S. Government Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume the reinvestment of all income and capital gains. An investment cannot be made directly in an Index. |
6. | The Morningstar intermediate government category average is representative of funds that have at least 90% of their bond holdings in bonds backed by U.S. government or by U.S. government-linked agencies. These funds have durations between 3.5 and 6 years and/or average effective maturities between 4 and 10 years. Results are based on total returns with all dividends and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Government Fund |
Cost in Dollars of a $1,000 Investment in MainStay Government Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 974.00 | $ | 6.02 | $ | 1,019.10 | $ | 6.16 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 974.70 | $ | 5.13 | $ | 1,020.00 | $ | 5.24 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 970.10 | $ | 9.73 | $ | 1,015.30 | $ | 9.96 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 970.10 | $ | 9.73 | $ | 1,015.30 | $ | 9.96 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 976.20 | $ | 3.89 | $ | 1,021.30 | $ | 3.97 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.21% for Investor Class, 1.03% for Class A, 1.96% for Class B and Class C and 0.78% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
See Portfolio of Investments beginning on page 12 for specific holdings within these categories.
Top Ten Holdings as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 3.50%, due 11/1/25 |
2. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 3/1/41 |
3. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 2/1/41 |
4. | Overseas Private Investment Corporation, 5.142%, due 12/15/23 |
5. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 6.00%, due 3/1/35 TBA |
6. | Tennessee Valley Authority, 4.65%, due 6/15/35 |
7. | Federal National Mortgage Association (Mortgage Pass-Through Securities), 4.50%, due 1/1/41 |
8. | Government National Mortgage Association (Mortgage Pass-Through Securities), 4.00%, due 10/15/41 |
9. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 4.00%, due 12/1/40 |
10. | Federal Home Loan Mortgage Corporation (Mortgage Pass-Through Securities), 3.50%, due 11/1/25 |
8 | MainStay Government Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Louis N. Cohen, CFA, and Steven H. Rich, PhD, of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Government Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Government Fund returned –2.66% for Investor Class shares, –2.50% for Class A shares, –3.40% for Class B shares and –3.41% for Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund’s Class I shares returned –2.24%. For the 12 months ended October 31, 2013, all share classes underperformed the –1.37% return of the Barclays U.S. Government Bond Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes underperformed the –1.66% return of the Morningstar2 intermediate government category average. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s performance relative to the Barclays U.S. Government Bond Index was affected primarily by four factors during the reporting period—duration3 positioning, yield-curve4 posture, sector weightings and issue selection.
The Fund’s duration was consistently shorter than that of the Barclays U.S. Government Bond Index during the reporting period. Having a shorter duration left the Fund less sensitive to changes in U.S. Treasury yields than the benchmark, which helped relative performance as U.S. Treasury yields rose during the reporting period. Peer funds with longer durations would have faced similar disadvantages relative to the Fund.
During the reporting period, the spread5 between the two- and 30-year benchmark points on the Treasury yield curve widened. The Fund benefited from the curve reshaping relative to its peers that were more concentrated in longer-duration securities.
Agency mortgage pass-throughs6 are the largest class of securities in the Fund. Agency mortgage pass-throughs imparted a yield advantage over lower-yielding government-related securities, such as U.S. Treasury securities and agency debentures. This effect was a positive contributor to the Fund’s absolute return during the reporting period. (Contributions take weightings and total returns into account.) Notwithstanding this yield advantage, on a total return basis agency mortgage pass-throughs underperformed comparable-duration U.S. Treasury
securities during the reporting period. As a result, peer funds with less exposure to mortgages than the Fund would have benefited. Moreover, mortgage-sector exposure detracted from the Fund’s performance relative to the Barclays U.S. Government Bond Index, which holds no mortgages.
Mortgages underperformed U.S. Treasury securities largely because of four factors. First, if the Federal Reserve were to taper its mortgage-purchase program, the mortgage sector would lose a key source of incremental demand. This possibility temporarily decreased prices of agency mortgage-backed securities during the reporting period, but when the anticipated tapering did not occur at the Federal Reserve’s September meeting, the prices of mortgage-backed securities partially recovered. Second, U.S. Treasury yields and mortgage rates moved higher. Under these circumstances, refinancing opportunities wane, prepayment rates slow and the durations of mortgage pass-throughs extend. Third, new government policies to assist homeowners whose loans exceed their respective home values could lower refinancing barriers and raise prepayment rates. This is especially true among higher-coupon mortgage pass-through securities, where eligible underwater loans are concentrated. In anticipation of faster prepayments, the price of mortgage pass-throughs with coupons of 4% or more declined. Fourth, the prices of agency mortgage pass-throughs fell during the summer as mortgage real estate investment trusts sold bonds to reduce leverage as the value of their assets fell with higher U.S. Treasury rates. The sales were executed at soft levels because dealers were reluctant to hold these bonds. In turn, the sales reset prices lower.
The Fund’s mortgage allocation favors mortgage-backed securities issued by Fannie Mae and Freddie Mac and deemphasizes Ginnie Mae issues. Relative to peers, the Fund may have been underweight Ginnie Mae securities. The possibility of Japanese investors looking overseas for better yields buoyed the prospects of Ginnie Mae securities early in the reporting period. However, when demand did not materialize, Ginnie Mae prices fell sharply. This effect would have benefited the Fund relative to peers with larger Ginnie Mae allocations.
Some mortgage pass-throughs tend to be better protected against the borrowers’ call options because of structural features. An example is a pool of smaller-balance loans, as the small balance moderates the borrower’s refinancing incentive
1. | See footnote on page 6 for more information on the Barclays U.S. Government Bond Index. |
2. | See footnote on page 6 for more information on the Morningstar intermediate government category average. |
3. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
4. | The yield curve is a line that plots the yields of various securities of similar quality—typically U.S. Treasury issues—across a range of maturities. The U.S. Treasury yield curve serves as a benchmark for other debt and is used in economic forecasting. |
5. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The term may also refer to the difference in yield between two specific securities or types of securities at a given time. |
6. | Mortgage pass-through securities (also referred to as mortgage pass-throughs) consist of a pool of residential mortgage loans in which homeowners’ monthly payments of principal, interest and prepayments pass from the original bank through a government agency or an investment bank to investors. |
mainstayinvestments.com | 9 |
as mortgage rates fall. The Fund emphasized call protection among its residential mortgage-backed holdings. We moderate the pace of prepayments in a low-interest-rate environment by owning securities where the borrowers’ incentives to refinance are muted. This included securities backed by 15-year loan terms; securities backed by lower-balance mortgages and securities backed by newer-production, lower-rate loans. In securitizations of higher-rate loans, we focused our attention on mortgages, originated in 2003 or earlier, where elevated loan-to-value ratios may not permit borrowers to refinance. During the reporting period, securities with call protection tended to underperform generic mortgage collateral. This portion of the mortgage sector was hampered during the reporting period by rising mortgage rates, which tended to make the call protection less valuable.
The Federal Reserve’s willingness to pump liquidity into the market (by keeping the federal funds rate close to zero) and its willingness to pressure longer-term rates lower (through direct purchases of securities, known as quantitative easing) are efforts to stimulate aggregate demand by making it more attractive to invest further out on the risk spectrum. These efforts are supportive of credit-related products, such as corporate bonds and commercial mortgage-backed securities. The Fund’s modest exposure to these sectors, which are not in the benchmark, contributed to the Fund’s performance. Peer funds with higher exposure to credit-related sectors, however, would have had a relative advantage during the reporting period.
Low turnover helped the Fund relative to its peers by limiting transaction costs. We also sought to preserve yield by keeping the Fund nearly fully invested, avoiding large cash balances.
What was the Fund’s duration strategy during the reporting period?
The Fund normally maintained an intermediate duration of approximately four years. The duration of the Barclays U.S. Government Bond Index was one year longer.
In the current market environment, we prefer to keep the Fund’s duration on the shorter side. In periods when U.S. Treasury yields rise, this positioning helps the Fund relative to the benchmark and peer funds that have longer durations. During the reporting period we used U.S. Treasury futures to dampen the Fund’s interest-rate sensitivity. The use of these instruments allowed us to keep the Fund’s duration near the four-year target while rising U.S. Treasury yields extended mortgage durations.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The Fund emphasized agency mortgage pass-throughs because we believed that they could offer better relative value than comparable-duration U.S. Treasury securities or agency debentures. Our emphasis on this sector introduced incremental yield to the Fund, and it positioned the Fund to benefit should the yield spread between mortgage-backed securities and comparable-duration U.S. Treasury securities compress.
Most of the Fund’s residential mortgage exposure was taken via mortgage pass-throughs rather than collateralized mortgage obligations. The compensation currently demanded by the market for the better convexity7 of collateralized mortgage obligations appears overdone.
The Fund maintained a limited allocation to lower-coupon mortgage pass-through securities. These tend to be the longest-duration securities in the sector, and their performance could slow as U.S. Treasury yields and mortgage rates begin to rise. We de-emphasized Ginnie Mae securities on valuation concerns, because the price differential between Ginnie Mae and Fannie Mae pass-through securities had exceeded historical norms.
We maintained the Fund’s moderate exposure to credit risk as a secondary driver of Fund performance for two reasons. First, we believed that the prospects of the credit-related sectors (investment-grade corporate bonds, commercial mortgage-backed securities and asset-backed securities) were aligned with the decision by the Federal Reserve’s monetary policymaking committee to maintain the federal funds target rate in a range close to zero. Second, we felt that relatively low interest rates would probably spark healthy demand for higher-yielding products. The Fund ended the period with an 11% allocation to non-government-related securities.
During the reporting period, which market segments were the strongest contributors to the Fund’s performance and which market segments were particularly weak?
Agency mortgage pass-throughs collateralized by loans less likely to be refinanced were the weakest performers during the reporting period. Lower-balance loans often provide a measure of call protection, because the lower balance limits the borrower’s incentive to refinance. As mortgage rates rose toward the end of the reporting period, the market sharply recalibrated the worth of the call protection. Mortgage pass-throughs whose durations are longer than average (such as newer-production lower-coupon securities) had weaker performance because the
7. | Convexity is a mathematical measure of the sensitivity of an interest-bearing bond to changes in interest rates. |
10 | MainStay Government Fund |
longer durations made the securities’ total returns more sensitive to rising U.S. Treasury yields.
Securities issued by the Tennessee Valley Authority were also weak performers, as their prices softened when a proposal to divest the government’s ownership of the utility emerged in the 2014 budget proposal from the White House.
Treasury inflation-protected securities (TIPS) underperformed nominal U.S. Treasury securities during the reporting period. The underperformance largely resulted from uneven economic growth and muted inflation expectations. The Fund’s allocation to TIPS may be lower than the allocations in peer funds. As a result, the Fund may have benefited from the better performance of nominal U.S. Treasury securities.
How did the Fund’s sector weightings change during the reporting period?
The Fund’s sector weightings remained relatively stable during the reporting period. The bulk of our trading activity focused on staying fully invested by reinvesting principal payments from the Fund’s mortgage securities. With the new purchases, we emphasized mortgage securities whose underlying loans were
less likely to be refinanced. We also undertook several mortgage dollar rolls8 for security types in which the Fund maintains exposure in generic pools of mortgage loans rather than in specified pools. Several corporate bonds in the Fund were called, and several commercial mortgage-backed securities holdings matured.
During the summer, we sold U.S. Treasury futures. The short position in U.S. Treasury futures moderated the Fund’s interest-rate sensitivity by offsetting the extension of mortgage durations as U.S. Treasury yields rose.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund held underweight positions relative to the Barclays U.S. Government Index in U.S. Treasury securities and agency debentures and an overweight position in agency mortgage pass-throughs. As of the same date, the Fund also held modestly overweight positions in asset-backed securities, corporate bonds and commercial mortgage-backed securities.
8. | A mortgage dollar roll is a transaction in which the Fund sells mortgage-related securities from its portfolio to a counterparty from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. The Fund will maintain liquid assets having a value not less than the repurchase price. Mortgage dollar roll transactions involve certain risks, including the risk that the mortgage-backed security returned to the Fund at the end of the roll, while substantially similar, could be inferior to what was initially sold to the counterparty. |
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Long-Term Bonds 98.1%† Asset-Backed Security 1.3% |
| |||||||
Utilities 1.3% |
| |||||||
Atlantic City Electric Transition Funding LLC | $ | 2,525,000 | $ | 2,928,141 | ||||
|
| |||||||
Total Asset-Backed Security | 2,928,141 | |||||||
|
| |||||||
Corporate Bonds 4.6% | ||||||||
Agriculture 1.2% |
| |||||||
Altria Group, Inc. | 1,110,000 | 1,030,958 | ||||||
9.70%, due 11/10/18 | 1,149,000 | 1,542,940 | ||||||
|
| |||||||
2,573,898 | ||||||||
|
| |||||||
Pipelines 1.1% |
| |||||||
Plains All American Pipeline, L.P. / PAA Finance Corp. | 2,300,000 | 2,519,843 | ||||||
|
| |||||||
Real Estate Investment Trusts 0.9% |
| |||||||
Host Hotels & Resorts, L.P. | 2,150,000 | 2,039,488 | ||||||
|
| |||||||
Telecommunications 1.4% |
| |||||||
Crown Castle Towers LLC | 2,900,000 | 3,119,246 | ||||||
|
| |||||||
Total Corporate Bonds | 10,252,475 | |||||||
|
| |||||||
Mortgage-Backed Securities 4.5% | ||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) 3.9% |
| |||||||
Bear Stearns Commercial Mortgage Securities Trust | 1,970,000 | 2,100,118 | ||||||
CD 2006-CD3 Mortgage Trust | 710,000 | 779,234 | ||||||
CD 2007-CD5 Mortgage Trust | 1,433,575 | 1,628,028 | ||||||
DBUBS Mortgage Trust | 520,000 | 544,242 | ||||||
Four Times Square Trust | 620,000 | 699,675 |
Principal Amount | Value | |||||||
Commercial Mortgage Loans |
| |||||||
GE Capital Commercial Mortgage Corp. | $ | 488,045 | $ | 489,899 | ||||
JP Morgan Chase Commercial Mortgage Securities Trust | 1,055,000 | 1,138,645 | ||||||
Series 2007-CB20, Class A3 | 600,000 | 604,186 | ||||||
RBSCF Trust | 800,000 | 826,054 | ||||||
|
| |||||||
8,810,081 | ||||||||
|
| |||||||
Residential Mortgages (Collateralized Mortgage Obligations) 0.6% |
| |||||||
Citigroup Mortgage Loan Trust, Inc. | 438,497 | 399,868 | ||||||
Mortgage Equity Conversion Asset Trust | 1,406,813 | 1,026,952 | ||||||
|
| |||||||
1,426,820 | ||||||||
|
| |||||||
Total Mortgage-Backed Securities | 10,236,901 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 87.7% | ||||||||
Fannie Mae Strip (Collateralized Mortgage Obligations) 0.0%‡ |
| |||||||
Series 360, Class 2, IO | 461,527 | 80,925 | ||||||
Series 361, Class 2, IO | 95,139 | 17,778 | ||||||
|
| |||||||
98,703 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corporation |
| |||||||
2.375%, due 1/13/22 | 2,250,000 | 2,205,716 | ||||||
2.375%, due 6/1/35 (b) | 296,377 | 315,321 | ||||||
2.413%, due 2/1/37 (b) | 92,397 | 97,797 | ||||||
2.50%, due 3/1/35 (b) | 43,322 | 46,087 | ||||||
3.50%, due 10/1/25 | 697,961 | 735,630 | ||||||
¨3.50%, due 11/1/25 | 3,952,354 | 4,166,829 | ||||||
4.00%, due 3/1/25 | 1,828,600 | 1,940,133 | ||||||
4.00%, due 7/1/25 | 583,146 | 621,032 | ||||||
4.00%, due 8/1/31 | 241,273 | 254,915 | ||||||
4.00%, due 8/1/39 | 423,517 | 447,358 | ||||||
¨4.00%, due 12/1/40 | 4,129,656 | 4,354,026 | ||||||
¨4.00%, due 2/1/41 | 6,564,810 | 6,916,180 | ||||||
¨4.00%, due 3/1/41 | 7,696,608 | 8,119,217 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
12 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Federal Home Loan Mortgage Corporation |
| |||||||
4.00%, due 4/1/41 | $ | 701,270 | $ | 737,211 | ||||
4.00%, due 1/1/42 | 3,571,592 | 3,767,286 | ||||||
4.00%, due 12/1/42 | 982,373 | 1,029,974 | ||||||
4.50%, due 3/1/41 | 1,172,164 | 1,264,311 | ||||||
4.50%, due 8/1/41 | 1,593,577 | 1,712,223 | ||||||
5.00%, due 1/1/20 | 188,723 | 200,730 | ||||||
5.00%, due 6/1/33 | 877,952 | 952,029 | ||||||
5.00%, due 8/1/33 | 732,036 | 794,196 | ||||||
5.00%, due 5/1/36 | 773,559 | 834,304 | ||||||
5.00%, due 10/1/39 | 1,282,917 | 1,407,100 | ||||||
5.50%, due 1/1/21 | 543,619 | 590,670 | ||||||
5.50%, due 11/1/35 | 663,007 | 728,165 | ||||||
5.50%, due 11/1/36 | 186,088 | 204,293 | ||||||
6.50%, due 4/1/37 | 150,762 | 168,615 | ||||||
|
| |||||||
44,611,348 | ||||||||
|
| |||||||
Federal National Mortgage Association |
| |||||||
2.027%, due 11/1/34 (b) | 298,450 | 315,680 | ||||||
2.333%, due 4/1/34 (b) | 439,382 | 465,291 | ||||||
3.00%, due 10/1/32 | 1,281,887 | 1,293,930 | ||||||
3.50%, due 11/1/20 | 3,117,346 | 3,301,490 | ||||||
3.50%, due 10/1/25 | 1,554,935 | 1,643,918 | ||||||
¨3.50%, due 11/1/25 | 10,551,808 | 11,160,710 | ||||||
3.50%, due 11/1/32 | 916,775 | 954,782 | ||||||
3.50%, due 2/1/41 | 2,916,629 | 2,993,652 | ||||||
3.50%, due 11/1/41 | 2,921,929 | 3,002,705 | ||||||
3.50%, due 12/1/41 | 364,224 | 374,312 | ||||||
3.50%, due 1/1/42 | 2,331,283 | 2,398,137 | ||||||
3.50%, due 3/1/42 | 2,640,912 | 2,710,749 | ||||||
3.50%, due 8/1/42 | 1,818,849 | 1,844,417 | ||||||
3.50%, due 12/1/42 | 964,019 | 990,812 | ||||||
3.50%, due 2/1/43 | 1,437,956 | 1,477,896 | ||||||
3.50%, due 5/1/43 | 926,572 | 951,458 | ||||||
4.00%, due 9/1/31 | 2,433,102 | 2,590,857 | ||||||
4.00%, due 2/1/41 | 1,082,917 | 1,145,477 | ||||||
4.00%, due 3/1/41 | 3,003,116 | 3,183,138 | ||||||
4.00%, due 10/1/41 | 704,523 | 746,494 | ||||||
4.00%, due 3/1/42 | 1,991,650 | 2,089,491 | ||||||
4.00%, due 4/1/42 | 920,467 | 965,532 | ||||||
4.00%, due 6/1/42 | 2,259,797 | 2,362,563 | ||||||
4.00%, due 7/1/42 | 2,135,860 | 2,232,364 | ||||||
4.50%, due 7/1/18 | 2,461,767 | 2,616,130 | ||||||
4.50%, due 11/1/18 | 1,508,570 | 1,602,673 | ||||||
4.50%, due 6/1/23 | 812,334 | 864,314 | ||||||
4.50%, due 6/1/39 | 3,491,236 | 3,772,460 | ||||||
4.50%, due 7/1/39 | 2,880,757 | 3,121,422 | ||||||
4.50%, due 8/1/39 | 1,986,770 | 2,149,061 | ||||||
4.50%, due 9/1/40 | 2,051,282 | 2,223,999 |
Principal Amount | Value | |||||||
Federal National Mortgage Association |
| |||||||
4.50%, due 12/1/40 | $ | 2,890,525 | $ | 3,106,265 | ||||
¨4.50%, due 1/1/41 | 4,418,874 | 4,790,587 | ||||||
4.50%, due 2/1/41 | 1,127,596 | 1,220,653 | ||||||
4.50%, due 8/1/41 | 1,184,941 | 1,276,525 | ||||||
5.00%, due 9/1/17 | 734,090 | 778,487 | ||||||
5.00%, due 9/1/20 | 62,954 | 66,800 | ||||||
5.00%, due 11/1/33 | 860,248 | 937,478 | ||||||
5.00%, due 6/1/35 | 821,386 | 892,309 | ||||||
5.00%, due 10/1/35 | 362,571 | 393,782 | ||||||
5.00%, due 1/1/36 | 192,189 | 208,727 | ||||||
5.00%, due 2/1/36 | 1,364,093 | 1,481,373 | ||||||
5.00%, due 5/1/36 | 945,741 | 1,027,225 | ||||||
5.00%, due 6/1/36 | 173,405 | 188,278 | ||||||
5.00%, due 9/1/36 | 248,042 | 269,435 | ||||||
5.00%, due 3/1/40 | 1,912,329 | 2,093,291 | ||||||
5.00%, due 2/1/41 | 3,269,655 | 3,620,512 | ||||||
5.50%, due 1/1/17 | 48,516 | 51,456 | ||||||
5.50%, due 2/1/17 | 1,102,437 | 1,169,329 | ||||||
5.50%, due 6/1/19 | 748,467 | 804,586 | ||||||
5.50%, due 11/1/19 | 859,623 | 924,130 | ||||||
5.50%, due 4/1/21 | 1,201,304 | 1,301,156 | ||||||
5.50%, due 6/1/33 | 2,569,636 | 2,818,535 | ||||||
5.50%, due 11/1/33 | 1,476,250 | 1,613,817 | ||||||
5.50%, due 12/1/33 | 1,781,934 | 1,951,032 | ||||||
5.50%, due 6/1/34 | 428,219 | 467,628 | ||||||
5.50%, due 12/1/34 | 148,957 | 162,526 | ||||||
5.50%, due 3/1/35 | 742,014 | 807,420 | ||||||
5.50%, due 12/1/35 | 188,087 | 205,203 | ||||||
5.50%, due 4/1/36 | 607,931 | 662,927 | ||||||
5.50%, due 9/1/36 | 191,511 | 209,075 | ||||||
5.50%, due 7/1/37 | 363,186 | 404,508 | ||||||
6.00%, due 12/1/16 | 102,283 | 107,047 | ||||||
6.00%, due 11/1/32 | 447,882 | 496,566 | ||||||
6.00%, due 1/1/33 | 323,186 | 358,346 | ||||||
6.00%, due 3/1/33 | 384,402 | 420,604 | ||||||
6.00%, due 9/1/34 | 149,524 | 165,817 | ||||||
¨6.00%, due 3/1/35 TBA (g) | 5,300,000 | 5,804,949 | ||||||
6.00%, due 9/1/35 | 1,136,062 | 1,260,233 | ||||||
6.00%, due 10/1/35 | 416,245 | 463,392 | ||||||
6.00%, due 6/1/36 | 426,661 | 467,840 | ||||||
6.00%, due 11/1/36 | 898,160 | 994,116 | ||||||
6.00%, due 4/1/37 | 162,925 | 175,328 | ||||||
6.50%, due 10/1/31 | 258,612 | 297,298 | ||||||
6.50%, due 2/1/37 | 107,133 | 125,032 | ||||||
|
| |||||||
114,587,537 | ||||||||
|
| |||||||
Government National Mortgage Association |
| |||||||
4.00%, due 7/15/39 | 761,492 | 810,802 | ||||||
4.00%, due 9/20/40 | 3,034,149 | 3,258,669 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
U.S. Government & Federal Agencies (continued) | ||||||||
Government National Mortgage Association |
| |||||||
4.00%, due 11/20/40 | $ | 435,133 | $ | 467,284 | ||||
4.00%, due 1/15/41 | 2,863,410 | 3,067,787 | ||||||
¨4.00%, due 10/15/41 | 4,066,346 | 4,359,834 | ||||||
4.50%, due 5/20/40 | 3,604,728 | 3,919,720 | ||||||
5.00%, due 2/20/41 | 869,560 | 952,269 | ||||||
5.50%, due 10/1/35 TBA (g) | 2,950,000 | 3,222,760 | ||||||
6.00%, due 8/15/32 | 535,544 | 595,484 | ||||||
6.00%, due 12/15/32 | 291,560 | 325,900 | ||||||
6.50%, due 8/15/28 | 194,087 | 221,894 | ||||||
6.50%, due 4/15/31 | 531,229 | 615,851 | ||||||
|
| |||||||
21,818,254 | ||||||||
|
| |||||||
¨Overseas Private Investment Corporation 2.8% |
| |||||||
5.142%, due 12/15/23 | 5,648,253 | 6,369,072 | ||||||
|
| |||||||
Tennessee Valley Authority 4.2% |
| |||||||
¨4.65%, due 6/15/35 | 5,605,000 | 5,773,795 | ||||||
6.25%, due 12/15/17 | 2,980,000 | 3,556,585 | ||||||
|
| |||||||
9,330,380 | ||||||||
|
| |||||||
Total U.S. Government & Federal Agencies |
| 196,815,294 | ||||||
|
| |||||||
Total Long-Term Bonds |
| 220,232,811 | ||||||
|
| |||||||
Short-Term Investment 5.6% | ||||||||
Repurchase Agreement 5.6% |
| |||||||
State Street Bank and Trust Co. | 12,544,250 | 12,544,250 | ||||||
|
| |||||||
Total Short-Term Investment | 12,544,250 | |||||||
|
| |||||||
Total Investments | 103.7 | % | 232,777,061 | |||||
Other Assets, Less Liabilities | (3.7 | ) | (8,405,181 | ) | ||||
Net Assets | 100.0 | % | $ | 224,371,880 | ||||
Contracts Short | Unrealized Appreciation (Depreciation) (h) | |||||||
Futures Contracts (0.4%) | ||||||||
United States Treasury Notes | (220 | ) | $ | (485,237 | ) | |||
United States Treasury Notes | (90 | ) | (312,413 | ) | ||||
|
| |||||||
Total Futures Contracts Short |
| $ | (797,650 | ) | ||||
|
|
‡ | Less than one-tenth of a percent. |
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(b) | Floating rate—Rate shown is the rate in effect as of October 31, 2013. |
(c) | Collateral strip rate—A bond whose interest is based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect as of October 31, 2013. |
(d) | Illiquid security—The total market value of this security as of October 31, 2013 is $1,026,952, which represents 0.5% of the Fund’s net assets. |
(e) | Fair valued security—The total market value of this security as of October 31, 2013 is $1,026,952, which represents 0.5% of the Fund’s net assets. |
(f) | Collateralized Mortgage Obligation Interest Only Strip—Pays a fixed or variable rate of interest based on mortgage loans or mortgage pass-through securities. The principal amount of the underlying pool represents the notional amount on which the current interest is calculated. The value of these stripped securities may be particularly sensitive to changes in prevailing interest rates and are typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities. |
(g) | TBA—Securities purchased on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement. The market value of these securities as of October 31, 2013, is $9,027,709, which represents 4.0% of the Fund’s net assets. All or a portion of these securities were acquired under a mortgage dollar roll agreement. |
(h) | Represents the difference between the value of the contracts at the time they were opened and the value as of October 31, 2013. |
(i) | As of October 31, 2013, cash in the amount of $330,750 is on deposit with a broker for futures transactions. |
(j) | As of October 31, 2013, cost is $225,882,099 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 8,757,175 | ||
Gross unrealized depreciation | (1,862,213 | ) | ||
|
| |||
Net unrealized appreciation | $ | 6,894,962 | ||
|
|
14 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Security | $ | — | $ | 2,928,141 | $ | — | $ | 2,928,141 | ||||||||
Corporate Bonds | — | 10,252,475 | — | 10,252,475 | ||||||||||||
Mortgage-Backed Securities (b) | — | 9,209,949 | 1,026,952 | 10,236,901 | ||||||||||||
U.S. Government & Federal Agencies | — | 196,815,294 | — | 196,815,294 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 219,205,859 | 1,026,952 | 220,232,811 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 12,544,250 | — | 12,544,250 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 231,750,109 | $ | 1,026,952 | $ | 232,777,061 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (c) | $ | (797,650 | ) | $ | — | $ | — | $ | (797,650 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (797,650 | ) | $ | — | $ | — | $ | (797,650 | ) | ||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $1,026,952 is held in Residential Mortgages (Collateralized Mortgage Obligations) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
(c) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in Securities | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers into Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at October 31, 2013 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Residential Mortgage (Collateralized Mortgage Obligation) | $ | 1,101,621 | $ | 627 | $ | 1,407 | $ | (78,108 | ) | $ | 84,811 | $ | (83,406 | )(b) | $ | — | $ | — | $ | 1,026,952 | $ | (105,415 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 1,101,621 | $ | 627 | $ | 1,407 | $ | (78,108 | ) | $ | 84,811 | $ | (83,406 | ) | $ | — | $ | — | $ | 1,026,952 | $ | (105,415 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(b) | Sales include principal reductions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 232,777,061 | ||
Cash collateral on deposit at broker | 330,750 | |||
Receivables: | ||||
Interest | 944,479 | |||
Fund shares sold | 130,080 | |||
Variation margin on futures contracts | 12,344 | |||
Investment securities sold | 8,561 | |||
Other assets | 18,737 | |||
|
| |||
Total assets | 234,222,012 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 9,015,984 | |||
Fund shares redeemed | 483,999 | |||
Transfer agent (See Note 3) | 113,872 | |||
Manager (See Note 3) | 89,674 | |||
NYLIFE Distributors (See Note 3) | 65,507 | |||
Shareholder communication | 30,087 | |||
Professional fees | 13,587 | |||
Custodian | 3,011 | |||
Trustees | 536 | |||
Accrued expenses | 4,217 | |||
Dividend payable | 29,658 | |||
|
| |||
Total liabilities | 9,850,132 | |||
|
| |||
Net assets | $ | 224,371,880 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 261,588 | ||
Additional paid-in capital | 216,853,844 | |||
|
| |||
217,115,432 | ||||
Distributions in excess of net investment income | (29,658 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | 1,188,794 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 6,097,312 | |||
|
| |||
Net assets | $ | 224,371,880 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 50,200,070 | ||
|
| |||
Shares of beneficial interest outstanding | 5,836,197 | |||
|
| |||
Net asset value per share outstanding | $ | 8.60 | ||
Maximum sales charge (4.50% of offering price) | 0.41 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.01 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 143,234,359 | ||
|
| |||
Shares of beneficial interest outstanding | 16,714,819 | |||
|
| |||
Net asset value per share outstanding | $ | 8.57 | ||
Maximum sales charge (4.50% of offering price) | 0.40 | |||
|
| |||
Maximum offering price per share outstanding | $ | 8.97 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 14,783,267 | ||
|
| |||
Shares of beneficial interest outstanding | 1,725,538 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.57 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 12,593,448 | ||
|
| |||
Shares of beneficial interest outstanding | 1,470,719 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.56 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 3,560,736 | ||
|
| |||
Shares of beneficial interest outstanding | 411,530 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 8.65 | ||
|
|
16 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 8,201,943 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 1,388,530 | |||
Distribution/Service—Investor Class (See Note 3) | 135,888 | |||
Distribution/Service—Class A (See Note 3) | 398,327 | |||
Distribution/Service—Class B (See Note 3) | 185,706 | |||
Distribution/Service—Class C (See Note 3) | 197,146 | |||
Transfer agent (See Note 3) | 685,392 | |||
Registration | 76,350 | |||
Shareholder communication | 60,724 | |||
Professional fees | 59,773 | |||
Custodian | 18,933 | |||
Trustees | 5,199 | |||
Miscellaneous | 12,511 | |||
|
| |||
Total expenses before waiver/reimbursement | 3,224,479 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (158,810 | ) | ||
|
| |||
Net expenses | 3,065,669 | |||
|
| |||
Net investment income (loss) | 5,136,274 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts | ||||
Net realized gain (loss) on: | ||||
Security transactions | 898,798 | |||
Futures transactions | 321,536 | |||
|
| |||
Net realized gain (loss) on investments and futures transactions | 1,220,334 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (12,708,797 | ) | ||
Futures contracts | (797,650 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (13,506,447 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments and futures transactions | (12,286,113 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | (7,149,839 | ) | |
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 5,136,274 | $ | 6,699,419 | ||||
Net realized gain (loss) on investments and futures transactions | 1,220,334 | 1,112,552 | ||||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (13,506,447 | ) | 5,113,508 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (7,149,839 | ) | 12,925,479 | |||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,111,828 | ) | (1,402,870 | ) | ||||
Class A | (3,529,657 | ) | (4,505,357 | ) | ||||
Class B | (240,849 | ) | (386,316 | ) | ||||
Class C | (251,321 | ) | (479,756 | ) | ||||
Class I | (100,949 | ) | (123,869 | ) | ||||
|
| |||||||
(5,234,604 | ) | (6,898,168 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (199,692 | ) | (160,179 | ) | ||||
Class A | (601,802 | ) | (479,452 | ) | ||||
Class B | (75,460 | ) | (69,111 | ) | ||||
Class C | (94,570 | ) | (81,368 | ) | ||||
Class I | (19,247 | ) | (10,359 | ) | ||||
|
| |||||||
(990,771 | ) | (800,469 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (6,225,375 | ) | (7,698,637 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 15,207,807 | 45,617,984 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 5,625,135 | 6,706,090 | ||||||
Cost of shares redeemed | (70,561,537 | ) | (64,943,577 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (49,728,595 | ) | (12,619,503 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | (63,103,809 | ) | (7,392,661 | ) | ||||
Net Assets | ||||||||
Beginning of year | 287,475,689 | 294,868,350 | ||||||
|
| |||||||
End of year | $ | 224,371,880 | $ | 287,475,689 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of year | $ | (29,658 | ) | $ | 37,350 | |||
|
|
18 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.05 | $ | 8.90 | $ | 9.03 | $ | 8.75 | $ | 8.16 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.18 | 0.21 | 0.23 | 0.21 | 0.26 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.42 | ) | 0.17 | (0.00 | )‡ | 0.28 | 0.59 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.24 | ) | 0.38 | 0.23 | 0.49 | 0.85 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.18 | ) | (0.21 | ) | (0.27 | ) | (0.21 | ) | (0.26 | ) | ||||||||||
From net realized gain on investments | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.21 | ) | (0.23 | ) | (0.36 | ) | (0.21 | ) | (0.26 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 8.60 | $ | 9.05 | $ | 8.90 | $ | 9.03 | $ | 8.75 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.66 | %) | 4.42 | % | 2.73 | % | 5.67 | % | 10.67 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.01 | % | 2.32 | % | 2.61 | % | 2.37 | % | 2.99 | % | ||||||||||
Net expenses | 1.19 | % | 1.17 | % | 1.17 | % | 1.15 | % | 1.04 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.25 | % | 1.28 | % | 1.31 | % | 1.32 | % | 1.34 | % | ||||||||||
Portfolio turnover rate (c) | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 50,200 | $ | 57,666 | $ | 59,533 | $ | 62,350 | $ | 63,591 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 7%, 16%, 43%, 19% and 45% for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.72 | $ | 8.13 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.19 | 0.22 | 0.24 | 0.22 | 0.27 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 0.19 | (0.01 | ) | 0.28 | 0.59 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.22 | ) | 0.41 | 0.23 | 0.50 | 0.86 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.20 | ) | (0.23 | ) | (0.28 | ) | (0.22 | ) | (0.27 | ) | ||||||||||
From net realized gain on investments | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.23 | ) | (0.25 | ) | (0.37 | ) | (0.22 | ) | (0.27 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.72 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.50 | %) | 4.70 | % | 2.76 | % | 5.81 | % | 10.71 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.17 | % | 2.46 | % | 2.74 | % | 2.49 | % | 3.11 | % | ||||||||||
Net expenses | 1.03 | % | 1.03 | % | 1.03 | % | 1.03 | % | 0.92 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.09 | % | 1.14 | % | 1.17 | % | 1.20 | % | 1.21 | % | ||||||||||
Portfolio turnover rate (c) | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 143,234 | $ | 174,621 | $ | 176,253 | $ | 187,828 | $ | 187,771 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 7%, 16%, 43%, 19% and 45% for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.13 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.11 | 0.14 | 0.16 | 0.14 | 0.19 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.42 | ) | 0.19 | (0.00 | )‡ | 0.29 | 0.59 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.31 | ) | 0.33 | 0.16 | 0.43 | 0.78 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.11 | ) | (0.15 | ) | (0.21 | ) | (0.14 | ) | (0.20 | ) | ||||||||||
From net realized gain on investments | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.14 | ) | (0.17 | ) | (0.30 | ) | (0.14 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 8.57 | $ | 9.02 | $ | 8.86 | $ | 9.00 | $ | 8.71 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.40 | %) | 3.77 | % | 1.85 | % | 5.02 | % | 9.62 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.26 | % | 1.57 | % | 1.85 | % | 1.62 | % | 2.24 | % | ||||||||||
Net expenses | 1.94 | % | 1.92 | % | 1.92 | % | 1.90 | % | 1.79 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.00 | % | 2.03 | % | 2.06 | % | 2.07 | % | 2.09 | % | ||||||||||
Portfolio turnover rate (c) | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 14,783 | $ | 21,826 | $ | 25,644 | $ | 36,859 | $ | 45,178 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 7%, 16%, 43%, 19% and 45% for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.01 | $ | 8.86 | $ | 9.00 | $ | 8.71 | $ | 8.12 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.11 | 0.14 | 0.16 | 0.14 | 0.19 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.42 | ) | 0.18 | (0.00 | )‡ | 0.29 | 0.60 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.31 | ) | 0.32 | 0.16 | 0.43 | 0.79 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.11 | ) | (0.15 | ) | (0.21 | ) | (0.14 | ) | (0.20 | ) | ||||||||||
From net realized gain on investments | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.14 | ) | (0.17 | ) | (0.30 | ) | (0.14 | ) | (0.20 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 8.56 | $ | 9.01 | $ | 8.86 | $ | 9.00 | $ | 8.71 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.41 | %) | 3.66 | % | 1.85 | % | 5.02 | % | 9.75 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.24 | % | 1.57 | % | 1.86 | % | 1.62 | % | 2.23 | % | ||||||||||
Net expenses | 1.94 | % | 1.92 | % | 1.92 | % | 1.90 | % | 1.80 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.00 | % | 2.03 | % | 2.06 | % | 2.07 | % | 2.09 | % | ||||||||||
Portfolio turnover rate (c) | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 12,593 | $ | 27,610 | $ | 29,441 | $ | 33,523 | $ | 32,659 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 7%, 16%, 43%, 19% and 45% for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
20 | MainStay Government Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 9.10 | $ | 8.94 | $ | 9.08 | $ | 8.79 | $ | 8.19 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.21 | 0.24 | 0.26 | 0.24 | 0.30 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.41 | ) | 0.19 | (0.00 | )‡ | 0.29 | 0.61 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.20 | ) | 0.43 | 0.26 | 0.53 | 0.91 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.22 | ) | (0.25 | ) | (0.31 | ) | (0.24 | ) | (0.31 | ) | ||||||||||
From net realized gain on investments | (0.03 | ) | (0.02 | ) | (0.09 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.25 | ) | (0.27 | ) | (0.40 | ) | (0.24 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 8.65 | $ | 9.10 | $ | 8.94 | $ | 9.08 | $ | 8.79 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.24 | %) | 4.92 | % | 2.99 | % | 6.14 | % | 11.21 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.42 | % | 2.69 | % | 2.99 | % | 2.74 | % | 3.52 | % | ||||||||||
Net expenses | 0.78 | % | 0.78 | % | 0.78 | % | 0.78 | % | 0.51 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.84 | % | 0.89 | % | 0.92 | % | 0.95 | % | 0.97 | % | ||||||||||
Portfolio turnover rate (c) | 28 | % | 37 | % | 62 | % | 132 | % | 103 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 3,561 | $ | 5,753 | $ | 3,998 | $ | 4,284 | $ | 1,746 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | The portfolio turnover rates not including mortgage dollar rolls were 7%, 16%, 43%, 19% and 45% for the years ended October 31, 2013, 2012, 2011, 2010 and 2009, respectively. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Government Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek current income.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via tele-
conference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable
22 | MainStay Government Fund |
inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids / Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund’s Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor measure the liquidity of the Fund’s investments; in doing so, the Manager or Subadvisor may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least monthly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method and include gains and losses from repayments of principal on mortgage-backed securities. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisors to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager will continue to monitor the cred-
itworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) 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 financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and/or interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by ‘‘marking-to-market’’ such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as ‘‘variation margin.’’ When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(I) Dollar Rolls. The Fund may enter into dollar roll transactions in which it sells mortgage-backed securities (“MBS”) from its portfolio to a counterparty from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. The dollar roll transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the dollar rolls are removed from the portfolio and a realized gain or loss is recognized. The securities the Fund has agreed to acquire are included at market value in the Portfolio of Investments and liabilities for such purchase commitments are included as payables
24 | MainStay Government Fund |
for investments purchased. During the roll period, the Fund foregoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the forward price for the future as well as by the earnings on the cash proceeds of the initial sale. Dollar rolls may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. Dollar roll transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll period, while substantially similar, could be inferior to what was initially sold to the counterparty.
(J) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(K) Concentration of Risk. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(L) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(M) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Liability Derivatives
Statement of Assets and Liabilities Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (a) | $ | (797,650 | ) | $ | (797,650 | ) | |||
|
| |||||||||
Total Fair Value | $ | (797,650 | ) | $ | (797,650 | ) | ||||
|
|
(a) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | 321,536 | $ | 321,536 | |||||
|
| |||||||||
Total Realized Gain (Loss) | $ | 321,536 | $ | 321,536 | ||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | (797,650 | ) | $ | (797,650 | ) | |||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (797,650 | ) | $ | (797,650 | ) | ||||
|
|
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
Number of Contracts, Notional Amounts or Shares/Units (1)
Interest Rate Contracts Risk | Total | |||||||
Futures Contracts Long | (293 | ) | (293 | ) | ||||
|
|
(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
Effective February 28, 2013, the Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of its average daily net assets as follows: 0.50% up to $500 million; 0.475% from $500 million to $1 billion; and 0.45% in excess of $1 billion.
Prior to February 28, 2013, the Fund paid the Manager a monthly fee for services performed and facilities furnished at an annual rate of its average daily net assets as follows: 0.60% up to $500 million; 0.575% from $500 million to $1 billion; and 0.55% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million.
The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.54% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets. The fund accounting fee was discontinued February 28, 2013.
Additionally, New York life Investments had contractually agreed to waive fees and/or reimburse expenses so that the management fee does not exceed 0.5% up to $500 million; 0.475% from $500 million to $1 billion; and 0.45% in excess of $1 billion.
New York Life Investments has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses
for the Fund’s Class A shares do not exceed 1.03% of its average daily net assets. New York Life Investments will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes of the Fund. This agreement will remain in effect until February 28, 2014, and shall renew automatically for one-year terms unless New York Life Investments provides written notice of termination prior to the start of the next term or upon approval of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $1,388,530 and waived its fees and/or reimbursed expenses in the amount of $158,810.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $6,905 and $8,313, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $39, $2,477, $36,758 and $829, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM
26 | MainStay Government Fund |
Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 202,255 | ||
Class A | 332,439 | |||
Class B | 69,008 | |||
Class C | 73,058 | |||
Class I | 8,632 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary Income | Accumulated Capital and Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Accumulated Gain (Loss) | ||||||||||||
$— | $ | 391,144 | $ | (29,658 | ) | $ | 6,894,962 | $ | 7,256,448 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to mark to market of futures contracts. The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||||
$31,322 | $ | (31,322 | ) | $ | — |
The reclassifications for the Fund are primarily due to distribution re-designations and mortgage dollar rolls.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 5,193,857 | $ | 6,898,168 | ||||
Long-Term Capital Gain | 1,031,518 | 800,469 | ||||||
Total | $ | 6,225,375 | $ | 7,698,637 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of U.S. government securities were $69,525 and $115,428, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $2,234 and $12,733, respectively.
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 232,544 | $ | 2,064,076 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 141,775 | 1,249,696 | ||||||
Shares redeemed | (1,143,964 | ) | (10,028,573 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (769,645 | ) | (6,714,801 | ) | ||||
Shares converted into Investor Class (See Note 1) | 372,245 | 3,264,966 | ||||||
Shares converted from Investor Class (See Note 1) | (135,809 | ) | (1,198,876 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (533,209 | ) | $ | (4,648,711 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 412,800 | $ | 3,701,825 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 165,025 | 1,479,583 | ||||||
Shares redeemed | (979,647 | ) | (8,792,514 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (401,822 | ) | (3,611,106 | ) | ||||
Shares converted into Investor Class (See Note 1) | 426,787 | 3,827,336 | ||||||
Shares converted from Investor Class (See Note 1) | (347,894 | ) | (3,123,154 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (322,929 | ) | $ | (2,906,924 | ) | |||
|
|
|
| |||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 793,360 | $ | 6,970,145 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 425,500 | 3,736,011 | ||||||
Shares redeemed | (3,972,078 | ) | (34,779,426 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (2,753,218 | ) | (24,073,270 | ) | ||||
Shares converted into Class A (See Note 1) | 257,563 | 2,262,787 | ||||||
Shares converted from Class A (See Note 1) | (147,227 | ) | (1,280,945 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (2,642,882 | ) | $ | (23,091,428 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 2,981,393 | $ | 26,634,948 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 486,925 | 4,350,002 | ||||||
Shares redeemed | (4,423,774 | ) | (39,645,645 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (955,456 | ) | (8,660,695 | ) | ||||
Shares converted into Class A (See Note 1) | 554,513 | 4,951,502 | ||||||
Shares converted from Class A (See Note 1) | (124,452 | ) | (1,117,443 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (525,395 | ) | $ | (4,826,636 | ) | |||
|
|
|
| |||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 284,431 | $ | 2,497,083 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 31,518 | 277,771 | ||||||
Shares redeemed | (662,796 | ) | (5,774,188 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (346,847 | ) | (2,999,334 | ) | ||||
Shares converted from Class B (See Note 1) | (347,821 | ) | (3,047,932 | ) | ||||
|
| |||||||
Net increase (decrease) | (694,668 | ) | $ | (6,047,266 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 460,007 | $ | 4,114,324 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 45,752 | 408,147 | ||||||
Shares redeemed | (470,076 | ) | (4,205,073 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 35,683 | 317,398 | ||||||
Shares converted from Class B (See Note 1) | (509,203 | ) | (4,538,241 | ) | ||||
|
| |||||||
Net increase (decrease) | (473,520 | ) | $ | (4,220,843 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 240,284 | $ | 2,123,089 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 29,113 | 256,527 | ||||||
Shares redeemed | (1,861,629 | ) | (16,340,739 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,592,232 | ) | $ | (13,961,123 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 786,623 | $ | 7,017,951 | |||||
Shares issued to shareholders in reinvestments of dividends and distributions | 39,185 | 349,640 | ||||||
Shares redeemed | (1,086,482 | ) | (9,710,415 | ) | ||||
|
| |||||||
Net increase (decrease) | (260,674 | ) | $ | (2,342,824 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 174,827 | $ | 1,553,414 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 11,838 | 105,130 | ||||||
Shares redeemed | (407,043 | ) | (3,638,611 | ) | ||||
|
| |||||||
Net increase (decrease) | (220,378 | ) | $ | (1,980,067 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 459,198 | $ | 4,148,936 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,153 | 118,718 | ||||||
Shares redeemed | (287,451 | ) | (2,589,930 | ) | ||||
|
| |||||||
Net increase (decrease) | 184,900 | $ | 1,677,724 | |||||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
28 | MainStay Government Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Government Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Government Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 29 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years. Accordingly, the Fund paid $1,031,518 as a long term capital gain distribution.
In February 2014 shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
30 | MainStay Government Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 31 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
32 | MainStay Government Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 33 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
34 | MainStay Government Fund |
MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31968 MS322-13 | MSG11-12/13 NL007 |
MainStay High Yield Corporate Bond Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 2.41 7.24 | %
|
| 12.99 14.03 | %
|
| 7.25 7.74 | %
|
| 1.03 1.03 | %
| ||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 2.33 7.15 |
|
| 13.02 14.07 |
|
| 7.27 7.76 |
|
| 1.00 1.00 |
| ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 1.36 6.36 |
|
| 12.90 13.15 |
|
| 6.93 6.93 |
|
| 1.78 1.78 |
| ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 5.36 6.36 |
|
| 13.14 13.14 |
|
| 6.93 6.93 |
|
| 1.78 1.78 |
| ||||||
Class I Shares4 | No Sales Charge | 7.40 | 14.31 | 8.03 | 0.75 | |||||||||||||||
Class R1 Shares5 | No Sales Charge | 7.32 | 14.16 | 7.90 | 0.87 | |||||||||||||||
Class R2 Shares6 | No Sales Charge | 7.06 | 13.92 | 7.67 | 1.10 | |||||||||||||||
Class R6 Shares7 | No Sales Charge | 7.65 | 14.36 | 8.05 | 0.59 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares would likely have been different. |
5. | Performance figures for Class R1 shares, first offered on June 29, 2012, include the historical performance of Class B shares through June 28, 2012, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R1 shares would likely have been different. |
6. | Class R2 shares, first offered on December 14, 2007, but did not commence investment operations until May 1, 2008. Performance figures for Class R2 shares include the historical performance of Class B shares through April 30, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R2 shares would likely have been different. |
7. | Performance figures for Class R6 shares, first offered on June 17, 2013, include the historical performance of Class I shares. Performance for Class R6 shares would likely have been different because of differences in expenses attributable to each share class. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Credit Suisse High Yield Index8 | 8.87 | % | 17.01 | % | 8.63 | % | ||||||
Average Lipper High Yield Fund9 | 8.19 | 15.21 | 7.50 |
8. | The Credit Suisse High Yield Index is a market-weighted index that includes publicly traded bonds rated below BBB by Standard & Poor’s and below Baa by Moody’s. The Credit Suisse High Yield Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
9. | The average Lipper high yield fund is representative of funds that, by portfolio practice, aim at high (relative) current yield from fixed income |
securities, have no quality or maturity restrictions, and tend to invest in lower-grade debt issues. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay High Yield Corporate Bond Fund |
Cost in Dollars of a $1,000 Investment in MainStay High Yield Corporate Bond Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,013.50 | $ | 5.23 | $ | 1,020.00 | $ | 5.24 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,013.70 | $ | 5.18 | $ | 1,020.10 | $ | 5.19 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,009.90 | $ | 9.02 | $ | 1,016.20 | $ | 9.05 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,008.20 | $ | 9.01 | $ | 1,016.20 | $ | 9.05 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,013.30 | $ | 3.91 | $ | 1,021.30 | $ | 3.92 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,014.50 | $ | 4.47 | $ | 1,020.80 | $ | 4.48 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,011.70 | $ | 5.68 | $ | 1,019.60 | $ | 5.70 | ||||||||||
Class R6 Shares2,3 | $ | 1,000.00 | $ | 1,027.90 | $ | 2.23 | $ | 1,016.40 | $ | 2.22 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.03% for Investor Class, 1.02% for Class A, 1.78% for Class B and C, 0.77% for Class I, 0.88% for Class R1, 1.12% for Class R2 and 0.59% for Class R6) multiplied by the average account value over the period, divided by 365 and multiplied by 184 days for Investor Class, Class A, Class B, Class C, Class I, Class R1 and Class R2 (to reflect the one-half year period) and 136 days for Class R6 (to reflect the since-inception period). The table above represents actual expenses incurred during the six-month period. |
2. | Expenses paid during the period reflect ongoing costs for the period from inception through October 31, 2013. Had these shares been offered for the full six-month period ended October 31, 2013, and had the Fund provided a hypothetical 5% annualized return, expenses paid during the period would have been $3.01 for Class R6 and the ending account value would have been $1,022.20 for Class R6. |
3. | The inception date for Class R6 shares was June 17, 2013. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Texas Industries, Inc., 9.25%, due 8/15/20 |
2. | GenOn Energy, Inc., 7.875%–9.50%, due 6/15/17–10/15/18 |
3. | Nationstar Mortgage LLC / Nationstar Capital Corp., 6.50%–10.875%, due 4/1/15–7/1/21 |
4. | Schaeffler Finance B.V., 4.75%–8.50%, due 2/15/17–5/15/21 |
5. | Seagate HDD Cayman, 4.75%–7.00%, due 11/1/21–6/1/23 |
6. | MetroPCS Wireless, Inc., 6.25%–6.625%, due 4/1/21–4/1/23 |
7. | Concho Resources, Inc., 5.50%–7.00%, due 1/15/21–4/1/23 |
8. | Ally Financial, Inc., 6.25%–8.30%, due 2/12/15–11/1/31 |
9. | Algeco Scotsman Global Finance PLC, 8.50%–10.75%, due 10/15/18–10/15/19 |
10. | HCA, Inc., 4.75%–9.00%, due 12/15/14–9/15/25 |
8 | MainStay High Yield Corporate Bond Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers J. Matthew Philo, CFA, and Andrew Susser of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay High Yield Corporate Bond Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay High Yield Corporate Bond Fund returned 7.24% for Investor Class shares, 7.15% for Class A shares and 6.36% for Class B and Class C shares for the 12 months ended October 31, 2013. Over the same period, Class I shares returned 7.40%, Class R1 shares returned 7.32%, Class R2 shares returned 7.06% and Class R6 shares returned 7.65%. For the 12 months ended October 31, 2013, all share classes underperformed the 8.87% return of the Credit Suisse High Yield Index,1 which is the Fund’s broad- based securities-market index, and the 8.19% return of the average Lipper2 high yield fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s performance relative to the Credit Suisse High Yield Index resulted from our bottom-up investment style, which focuses on individual companies and seeks to maximize risk-adjusted returns. The Fund remained conservatively positioned throughout the reporting period because we believed that valuations (as measured by spreads)3 and the resiliency of credit profiles in the higher-quality portion of the high-yield corporate bond market were more attractive. In addition, we viewed valuations in the higher-risk segment of the high-yield market to be generally unattractive. We believe that the riskier segment of the high-yield market is particularly vulnerable because of weak credit profiles and the challenging outlook for corporate earnings. Nevertheless, the Fund’s underweight position relative to the broad high-yield market in credit risk detracted from relative performance during the reporting period, as credits rated CCC4 significantly outperformed the rest of the market.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
The U.S. high-yield corporate bond market generated strong returns for the 12 months ended October 31, 2013, as market liquidity and exceptionally low interest rates continued to fuel demand for income-generating assets.
Because the Fund uses a bottom-up investment style, the factors that prompt significant decisions are specific to each
individual company. During the reporting period, we generally believed that valuations for most of the riskier high-yield bonds were unattractive, and we positioned the Fund more conservatively.
During the reporting period, which industries were the strongest positive contributors to the Fund’s absolute performance and which industries were particularly weak?
The strongest positive industry contributions to the Fund’s absolute performance came from investments in energy, financials and transportation. Although no industries generated negative absolute returns during the reporting period, positions in the metals & mining, aerospace and retail industries contributed the least to the Fund’s absolute performance.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund purchased the bonds of MetroPCS in anticipation of its May 2013 merger with T-Mobile US, 74% of which is owned by Deutsche Telekom AG. We believed that the combined company would generate meaningful free cash flow and lower leverage. In addition, we felt that Deutsche Telekom’s ownership position in both the debt and the equity would provide meaningful support. The Fund also initiated a position in Rex Energy, an oil and gas producer. Most of the company’s assets are in proved reserves and had ample reserve asset coverage.
During the reporting period, the Fund sold its position in Brazilian private oil and gas company OGX Petroleo after losing confidence in the company’s asset value. OGX Petroleo has had very disappointing production and cost performance. The Fund also eliminated its position in department store J.C. Penney. The Fund’s bonds in gaming company Station Casinos were called.
How did the Fund’s industry weightings change during the reporting period?
During the reporting period, there were no material changes to the industry weights in the Fund. There was a small increase in the Fund’s exposure to housing and industries because of attractive valuations and yield levels. During the reporting period, the Fund reduced its exposure in the gaming/leisure and health care industries.
1. | See footnote on page 6 for more information on the Credit Suisse High Yield Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time. |
4. | An obligation rated ‘CCC’ by Standard & Poor’s (“S&P”) is deemed by S&P to be currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. It is the opinion of S&P that in the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. When applied to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund. |
mainstayinvestments.com | 9 |
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund held overweight positions relative to the Credit Suisse High Yield Index in the transportation and housing industries. As of the same date, the Fund was underweight relative to the Credit Suisse High Yield Index in the media and energy industries.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay High Yield Corporate Bond Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Long-Term Bonds 94.8%† Convertible Bonds 0.1% | ||||||||
Electric 0.1% | ||||||||
Somerset Cayuga Holding Co., Inc. | $ | 4,132,968 | $ | 6,075,462 | ||||
|
| |||||||
Internet 0.0%‡ | ||||||||
At Home Corp. | 61,533,853 | 6,154 | ||||||
|
| |||||||
Total Convertible Bonds | 6,081,616 | |||||||
|
| |||||||
Corporate Bonds 91.3% | ||||||||
Advertising 0.3% | ||||||||
Lamar Media Corp. | 11,000,000 | 11,357,500 | ||||||
7.875%, due 4/15/18 | 7,490,000 | 7,976,850 | ||||||
9.75%, due 4/1/14 | 9,780,000 | 10,122,300 | ||||||
|
| |||||||
29,456,650 | ||||||||
|
| |||||||
Aerospace & Defense 1.7% | ||||||||
AAR Corp. | 20,565,000 | 21,696,075 | ||||||
7.25%, due 1/15/22 (a) | 8,795,000 | 9,278,725 | ||||||
Alliant Techsystems, Inc. | 3,655,000 | 3,677,844 | ||||||
6.875%, due 9/15/20 | 12,270,000 | 13,098,225 | ||||||
B/E Aerospace, Inc. | 29,690,000 | 30,506,475 | ||||||
DAE Aviation Holdings, Inc. | 13,569,000 | 13,619,884 | ||||||
GenCorp, Inc. | 22,564,000 | 24,143,480 | ||||||
TransDigm, Inc. | 4,840,000 | 4,876,300 | ||||||
7.75%, due 12/15/18 | 24,730,000 | 26,584,750 | ||||||
|
| |||||||
147,481,758 | ||||||||
|
| |||||||
Apparel 0.5% | ||||||||
Hanesbrands, Inc. | 6,915,000 | 7,244,154 | ||||||
William Carter Co. (The) | 17,520,000 | 17,782,800 | ||||||
Wolverine World Wide, Inc. | 13,709,000 | 14,600,085 | ||||||
|
| |||||||
39,627,039 | ||||||||
|
| |||||||
Auto Manufacturers 0.7% | ||||||||
Allied Specialty Vehicles, Inc. | 26,100,000 | 26,100,000 |
Principal Amount | Value | |||||||
Auto Manufacturers (continued) | ||||||||
Jaguar Land Rover Automotive PLC | $ | 8,495,000 | $ | 8,431,288 | ||||
8.125%, due 5/15/21 (a) | 9,590,000 | 10,884,650 | ||||||
Oshkosh Corp. | 9,644,000 | 10,222,640 | ||||||
8.50%, due 3/1/20 | 2,010,000 | 2,221,050 | ||||||
|
| |||||||
57,859,628 | ||||||||
|
| |||||||
Auto Parts & Equipment 5.1% | ||||||||
Allison Transmission, Inc. | 31,185,000 | 33,601,837 | ||||||
Chassix, Inc. | 12,000,000 | 12,870,000 | ||||||
Continental Rubber of America Corp. | 18,400,000 | 19,296,080 | ||||||
Cooper-Standard Automotive, Inc. | 45,044,000 | 48,422,300 | ||||||
Cooper-Standard Holding, Inc. | 10,675,000 | 10,755,063 | ||||||
Dana Holding Corp. | 17,319,000 | 18,531,330 | ||||||
6.75%, due 2/15/21 | 6,898,000 | 7,501,575 | ||||||
Delphi Corp. | 22,280,000 | 23,728,200 | ||||||
6.125%, due 5/15/21 | 1,300,000 | 1,430,000 | ||||||
Exide Technologies | 64,863,000 | 50,593,140 | ||||||
International Automotive Components Group S.A. | 13,960,000 | 14,378,800 | ||||||
¨Schaeffler Finance B.V. | 36,944,000 | 36,851,640 | ||||||
7.75%, due 2/15/17 (a) | 45,603,000 | 51,759,405 | ||||||
8.50%, due 2/15/19 (a) | 12,575,000 | 14,146,875 | ||||||
Schaeffler Holding Finance B.V. | 48,612,000 | 51,771,780 | ||||||
Tenneco, Inc. | 10,225,000 | 11,196,375 | ||||||
7.75%, due 8/15/18 | 1,300,000 | 1,404,000 | ||||||
Titan International, Inc. | 8,640,000 | 8,856,000 | ||||||
TRW Automotive, Inc. | 9,065,000 | 9,246,300 | ||||||
7.00%, due 3/15/14 (a) | 7,680,000 | 7,852,800 | ||||||
7.25%, due 3/15/17 (a) | 4,400,000 | 5,049,000 | ||||||
8.875%, due 12/1/17 (a) | 11,595,000 | 12,174,866 | ||||||
|
| |||||||
451,417,366 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held as of October 31, 2013, excluding short-term investments. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Banks 1.1% | ||||||||
¨Ally Financial, Inc. | $ | 9,836,000 | $ | 10,893,370 | ||||
7.50%, due 9/15/20 | 10,228,000 | 11,966,760 | ||||||
8.00%, due 11/1/31 | 27,822,000 | 32,843,871 | ||||||
8.30%, due 2/12/15 | 22,520,000 | 24,406,050 | ||||||
Provident Funding Associates, L.P. | 10,950,000 | 11,196,375 | ||||||
10.125%, due 2/15/19 (a) | 6,460,000 | 7,186,750 | ||||||
|
| |||||||
98,493,176 | ||||||||
|
| |||||||
Beverages 0.6% | ||||||||
Constellation Brands, Inc. | 10,885,000 | 10,435,994 | ||||||
Cott Beverages, Inc. | 10,215,000 | 11,019,431 | ||||||
8.375%, due 11/15/17 | 32,284,000 | 33,736,780 | ||||||
|
| |||||||
55,192,205 | ||||||||
|
| |||||||
Building Materials 3.6% | ||||||||
Boise Cascade Co. | 17,300,000 | 18,078,500 | ||||||
6.375%, due 11/1/20 (a) | 4,325,000 | 4,519,625 | ||||||
Building Materials Corp. of America | 11,681,000 | 12,703,088 | ||||||
6.875%, due 8/15/18 (a) | 17,498,000 | 18,635,370 | ||||||
7.00%, due 2/15/20 (a) | 8,265,000 | 8,884,875 | ||||||
7.50%, due 3/15/20 (a) | 18,875,000 | 20,337,813 | ||||||
CPG Merger Sub LLC | 7,570,000 | 7,834,950 | ||||||
Gibraltar Industries, Inc. | 8,525,000 | 8,823,375 | ||||||
Griffon Corp. | 6,185,000 | 6,610,219 | ||||||
Headwaters, Inc. | 18,665,000 | 19,878,225 | ||||||
Jeld-Wen, Inc. | 20,585,000 | 23,518,362 | ||||||
¨Texas Industries, Inc. | 98,575,000 | 108,925,375 | ||||||
USG Corp. | 6,565,000 | 7,024,550 | ||||||
7.875%, due 3/30/20 (a) | 13,850,000 | 15,235,000 | ||||||
Vulcan Materials Co. | 2,579,000 | 2,836,900 | ||||||
6.50%, due 12/1/16 | 23,345,000 | 25,854,587 | ||||||
7.50%, due 6/15/21 | 3,655,000 | 4,107,306 | ||||||
|
| |||||||
313,808,120 | ||||||||
|
| |||||||
Chemicals 2.5% | ||||||||
Axiall Corp. | 12,288,000 | 11,781,120 |
Principal Amount | Value | |||||||
Chemicals (continued) | ||||||||
Celanese U.S. Holdings LLC | $ | 13,465,000 | $ | 13,229,363 | ||||
Eagle Spinco, Inc. | 1,639,000 | 1,585,733 | ||||||
Ineos Finance PLC | 18,965,000 | 20,719,262 | ||||||
8.375%, due 2/15/19 (a) | 11,120,000 | 12,398,800 | ||||||
Kraton Polymers LLC / Kraton Polymers Capital Corp. | 17,200,000 | 17,931,000 | ||||||
Nexeo Solutions LLC / Nexeo Solutions Finance Corp. | 15,240,000 | 15,163,800 | ||||||
NOVA Chemicals Corp. | 1,250,000 | 1,275,000 | ||||||
8.625%, due 11/1/19 | 7,035,000 | 7,773,675 | ||||||
Olin Corp. | 12,924,000 | 12,988,620 | ||||||
8.875%, due 8/15/19 | 23,156,000 | 25,471,600 | ||||||
Phibro Animal Health Corp. | 51,425,000 | 55,410,437 | ||||||
PolyOne Corp. | 27,026,000 | 26,857,087 | ||||||
7.375%, due 9/15/20 | 726,000 | 804,045 | ||||||
|
| |||||||
223,389,542 | ||||||||
|
| |||||||
Coal 2.3% | ||||||||
Arch Coal, Inc. | 39,783,000 | 30,831,825 | ||||||
7.25%, due 10/1/20 | 6,520,000 | 4,963,350 | ||||||
8.75%, due 8/1/16 | 4,240,000 | 4,240,000 | ||||||
9.875%, due 6/15/19 | 6,170,000 | 5,244,500 | ||||||
CONSOL Energy, Inc. | 2,729,000 | 2,858,628 | ||||||
8.00%, due 4/1/17 | 48,731,000 | 51,654,860 | ||||||
Peabody Energy Corp. | 11,520,000 | 12,153,600 | ||||||
6.25%, due 11/15/21 | 14,950,000 | 15,435,875 | ||||||
6.50%, due 9/15/20 | 31,490,000 | 33,221,950 | ||||||
7.875%, due 11/1/26 | 1,642,000 | 1,691,260 | ||||||
Penn Virginia Resource Partners, L.P. /Penn Virginia Resource Finance Corp. | 16,531,000 | 17,564,187 | ||||||
Penn Virginia Resource Partners, L.P. /Penn Virginia Resource Finance Corp. II | 13,510,000 | 13,915,300 | ||||||
8.375%, due 6/1/20 | 7,236,000 | 8,031,960 | ||||||
|
| |||||||
201,807,295 | ||||||||
|
|
12 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Commercial Services 4.4% | ||||||||
ADT Corp. (The) | $ | 10,200,000 | $ | 10,824,750 | ||||
Alliance Data Systems Corp. | 20,200,000 | 20,831,250 | ||||||
6.375%, due 4/1/20 (a) | 14,980,000 | 15,616,650 | ||||||
American Capital, Ltd. | 23,610,000 | 24,495,375 | ||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | 16,776,000 | 16,440,480 | ||||||
8.25%, due 1/15/19 | 5,240,000 | 5,711,600 | ||||||
9.75%, due 3/15/20 | 16,240,000 | 19,000,800 | ||||||
Catalent Pharma Solutions, Inc. | 5,265,000 | 5,343,975 | ||||||
Cenveo Corp. | 16,760,000 | 16,885,700 | ||||||
Great Lakes Dredge & Dock Corp. | 25,171,000 | 25,863,202 | ||||||
Hertz Corp. (The) | 8,740,000 | 8,761,850 | ||||||
5.875%, due 10/15/20 | 2,385,000 | 2,510,213 | ||||||
Jaguar Holding Co. I | 12,570,000 | 13,324,200 | ||||||
Knowledge Universe Education LLC | 29,180,000 | 28,742,300 | ||||||
PHH Corp. | 11,294,000 | 11,943,405 | ||||||
9.25%, due 3/1/16 | 12,151,000 | 14,064,782 | ||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | 460,000 | 6,762 | ||||||
9.75% (c)(d)(e)(g) | 26,020,000 | 382,494 | ||||||
Service Corporation International | 6,000,000 | 6,060,000 | ||||||
Sotheby's | 10,335,000 | 9,869,925 | ||||||
Speedy Cash Intermediate Holdings Corp. | 24,985,000 | 26,733,950 | ||||||
Sunstate Equipment Co. LLC / Sunstate Equipment Co., Inc. | 33,225,000 | 35,467,687 | ||||||
United Rentals North America, Inc. | 12,005,000 | 12,875,363 | ||||||
6.125%, due 6/15/23 | 245,000 | 251,738 | ||||||
7.375%, due 5/15/20 | 3,624,000 | 4,040,760 | ||||||
7.625%, due 4/15/22 | 19,217,000 | 21,523,040 | ||||||
Valassis Communications, Inc. | 16,510,000 | 16,468,725 |
Principal Amount | Value | |||||||
Commercial Services (continued) | ||||||||
WEX, Inc. | $ | 15,700,000 | $ | 14,601,000 | ||||
|
| |||||||
388,641,976 | ||||||||
|
| |||||||
Computers 1.5% | ||||||||
iGATE Corp. | 19,286,000 | 20,732,450 | ||||||
NCR Corp. | 13,235,000 | 13,069,563 | ||||||
5.00%, due 7/15/22 | 5,600,000 | 5,516,000 | ||||||
¨Seagate HDD Cayman | 83,115,000 | 80,829,337 | ||||||
7.00%, due 11/1/21 | 5,640,000 | 6,232,200 | ||||||
SunGard Data Systems, Inc. | 8,070,000 | 8,110,350 | ||||||
|
| |||||||
134,489,900 | ||||||||
|
| |||||||
Distribution & Wholesale 0.6% | ||||||||
American Tire Distributors, Inc. | 34,845,000 | 37,022,812 | ||||||
LKQ Corp. | 17,545,000 | 16,711,613 | ||||||
|
| |||||||
53,734,425 | ||||||||
|
| |||||||
Diversified Financial Services 1.3% | ||||||||
CNG Holdings, Inc. | 21,424,000 | 20,299,240 | ||||||
Community Choice Financial, Inc. | 29,730,000 | 28,243,500 | ||||||
12.75%, due 5/1/20 (a)(c) | 9,500,000 | 9,381,250 | ||||||
Ford Holdings LLC | 18,155,000 | 25,117,951 | ||||||
9.375%, due 3/1/20 | 1,695,000 | 2,183,621 | ||||||
National Money Mart Co. | 23,490,000 | 24,429,600 | ||||||
|
| |||||||
109,655,162 | ||||||||
|
| |||||||
Electric 2.2% | ||||||||
Calpine Corp. | 11,600,000 | 11,629,000 | ||||||
6.00%, due 1/15/22 (a) | 24,390,000 | 25,304,625 | ||||||
7.50%, due 2/15/21 (a) | 4,175,000 | 4,509,000 | ||||||
¨GenOn Energy, Inc. | 62,580,000 | 69,150,900 | ||||||
9.50%, due 10/15/18 | 32,230,000 | 37,064,500 | ||||||
GenOn REMA LLC Series C | 6,425,000 | 6,682,000 | ||||||
Mirant Americas Generation LLC | 21,690,000 | 23,208,300 | ||||||
PNM Resources, Inc. | 6,241,000 | 6,958,715 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Electric (continued) | ||||||||
Public Service Co. of New Mexico | $ | 5,812,000 | $ | 7,002,088 | ||||
|
| |||||||
191,509,128 | ||||||||
|
| |||||||
Electrical Components & Equipment 0.9% |
| |||||||
Anixter, Inc. | 8,110,000 | 8,515,500 | ||||||
Belden, Inc. | 39,566,000 | 39,566,000 | ||||||
General Cable Corp. | 27,250,000 | 27,113,750 | ||||||
|
| |||||||
75,195,250 | ||||||||
|
| |||||||
Electronics 0.3% |
| |||||||
Kemet Corp. | 22,314,000 | 21,588,795 | ||||||
|
| |||||||
Engineering & Construction 0.7% |
| |||||||
New Enterprise Stone & Lime Co., Inc. | 32,115,000 | 17,261,812 | ||||||
13.00%, due 3/15/18 (d) | 40,935,291 | 42,982,056 | ||||||
Weekley Homes LLC / Weekley Finance Corp. | 3,280,000 | 3,173,400 | ||||||
|
| |||||||
63,417,268 | ||||||||
|
| |||||||
Entertainment 2.2% |
| |||||||
Affinity Gaming LLC / Affinity Gaming Finance Corp. | 37,760,000 | 40,969,600 | ||||||
GLP Capital LP / GLP Financing II, Inc. | 7,880,000 | 8,037,600 | ||||||
4.875%, due 11/1/20 (a) | 10,505,000 | 10,583,787 | ||||||
5.375%, due 11/1/23 (a) | 9,750,000 | 9,847,500 | ||||||
MU Finance PLC | 24,801,547 | 26,165,632 | ||||||
NAI Entertainment Holdings / NAI Entertainment Finance Corp. | 15,890,000 | 16,287,250 | ||||||
Pinnacle Entertainment, Inc. | 8,209,000 | 9,009,377 | ||||||
Production Resource Group, Inc. | 15,391,000 | 11,543,250 | ||||||
Rivers Pittsburgh Borrower L.P. / Rivers Pittsburgh Finance Corp. | 3,468,000 | 3,814,800 | ||||||
Speedway Motorsports, Inc. | 4,760,000 | 5,051,550 | ||||||
Sterling Entertainment Enterprise LLC | 35,000,000 | 36,312,500 |
Principal Amount | Value | |||||||
Entertainment (continued) |
| |||||||
United Artists Theatre Circuit, Inc. | $ | 598,934 | $ | 419,254 | ||||
Vail Resorts, Inc. | 15,710,000 | 16,691,875 | ||||||
|
| |||||||
194,733,975 | ||||||||
|
| |||||||
Environmental Controls 0.3% |
| |||||||
Clean Harbors, Inc. | 6,755,000 | 6,847,881 | ||||||
5.25%, due 8/1/20 | 17,015,000 | 17,482,913 | ||||||
|
| |||||||
24,330,794 | ||||||||
|
| |||||||
Finance—Auto Loans 1.3% |
| |||||||
Credit Acceptance Corp. | 15,005,000 | 15,830,275 | ||||||
Ford Motor Credit Co. LLC | 16,960,000 | 19,733,859 | ||||||
General Motors Financial Co., Inc. | 15,249,000 | 14,639,040 | ||||||
4.75%, due 8/15/17 (a) | 23,985,000 | 25,364,137 | ||||||
6.75%, due 6/1/18 | 30,400,000 | 34,428,000 | ||||||
|
| |||||||
109,995,311 | ||||||||
|
| |||||||
Finance—Consumer Loans 0.1% |
| |||||||
TMX Finance LLC / TitleMax Finance Corp. | 9,920,000 | 10,540,000 | ||||||
|
| |||||||
Finance—Mortgage Loan/Banker 0.1% |
| |||||||
Stearns Holdings, Inc. | 11,050,000 | 11,505,813 | ||||||
|
| |||||||
Finance—Other Services 1.7% |
| |||||||
Cantor Commercial Real Estate Co., L.P. | 19,115,000 | 19,927,388 | ||||||
¨Nationstar Mortgage LLC / Nationstar Capital Corp. | 13,000,000 | 13,455,000 | ||||||
6.50%, due 7/1/21 | 13,196,000 | 12,965,070 | ||||||
7.875%, due 10/1/20 | 24,060,000 | 25,714,125 | ||||||
9.625%, due 5/1/19 | 20,419,000 | 23,022,422 | ||||||
10.875%, due 4/1/15 | 29,132,000 | 30,133,412 | ||||||
SquareTwo Financial Corp. | 21,265,000 | 22,487,738 | ||||||
|
| |||||||
147,705,155 | ||||||||
|
| |||||||
Food 2.4% |
| |||||||
American Seafoods Group LLC / American Seafoods Finance, Inc. | 15,408,000 | 15,947,280 | ||||||
American Stores Co. | 33,624,000 | 43,206,840 |
14 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Food (continued) |
| |||||||
ASG Consolidated LLC / ASG Finance, Inc. | $ | 19,366,566 | $ | 19,366,566 | ||||
B&G Foods, Inc. | 21,925,000 | 21,404,281 | ||||||
C&S Group Enterprises LLC | 8,170,000 | 8,721,475 | ||||||
Ingles Markets, Inc. | 36,535,000 | 35,804,300 | ||||||
KeHE Distributors LLC / KeHE Distributors Finance Corp. | 8,740,000 | 9,045,900 | ||||||
Land O’ Lakes, Inc. | 30,135,000 | 31,302,731 | ||||||
TreeHouse Foods, Inc. | 8,120,000 | 8,586,900 | ||||||
Wells Enterprises, Inc. | 18,856,000 | 19,374,540 | ||||||
|
| |||||||
212,760,813 | ||||||||
|
| |||||||
Forest Products & Paper 0.5% |
| |||||||
Clearwater Paper Corp. | 9,720,000 | 10,449,000 | ||||||
Georgia-Pacific LLC | 2,370,000 | 2,918,935 | ||||||
8.875%, due 5/15/31 | 19,841,000 | 27,969,937 | ||||||
Smurfit Kappa Acquisitions | 1,740,000 | 1,783,500 | ||||||
|
| |||||||
43,121,372 | ||||||||
|
| |||||||
Health Care—Products 1.3% |
| |||||||
ConvaTec Healthcare E S.A. | 23,509,000 | 26,623,942 | ||||||
Hanger, Inc. | 18,850,000 | 20,098,812 | ||||||
Hologic, Inc. | 11,205,000 | 11,905,313 | ||||||
Mallinckrodt International Finance S.A. | 8,330,000 | 8,026,730 | ||||||
Teleflex, Inc. | 15,330,000 | 16,019,850 | ||||||
Universal Hospital Services, Inc. | 33,180,000 | 34,839,000 | ||||||
|
| |||||||
117,513,647 | ||||||||
|
| |||||||
Health Care—Services 3.2% |
| |||||||
Centene Corp. | 14,370,000 | 15,339,975 | ||||||
CHS / Community Health Systems, Inc. | 6,365,000 | 6,619,600 | ||||||
7.125%, due 7/15/20 | 3,970,000 | 4,178,425 |
Principal Amount | Value | |||||||
Health Care—Services (continued) |
| |||||||
Fresenius Medical Care U.S. Finance, Inc. | $ | 4,730,000 | $ | 5,309,425 | ||||
6.875%, due 7/15/17 | 130,000 | 146,900 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. | 11,680,000 | 12,497,600 | ||||||
5.875%, due 1/31/22 (a) | 8,100,000 | 8,586,000 | ||||||
HCA Holdings, Inc. | 14,175,000 | 14,883,750 | ||||||
7.75%, due 5/15/21 | 5,431,000 | 5,946,945 | ||||||
¨HCA, Inc. | 4,525,000 | 4,360,969 | ||||||
5.875%, due 3/15/22 | 19,855,000 | 20,897,387 | ||||||
5.875%, due 5/1/23 | 2,432,000 | 2,450,240 | ||||||
6.50%, due 2/15/16 | 3,615,000 | 3,958,425 | ||||||
6.50%, due 2/15/20 | 9,224,000 | 10,261,700 | ||||||
7.50%, due 2/15/22 | 5,451,000 | 6,125,561 | ||||||
7.58%, due 9/15/25 | 1,920,000 | 1,996,800 | ||||||
7.69%, due 6/15/25 | 705,000 | 742,013 | ||||||
7.875%, due 2/15/20 | 2,120,000 | 2,300,200 | ||||||
8.00%, due 10/1/18 | 4,984,000 | 5,856,200 | ||||||
8.36%, due 4/15/24 | 2,494,000 | 2,799,515 | ||||||
8.50%, due 4/15/19 | 7,912,000 | 8,495,510 | ||||||
9.00%, due 12/15/14 | 3,930,000 | 4,244,400 | ||||||
Health Management Associates, Inc. | 8,190,000 | 9,131,850 | ||||||
INC Research LLC | 24,240,000 | 26,421,600 | ||||||
MPH Intermediate Holding Co. 2 | 26,170,000 | 27,184,087 | ||||||
MultiPlan, Inc. | 34,020,000 | 37,592,100 | ||||||
ResCare, Inc. | 14,300,000 | 15,980,250 | ||||||
Tenet Healthcare Corp. | 15,000,000 | 14,400,000 | ||||||
|
| |||||||
278,707,427 | ||||||||
|
| |||||||
Holding Companies—Diversified 0.4% |
| |||||||
CFG Holdings, Ltd. / CFG Finance LLC | 25,895,000 | 27,448,700 | ||||||
Leucadia National Corp. | 7,255,000 | 8,089,325 | ||||||
|
| |||||||
35,538,025 | ||||||||
|
| |||||||
Home Builders 1.9% |
| |||||||
Allegion US Holding Co., Inc. | 9,675,000 | 10,037,813 | ||||||
Ashton Woods USA LLC / Ashton Woods Finance Co. | 9,845,000 | 9,697,325 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Home Builders (continued) |
| |||||||
Brookfield Residential Properties, Inc. | $ | 21,153,000 | $ | 20,994,352 | ||||
D.R. Horton, Inc. | 8,690,000 | 8,374,988 | ||||||
5.75%, due 8/15/23 | 13,225,000 | 13,720,937 | ||||||
Meritage Homes Corp. | 5,640,000 | 5,978,400 | ||||||
Ryland Group, Inc. (The) | 6,120,000 | 5,936,400 | ||||||
6.625%, due 5/1/20 | 6,722,000 | 7,108,515 | ||||||
Standard Pacific Corp. | 10,330,000 | 10,639,900 | ||||||
Taylor Morrison Communities, Inc. / Monarch Communities, Inc. | 15,340,000 | 14,956,500 | ||||||
7.75%, due 4/15/20 (a) | 12,191,000 | 13,471,055 | ||||||
Toll Brothers Finance Corp. | 15,060,000 | 14,194,050 | ||||||
WCI Communities, Inc. | 19,380,000 | 18,895,500 | ||||||
Woodside Homes Co. LLC / Finance, Inc. | 14,500,000 | 14,355,000 | ||||||
|
| |||||||
168,360,735 | ||||||||
|
| |||||||
Household Products & Wares 0.5% |
| |||||||
Jarden Corp. | 19,505,000 | 22,577,037 | ||||||
Prestige Brands, Inc. | 290,000 | 321,900 | ||||||
8.25%, due 4/1/18 | 6,236,000 | 6,625,750 | ||||||
Spectrum Brands Escrow Corp. | 5,315,000 | 5,647,188 | ||||||
6.625%, due 11/15/22 (a) | 5,315,000 | 5,673,763 | ||||||
Spectrum Brands, Inc. | 2,195,000 | 2,359,625 | ||||||
|
| |||||||
43,205,263 | ||||||||
|
| |||||||
Housewares 0.2% |
| |||||||
Libbey Glass, Inc. | 17,537,000 | 18,852,275 | ||||||
|
| |||||||
Insurance 1.2% | ||||||||
A-S Co-issuer Subsidiary, Inc. / A-S Merger Sub LLC | 18,025,000 | 18,655,875 | ||||||
American Equity Investment Life Holding Co. | 21,000,000 | 21,761,250 | ||||||
CNO Financial Group, Inc. | 7,345,000 | 7,730,612 |
Principal Amount | Value | |||||||
Insurance (continued) |
| |||||||
Fidelity & Guaranty Life Holdings, Inc. | $ | 17,150,000 | $ | 17,878,875 | ||||
Ironshore Holdings (U.S.), Inc. | 16,890,000 | 19,618,715 | ||||||
Onex USI Aquisition Corp. | 19,260,000 | 19,645,200 | ||||||
|
| |||||||
105,290,527 | ||||||||
|
| |||||||
Internet 0.6% |
| |||||||
Cogent Communications Group, Inc. | 32,215,000 | 35,275,425 | ||||||
Equinix, Inc. | 2,000,000 | 2,007,500 | ||||||
5.375%, due 4/1/23 | 9,700,000 | 9,627,250 | ||||||
7.00%, due 7/15/21 | 2,000,000 | 2,185,000 | ||||||
IAC / InterActiveCorp. | 4,552,000 | 4,313,020 | ||||||
|
| |||||||
53,408,195 | ||||||||
|
| |||||||
Investment Management / Advisory Services 0.2% |
| |||||||
Janus Capital Group, Inc. | 9,070,000 | 10,246,225 | ||||||
Patriot Merger Corp. | 5,450,000 | 5,695,250 | ||||||
|
| |||||||
15,941,475 | ||||||||
|
| |||||||
Iron & Steel 0.5% |
| |||||||
Allegheny Ludlum Corp. | 6,860,000 | 7,267,079 | ||||||
Allegheny Technologies, Inc. | 11,020,000 | 11,335,734 | ||||||
9.375%, due 6/1/19 | 7,475,000 | 9,173,985 | ||||||
Bluescope Steel, Ltd. / Bluescope Steel Finance | 17,247,000 | 17,807,528 | ||||||
Commercial Metals Co. | 2,325,000 | 2,208,750 | ||||||
|
| |||||||
47,793,076 | ||||||||
|
| |||||||
Leisure Time 0.9% |
| |||||||
Brunswick Corp. | 15,291,000 | 14,602,905 | ||||||
Carlson Wagonlit B.V. | 61,575,000 | 63,730,125 | ||||||
|
| |||||||
78,333,030 | ||||||||
|
| |||||||
Lodging 1.5% |
| |||||||
Choice Hotels International, Inc. | 2,480,000 | 2,585,400 | ||||||
5.75%, due 7/1/22 | 23,185,000 | 24,402,212 | ||||||
Eldorado Resorts LLC / Eldorado Capital Corp. | 22,865,000 | 24,065,412 |
16 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Lodging (continued) |
| |||||||
Felcor Lodging, L.P. | $ | 2,860,000 | $ | 2,817,100 | ||||
Hilton Worldwide Finance LLC / Hilton Worldwide Finance Corp. | 23,195,000 | 23,832,863 | ||||||
MGM Resorts International | 1,093,000 | 1,168,144 | ||||||
MTR Gaming Group, Inc. | 23,801,720 | 26,181,892 | ||||||
Playa Resorts Holding B.V. | 8,780,000 | 9,295,825 | ||||||
ROC Finance LLC / ROC Finance 1 Corp. | 16,630,000 | 17,960,400 | ||||||
|
| |||||||
132,309,248 | ||||||||
|
| |||||||
Machinery—Diversified 0.2% |
| |||||||
Briggs & Stratton Corp. | 7,945,000 | 8,679,913 | ||||||
SPL Logistics Escrow LLC / SPL Logistics Finance Corp. | 10,485,000 | 11,245,162 | ||||||
|
| |||||||
19,925,075 | ||||||||
|
| |||||||
Media 3.5% |
| |||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 17,860,000 | 16,609,800 | ||||||
5.25%, due 9/30/22 | 13,483,000 | 12,674,020 | ||||||
7.00%, due 1/15/19 | 16,260,000 | 17,235,600 | ||||||
7.25%, due 10/30/17 | 5,405,000 | 5,715,788 | ||||||
Cogeco Cable, Inc. | 18,860,000 | 18,482,800 | ||||||
Crown Media Holdings, Inc. | 17,875,000 | 20,109,375 | ||||||
CSC Holdings LLC | 14,890,000 | 17,160,725 | ||||||
7.875%, due 2/15/18 | 1,145,000 | 1,325,338 | ||||||
DISH DBS Corp. | 24,720,000 | 25,708,800 | ||||||
5.125%, due 5/1/20 | 32,550,000 | 32,956,875 | ||||||
7.125%, due 2/1/16 | 3,995,000 | 4,414,475 | ||||||
Nielsen Finance LLC / Nielsen Finance Co. | 17,995,000 | 17,635,100 | ||||||
7.75%, due 10/15/18 | 32,338,000 | 35,248,420 | ||||||
ProQuest LLC / ProQuest Notes Co. | 34,995,000 | 35,694,900 | ||||||
Quebecor Media, Inc. | 28,340,000 | 27,418,950 | ||||||
7.75%, due 3/15/16 | 7,869,000 | 8,006,707 |
Principal Amount | Value | |||||||
Media (continued) |
| |||||||
Videotron, Ltd. | $ | 12,525,000 | $ | 12,305,812 | ||||
|
| |||||||
308,703,485 | ||||||||
|
| |||||||
Metal Fabricate & Hardware 1.1% | ||||||||
A. M. Castle & Co. | 34,161,000 | 38,601,930 | ||||||
Mueller Water Products, Inc. | 24,270,000 | 24,998,100 | ||||||
8.75%, due 9/1/20 | 12,109,000 | 13,562,080 | ||||||
Shale-Inland Holdings LLC / Shale-Inland Finance Corp. | 16,350,000 | 16,758,750 | ||||||
|
| |||||||
93,920,860 | ||||||||
|
| |||||||
Mining 1.9% | ||||||||
Hecla Mining Co. | 44,170,000 | 43,286,600 | ||||||
Kaiser Aluminum Corp. | 25,465,000 | 28,839,112 | ||||||
New Gold, Inc. | 18,540,000 | 18,261,900 | ||||||
7.00%, due 4/15/20 (a) | 33,015,000 | 34,170,525 | ||||||
Novelis, Inc. | 15,425,000 | 16,504,750 | ||||||
8.75%, due 12/15/20 | 7,350,000 | 8,176,875 | ||||||
St. Barbara, Ltd. | 24,435,000 | 20,525,400 | ||||||
|
| |||||||
169,765,162 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 1.8% |
| |||||||
Actuant Corp. | 9,720,000 | 9,744,300 | ||||||
Amsted Industries, Inc. | 34,517,000 | 36,544,873 | ||||||
FGI Operating Co. LLC / FGI Finance, Inc. | 25,440,000 | 26,775,600 | ||||||
Koppers, Inc. | 12,155,000 | 13,188,175 | ||||||
LSB Industries, Inc. | 11,900,000 | 12,584,250 | ||||||
Polypore International, Inc. | 21,740,000 | 22,990,050 | ||||||
SPX Corp. | 25,425,000 | 28,571,344 | ||||||
7.625%, due 12/15/14 | 5,235,000 | 5,601,450 | ||||||
|
| |||||||
156,000,042 | ||||||||
|
| |||||||
Office Furnishings 0.3% | ||||||||
Interface, Inc. | 23,280,000 | 25,317,000 | ||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Oil & Gas 8.8% | ||||||||
Antero Resources Finance Corp. | $ | 17,180,000 | $ | 17,459,175 | ||||
Approach Resources, Inc. | 3,000,000 | 3,120,000 | ||||||
Berry Petroleum Co. | 1,690,000 | 1,778,725 | ||||||
10.25%, due 6/1/14 | 9,915,000 | 10,410,750 | ||||||
Calumet Specialty Products Partners, L.P. / Calumet Finance Corp. | 34,845,000 | 38,590,838 | ||||||
9.625%, due 8/1/20 | 14,000,000 | 15,697,500 | ||||||
Chesapeake Energy Corp. | 30,590,000 | 34,260,800 | ||||||
Chesapeake Oilfield Operating LLC / Chesapeake Oilfield Finance, Inc. | 33,565,000 | 35,159,337 | ||||||
Comstock Resources, Inc. | 10,327,000 | 10,791,715 | ||||||
9.50%, due 6/15/20 | 13,700,000 | 15,207,000 | ||||||
¨Concho Resources, Inc. | 9,145,000 | 9,533,663 | ||||||
5.50%, due 4/1/23 | 32,025,000 | 33,225,937 | ||||||
6.50%, due 1/15/22 | 24,386,000 | 26,641,705 | ||||||
7.00%, due 1/15/21 | 10,325,000 | 11,512,375 | ||||||
Continental Resources, Inc. | 24,475,000 | 25,484,594 | ||||||
7.125%, due 4/1/21 | 8,775,000 | 9,828,000 | ||||||
7.375%, due 10/1/20 | 15,775,000 | 17,569,406 | ||||||
Frontier Oil Corp. | 8,390,000 | 9,019,250 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | 23,890,000 | 23,830,275 | ||||||
7.00%, due 11/1/19 (a) | 13,250,000 | 13,216,875 | ||||||
Murphy Oil USA, Inc. | 11,000,000 | 11,165,000 | ||||||
Newfield Exploration Co. | 17,210,000 | 17,554,200 | ||||||
7.125%, due 5/15/18 | 13,020,000 | 13,508,250 | ||||||
Oasis Petroleum, Inc. | 11,600,000 | 12,557,000 | ||||||
6.875%, due 3/15/22 (a) | 15,660,000 | 16,912,800 | ||||||
7.25%, due 2/1/19 | 18,840,000 | 20,253,000 | ||||||
PDC Energy, Inc. | 14,500,000 | 15,732,500 | ||||||
PetroHawk Energy Corp. | 7,865,000 | 8,525,660 | ||||||
10.50%, due 8/1/14 | 3,478,000 | 3,564,950 | ||||||
PetroQuest Energy, Inc. | 63,915,000 | 65,832,450 |
Principal Amount | Value | |||||||
Oil & Gas (continued) | ||||||||
Range Resources Corp. | $ | 5,600,000 | $ | 5,593,000 | ||||
5.00%, due 3/15/23 | 16,680,000 | 16,638,300 | ||||||
8.00%, due 5/15/19 | 9,425,000 | 10,108,313 | ||||||
Rex Energy Corp. | 35,800,000 | 38,664,000 | ||||||
Rosetta Resources, Inc. | 9,600,000 | 9,696,000 | ||||||
SM Energy Co. | 18,470,000 | 18,054,425 | ||||||
6.50%, due 11/15/21 | 8,300,000 | 9,005,500 | ||||||
6.50%, due 1/1/23 | 2,535,000 | 2,712,450 | ||||||
6.625%, due 2/15/19 | 17,149,000 | 18,263,685 | ||||||
Stone Energy Corp. | 12,980,000 | 13,856,150 | ||||||
8.625%, due 2/1/17 | 10,470,000 | 11,072,025 | ||||||
Summit Midstream Holdings LLC / Summit Midstream Finance Corp. | 6,720,000 | 7,072,800 | ||||||
W&T Offshore, Inc. | 28,605,000 | 30,821,887 | ||||||
Whiting Petroleum Corp. | 12,970,000 | 13,813,050 | ||||||
WPX Energy, Inc. | 18,240,000 | 19,152,000 | ||||||
|
| |||||||
772,467,315 | ||||||||
|
| |||||||
Oil & Gas Services 1.0% | ||||||||
Expro Finance Luxembourg SCA | 30,255,000 | 31,692,113 | ||||||
Forum Energy Technologies, Inc. | 15,340,000 | 15,991,950 | ||||||
Hiland Partners, L.P. / Hiland Partners Finance Corp. | 12,375,000 | 13,179,375 | ||||||
Pioneer Energy Services Corp. | 25,620,000 | 27,541,500 | ||||||
|
| |||||||
88,404,938 | ||||||||
|
| |||||||
Packaging & Containers 1.2% | ||||||||
AEP Industries, Inc. | 20,344,000 | 21,971,520 | ||||||
Ball Corp. | 11,245,000 | 11,329,337 | ||||||
Owens-Brockway Glass Container, Inc. | 4,910,000 | 5,529,888 | ||||||
Plastipak Holdings, Inc. | 26,145,000 | 27,190,800 | ||||||
Silgan Holdings, Inc. | 17,270,000 | 17,183,650 |
18 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Packaging & Containers (continued) | ||||||||
Tekni-Plex, Inc. | $ | 16,207,000 | $ | 18,313,910 | ||||
|
| |||||||
101,519,105 | ||||||||
|
| |||||||
Pharmaceuticals 1.7% | ||||||||
Grifols, Inc. | 36,155,000 | 38,821,431 | ||||||
Lantheus Medical Imaging, Inc. | 21,390,000 | 19,251,000 | ||||||
Mylan, Inc. | 9,295,000 | 10,641,650 | ||||||
NBTY, Inc. | 13,725,000 | 15,063,188 | ||||||
Valeant Pharmaceuticals International | 22,784,000 | 24,321,920 | ||||||
6.50%, due 7/15/16 (a) | 8,000,000 | 8,280,000 | ||||||
6.75%, due 10/1/17 (a) | 3,947,000 | 4,243,025 | ||||||
6.75%, due 8/15/18 (a) | 6,530,000 | 7,150,350 | ||||||
7.00%, due 10/1/20 (a) | 2,548,000 | 2,745,470 | ||||||
7.50%, due 7/15/21 (a) | 11,700,000 | 12,987,000 | ||||||
Warner Chilcott Co., LLC / Warner Chilcott Co., LLC | 4,340,000 | 4,730,600 | ||||||
|
| |||||||
148,235,634 | ||||||||
|
| |||||||
Pipelines 1.3% | ||||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | 7,284,000 | 7,812,090 | ||||||
ANR Pipeline Co. | 2,555,000 | 3,206,280 | ||||||
9.625%, due 11/1/21 | 10,349,000 | 14,562,420 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | 22,864,000 | 24,007,200 | ||||||
Copano Energy LLC / Copano Energy Finance Corp. | 11,307,000 | 13,000,302 | ||||||
MarkWest Energy Partners, L.P. / MarkWest Energy Finance Corp. | 16,000,000 | 16,560,000 | ||||||
6.75%, due 11/1/20 | 21,170,000 | 23,181,150 | ||||||
NuStar Logistics, L.P. | 13,145,000 | 13,555,781 | ||||||
|
| |||||||
115,885,223 | ||||||||
|
| |||||||
Real Estate 1.1% | ||||||||
CBRE Services, Inc. | 31,662,000 | 30,751,718 |
Principal Amount | Value | |||||||
Real Estate (continued) | ||||||||
Crescent Resources LLC / Crescent Ventures, Inc. | $ | 12,210,000 | $ | 13,308,900 | ||||
Howard Hughes Corp. (The) | 20,500,000 | 21,217,500 | ||||||
Mattamy Group Corp. | 26,770,000 | 26,435,375 | ||||||
|
| |||||||
91,713,493 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.1% | ||||||||
Geo Group, Inc. (The) | 18,300,000 | 19,375,125 | ||||||
Host Hotels & Resorts, L.P. | 18,205,000 | 18,686,304 | ||||||
5.25%, due 3/15/22 | 13,645,000 | 14,435,332 | ||||||
6.00%, due 10/1/21 | 21,920,000 | 24,263,949 | ||||||
Series Q | 6,835,000 | 6,932,693 | ||||||
Sabra Health Care, L.P. / Sabra Capital Corp. | 5,570,000 | 5,444,675 | ||||||
8.125%, due 11/1/18 | 9,676,000 | 10,498,460 | ||||||
|
| |||||||
99,636,538 | ||||||||
|
| |||||||
Retail 3.8% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | 3,795,000 | 4,136,550 | ||||||
7.00%, due 5/20/22 | 9,697,000 | 10,472,760 | ||||||
AmeriGas Partners, L.P. / AmeriGas Finance Corp. | 13,025,000 | 13,936,750 | ||||||
6.50%, due 5/20/21 | 4,828,000 | 5,165,960 | ||||||
Asbury Automotive Group, Inc. | 42,865,000 | 47,687,312 | ||||||
AutoNation, Inc. | 18,661,000 | 21,460,150 | ||||||
Building Materials Holding Corp. | 19,145,000 | 20,102,250 | ||||||
Cash America International, Inc. | 23,100,000 | 22,060,500 | ||||||
DineEquity, Inc. | 52,380,000 | 58,272,750 | ||||||
L Brands, Inc. | 3,545,000 | 3,651,350 | ||||||
5.625%, due 10/15/23 | 8,645,000 | 8,839,513 | ||||||
6.625%, due 4/1/21 | 12,715,000 | 13,986,500 | ||||||
8.50%, due 6/15/19 | 3,395,000 | 4,086,731 | ||||||
Penske Automotive Group, Inc. | 27,530,000 | 27,461,175 | ||||||
PVH Corp. | 10,230,000 | 11,201,850 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Retail (continued) | ||||||||
Radio Systems Corp. | $ | 14,460,000 | $ | 15,978,300 | ||||
Sally Holdings LLC / Sally Capital, Inc. | 13,640,000 | 14,151,500 | ||||||
6.875%, due 11/15/19 | 9,595,000 | 10,602,475 | ||||||
Sonic Automotive, Inc. | 6,626,000 | 6,162,180 | ||||||
7.00%, due 7/15/22 | 11,875,000 | 12,825,000 | ||||||
|
| |||||||
332,241,556 | ||||||||
|
| |||||||
Shipbuilding 0.2% | ||||||||
Huntington Ingalls Industries, Inc. | 10,605,000 | 11,413,631 | ||||||
7.125%, due 3/15/21 | 6,905,000 | 7,483,294 | ||||||
|
| |||||||
18,896,925 | ||||||||
|
| |||||||
Software 0.2% | ||||||||
ACI Worldwide, Inc. | 2,710,000 | 2,831,950 | ||||||
Activision Blizzard, Inc. | 15,215,000 | 15,747,525 | ||||||
6.125%, due 9/15/23 (a) | 2,400,000 | 2,508,000 | ||||||
|
| |||||||
21,087,475 | ||||||||
|
| |||||||
Storage & Warehousing 1.0% | ||||||||
¨ Algeco Scotsman Global Finance PLC | 45,100,000 | 48,369,750 | ||||||
10.75%, due 10/15/19 (a) | 29,790,000 | 30,907,125 | ||||||
Mobile Mini, Inc. | 4,285,000 | 4,702,788 | ||||||
|
| |||||||
83,979,663 | ||||||||
|
| |||||||
Telecommunications 7.5% | ||||||||
Crown Castle International Corp. | 48,655,000 | 48,168,450 | ||||||
7.125%, due 11/1/19 | 21,153,000 | 22,845,240 | ||||||
DigitalGlobe, Inc. | 12,507,000 | 12,100,523 | ||||||
Frontier Communications Corp. | 5,000,000 | 5,781,250 | ||||||
9.25%, due 7/1/21 | 11,130,000 | 13,119,488 | ||||||
GCI, Inc. | 16,511,000 | 17,542,937 | ||||||
Hughes Satellite Systems Corp. | 18,430,000 | 19,766,175 | ||||||
7.625%, due 6/15/21 | 20,475,000 | 22,420,125 | ||||||
Inmarsat Finance PLC | 948,000 | 985,920 | ||||||
Intelsat Jackson Holdings S.A. | 2,100,000 | 2,026,500 | ||||||
7.25%, due 4/1/19 | 15,530,000 | 16,733,575 | ||||||
7.25%, due 10/15/20 | 21,420,000 | 23,240,700 | ||||||
7.50%, due 4/1/21 | 13,600,000 | 14,824,000 |
Principal Amount | Value | |||||||
Telecommunications (continued) | ||||||||
Lynx I Corp. | $ | 9,000,000 | $ | 9,045,000 | ||||
¨MetroPCS Wireless, Inc. | 20,085,000 | 21,013,931 | ||||||
6.625%, due 4/1/23 (a) | 61,085,000 | 63,910,181 | ||||||
Sable International Finance, Ltd. | 30,273,000 | 31,862,332 | ||||||
8.75%, due 2/1/20 (a) | 9,650,000 | 10,904,500 | ||||||
Satelites Mexicanos S.A. de C.V. | 32,049,000 | 34,693,042 | ||||||
SBA Telecommunications, Inc. | 27,640,000 | 28,745,600 | ||||||
8.25%, due 8/15/19 | 9,721,000 | 10,535,134 | ||||||
Sprint Capital Corp. | 50,143,000 | 47,635,850 | ||||||
Sprint Communications, Inc. | 11,835,000 | 13,965,300 | ||||||
9.25%, due 4/15/22 | 13,690,000 | 16,222,650 | ||||||
Sprint Corp. | 27,190,000 | 29,501,150 | ||||||
T-Mobile USA, Inc. | 13,420,000 | 14,225,200 | ||||||
6.731%, due 4/28/22 | 54,000,000 | 57,037,500 | ||||||
tw telecom holdings, Inc. | 3,035,000 | 3,027,413 | ||||||
5.375%, due 10/1/22 (a) | 20,100,000 | 20,049,750 | ||||||
Virgin Media Finance PLC | 15,258,000 | 16,650,292 | ||||||
Virgin Media Secured Finance PLC | 12,470,000 | 12,653,010 | ||||||
|
| |||||||
661,232,718 | ||||||||
|
| |||||||
Transportation 1.1% | ||||||||
Florida East Coast Holdings Corp. | 4,008,504 | 4,168,844 | ||||||
Florida East Coast Railway Corp. | 51,149,000 | 53,834,323 | ||||||
Syncreon Global Ireland, Ltd. / Syncreon Global Finance US, Inc. | 37,370,000 | 40,639,875 | ||||||
|
| |||||||
98,643,042 | ||||||||
|
| |||||||
Trucking & Leasing 0.8% | ||||||||
Flexi-Van Leasing, Inc. | 15,865,000 | 16,816,900 | ||||||
NESCO LLC / NESCO Holdings Corp. | 17,155,000 | 19,299,375 | ||||||
TRAC Intermodal LLC / TRAC Intermodal Corp. | 25,970,000 | 29,540,875 | ||||||
|
| |||||||
65,657,150 | ||||||||
|
|
20 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Vitamins & Nutrition Products 0.4% |
| |||||||
Alphabet Holding Co., Inc. | $ | 37,029,000 | $ | 38,278,729 | ||||
|
| |||||||
Total Corporate Bonds | 8,018,221,967 | |||||||
|
| |||||||
Loan Assignments & Participations 2.7% (h) | ||||||||
Auto Manufacturers 0.3% | ||||||||
Chrysler Group LLC | 23,144,836 | 23,318,284 | ||||||
|
| |||||||
Auto Parts & Equipment 0.8% | ||||||||
Exide Technologies, Inc. | 71,055,750 | 71,943,947 | ||||||
|
| |||||||
Distribution & Wholesale 0.1% | ||||||||
Performance Food Group Co. | 9,476,250 | 9,381,488 | ||||||
|
| |||||||
Diversified Financial Services 0.3% |
| |||||||
Ocwen Financial Corp. | 5,945,125 | 5,994,172 | ||||||
VFH Parent LLC | 19,582,135 | 19,663,734 | ||||||
|
| |||||||
25,657,906 | ||||||||
|
| |||||||
Finance—Other Services 0.2% | ||||||||
BATS Global Markets, Inc. | 14,450,000 | 14,522,250 | ||||||
|
| |||||||
Lodging 0.3% | ||||||||
Cannery Casino Resorts LLC | 8,477,757 | 8,475,112 | ||||||
New 2nd Lien Term Loan | 14,640,000 | 13,566,405 | ||||||
Four Seasons Holdings, Inc. | 6,000,000 | 6,052,500 | ||||||
2nd Lien Term Loan | 3,500,000 | 3,587,500 | ||||||
|
| |||||||
31,681,517 | ||||||||
|
|
Principal Amount | Value | |||||||
Metal Fabricate & Hardware 0.2% | ||||||||
Neenah Foundry Co. | $ | 18,232,500 | $ | 18,141,338 | ||||
|
| |||||||
Miscellaneous—Manufacturing 0.2% |
| |||||||
FGI Operating Co. LLC | 21,608,830 | 21,730,379 | ||||||
|
| |||||||
Pharmaceuticals 0.2% | ||||||||
Patheon, Inc. | 14,132,250 | 14,344,234 | ||||||
|
| |||||||
Retail 0.1% | ||||||||
Dunkin’ Brands, Inc. | 5,951,323 | 5,966,201 | ||||||
|
| |||||||
Total Loan Assignments & Participations | 236,687,544 | |||||||
|
| |||||||
Yankee Bonds 0.7% (i) | ||||||||
Forest Products & Paper 0.5% | ||||||||
Smurfit Kappa Treasury Funding Ltd. 7.50%, due 11/20/25 | 37,630,000 | 41,393,000 | ||||||
|
| |||||||
Insurance 0.2% | ||||||||
Fairfax Financial Holdings, Ltd. | 9,497,000 | 10,785,449 | ||||||
8.30%, due 4/15/26 | 5,395,000 | 6,153,364 | ||||||
|
| |||||||
16,938,813 | ||||||||
|
| |||||||
Total Yankee Bonds | 58,331,813 | |||||||
|
| |||||||
Total Long-Term Bonds | 8,319,322,940 | |||||||
|
| |||||||
Shares | ||||||||
Common Stocks 0.3% | ||||||||
Coal 0.0%‡ | ||||||||
Upstate NY Power | 51,473 | 977,987 | ||||||
|
| |||||||
Entertainment 0.1% | ||||||||
Affinity Gaming LLC (c)(e)(g) | 275,000 | 2,956,250 | ||||||
|
| |||||||
Lodging 0.0%‡ | ||||||||
Majestic Star Casino LLC Membership Units (c)(d)(e)(g) | 446,020 | 579,826 | ||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Metal Fabricate & Hardware 0.1% | ||||||||
Neenah Enterprises, | 717,799 | $ | 9,195,005 | |||||
|
| |||||||
Mining 0.1% | ||||||||
Goldcorp, Inc. | 429,710 | 10,927,524 | ||||||
|
| |||||||
Total Common Stocks | 24,636,592 | |||||||
|
| |||||||
Preferred Stock 0.1% | ||||||||
Savings & Loans 0.1% | ||||||||
GMAC Capital Trust I | 414,600 | 11,136,156 | ||||||
|
| |||||||
Total Preferred Stock | 11,136,156 | |||||||
|
| |||||||
Number of Warrants | ||||||||
Warrants 0.0%‡ | ||||||||
Food 0.0%‡ | ||||||||
ASG Corp. | 12,510 | 1,563,750 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. | ||||||||
Second Lien | 1,141 | 12 | ||||||
Unsecured Debt | 1,126 | 11 | ||||||
|
| |||||||
23 | ||||||||
|
| |||||||
Total Warrants | 1,563,773 | |||||||
|
| |||||||
Principal Amount | Value | |||||||
Short-Term Investment 2.4% | ||||||||
Repurchase Agreement 2.4% | ||||||||
State Street Bank and Trust Co. | $ | 214,388,857 | $ | 214,388,857 | ||||
|
| |||||||
Total Short-Term Investment | 214,388,857 | |||||||
|
| |||||||
Total Investments | 97.6 | % | 8,571,048,318 | |||||
Other Assets, Less Liabilities | 2.4 | 212,483,192 | ||||||
Net Assets | 100.0 | % | $ | 8,783,531,510 |
‡ | Less than one-tenth of a percent. |
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(b) | PIK ("Payment in Kind")—interest or dividend payment is made with additional securities. |
(c) | Illiquid security—The total market value of these securities as of October 31, 2013 is $103,457,230, which represents 1.2% of the Fund’s net assets. |
(d) | Fair valued security—The total market value of these securities as of October 31, 2013, is $96,937,523, which represents 1.1% of the Fund's net assets. |
(e) | Restricted security. |
(f) | Issue in default. |
(g) | Non-income producing security. |
(h) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the weighted average interest rate of all contracts within the floating rate loan facility as of October 31, 2013. |
(i) | Yankee Bond—Dollar-denominated bond issued in the United States by a foreign bank or corporation. |
(j) | As of October 31, 2013, cost is $8,201,491,037 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 434,709,828 | ||
Gross unrealized depreciation | (65,152,547 | ) | ||
|
| |||
Net unrealized appreciation | $ | 369,557,281 | ||
|
|
22 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant Other Observable Inputs (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bonds (b) | $ | — | $ | — | $ | 6,081,616 | $ | 6,081,616 | ||||||||
Corporate Bonds (c) | — | 7,938,118,901 | 80,103,066 | 8,018,221,967 | ||||||||||||
Loan Assignments & Participations (d) | — | 198,181,060 | 38,506,484 | 236,687,544 | ||||||||||||
Yankee Bonds | — | 58,331,813 | — | 58,331,813 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 8,194,631,774 | 124,691,166 | 8,319,322,940 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (e) | 13,883,774 | — | 10,752,818 | 24,636,592 | ||||||||||||
Preferred Stock | 11,136,156 | — | — | 11,136,156 | ||||||||||||
Warrants (f) | 1,563,750 | — | 23 | 1,563,773 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 214,388,857 | — | 214,388,857 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 26,583,680 | $ | 8,409,020,631 | $ | 135,444,007 | $ | 8,571,048,318 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $6,075,462 and $6,154 are held in Electric and Internet, respectively, within the Convertible Bonds section of the Portfolio of Investments. |
(c) | The Level 3 securities valued at $389,256, $42,982,056 and $36,731,754 are held in Commercial Services, Engineering & Construction and Entertainment, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(d) | The Level 3 securities valued at $14,522,250, $9,640,000 and $14,344,234 are held in Finance-Other Services, Lodging and Pharmaceuticals, respectively, within the Loan Assignments & Participations whose value was obtained from an independent pricing service which used a single broker quote to measure such value as referenced in the Portfolio of Investments. |
(e) | The Level 3 securities valued at $977,987, $579,826 and $9,195,005 are held in Coal, Lodging and Metal Fabricate & Hardware, respectively, within the Common Stocks section of the Portfolio of Investments. |
(f) | The Level 3 securities valued at $23 are held in Media within the Warrants section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have an transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, a security with a value of $10,820,350 transferred from Level 3 to Level 2. The transfer occurred as a result of the value of the security obtained from an independent pricing service using the average of multiple bid quotations as of October 31, 2013. The fair value obtained for this security from an independent pricing service as of October 31, 2012, used a single broker quote with significant unobservable input.
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 23 |
Portfolio of Investments October 31, 2013 (continued)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers in to Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of October 31, 2013 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Electric | $ | 4,644,000 | $ | — | $ | — | $ | 711,738 | $ | 719,724 | (b) | $ | — | $ | — | $ | — | $ | 6,075,462 | $ | 711,738 | |||||||||||||||||||
Internet | 6,154 | — | — | — | — | — | — | — | 6,154 | — | ||||||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||
Auto | 23,166 | — | — | (23,166 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Commercial Services | 423,680 | — | — | (34,424 | ) | — | — | — | — | 389,256 | (34,424 | ) | ||||||||||||||||||||||||||||
Electric | 1,584,413 | (453 | ) | (239,981 | ) | 453 | — | (1,344,432 | ) | — | — | — | — | |||||||||||||||||||||||||||
Engineering and Construction | — | — | — | 31,966 | 42,950,090 | — | — | — | 42,982,056 | 31,966 | ||||||||||||||||||||||||||||||
Entertainment | 601,972 | 26,372 | 25,416 | 1,339,019 | 35,000,000 | (261,025 | ) | — | — | 36,731,754 | 1,286,128 | |||||||||||||||||||||||||||||
Food | 24,114,750 | — | 355,500 | (770,250 | ) | — | (23,700,000 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Insurance | 33,264 | — | (11,138,510 | ) | 11,105,246 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Loan Assignments & | ||||||||||||||||||||||||||||||||||||||||
Apparel | 10,897,400 | 3,861 | 409,892 | (413,753 | ) | — | (10,897,400 | )(c) | — | — | — | — | ||||||||||||||||||||||||||||
Finance | 9,311,347 | 7,242 | 49,323 | (142,604 | ) | — | (9,225,308 | )(c) | — | — | — | — | ||||||||||||||||||||||||||||
Finance—Other Services | — | 125,353 | 140,414 | 824,118 | 15,982,365 | (2,550,000 | )(c) | — | — | 14,522,250 | 824,118 | |||||||||||||||||||||||||||||
Lodging | 10,820,350 | 1,975 | — | 188,025 | 9,450,000 | — | — | (10,820,350 | ) | 9,640,000 | 188,025 | |||||||||||||||||||||||||||||
Metal, Fabricate & Hardware | 18,367,500 | — | — | — | — | (18,367,500 | )(c) | — | — | — | — | |||||||||||||||||||||||||||||
Pharmaceuticals | — | 49,903 | 2,906 | 577,425 | 13,821,063 | (107,063 | )(c) | — | — | 14,344,234 | 577,425 | |||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Coal | 875,041 | — | — | 102,946 | — | — | — | — | 977,987 | 102,946 | ||||||||||||||||||||||||||||||
Lodging | 892,040 | — | — | (312,214 | ) | — | — | — | — | 579,826 | (312,214 | ) | ||||||||||||||||||||||||||||
Media | 155,074 | — | (5,770,382 | ) | 5,615,308 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Metal, Fabricate & | 4,263,726 | — | — | 4,931,279 | — | — | — | — | 9,195,005 | 4,931,279 | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 23 | — | — | — | — | — | — | — | 23 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 87,013,900 | $ | 214,253 | $ | (16,165,422 | ) | $ | 23,731,112 | $ | 117,923,242 | $ | (66,452,728 | ) | $ | — | $ | (10,820,350 | ) | $ | 135,444,007 | $ | 8,306,987 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments and unfunded commitments” in the Statement of Operations. |
(b) | Purchases include securities received from a restructure. |
(c) | Sales include principal reductions. |
24 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 8,571,048,318 | ||
Cash | 30,013,555 | |||
Receivables: | ||||
Dividends and interest | 159,873,102 | |||
Investment securities sold | 70,472,346 | |||
Fund shares sold | 18,339,148 | |||
Other assets | 115,616 | |||
|
| |||
Total assets | 8,849,862,085 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 31,419,019 | |||
Fund shares redeemed | 19,627,157 | |||
Manager (See Note 3) | 4,046,806 | |||
Transfer agent (See Note 3) | 2,640,240 | |||
NYLIFE Distributors (See Note 3) | 1,776,778 | |||
Shareholder communication | 254,422 | |||
Professional fees | 46,664 | |||
Trustees | 20,184 | |||
Custodian | 13,954 | |||
Accrued expenses | 40,519 | |||
Dividend payable | 6,444,832 | |||
|
| |||
Total liabilities | 66,330,575 | |||
|
| |||
Net assets | $ | 8,783,531,510 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 14,447,249 | ||
Additional paid-in capital | 8,549,362,592 | |||
|
| |||
8,563,809,841 | ||||
Distributions in excess of net investment income | (7,556,977 | ) | ||
Accumulated net realized gain (loss) on investments | (138,312,339 | ) | ||
Net unrealized appreciation (depreciation) on investments | 365,590,985 | |||
|
| |||
Net assets | $ | 8,783,531,510 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 307,642,838 | ||
|
| |||
Shares of beneficial interest outstanding | 50,136,629 | |||
|
| |||
Net asset value per share outstanding | $ | 6.14 | ||
Maximum sales charge (4.50% of offering price) | 0.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.43 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 4,055,185,125 | ||
|
| |||
Shares of beneficial interest outstanding | 667,032,963 | |||
|
| |||
Net asset value per share outstanding | $ | 6.08 | ||
Maximum sales charge (4.50% of offering price) | 0.29 | |||
|
| |||
Maximum offering price per share outstanding | $ | 6.37 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 197,272,820 | ||
|
| |||
Shares of beneficial interest outstanding | 32,609,038 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.05 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 814,588,881 | ||
|
| |||
Shares of beneficial interest outstanding | 134,610,693 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.05 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 3,393,780,102 | ||
|
| |||
Shares of beneficial interest outstanding | 557,858,614 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.08 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 28,208 | ||
|
| |||
Shares of beneficial interest outstanding | 4,641 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.08 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 15,007,852 | ||
|
| |||
Shares of beneficial interest outstanding | 2,468,096 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.08 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 25,684 | ||
|
| |||
Shares of beneficial interest outstanding | 4,220 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 6.09 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 599,759,076 | ||
Dividends (a) | 1,324,586 | |||
|
| |||
Total income | 601,083,662 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 47,731,675 | |||
Distribution/Service—Investor Class (See Note 3) | 766,943 | |||
Distribution/Service—Class A (See Note 3) | 10,208,558 | |||
Distribution/Service—Class B (See Note 3) | 2,138,786 | |||
Distribution/Service—Class C (See Note 3) | 8,334,879 | |||
Distribution/Service—Class R2 (See Note 3) | 38,610 | |||
Transfer agent (See Note 3) | 15,710,419 | |||
Shareholder communication | 1,518,778 | |||
Registration | 511,049 | |||
Professional fees | 436,774 | |||
Trustees | 180,053 | |||
Custodian | 86,890 | |||
Shareholder service (See Note 3) | 15,470 | |||
Miscellaneous | 238,362 | |||
|
| |||
Total expenses | 87,917,246 | |||
|
| |||
Net investment income (loss) | 513,166,416 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 173,772,699 | |||
Net change in unrealized appreciation (depreciation) on investments | (94,237,946 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments | 79,534,753 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 592,701,169 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $64,696. |
26 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 513,166,416 | $ | 473,017,437 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 173,772,699 | 71,387,872 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | (94,237,946 | ) | 277,786,667 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 592,701,169 | 822,191,976 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (20,852,106 | ) | (20,410,149 | ) | ||||
Class A | (281,250,098 | ) | (262,174,237 | ) | ||||
Class B | (13,085,525 | ) | (15,149,227 | ) | ||||
Class C | (51,239,807 | ) | (46,677,653 | ) | ||||
Class I | (233,684,269 | ) | (169,537,188 | ) | ||||
Class R1 | (1,924 | ) | (612 | ) | ||||
Class R2 | (1,056,452 | ) | (796,551 | ) | ||||
Class R6 | (771 | ) | — | |||||
|
| |||||||
Total dividends to shareholders | (601,170,952 | ) | (514,745,617 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 2,899,836,530 | 3,214,367,404 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 504,021,939 | 395,312,467 | ||||||
Cost of shares redeemed | (3,037,427,701 | ) | (1,839,351,086 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 366,430,768 | 1,770,328,785 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 357,960,985 | 2,077,775,144 | ||||||
Net Assets | ||||||||
Beginning of year | 8,425,570,525 | 6,347,795,381 | ||||||
|
| |||||||
End of year | $ | 8,783,531,510 | $ | 8,425,570,525 | ||||
|
| |||||||
Distributions in excess of net investment income at end of year | $ | (7,556,977 | ) | $ | (10,568,229 | ) | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 27 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.13 | $ | 5.88 | $ | 5.97 | $ | 5.60 | $ | 4.63 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.36 | 0.39 | 0.41 | 0.41 | 0.40 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.28 | (0.08 | ) | 0.38 | 1.01 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.43 | 0.67 | 0.33 | 0.79 | 1.41 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | (0.41 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.44 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.14 | $ | 6.13 | $ | 5.88 | $ | 5.97 | $ | 5.60 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 7.24 | % | 11.82 | % | 5.69 | % | 14.73 | % | 32.60 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.88 | % | 6.53 | % | 6.80 | % | 7.03 | % | 8.18 | % | ||||||||||
Net expenses | 1.02 | % | 1.03 | % | 1.05 | % | 1.08 | % | 1.15 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 307,643 | $ | 301,074 | $ | 285,656 | $ | 282,489 | $ | 265,507 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.36 | 0.39 | 0.41 | 0.40 | 0.40 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.27 | (0.07 | ) | 0.39 | 1.00 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.42 | 0.66 | 0.34 | 0.79 | 1.40 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.43 | ) | (0.44 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 7.15 | % | 11.76 | % | 5.94 | % | 14.69 | % | 32.74 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.89 | % | 6.56 | % | 6.86 | % | 7.07 | % | 8.19 | % | ||||||||||
Net expenses | 1.01 | % | 1.00 | % | 0.99 | % | 1.03 | % | 1.08 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 4,055,185 | $ | 4,086,134 | $ | 3,355,007 | $ | 3,409,419 | $ | 3,169,962 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
28 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.31 | 0.34 | 0.36 | 0.36 | 0.36 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.27 | (0.08 | ) | 0.38 | 1.00 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.37 | 0.61 | 0.28 | 0.74 | 1.36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.36 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.38 | ) | (0.39 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 6.36 | % | 10.94 | % | 4.95 | % | 13.81 | % | 31.57 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.13 | % | 5.78 | % | 6.05 | % | 6.27 | % | 7.49 | % | ||||||||||
Net expenses | 1.77 | % | 1.78 | % | 1.80 | % | 1.83 | % | 1.91 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 197,273 | $ | 221,723 | $ | 267,752 | $ | 375,368 | $ | 453,918 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | $ | 4.57 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.31 | 0.34 | 0.36 | 0.36 | 0.36 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.27 | (0.08 | ) | 0.38 | 1.00 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.37 | 0.61 | 0.28 | 0.74 | 1.36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.36 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.37 | ) | (0.37 | ) | (0.37 | ) | (0.38 | ) | (0.39 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.05 | $ | 6.05 | $ | 5.81 | $ | 5.90 | $ | 5.54 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 6.36 | % | 10.93 | % | 4.95 | % | 13.81 | % | 31.57 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.13 | % | 5.78 | % | 6.05 | % | 6.28 | % | 7.29 | % | ||||||||||
Net expenses | 1.77 | % | 1.78 | % | 1.80 | % | 1.83 | % | 1.90 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 814,589 | $ | 819,807 | $ | 654,224 | $ | 698,491 | $ | 651,209 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 29 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | $ | 4.60 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.37 | 0.40 | 0.42 | 0.42 | 0.41 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.28 | (0.06 | ) | 0.38 | 1.00 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.44 | 0.68 | 0.36 | 0.80 | 1.41 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.43 | ) | (0.42 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.44 | ) | (0.45 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.92 | $ | 5.56 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 7.40 | % | 12.02 | % | 6.19 | % | 14.98 | % | 32.84 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 6.13 | % | 6.81 | % | 7.11 | % | 7.34 | % | 8.38 | % | ||||||||||
Net expenses | 0.76 | % | 0.75 | % | 0.74 | % | 0.78 | % | 0.83 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 3,393,780 | $ | 2,982,526 | $ | 1,775,230 | $ | 1,736,365 | $ | 1,141,889 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
Class R1 | Year ended October 31, 2013 | June 29, 2012** through October 31, 2012 | ||||||
Net asset value at beginning of period | $ | 6.08 | $ | 5.92 | ||||
|
|
|
| |||||
Net investment income (loss) (a) | 0.37 | 0.14 | ||||||
Net realized and unrealized gain (loss) on investments | 0.06 | 0.16 | ||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | |||||
|
|
|
| |||||
Total from investment operations | 0.43 | 0.30 | ||||||
|
|
|
| |||||
Less dividends: | ||||||||
From net investment income | (0.43 | ) | (0.14 | ) | ||||
|
|
|
| |||||
Net asset value at end of period | $ | 6.08 | $ | 6.08 | ||||
|
|
|
| |||||
Total investment return (b) | 7.32 | % | 5.17 | %(c) | ||||
Ratios (to average net assets)/Supplemental Data: | ||||||||
Net investment income (loss) | 6.03 | % | 6.49 | %†† | ||||
Net expenses | 0.86 | % | 0.87 | %†† | ||||
Portfolio turnover rate | 40 | % | 29 | % | ||||
Net assets at end of period (in 000's) | $ | 28 | $ | 26 |
** | Commencement of operations. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
30 | MainStay High Yield Corporate Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class R2 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 6.08 | $ | 5.84 | $ | 5.93 | $ | 5.56 | $ | 4.60 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.35 | 0.38 | 0.40 | 0.40 | 0.39 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.07 | 0.28 | (0.07 | ) | 0.39 | 1.01 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | — | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.42 | 0.66 | 0.33 | 0.79 | 1.40 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.41 | ) | (0.41 | ) | ||||||||||
Return of capital | — | — | — | (0.01 | ) | (0.03 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | (0.44 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (b) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 6.08 | $ | 6.08 | $ | 5.84 | $ | 5.93 | $ | 5.56 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (c) | 7.06 | % | 11.66 | % | 5.67 | % | 14.78 | % | 32.31 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.79 | % | 6.46 | % | 6.76 | % | 6.99 | % | 7.59 | % | ||||||||||
Net expenses | 1.11 | % | 1.10 | % | 1.09 | % | 1.13 | % | 1.18 | % | ||||||||||
Portfolio turnover rate | 40 | % | 29 | % | 45 | % | 41 | % | 41 | % | ||||||||||
Net assets at end of year (in 000's) | $ | 15,008 | $ | 14,280 | $ | 9,927 | $ | 9,120 | $ | 6,240 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | The redemption fee was discontinued as of April 1, 2010. |
(c) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Class R6 | June 17, 2013** through October 31, 2013 | |||
Net asset value at beginning of period | $ | 6.11 | ||
|
| |||
Net investment income (loss) (a) | 0.14 | |||
Net realized and unrealized gain (loss) on investments | 0.03 | |||
|
| |||
Total from investment operations | 0.17 | |||
|
| |||
Less dividends: | ||||
From net investment income | (0.19 | ) | ||
|
| |||
Net asset value at end of period | $ | 6.09 | ||
|
| |||
Total investment return (b) | 2.79 | %(c) | ||
Ratios (to average net assets)/Supplemental Data: | ||||
Net investment income (loss) | 6.24 | %†† | ||
Net expenses | 0.59 | %†† | ||
Portfolio turnover rate | 40 | % | ||
Net assets at end of period (in 000's) | $ | 26 |
** | Inception date. |
†† | Annualized. |
(a) | Per share data based on average shares outstanding during the period. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R6 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 31 |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay High Yield Corporate Bond Fund (the “Fund”), a diversified fund.
The Fund currently offers eight classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Class R2 shares were first offered to the public on December 14, 2007, but did not commence operations until May 1, 2008. Investor Class shares commenced operations on February 28, 2008. Class R1 shares commenced operations on June 29, 2012. Class R6 shares commenced operations on June 17, 2013. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions of such shares made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R6 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A and Class R2 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I, Class R1 and Class R6 shares are not subject to a distribution and/or service fee. Class R1 and Class R2 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek maximum current income through investment in a diversified portfolio of high-yield debt securities. Capital appreciation is a secondary objective.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally
4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
32 | MainStay High Yield Corporate Bond Fund |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund held securities with a value of $96,937,523 that were fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund's Manager, in consultation with the Fund's Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund's Manager, in consultation with the Fund's Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market.
Loan assignments, participations and commitments are valued at the average of bid quotations obtained from the engaged independent pricing agent and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by a single broker quote obtained from the pricing agent with significant unobservable inputs and are generally categorized as Level 3 in the hierarchy. For these loan assignments, participations and commitments, the Manager may consider additional factors such as liquidity of the Fund's investments. As of October 31, 2013, the Fund held securities with a value of $38,506,484 that were valued by a single broker quote and/or deemed to be illiquid.
The valuation techniques and significant amounts of unobservable inputs used in the fair valuation measurement of the Fund's Level 3 securities are outlined in the tables below. A significant increase or decrease in any of those inputs in isolation would result in a significantly higher or lower fair value measurement.
mainstayinvestments.com | 33 |
Notes to Financial Statements (continued)
MainStay High Yield Corporate Bond Fund
Asset Class | Fair Value at 10/31/13 | Valuation Technique | Unobservable Inputs | Range | ||||||||
Convertible Bonds (2 positions) | $ | 6,081,616 | Income/Market Approach | Estimated Recovery Rate | $0.00–$0.01 | |||||||
Liquidity Discount | 20 | % | ||||||||||
Discount Rate | 9 | % | ||||||||||
Corporate Bonds (5 positions) | 80,103,066 | Income/Market Approach | Estimated Remaining Cash/Collateral | $324M | ||||||||
Liquidity Discount | 15 | % | ||||||||||
Offered Quote | $105.00 | |||||||||||
Discount Rate | 30 | % | ||||||||||
Distribution Percentage | 73 | % | ||||||||||
EBITDA Multiple | 12 | |||||||||||
Probability of Success | 20 | % | ||||||||||
Common Stocks (3 positions) | 10,752,818 | Income/Market Approach | Estimated Remaining Claims/Value | $0.01 | ||||||||
Liquidity Discount | 10%-20 | % | ||||||||||
Offered Quote | $2 | |||||||||||
EBITDA Multiple | 5.5 | |||||||||||
Warrants (2 positions) | 23 | Income Approach | Probability of Liquidity Event | 0 | % | |||||||
|
| |||||||||||
$ | 96,937,523 | |||||||||||
|
|
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund's Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund's liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor measure the liquidity of the Fund's investments; in doing so, the Manager or Subadvisor may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund's tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an
uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund's tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund's financial statements. The Fund's federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least monthly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
34 | MainStay High Yield Corporate Bond Fund |
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund's Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Loan Assignments, Participations and Commitments. The Fund may invest in loan assignments and loan participations ("loans"). Loans are agreements to make money available (a "commitment") to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base
lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments. The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower ("intermediate participants"). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. As of October 31, 2013, the Fund did not hold any unfunded commitments.
(I) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in 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, and |
(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund's books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(J) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
mainstayinvestments.com | 35 |
Notes to Financial Statements (continued)
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants, if such warrants are not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights.
(K) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company ("State Street"). State Street will manage the Fund's cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund's portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower's inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(L) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 5)
(M) Concentration of Risk. The Fund's principal investments include high-yield securities (sometimes called ‘‘junk bonds’’), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held
by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(N) Indemnifications. Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(O) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund's derivative and hedging activities, including how such activities are accounted for and their effect on the Fund's financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Asset Derivatives
Statement of Assets and Liabilities Location | Equity Contracts Risk | Total | ||||||||
Warrants | Investments in securities, at value | $ | 1,563,773 | $ | 1,563,773 | |||||
|
| |||||||||
Total Fair Value | $ | 1,563,773 | $ | 1,563,773 | ||||||
|
|
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Equity Contracts Risk | Total | ||||||||
Warrants | Net realized gain (loss) on investments | $ | 57 | $ | 57 | |||||
|
| |||||||||
Total Realized Gain (Loss) | $ | 57 | $ | 57 | ||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Equity Contracts Risk | Total | ||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | 1,188,450 | $ | 1,188,450 | |||||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 1,188,450 | $ | 1,188,450 | ||||||
|
|
36 | MainStay High Yield Corporate Bond Fund |
Number of Contracts, Notional Amounts or Shares/Units (1)
Equity Contracts Risk | Total | |||||||
Warrants | 14,972 | 14,972 | ||||||
|
|
(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer ("CCO") of the Fund. MacKay Shields LLC (“MacKay Shields" or the "Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement ("Subadvisory Agreement") between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.60% up to $500 million; 0.55% from $500 million up to $5 billion; 0.525% from $5 billion up to $7 billion; and 0.50% in excess of $7 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.55% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $47,731,675.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution
plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I, Class R1 and R6 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plan for the Class R1 and Class R2 shares, the Manager has agreed to provide, through its affiliates or independent third parties, various shareholder and administrative support services to shareholders of the Class R1 and Class R2 shares. For its services, the Manager, its affiliates or independent third party service providers are entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1 and Class R2 shares. This is in addition to any fees paid under a distribution plan, where applicable.
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2013, were as follows:
Class R1 | $ | 27 | ||
Class R2 | 15,443 |
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $151,077 and $1,114,232, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $42, $38,657, $243,264 and $127,680, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund's transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 580,607 | ||
Class A | 7,283,413 | |||
Class B | 404,357 | |||
Class C | 1,577,156 | |||
Class I | 5,837,274 | |||
Class R1 | 49 | |||
Class R2 | 27,563 |
mainstayinvestments.com | 37 |
Notes to Financial Statements (continued)
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 4,446,548 | 0.1 | % | ||||
Class R1 | 28,208 | 100.0 | ||||||
Class R6 | 25,684 | 100.0 |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accum- Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||
$ — | $ | (143,390,780 | ) | $ | (6,444,832 | ) | $ | 369,557,281 | $ | 219,721,669 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments, debt versus equity adjustments, modified debt instruments and defaulted bonds. The other temporary differences are primarily due to dividends payable and defaulted bond income accruals.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$91,015,788 | $ | 3,666,537 | $ | (94,682,325 | ) |
The reclassifications for the Fund are primarily due to defaulted bonds, return of capital distributions received, consent fees and taxable over-distribution.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $143,390,780 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000's) | Long-Term Capital Loss Amounts (000's) | ||||||
2017 | $ | 143,391 | $ | — |
The Fund utilized $162,752,248 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 601,170,952 | $ | 514,745,617 |
38 | MainStay High Yield Corporate Bond Fund |
Note 5–Restricted Securities
As of October 31, 2013, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Principal Amount/ Number of Warrants/ Shares | Cost | 10/31/13 Value | Percent of Net Assets | |||||||||||||||
Affinity Gaming LLC | 5/4/12 | 275,000 | $ | 3,093,750 | $ | 2,956,250 | 0.1 | % | ||||||||||||
ASG Corp. | 4/30/10 | 12,510 | — | 1,563,750 | 0.0 | ‡ | ||||||||||||||
At Home Corp. | 5/29/01 | $ | 61,533,853 | 0 | (a) | 6,154 | 0.0 | ‡ | ||||||||||||
ION Media Networks, Inc. | ||||||||||||||||||||
Warrant, Second Lien, Expires 12/18/16 | 12/20/10 | 1,141 | — | 12 | 0.0 | ‡ | ||||||||||||||
Warrant, Unsecured Debt, Expires 12/18/16 | 3/12/10 | 1,126 | 3,435 | 11 | 0.0 | ‡ | ||||||||||||||
Majestic Star Casino LLC | 12/1/11 | 446,020 | 892,040 | 579,826 | 0.0 | ‡ | ||||||||||||||
Neenah Enterprises, Inc. | 7/29/10 | 717,799 | 6,079,757 | 9,195,005 | 0.1 | |||||||||||||||
Neenah Foundry Co. Term | 5/10/13 | $ | 18,232,500 | 17,511,264 | 18,141,338 | 0.2 | ||||||||||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | 1/23/08 | 460,000 | — | 6,762 | 0.0 | ‡ | ||||||||||||||
Corporate Bond 9.75% | 9/4/09 | 26,020,000 | — | 382,494 | 0.0 | ‡ | ||||||||||||||
Somerset Cayuga Holding Co., Inc. (PIK) | 6/29/12-6/15/13 | $ | 4,132,968 | 4,159,725 | 6,075,462 | 0.1 | ||||||||||||||
Sterling Entertainment Enterprise LLC | 12/21/12 | $ | 35,000,000 | 35,000,000 | 36,312,500 | 0.4 | ||||||||||||||
Upstate NY Power Producers | 5/11/99-2/28/11 | 51,473 | 875,042 | 977,987 | 0.0 | ‡ | ||||||||||||||
Total | $ | 67,615,013 | $ | 76,197,551 | 0.9 | % |
‡ | Less than one-tenth of a percent. |
(a) | Less than one dollar. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund's net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the "Credit Agreement"), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to
the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $3,628,142 and $3,307,692, respectively.
mainstayinvestments.com | 39 |
Notes to Financial Statements (continued)
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,464,668 | $ | 39,906,460 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,094,163 | 18,986,445 | ||||||
Shares redeemed | (7,095,281 | ) | (43,666,594 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 2,463,550 | 15,226,311 | ||||||
Shares converted into Investor Class (See Note 1) | 3,766,462 | 23,193,781 | ||||||
Shares converted from Investor Class (See Note 1) | (5,207,042 | ) | (31,988,318 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,022,970 | $ | 6,431,774 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 7,022,882 | $ | 42,082,705 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,071,615 | 18,351,068 | ||||||
Shares redeemed | (6,538,943 | ) | (39,082,873 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 3,555,554 | 21,350,900 | ||||||
Shares converted into Investor Class (See Note 1) | 4,234,891 | 25,323,256 | ||||||
Shares converted from Investor Class (See Note 1) | (7,225,762 | ) | (43,507,617 | ) | ||||
|
| |||||||
Net increase (decrease) | 564,683 | $ | 3,166,539 | |||||
|
| |||||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 176,899,981 | $ | 1,079,330,549 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 37,600,362 | 228,639,903 | ||||||
Shares redeemed | (226,349,874 | ) | (1,379,492,285 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (11,849,531 | ) | (71,521,833 | ) | ||||
Shares converted into Class A (See Note 1) | 7,986,442 | 48,713,215 | ||||||
Shares converted from Class A (See Note 1) | (1,363,094 | ) | (8,326,527 | ) | ||||
|
| |||||||
Net increase (decrease) | (5,226,183 | ) | $ | (31,135,145 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 193,127,685 | $ | 1,146,792,748 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 32,625,015 | 193,460,933 | ||||||
Shares redeemed | (142,057,127 | ) | (841,837,904 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 83,695,573 | 498,415,777 | ||||||
Shares converted into Class A (See Note 1) | 14,730,943 | 87,433,351 | ||||||
Shares converted from Class A (See Note 1) | (1,103,995 | ) | (6,662,559 | ) | ||||
|
| |||||||
Net increase (decrease) | 97,322,521 | $ | 579,186,569 | |||||
|
| |||||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,323,004 | $ | 38,471,123 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,855,402 | 11,235,612 | ||||||
Shares redeemed | (7,020,671 | ) | (42,574,998 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,157,735 | 7,131,737 | ||||||
Shares converted from Class B (See Note 1) | (5,198,658 | ) | (31,592,151 | ) | ||||
|
| |||||||
Net increase (decrease) | (4,040,923 | ) | $ | (24,460,414 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 6,604,436 | $ | 38,989,318 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,050,794 | 12,084,707 | ||||||
Shares redeemed | (7,427,186 | ) | (43,862,277 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,228,044 | 7,211,748 | ||||||
Shares converted from Class B (See Note 1) | (10,662,616 | ) | (62,586,431 | ) | ||||
|
| |||||||
Net increase (decrease) | (9,434,572 | ) | $ | (55,374,683 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 25,883,806 | $ | 157,661,057 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 6,279,139 | 38,021,472 | ||||||
Shares redeemed | (33,021,320 | ) | (200,410,718 | ) | ||||
|
| |||||||
Net increase (decrease) | (858,375 | ) | $ | (4,728,189 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 36,115,148 | $ | 213,680,344 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,245,653 | 30,986,839 | ||||||
Shares redeemed | (18,460,357 | ) | (109,192,900 | ) | ||||
|
| |||||||
Net increase (decrease) | 22,900,444 | $ | 135,474,283 | |||||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 257,666,944 | $ | 1,577,377,732 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 33,919,506 | 206,353,124 | ||||||
Shares redeemed | (224,166,121 | ) | (1,364,179,264 | ) | ||||
|
| |||||||
Net increase (decrease) | 67,420,329 | $ | 419,551,592 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 297,440,593 | $ | 1,764,443,264 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 23,496,250 | 139,728,874 | ||||||
Shares redeemed | (134,590,051 | ) | (800,213,225 | ) | ||||
|
| |||||||
Net increase (decrease) | 186,346,792 | $ | 1,103,958,913 | |||||
|
| |||||||
40 | MainStay High Yield Corporate Bond Fund |
Class R1 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares issued to shareholders in reinvestment of dividends and distributions | 317 | $ | 1,924 | |||||
|
| |||||||
Net increase (decrease) | 317 | $ | 1,924 | |||||
|
| |||||||
Period ended October 31, 2012 (a): | ||||||||
Shares sold | 4,223 | $ | 25,000 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 101 | 612 | ||||||
|
| |||||||
Net increase (decrease) | 4,324 | $ | 25,612 | |||||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,155,793 | $ | 7,064,609 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 128,602 | 782,688 | ||||||
Shares redeemed | (1,164,547 | ) | (7,103,842 | ) | ||||
|
| |||||||
Net increase (decrease) | 119,848 | $ | 743,455 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 1,402,056 | $ | 8,354,025 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 117,875 | 699,434 | ||||||
Shares redeemed | (871,521 | ) | (5,161,907 | ) | ||||
|
| |||||||
Net increase (decrease) | 648,410 | $ | 3,891,552 | |||||
|
| |||||||
Class R6 | Shares | Amount | ||||||
Period ended October 31, 2013 (b): | ||||||||
Shares sold | 4,092 | $ | 25,000 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 128 | 771 | ||||||
|
| |||||||
Net increase (decrease) | 4,220 | $ | 25,771 | |||||
|
|
(a) | Class R1 shares were first offered on June 29, 2012. |
(b) | Class R6 shares were first offered on June 17, 2013. |
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund's management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com | 41 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay High Yield Corporate Bond Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay High Yield Corporate Bond Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
42 | MainStay High Yield Corporate Bond Fund |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $487,173 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com | 43 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
44 | MainStay High Yield Corporate Bond Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 45 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
46 | MainStay High Yield Corporate Bond Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 47 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32113 MS322-13 | MSHY11-12/13 NL008 |
MainStay Money Market Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||
Investor Class Shares3,4 | No Sales Charge | 0.01 | % | 0.04 | % | 1.42 | % | 0.91 | % | |||||||||
Class A Shares3 | No Sales Charge | 0.01 | 0.04 | 1.43 | 0.69 | |||||||||||||
Class B Shares3 | No Sales Charge | 0.01 | 0.04 | 1.42 | 0.91 | |||||||||||||
Class C Shares3 | No Sales Charge | 0.01 | 0.04 | 1.42 | 0.91 | |||||||||||||
7-Day Current Yield: 0.01% |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns would have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | As of October 31, 2013, MainStay Money Market Fund had an effective 7-day yield of 0.01% for Investor Class, Class A, B and C shares. The 7-day current |
yield was 0.01% for Investor Class, Class A, B and C shares. These yields reflect certain expense limitations. Had these expense limitations not been in effect, the effective 7-day yield would have been –0.75%, –0.50%, –0.75%, and –0.75%, for Investor Class, Class A, B and C shares, respectively, and the 7-day current yield would have been –0.75%, –0.50%, –0.75%, and –0.75%, for Investor Class, Class A, B and C shares, respectively. The current yield reflects the Fund’s earnings better than the Fund’s total return. |
4. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
The footnote on the next page is an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Average Lipper Money Market Fund5 | 0.01 | % | 0.09 | % | 1.42 | % |
5. | The average Lipper money market fund is an equally weighted performance average adjusted for capital gains distributions and income dividends of all of the money market funds in the Lipper Universe. Lipper Inc., a wholly-owned subsidiary of Thomson Reuters, is an independent monitor of mutual |
fund performance. Results do not reflect any deduction of sales charges. Lipper averages are not class specific. Lipper returns are unaudited. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Money Market Fund |
Cost in Dollars of a $1,000 Investment in MainStay Money Market Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.66 | $ | 1,024.60 | $ | 0.66 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.66 | $ | 1,024.60 | $ | 0.66 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.66 | $ | 1,024.60 | $ | 0.66 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,000.10 | $ | 0.66 | $ | 1,024.60 | $ | 0.66 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.13% for Investor Class, Class A, Class B and Class C) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
See Portfolio of Investments beginning on page 10 for specific holdings within these categories.
8 | MainStay Money Market Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Thomas J. Girard and David E. Clement, CFA, of New York Life Investments,1 the Fund’s Manager.
How did MainStay Money Market Fund perform relative to its peers during the 12 months ended October 31, 2013?
As of October 31, 2013, MainStay Money Market Fund provided a 7-day current yield of 0.01% for Investor Class, Class A, Class B and Class C shares. As of the same date, the Fund provided a 7-day effective yield of 0.01% for all share classes. For the 12 months ended October 31, 2013, all share classes returned 0.01%. All share classes performed in line with the 0.01% return of the average Lipper2 money market fund for the 12 months ended October 31, 2013. Performance figures for the Fund reflect certain fee waivers and/or expense limitations without which total returns would have been lower.
What factors affected the Fund’s performance during the reporting period?
Short-term corporate securities and floating-rate bonds remained inexpensive but attractive as issues became more difficult to locate during the second half of the reporting period. Asset-backed securities continued to contribute to the Fund’s performance. Because of their 13-month legal final maturity, however, they initially lengthened the weighted average maturity of the Fund.
The Fund’s allocation to industrial commercial paper detracted from performance during the government’s partial shutdown; and during the shutdown, demand for these securities increased. Over the entire reporting period, however, the supply of industrial commercial paper declined. These factors increased volatility and made investing in the sector more difficult.
As dealers pruned their balance sheets, repurchase agreement levels dropped because there was less collateral to finance.
What was the Fund’s duration3 strategy during the reporting period?
We kept the Fund’s average weighted duration target between 45 and 55 days. We shortened the Fund’s weighted average maturity to participate in the primary asset-backed securities market and lengthened weighted average maturity afterward. We increased the Fund’s participation in longer-dated (12- to 13-month) U.S. Treasury coupons during the reporting period, which added to the Fund’s duration.
The Federal Reserve’s decision to delay the tapering of its asset purchases temporarily reduced the likelihood of higher short-term interest rates. This allowed the Fund’s weighted average maturity to drift during the reporting period, depending on the supply of attractive longer-maturity instruments. The U.S. Treasury yield curve,4 although flatter, continued to slope upward during the reporting period.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
With the Federal Reserve likely to remain accommodative during the reporting period, the Fund continued to look for yield advantages among longer-maturity instruments such as U.S. Treasury coupons and asset-backed securities. The continuing upward slope of the yield curve added to the attractiveness of longer-dated maturities. The partial government shutdown caused increased volatility among shorter-maturity instruments toward the end of the reporting period. As supply decreased and spreads tightened, the investment environment became more challenging.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
Asset-backed securities and floating-rate corporate bonds continued to offer relative value and remained the Fund’s strongest contributors to performance. (Contributions take weightings and total returns into account.) As supply declined in industrial commercial paper and repurchase agreements, spreads tightened in these sectors. Yields on industrial commercial paper traded just above those on U.S. Treasury bills during much of the reporting period and detracted from the Fund’s performance. Declining supply for repurchase agreements caused yields to rally in this sector as well, which further detracted from the Fund’s performance.
Did the Fund make any significant purchases or sales during the reporting period?
Significant purchases included the National Rural Utilities Cooperative Finance floating-rate notes due 2/18/14; E.I. du Pont de Nemours & Co. floating-rate notes due 3/25/14; an ARI Fleet Lease 2013-A A1 ABS note due 4/15/14 and a Carmax Auto Owner Trust 2013-4 A1 ABS note due 11/17/14. Since the Fund typically holds securities until they mature, there were no significant sales during the reporting period.
How did the Fund’s sector weightings change during the reporting period?
We increased the Fund’s weightings in commercial paper, corporate bonds and certificates of deposit. Over the same period, we decreased the Fund’s weightings in agency securities.
1. | “New York Life Investments” is a service mark used by New York Life Investment Management Holdings LLC and its subsidiary, New York Life Investment Management LLC. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration for money market funds is expressed as a number of days and is considered a more accurate sensitivity gauge than average maturity. |
4. | The yield curve is a line that plots the yields of various securities of similar quality—typically U.S. Treasury issues—across a range of maturities. The U.S. Treasury yield curve serves as a benchmark for other debt and is used in economic forecasting. |
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com | 9 |
Portfolio of Investments October 31, 2013
Principal Amount | Amortized Cost | |||||||
Short-Term Investments 100.6%† | ||||||||
Certificates of Deposit 5.3% |
| |||||||
Royal Bank of Canada | ||||||||
0.174%, due 3/13/14 (a) | $ | 3,935,000 | $ | 3,935,000 | ||||
0.254%, due 4/15/14 (a) | 3,925,000 | 3,925,000 | ||||||
0.31%, due 1/30/14 (a) | 3,775,000 | 3,775,000 | ||||||
Toronto-Dominion Bank (The) | ||||||||
0.219%, due 9/2/14 (a) | 3,980,000 | 3,980,000 | ||||||
0.224%, due 11/15/13 (a) | 4,600,000 | 4,600,000 | ||||||
Wells Fargo Bank NA | 4,000,000 | 4,000,000 | ||||||
|
| |||||||
24,215,000 | ||||||||
|
| |||||||
Financial Company Commercial Paper 20.0% |
| |||||||
CPPIB Capital, Inc. | 5,655,000 | 5,654,607 | ||||||
Glaxosmithkline Finance PLC | 3,835,000 | 3,834,851 | ||||||
John Deere Bank SA | 7,000,000 | 6,999,668 | ||||||
John Deere Capital Corp. | 4,000,000 | 3,999,736 | ||||||
JPMorgan Chase & Co. | 3,800,000 | 3,800,000 | ||||||
Massachusetts Mutual Life Insurance Co. | 4,505,000 | 4,504,525 | ||||||
National Australia Funding Delaware, Inc. | 12,000,000 | 11,998,880 | ||||||
National Rural Utilities Cooperative Finance Corp. | ||||||||
0.09%, due 11/19/13 (b) | 3,775,000 | 3,774,830 | ||||||
0.10%, due 11/7/13 (b) | 3,770,000 | 3,769,937 | ||||||
Nationwide Life Insurance Co. | 3,770,000 | 3,769,665 | ||||||
Nestle Finance International Ltd. | 9,435,000 | 9,434,591 | ||||||
PACCAR Financial Corp. | 5,425,000 | 5,424,783 | ||||||
Principal Life Insurance Co. | 3,360,000 | 3,359,869 | ||||||
Siemens Capital Co., LLC | 5,690,000 | 5,689,418 | ||||||
Southern Co. Funding Corp. | 5,665,000 | 5,664,912 | ||||||
U.S. Bank NA | 9,485,000 | 9,485,000 | ||||||
|
| |||||||
91,165,272 | ||||||||
|
|
Principal Amount | Amortized Cost | |||||||
Other Commercial Paper 35.2% |
| |||||||
3M Co. | ||||||||
0.05%, due 11/18/13 (b)(c) | $ | 545,000 | $ | 544,987 | ||||
0.06%, due 12/2/13 (b)(c) | 9,725,000 | 9,724,497 | ||||||
Air Products & Chemicals, Inc. | 4,000,000 | 3,999,867 | ||||||
Automatic Data Processing, Inc. | 3,700,000 | 3,699,944 | ||||||
Colgate-Palmolive Co. | ||||||||
0.04%, due 11/20/13 (b)(c) | 3,795,000 | 3,794,920 | ||||||
0.05%, due 11/13/13 (b)(c) | 4,000,000 | 3,999,933 | ||||||
ConocoPhillips Qatar Funding Ltd. | 5,700,000 | 5,699,734 | ||||||
E.I. du Pont de Nemours & Co. | 4,000,000 | 3,999,840 | ||||||
Exxon Mobil Corp. | 5,000,000 | 4,999,747 | ||||||
Florida Power & Light Co. | 5,000,000 | 4,999,861 | ||||||
General Dynamics Corp. | ||||||||
0.12%, due 12/4/13 (b)(c) | 5,000,000 | 4,999,450 | ||||||
0.15%, due 12/12/13 (b)(c) | 1,895,000 | 1,894,676 | ||||||
Honeywell International, Inc. | 1,510,000 | 1,509,948 | ||||||
Illinois Tool Works, Inc. | ||||||||
0.06%, due 11/6/13 (b)(c) | 1,320,000 | 1,319,989 | ||||||
0.06%, due 11/22/13 (b)(c) | 1,325,000 | 1,324,954 | ||||||
Kimberly-Clark Worldwide, Inc. | 3,845,000 | 3,844,906 | ||||||
Merck & Co., Inc. | 5,000,000 | 4,999,979 | ||||||
Microsoft Corp. | ||||||||
0.06%, due 11/13/13 (b)(c) | 4,361,000 | 4,360,913 | ||||||
0.08%, due 12/11/13 (b)(c) | 5,550,000 | 5,549,507 | ||||||
Monsanto Co. | 9,610,000 | 9,609,501 | ||||||
NetJets, Inc. | 1,515,000 | 1,514,994 | ||||||
Parker Hannifin Corp. | ||||||||
0.10%, due 11/27/13 (b)(c) | 4,985,000 | 4,984,640 | ||||||
0.14%, due 12/11/13 (b)(c) | 6,800,000 | 6,798,942 | ||||||
PepsiCo, Inc. | 4,000,000 | 3,999,927 | ||||||
Province of Ontario Canada | 5,660,000 | 5,659,961 | ||||||
Province of Quebec Canada | 3,935,000 | 3,934,464 | ||||||
Sanofi | 7,000,000 | 6,999,922 |
† | Percentages indicated are based on Fund net assets. |
10 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Amortized Cost | |||||||
Short-Term Investments (continued) | ||||||||
Other Commercial Paper (continued) |
| |||||||
Southern Co. (The) | $ | 5,660,000 | $ | 5,659,318 | ||||
UnitedHealth Group, Inc. | ||||||||
0.15%, due 11/1/13 (b)(c) | 3,895,000 | 3,895,000 | ||||||
0.22%, due 11/7/13 (b)(c) | 3,835,000 | 3,834,859 | ||||||
0.28%, due 11/15/13 (b)(c) | 3,380,000 | 3,379,632 | ||||||
Wal-Mart Stores, Inc. | 8,000,000 | 7,999,711 | ||||||
WGL Holdings, Inc. | ||||||||
0.14%, due 11/22/13 (b)(c) | 2,400,000 | 2,399,804 | ||||||
0.15%, due 11/18/13 (b)(c) | 2,000,000 | 1,999,858 | ||||||
0.16%, due 11/15/13 (b)(c) | 1,020,000 | 1,019,937 | ||||||
0.16%, due 11/21/13 (b)(c) | 700,000 | 699,938 | ||||||
0.18%, due 11/12/13 (b)(c) | 2,530,000 | 2,529,861 | ||||||
0.25%, due 11/7/13 (b)(c) | 3,425,000 | 3,424,857 | ||||||
Wisconsin Gas LLC | 4,800,000 | 4,799,712 | ||||||
|
| |||||||
160,412,490 | ||||||||
|
| |||||||
Other Notes 11.7% | ||||||||
American Honda Finance Corp. | 3,805,000 | 3,805,000 | ||||||
ARI Fleet Lease Trust | 924,129 | 924,129 | ||||||
CarMax Auto Owner Trust | 1,897,000 | 1,897,000 | ||||||
CCG Receivables Trust | 807,292 | 807,292 | ||||||
Coca-Cola Co. (The) | 3,805,000 | 3,805,261 | ||||||
E.I. du Pont de Nemours & Co. | 3,695,000 | 3,701,916 | ||||||
Enterprise Fleet Financing LLC | ||||||||
Series 2013-1, Class A1 | 704,456 | 704,456 | ||||||
Series 2013-2, Class A1 | 1,700,621 | 1,700,621 | ||||||
Fifth Third Auto Trust | 325,506 | 325,506 | ||||||
GE Equipment Transportation LLC | 352,776 | 352,776 | ||||||
GreatAmerica Leasing Receivables Funding LLC | 281,993 | 281,993 |
Principal Amount | Amortized Cost | |||||||
Other Notes (continued) | ||||||||
Honda Auto Receivables Owner Trust | $ | 1,250,000 | $ | 1,250,000 | ||||
Hyundai Auto Receivables Trust | 1,749,441 | 1,749,441 | ||||||
International Bank for Reconstruction & Development | 9,910,000 | 9,910,000 | ||||||
John Deere Owner Trust | ||||||||
Series 2013-A, Class A1 | 823,856 | 823,856 | ||||||
Series 2013-B, Class A1 | 3,079,979 | 3,079,979 | ||||||
M&T Bank Auto Receivables Trust | 1,679,972 | 1,679,972 | ||||||
Mercedes-Benz Auto Lease Trust | 584,108 | 584,108 | ||||||
MetLife Institutional Funding II | 3,750,000 | 3,750,000 | ||||||
MMAF Equipment Finance LLC | 1,964,663 | 1,964,663 | ||||||
National Rural Utilities Cooperative Finance Corp. | 3,800,000 | 3,800,000 | ||||||
Nissan Auto Lease Trust | 1,205,473 | 1,205,473 | ||||||
Procter & Gamble Co. (The) | 3,790,000 | 3,789,588 | ||||||
Volvo Financial Equipment LLC | 651,275 | 651,275 | ||||||
World Omni Auto Receivables Trust | 997,046 | 997,046 | ||||||
|
| |||||||
53,541,351 | ||||||||
|
| |||||||
Treasury Debt 16.7% |
| |||||||
United States Treasury Bills | ||||||||
0.011%, due 11/7/13 (b) | 8,000,000 | 7,999,986 | ||||||
0.012%, due 11/14/13 (b) | 8,000,000 | 7,999,965 | ||||||
0.03%, due 11/21/13 (b) | 13,795,000 | 13,794,770 | ||||||
United States Treasury Notes | ||||||||
0.125%, due 12/31/13 | 3,790,000 | 3,789,695 | ||||||
0.125%, due 7/31/14 | 4,000,000 | 3,999,381 | ||||||
0.25%, due 11/30/13 | 3,800,000 | 3,800,077 | ||||||
0.25%, due 1/31/14 | 3,790,000 | 3,790,617 | ||||||
0.25%, due 2/28/14 | 3,795,000 | 3,795,860 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Amortized Cost | |||||||
Treasury Debt (continued) |
| |||||||
United States Treasury Notes (continued) | ||||||||
0.25%, due 3/31/14 | $ | 3,840,000 | $ | 3,841,873 | ||||
0.25%, due 4/30/14 | 3,865,000 | 3,866,920 | ||||||
0.25%, due 5/31/14 | 3,835,000 | 3,837,070 | ||||||
0.25%, due 8/31/14 | 3,775,000 | 3,777,809 | ||||||
0.25%, due 9/30/14 | 3,845,000 | 3,848,793 | ||||||
0.25%, due 10/31/14 | 3,895,000 | 3,899,758 | ||||||
2.625%, due 6/30/14 | 4,000,000 | 4,065,568 | ||||||
|
| |||||||
76,108,142 | ||||||||
|
| |||||||
Treasury Repurchase Agreements 11.7% |
| |||||||
Bank of America N.A. | 20,000,000 | 20,000,000 | ||||||
Deutsche Bank Securities, Inc. | 22,185,000 | 22,185,000 |
Principal Amount | Amortized Cost | |||||||
Treasury Repurchase Agreements (continued) |
| |||||||
TD Securities (U.S.A.) LLC | $ | 11,000,000 | $ | 11,000,000 | ||||
|
| |||||||
53,185,000 | ||||||||
|
| |||||||
Total Short-Term Investments | 100.6 | % | 458,627,255 | |||||
Other Assets, Less Liabilities | (0.6 | ) | (2,768,120 | ) | ||||
Net Assets | 100.0 | % | $ | 455,859,135 |
(a) | Floating rate—Rate shown is the rate in effect as of October 31, 2013. |
(b) | Interest rate presented is yield to maturity. |
(c) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(d) | The amortized cost also represents the aggregate cost for federal income tax purposes. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Short-Term Investments | ||||||||||||||||
Certificates of Deposit | $ | — | $ | 24,215,000 | $ | — | $ | 24,215,000 | ||||||||
Financial Company Commercial Paper | — | 91,165,272 | — | 91,165,272 | ||||||||||||
Other Commercial Paper | — | 160,412,490 | — | 160,412,490 | ||||||||||||
Other Notes | — | 53,541,351 | — | 53,541,351 | ||||||||||||
Treasury Debt | — | 76,108,142 | — | 76,108,142 | ||||||||||||
Treasury Repurchase Agreements | — | 53,185,000 | — | 53,185,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | — | $ | 458,627,255 | $ | — | $ | 458,627,255 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
12 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The table below sets forth the diversification of MainStay Money Market Fund investments by industry.
Industry Diversification (Unaudited)
Amortized Cost | Percent † | |||||||
Aerospace & Defense | $ | 6,894,126 | 1.5 | % | ||||
Automobile ABS | 13,017,752 | 2.8 | ||||||
Banks | 49,498,880 | 10.9 | ||||||
Beverages | 7,805,188 | 1.7 | ||||||
Chemicals | 21,311,124 | 4.7 | ||||||
Commercial Services | 3,699,944 | 0.8 | ||||||
Cosmetics & Personal Care | 15,429,347 | 3.4 | ||||||
Electric | 16,324,091 | 3.6 | ||||||
Electronics | 1,509,948 | 0.3 | ||||||
Finance—Auto Loans | 9,229,783 | 2.0 | ||||||
Finance—Consumer Loans | 3,999,736 | 0.9 | ||||||
Finance—Other Services | 15,179,618 | 3.3 | ||||||
Finance—Investment Fund | 5,654,607 | 1.2 | ||||||
Food | 9,434,591 | 2.1 | ||||||
Gas | 16,873,967 | 3.7 | ||||||
Health Care—Services | 11,109,491 | 2.4 | ||||||
Insurance | 15,384,059 | 3.4 | ||||||
Machinery—Diversified | 6,999,668 | 1.5 | ||||||
Miscellaneous—Manufacturing | 30,387,427 | 6.7 | ||||||
Multi-National | 9,910,000 | 2.2 | ||||||
Oil & Gas | 10,699,481 | 2.4 | ||||||
Other ABS | 7,961,834 | 1.7 | ||||||
Pharmaceuticals | 11,999,901 | 2.6 | ||||||
Regional (State & Province) | 9,594,425 | 2.1 | ||||||
Repurchase Agreements | 53,185,000 | 11.7 | ||||||
Retail | 7,999,711 | 1.8 | ||||||
Software | 9,910,420 | 2.2 | ||||||
Sovereign | 76,108,142 | 16.7 | ||||||
Transportation | 1,514,994 | 0.3 | ||||||
|
|
|
| |||||
458,627,255 | 100.6 | |||||||
Other Assets, Less Liabilities | (2,768,120 | ) | (0.6 | ) | ||||
|
|
|
| |||||
Net Assets | $ | 455,859,135 | 100.0 | % | ||||
|
|
|
|
† | 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. | mainstayinvestments.com | 13 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 405,442,255 | ||
Repurchase agreements, at value | 53,185,000 | |||
Cash | 511 | |||
Receivables: | ||||
Fund shares sold | 1,328,761 | |||
Interest | 67,269 | |||
Manager (See Note 3) | 47,735 | |||
Other assets | 41,201 | |||
|
| |||
Total assets | 460,112,732 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 2,136,444 | |||
Investment securities purchased | 1,897,000 | |||
Transfer agent (See Note 3) | 162,692 | |||
Shareholder communication | 35,313 | |||
Professional fees | 12,936 | |||
Custodian | 3,116 | |||
Trustees | 993 | |||
Accrued expenses | 5,028 | |||
Dividend payable | 75 | |||
|
| |||
Total liabilities | 4,253,597 | |||
|
| |||
Net assets | $ | 455,859,135 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 4,559,059 | ||
Additional paid-in capital | 451,297,558 | |||
|
| |||
455,856,617 | ||||
Undistributed net investment income | 2,498 | |||
Accumulated net realized gain (loss) on investments | 20 | |||
|
| |||
Net assets | $ | 455,859,135 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 58,774,409 | ||
|
| |||
Shares of beneficial interest outstanding | 58,783,825 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 290,027,711 | ||
|
| |||
Shares of beneficial interest outstanding | 290,055,591 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 73,803,409 | ||
|
| |||
Shares of beneficial interest outstanding | 73,810,501 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 33,253,606 | ||
|
| |||
Shares of beneficial interest outstanding | 33,255,959 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 1.00 | ||
|
|
14 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 706,018 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 2,020,783 | |||
Transfer agent (See Note 3) | 937,885 | |||
Registration | 102,033 | |||
Shareholder communication | 69,456 | |||
Professional fees | 59,623 | |||
Custodian | 24,685 | |||
Trustees | 9,142 | |||
Miscellaneous | 15,783 | |||
|
| |||
Total expenses before waiver/reimbursement | 3,239,390 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (2,571,716 | ) | ||
|
| |||
Net expenses | 667,674 | |||
|
| |||
Net investment income (loss) | 38,344 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 20 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 38,364 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 38,344 | $ | 39,781 | ||||
Net realized gain (loss) on investments | 20 | 1,714 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 38,364 | 41,495 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (3,866 | ) | (2,729 | ) | ||||
Class A | (25,645 | ) | (28,256 | ) | ||||
Class B | (6,101 | ) | (6,389 | ) | ||||
Class C | (2,729 | ) | (2,410 | ) | ||||
|
| |||||||
Total dividends to shareholders | (38,341 | ) | (39,784 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 630,608,506 | 485,458,380 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 37,152 | 39,626 | ||||||
Cost of shares redeemed | (606,229,520 | ) | (627,822,156 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 24,416,138 | (142,324,150 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | 24,416,161 | (142,322,439 | ) | |||||
Net Assets | ||||||||
Beginning of year | 431,442,974 | 573,765,413 | ||||||
|
| |||||||
End of year | $ | 455,859,135 | $ | 431,442,974 | ||||
|
| |||||||
Undistributed net investment income at end of year | $ | 2,498 | $ | 387 | ||||
|
|
16 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
Return of capital | — | — | — | (0.00 | )‡ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.12 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.00 | %‡ | 0.01 | % | 0.01 | % | 0.13 | % | ||||||||||
Net expenses | 0.16 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.50 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 58,774 | $ | 59,129 | $ | 63,169 | $ | 64,360 | $ | 67,220 |
‡ | Less than one cent per share. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
Return of capital | — | — | — | (0.00 | )‡ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.16 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.18 | % | ||||||||||
Net expenses | 0.15 | % | 0.17 | % | 0.17 | % | 0.25 | % | 0.47 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.65 | % | 0.69 | % | 0.71 | % | 0.72 | % | 0.73 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 290,028 | $ | 259,119 | $ | 373,790 | $ | 301,795 | $ | 279,766 |
‡ | 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. | mainstayinvestments.com | 17 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
Return of capital | — | — | — | (0.00 | )‡ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.12 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.14 | % | ||||||||||
Net expenses | 0.16 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.51 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 73,803 | $ | 84,982 | $ | 102,908 | $ | 118,529 | $ | 144,464 |
‡ | Less than one cent per share. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
Return of capital | — | — | — | (0.00 | )‡ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | (0.00 | )‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return | 0.01 | % | 0.01 | % | 0.01 | % | 0.02 | % | 0.12 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.01 | % | 0.01 | % | 0.01 | % | 0.01 | % | 0.15 | % | ||||||||||
Net expenses | 0.15 | % | 0.18 | % | 0.18 | % | 0.25 | % | 0.52 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.90 | % | 0.91 | % | 0.91 | % | 0.94 | % | 0.95 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 33,254 | $ | 28,212 | $ | 33,898 | $ | 27,307 | $ | 33,194 |
‡ | Less than one cent per share. |
18 | MainStay Money Market Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Money Market Fund (the “Fund”), a diversified fund.
The Fund currently offers four classes of shares at net asset value (“NAV”) without the imposition of a front-end sales charge or a contingent deferred sales charge (“CDSC”). Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The four classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions.
The Fund’s investment objective is to seek a high level of current income while preserving capital and maintaining liquidity.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Valuation of Shares. The Fund seeks to maintain a NAV of $1.00 per share, although there is no assurance that it will be able to do so on a continuous basis. The Fund has adopted certain investment, portfolio and dividend and distribution policies designed to enable it to do as such. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
(B) Securities Valuation. Securities are valued at their amortized cost per the requirements of Rule 2a-7 under the 1940 Act, as amended. 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. Amortized cost approximates the current fair value of a security.
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to
the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”).
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
Securities valued at amortized cost are not obtained from a quoted price in an active market and are generally categorized as Level 2 in the hierarchy. The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable
mainstayinvestments.com | 19 |
Notes to Financial Statements (continued)
inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use some of the following fair value techniques: multi-dimensional relational pricing models and option adjusted spread pricing. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
(C) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare dividends of net investment income, if any, at least daily and intends to pay them at least monthly and declares and pays distributions of net realized capital gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued daily and discounts and premiums on securities purchased for the Fund are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Concentration of Risk. The Fund’s investments may include securities such as variable rate master demand notes, floating-rate notes and mortgage-related and asset-backed securities. If expectations about changes in interest rates, or assessments of an issuer’s credit worthiness or market conditions are incorrect, these types of investments could lose money.
The Fund may also invest in U.S. dollar denominated securities of foreign issuers, which carry certain risks in addition to the usual risks inherent in domestic instruments. These risks include those resulting from future adverse political or economic developments and possible imposition of foreign governmental laws or restrictions. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in
20 | MainStay Money Market Fund |
the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. New York Life Investments is responsible for the day-to-day portfolio management of the Fund.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.45% up to $500 million; 0.40% from $500 million to $1 billion; and 0.35% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% on from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursement) was 0.47% for the year ended October 31, 2013 inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
New York Life Investments has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses do not exceed the following percentages of average daily net assets: Investor Class, 0.80%; Class A, 0.70%; Class B, 0.80%; and Class C, 0.80%. This agreement will remain in effect until February 28, 2014, and shall renew automatically for one-year terms unless New York Life Investments provides written notice of termination prior to the start of the next term or upon approval of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
New York Life Investments may limit expenses of the Fund to the extent it deems appropriate to enhance the yield of the Fund, or a particular class of the Fund, during periods when expenses have a significant impact on the yield of the Fund, or a particular class of the Fund, as applicable, because of low interest rates. This expense limitation policy
is voluntary and in addition to any contractual arrangements that may be in place with respect to the Fund and described in the Fund’s prospectus.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $2,020,783 and waived its fees in the amount of $172,534. Additionally, New York Life Investments reimbursed fees in the amount of $2,399,182, without which the Fund’s total returns would have been lower.
State Street Bank and Trust Company (“State Street”), 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Contingent Deferred Sales Charge. Although the Fund does not assess a CDSC upon redemption of Class B or Class C shares of the Fund, the applicable CDSC will be assessed when shares were redeemed from the Fund if the shareholder previously exchanged his or her investment into the Fund from another fund within the MainStay Group of Funds. The Fund was advised that NYLIFE Distributors LLC (the “Distributor”), an indirect wholly owned subsidiary of New York Life, received from shareholders the proceeds from CDSCs of Investor Class, Class A, Class B and Class C of $189, $41,199, $88,403 and $16,270, respectively for the year ended October 31, 2013.
(C) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 216,151 | ||
Class A | 310,028 | |||
Class B | 294,646 | |||
Class C | 117,060 |
(D) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
mainstayinvestments.com | 21 |
Notes to Financial Statements (continued)
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary Income | Accumulated Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||||
$2,593 | $ | — | $ | (75 | ) | $ | — | $ | 2,518 |
The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$2,108 | $ | (1,714 | ) | $ | (394 | ) |
The reclassifications for the Fund are primarily due to distribution redesignations and nondeductible expenses.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 38,341 | $ | 39,784 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Capital Share Transactions
Investor Class (at $1 per share) | Shares | |||
Year ended October 31, 2013: | ||||
Shares sold | 48,055,250 | |||
Shares issued to shareholders in reinvestment of dividends | 3,768 | |||
Shares redeemed | (43,658,818 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 4,400,200 | |||
Shares converted into Investor Class (See Note 1) | 4,675,952 | |||
Shares converted from Investor Class (See Note 1) | (9,430,974 | ) | ||
|
| |||
Net increase (decrease) | (354,822 | ) | ||
|
| |||
Year ended October 31, 2012: | ||||
Shares sold | 47,190,238 | |||
Shares issued to shareholders in reinvestment of dividends | 3,611 | |||
Shares redeemed | (47,219,449 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (25,600 | ) | ||
Shares converted into Investor Class (See Note 1) | 5,001,213 | |||
Shares converted from Investor Class (See Note 1) | (9,015,937 | ) | ||
|
| |||
Net increase (decrease) | (4,040,324 | ) | ||
|
| |||
Class A (at $1 per share) | Shares | |||
Year ended October 31, 2013: | ||||
Shares sold | 511,132,269 | |||
Shares issued to shareholders in reinvestment of dividends | 24,798 | |||
Shares redeemed | (485,284,727 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | 25,872,340 | |||
Shares converted into Class A (See Note 1) | 9,586,355 | |||
Shares converted from Class A (See Note 1) | (4,550,353 | ) | ||
|
| |||
Net increase (decrease) | 30,908,342 | |||
|
| |||
Year ended October 31, 2012: | ||||
Shares sold | 384,368,212 | |||
Shares issued to shareholders in reinvestment of dividends | 26,705 | |||
Shares redeemed | (503,689,928 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (119,295,011 | ) | ||
Shares converted into Class A (See Note 1) | 9,324,253 | |||
Shares converted from Class A (See Note 1) | (4,701,096 | ) | ||
|
| |||
Net increase (decrease) | (114,671,854 | ) | ||
|
|
22 | MainStay Money Market Fund |
Class B (at $1 per share) | Shares | |||
Year ended October 31, 2013: | ||||
Shares sold | 19,124,303 | |||
Shares issued to shareholders in reinvestment of dividends | 6,007 | |||
Shares redeemed | (30,028,189 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (10,897,879 | ) | ||
Shares converted from Class B (See Note 1) | (280,980 | ) | ||
|
| |||
Net increase (decrease) | (11,178,859 | ) | ||
|
| |||
Year ended October 31, 2012: | ||||
Shares sold | 22,048,636 | |||
Shares issued to shareholders in reinvestment of dividends | 6,966 | |||
Shares redeemed | (39,373,145 | ) | ||
|
| |||
Net increase (decrease) in shares outstanding before conversion | (17,317,543 | ) | ||
Shares converted from Class B (See Note 1) | (608,433 | ) | ||
|
| |||
Net increase (decrease) | (17,925,976 | ) | ||
|
| |||
Class C (at $1 per share) | Shares | |||
Year ended October 31, 2013: | ||||
Shares sold | 52,296,685 | |||
Shares issued to shareholders in reinvestment of dividends | 2,579 | |||
Shares redeemed | (47,257,784 | ) | ||
|
| |||
Net increase (decrease) | 5,041,480 | |||
|
| |||
Year ended October 31, 2012: | ||||
Shares sold | 31,851,294 | |||
Shares issued to shareholders in reinvestment of dividends | 2,345 | |||
Shares redeemed | (37,539,635 | ) | ||
|
| |||
Net increase (decrease) | (5,685,996 | ) | ||
|
|
Note 7–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com | 23 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Money Market Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Money Market Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
24 | MainStay Money Market Fund |
Federal Income Tax Information
(Unaudited)
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q and every month on Form N-MFP. In addition, the Fund will make available its complete schedule of portfolio holdings on its website at www.mainstayinvestments.com, five days after month-end. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). Form N-MFP will be made available to the public by the SEC 60 days after the month to which the information pertains, and a link to each of the most recent 12 months of filings on Form N-MFP will be provided on the Fund’s website. You can also obtain and review copies of Forms N-Q and N-MFP by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com | 25 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
26 | MainStay Money Market Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 27 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
28 | MainStay Money Market Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 29 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31924 MS322-13 | MSMM11-12/13 NL012 |
MainStay Tax Free Bond Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –7.79 –3.45 | %
|
| 5.41 6.39 | %
|
| 3.21 3.69 | %
|
| 0.91 0.91 | %
| ||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges | | –7.86 –3.52 | | | 5.48 6.46 | | | 3.25 3.73 | | | 0.84 0.84 | | ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | –8.38 –3.73 | | | 5.78 6.10 | | | 3.42 3.42 | | | 1.16 1.16 | | ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | –4.65 –3.72 | | | 6.12 6.12 | | | 3.42 3.42 | | | 1.16 1.16 | | ||||||
Class I Shares4 | No Sales Charge | –3.18 | 6.71 | 3.97 | 0.59 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on December 21, 2009, include the historical performance of Class B shares through December 20, 2009, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Barclays Municipal Bond Index5 | –1.72 | % | 6.37 | % | 4.53 | % | ||||||
Average Lipper General & Insured Municipal Debt Fund6 | –3.13 | 6.37 | 3.71 |
5. | The Barclays Municipal Bond Index is an unmanaged index considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year. Bonds subject to the alternative minimum tax or with floating or zero coupons are excluded. The Barclays Municipal Bond Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume the reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The average Lipper general & insured municipal debt fund is representative of funds that, by portfolio practice, either invest primarily in municipal debt issues rated in the top four credit ratings or invest primarily in municipal debt issues insured as to timely payment. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Tax Free Bond Fund |
Cost in Dollars of a $1,000 Investment in MainStay Tax Free Bond Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 939.80 | $ | 4.20 | $ | 1,020.90 | $ | 4.38 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 939.70 | $ | 3.91 | $ | 1,021.20 | $ | 4.08 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 938.20 | $ | 5.42 | $ | 1,019.60 | $ | 5.65 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 939.20 | $ | 5.43 | $ | 1,019.60 | $ | 5.65 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 941.90 | $ | 2.69 | $ | 1,022.40 | $ | 2.80 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (0.86% for Investor Class, 0.80% for Class A, 1.11% for Class B, 1.11% for Class C and 0.55% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
California | 22.6 | % | ||
Texas | 10.4 | |||
Michigan | 7.9 | |||
Illinois | 7.0 | |||
New Jersey | 6.5 | |||
New York | 6.0 | |||
Florida | 4.3 | |||
U.S. Virgin Islands | 4.2 | |||
Louisiana | 2.7 | |||
Maryland | 2.4 | |||
Guam | 2.2 | |||
Massachusetts | 2.0 | |||
Georgia | 1.7 | |||
Pennsylvania | 1.7 | |||
Connecticut | 1.7 | |||
Nebraska | 1.7 | |||
South Carolina | 1.6 | |||
District of Columbia | 1.6 | |||
Tennessee | 1.3 | |||
Indiana | 1.3 |
Arizona | 1.2 | % | ||
Maine | 0.9 | |||
Wisconsin | 0.8 | |||
Washington | 0.8 | |||
Ohio | 0.8 | |||
Rhode Island | 0.7 | |||
Kentucky | 0.6 | |||
Colorado | 0.6 | |||
Hawaii | 0.6 | |||
Minnesota | 0.5 | |||
Alabama | 0.5 | |||
North Carolina | 0.4 | |||
North Dakota | 0.3 | |||
New Hampshire | 0.2 | |||
Wyoming | 0.1 | |||
Utah | 0.1 | |||
Vermont | 0.1 | |||
Other Assets, Less Liabilities | 0.0 | ‡ | ||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Issuers Held as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Maryland Health & Higher Educational Facilities Authority, Medstar Health, Revenue Bonds, 5.00%, due 8/15/38 |
2. | Chicago, Illinois O’Hare International Airport, Revenue Bonds, 5.00%–5.625%, due 1/1/29–1/1/35 |
3. | Texas Municipal Gas Acquisition & Supply Corp. III, Revenue Bonds, 5.00%, due 12/15/30 |
4. | Texas Private Activity Bond Surface Transportation Corp., LBJ Infrastructure, Revenue Bonds, 7.00%–7.50%, due 6/30/32–6/30/40 |
5. | Anaheim Public Financing Authority, Public Improvement Project, Revenue Bonds, 4.75%, due 9/1/33 |
6. | Virgin Islands Public Finance Authority, Revenue Bonds, 5.00%–6.75%, due 10/1/32–10/1/37 |
7. | Hillsborough County Industrial Development Authority, Tampa General Hospital Project, Revenue Bonds, 5.00%, due 10/1/31 |
8. | City of Orlando, Tourist Development Tax Revenue, 3rd Lien, 6th Cent Contract, Revenue Bonds, 5.50%, due 11/1/38 |
9. | Antonio B Won Pat International Airport Authority, Guam Airport, Revenue Bonds, 5.00%–6.125%, due 10/1/21–10/1/43 |
10. | Chicago Board of Education, General Obligation, 5.50%, due 12/1/39 |
8 | MainStay Tax Free Bond Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers John Loffredo, CFA, Robert DiMella, CFA, and Michael Petty of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Tax Free Bond Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Tax Free Bond Fund returned –3.45% for Investor Class shares, –3.52% for Class A shares, –3.73% for Class B shares and –3.72% for Class C shares for the 12 months ended October 31, 2013. Over the same period, Class I shares returned –3.18%. All share classes underperformed the –1.72% return of the Barclays Municipal Bond Index,1 which is the Fund’s broad-based securities-market index, and the –3.13% return of the average Lipper2 general & insured municipal debt fund for the 12 months ended October 31, 2013. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund was positioned with a longer-maturity, lower investment-grade rating profile than the Barclays Municipal Bond Index. This strategy performed well during the first six months of the reporting period as credit spreads3 narrowed. As municipal mutual fund outflows increased from June through August 2013, however, the municipal yield curve4 steepened and credit spreads widened. These conditions detracted from the Fund’s performance relative to the benchmark. On the upside, a lack of Puerto Rico bonds was a positive contributor to the Fund’s performance, as Puerto Rico was the worst-performing sector of the Barclays Municipal Bond Index. (Contributions take weightings and total returns into account.)
What was the Fund’s duration5 strategy during the reporting period?
The Fund’s duration for the first six months of the reporting period was shorter than that of the Barclays Municipal Bond Index. As municipal rates increased substantially from June through August, we increased the Fund’s duration relative to the benchmark. We continue to use a position in U.S. Treasury futures to hedge some of the Fund’s higher exposure in longer-maturity issues.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
A combination of factors affected the municipal market during the reporting period. Among these were stronger economic
data, which prompted speculation about a rotation from bonds to equities, and suggestions that the Federal Reserve might taper its bond purchases. Financial difficulties in Detroit and Puerto Rico also affected the market. Together, these forces drew money away from municipal mutual funds in 2013. This caused municipal yields to move materially higher and drove bond prices lower. This rapid change in market sentiment created opportunities for the Fund to reposition itself in several ways. We focused on selling securities that had fallen in value, as we sought to realize losses that could offset current and future gains in the Fund. During periods of institutional market illiquidity, we targeted the strong appetite for individual bonds among retail investors to execute sales at prices we viewed as favorable relative to the market. We used the proceeds to buy bonds that became available because of industry outflows.
During the reporting period, which market segments were the strongest positive contributors to the Fund’s performance and which market segments were particularly weak?
Relative to the Barclays Municipal Bond Index, the most significant positive contribution to the Fund’s performance came from our decision to avoid securities issued by the Commonwealth of Puerto Rico. Puerto Rico bonds underperformed the general municipal market by more than 15 percentage points. The most significant detractors from the Fund’s relative performance were yield-curve positioning and credit quality. Longer-maturity municipals underperformed municipal bonds with shorter maturities, and credit spreads widened during the reporting period. Even so, the higher-quality, defensively structured portion of the Fund produced strong relative performance.
Did the Fund make any significant purchases or sales during the reporting period?
The Fund remains focused on diversification and liquidity, so no individual purchase or sale would have been considered significant.
How did the Fund’s sector weightings change during the reporting period?
There were no material changes to Fund’s sector weightings during the reporting period. Sectors that we continue to favor were marginally increased, including local general obligation bonds and municipal bonds in the transportation and health care sectors. We reduced the Fund’s exposure to the education
1. | See footnote on page 6 for more information on the Barclays Municipal Bond Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time. |
4. | The yield curve is a line that plots the yields of various securities of similar quality—typically U.S. Treasury issues—across a range of maturities. The U.S. Treasury yield curve serves as a benchmark for other debt and is used in economic forecasting. |
5. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
mainstayinvestments.com | 9 |
sector but still maintain an overweight position relative to the Barclays Municipal Bond Index. From a state perspective, we opportunistically increased the Fund’s exposure to Texas and New Jersey after a sell-off during the summer pushed prices lower.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund was overweight relative to the Barclays Municipal Bond Index in the local general obligation, transportation and education sectors. From a quality perspec-
tive, we still favor credits rated A and BBB.6 In combination, these two ratings categories represented more than 61% of the Fund’s total assets as of October 31, 2013. As of the same date, the Fund’s duration was slightly longer than that of the benchmark.
6. | An obligation rated ‘A’ by Standard & Poor’s (“S&P”) is deemed by S&P to be somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. In the opinion of S&P, however, the obligor’s capacity to meet its financial commitment on the obligation is still strong. An obligation rated ‘BBB’ by S&P is deemed by S&P to exhibit adequate protection parameters. It is the opinion of S&P, however, that adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. When applied to Fund holdings, ratings are based solely on the creditworthiness of the bonds in the portfolio and are not meant to represent the security or safety of the Fund. |
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Tax Free Bond Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Municipal Bonds 100.0%† | ||||||||
Alabama 0.5% | ||||||||
Alabama Water Pollution Control Authority, Revenue Bonds | ||||||||
Series B, Insured: AMBAC | $ | 1,550,000 | $ | 1,540,374 | ||||
Jefferson County, Alabama, Revenue Bonds Insured: AGM | 2,380,000 | 2,379,667 | ||||||
|
| |||||||
3,920,041 | ||||||||
|
| |||||||
Arizona 1.2% | ||||||||
Salt Verde Financial Corp., Revenue Bonds | 10,000,000 | 10,063,900 | ||||||
|
| |||||||
California 22.6% | ||||||||
Alum Rock Union Elementary School District, Election, Unlimited General Obligation | ||||||||
Series A, Insured: GTY | 3,040,000 | 3,196,469 | ||||||
¨Anaheim Public Financing Authority, Public Improvement Project, Revenue Bonds | ||||||||
Series A-1, Insured: NATL-RE | 16,390,000 | 16,417,371 | ||||||
Anaheim, California, School District, Unlimited General Obligation Insured: AGM | 4,700,000 | 5,323,079 | ||||||
California Communities, Installment Sale, Certificates of Participation | ||||||||
Series B | 2,500,000 | 2,517,050 | ||||||
California Educational Facilities Authority, Revenue Bonds | 1,525,000 | 1,768,787 | ||||||
California Health Facilities Financing Authority, Catholic Healthcare, Revenue Bonds | ||||||||
Series A | 3,000,000 | 3,306,150 | ||||||
California State Public Works Board, Capital Project, Revenue Bonds | ||||||||
Series I-1 | 1,520,000 | 1,528,041 | ||||||
California State Public Works Board, University Project, Revenue Bonds | ||||||||
Series H | 7,455,000 | 7,999,364 |
Principal Amount | Value | |||||||
California (continued) | ||||||||
California State Public Works Revenue, Various Capital Project, Revenue Bonds | ||||||||
Series G1 | $ | 1,400,000 | $ | 1,539,496 | ||||
California State, Unlimited General Obligation | ||||||||
6.00%, due 11/1/35 | 2,500,000 | 2,906,050 | ||||||
6.25%, due 11/1/34 | 4,000,000 | 4,704,200 | ||||||
California Statewide Communities Development Authority, Aspire Public Schools, Revenue Bonds | 1,990,000 | 1,967,095 | ||||||
California Statewide Communities Development Authority, Revenue Bonds | 1,475,000 | 1,550,284 | ||||||
Ceres Unified School District, Unlimited General Obligation | ||||||||
Series A | 4,150,000 | 875,609 | ||||||
Series A | 8,000,000 | 859,040 | ||||||
Series A | 9,000,000 | 762,930 | ||||||
Fontana Unified School District, Unlimited General Obligation | ||||||||
Series C | 14,800,000 | 4,222,884 | ||||||
Series C | 15,500,000 | 4,156,325 | ||||||
Foothill-Eastern Transportation Corridor Agency Toll Road, Revenue Bonds | ||||||||
(zero coupon), due 1/15/24 | 10,000,000 | 5,309,800 | ||||||
(zero coupon), due 1/15/34 | 9,600,000 | 2,500,512 | ||||||
Foothill-Eastern Transportation Corridor Agency, Revenue Bonds | 13,000,000 | 4,218,110 | ||||||
Fresno, California Unified School District Education, Unlimited General Obligation | ||||||||
Series G | 6,000,000 | 1,881,660 | ||||||
Series G | 10,000,000 | 2,887,500 | ||||||
Series G | 23,485,000 | 3,759,948 | ||||||
Golden State Tobacco Securitization Corp., Revenue Bonds | ||||||||
Series A, Insured: AGC, FGIC | 9,000,000 | 9,005,670 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
California (continued) | ||||||||
Hayward Unified School District, Unlimited General Obligation | ||||||||
Series A, Insured: AGM | $ | 12,500,000 | $ | 2,882,250 | ||||
Series A, Insured: AGM | 7,000,000 | 1,497,790 | ||||||
Imperial Community College District, Unlimited General Obligation Insured: AGM | 2,865,000 | 3,061,510 | ||||||
Lompoc Valley Medical Center, Santa Barbara County, Unlimited General Obligation | 4,245,000 | 3,610,118 | ||||||
Merced Union High School District, Cabs-Election, Unlimited General Obligation | ||||||||
Series C | 53,000,000 | 6,156,480 | ||||||
Morongo, California Unified School District Election, Unlimited General Obligation | ||||||||
Series B, Insured: GTY | 2,880,000 | 2,967,005 | ||||||
National City Community Development Commission, National City Redevelopment Project, Tax Allocation | 3,500,000 | 4,096,820 | ||||||
Oakland Unified School District, Election 2000, Unlimited General Obligation Insured: NATL-RE | 10,000,000 | 9,191,300 | ||||||
Oceanside, California Unified School District, Capital Appreciation Election, Unlimited General Obligation | ||||||||
Series B, Insured: AGM | 11,555,000 | 1,122,799 | ||||||
Palomar Pomerado Health Election, Unlimited General Obligation | ||||||||
Series A, Insured: AMBAC | 9,075,000 | 9,231,090 | ||||||
Peralta Community College District, Unlimited General Obligation | ||||||||
Series A, Insured: NATL-RE | 4,655,000 | 4,905,858 | ||||||
Pomona Unified School District, Election 2008, Unlimited General Obligation | ||||||||
Series E, Insured: AGM | 3,285,000 | 3,450,991 | ||||||
Riverside County Transportation Commission, Revenue Bonds | ||||||||
Series A | 3,000,000 | 3,359,370 |
Principal Amount | Value | |||||||
California (continued) | ||||||||
San Bernardino City Unified School District, Election, Unlimited General Obligation | ||||||||
Series A, Insured: AGM | $ | 1,000,000 | $ | 1,043,060 | ||||
San Buenaventura Public Facilities Financing Authority, Revenue Bonds | ||||||||
Series B | 3,000,000 | 3,104,310 | ||||||
San Diego County Regional Airport Authority, Revenue Bonds | ||||||||
Series B | 1,000,000 | 1,030,870 | ||||||
San Joaquin Hills Transportation Corridor Agency, Revenue Bonds | ||||||||
Series A, Insured: NATL-RE | 10,000,000 | 2,400,600 | ||||||
San Lorenzo, California Unified School District, Unlimited General Obligation | ||||||||
Series B | 4,535,000 | 5,041,378 | ||||||
San Ysidro School District, Unlimited General Obligation | ||||||||
Series F, Insured: AGM | 25,705,000 | 2,259,470 | ||||||
Stockton, California Unified School District, Election 2005, Unlimited General Obligation | 11,995,000 | 12,035,183 | ||||||
Val Verde Unified School District, Election 2012, Unlimited General Obligation | ||||||||
Series A, Insured: BAM | 7,500,000 | 7,685,625 | ||||||
West Contra Costa California Healthcare District, Certificates of Participation | 3,500,000 | 3,774,330 | ||||||
|
| |||||||
189,071,631 | ||||||||
|
| |||||||
Colorado 0.6% | ||||||||
E-470 Public Highway Authority Colorado, Revenue Bonds | ||||||||
Series B-1, Insured: NATL-RE | 3,000,000 | 3,181,020 | ||||||
Park Creek Metropolitan District, Revenue Bonds | ||||||||
Series A, Insured: AGM | 1,600,000 | 1,720,000 | ||||||
|
| |||||||
4,901,020 | ||||||||
|
|
12 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Connecticut 1.7% | ||||||||
Connecticut, CT, Special Tax Obligation, Transportation Infrastructure, Revenue Bonds | ||||||||
Series A | $ | 4,105,000 | $ | 4,803,917 | ||||
Series A | 4,785,000 | 5,152,727 | ||||||
Hartford, CT, Unlimited General Obligation | ||||||||
Series A | 2,500,000 | 2,671,550 | ||||||
Series A | 1,250,000 | 1,378,134 | ||||||
Series A, Insured: AGM | 275,000 | 299,825 | ||||||
|
| |||||||
14,306,153 | ||||||||
|
| |||||||
District of Columbia 1.6% | ||||||||
District of Columbia, Friendship Public Charter School, Inc., Revenue Bonds | ||||||||
5.00%, due 6/1/32 | 1,125,000 | 1,034,190 | ||||||
5.00%, due 6/1/42 | 3,500,000 | 3,028,410 | ||||||
District of Columbia, KIPP Charter School, Revenue Bonds | ||||||||
6.00%, due 7/1/33 | 1,000,000 | 1,061,740 | ||||||
6.00%, due 7/1/43 | 1,000,000 | 1,042,420 | ||||||
6.00%, due 7/1/48 | 1,575,000 | 1,629,842 | ||||||
District of Columbia, Tax Allocation | ||||||||
5.00%, due 6/1/27 | 525,000 | 553,124 | ||||||
5.00%, due 6/1/28 | 1,445,000 | 1,507,915 | ||||||
Metropolitan Washington Airports Authority, Revenue Bonds | ||||||||
Series A | 3,005,000 | 3,119,130 | ||||||
|
| |||||||
12,976,771 | ||||||||
|
| |||||||
Florida 4.3% | ||||||||
Citizens Property Insurance Corp., Revenue Bonds | ||||||||
Series A-1 | 3,500,000 | 3,978,030 | ||||||
¨City of Orlando, Tourist Development Tax Revenue, 3rd Lien, 6th Cent Contract, Revenue Bonds | 15,000,000 | 15,133,800 | ||||||
¨Hillsborough County Industrial Development Authority, Tampa General Hospital Project, Revenue Bonds | ||||||||
Series A | 14,900,000 | 15,173,564 |
Principal Amount | Value | |||||||
Florida (continued) | ||||||||
Miami-Dade County Florida Solid Waste System, Revenue Bonds Insured: NATL-RE | $ | 1,735,000 | $ | 1,876,524 | ||||
Miami-Dade County Florida, Revenue Bonds Series A, Insured: NATL-RE | 245,000 | 60,245 | ||||||
|
| |||||||
36,222,163 | ||||||||
|
| |||||||
Georgia 1.7% | ||||||||
Atlanta, Georgia Airport Passenger Facility Charge, Revenue Bonds | ||||||||
Series J, Insured: AGM | 3,500,000 | 3,607,450 | ||||||
Atlanta, Georgia Water & Wastewater, Revenue Bonds | ||||||||
Series A | 4,125,000 | 4,678,823 | ||||||
Bulloch County Development Authority, Southern Housing Foundation, Revenue Bonds | 1,475,000 | 1,509,279 | ||||||
Fulton County Georgia Development Authority, Piedmont Healthcare, Inc., Revenue Bonds | ||||||||
Series A | 1,700,000 | 1,780,002 | ||||||
Tift County Hospital Authority, Anticipation Certificates, Revenue Bonds | 3,000,000 | 3,030,420 | ||||||
|
| |||||||
14,605,974 | ||||||||
|
| |||||||
Guam 2.2% | ||||||||
¨Antonio B Won Pat International Airport Authority, Guam Airport, Revenue Bonds | ||||||||
Series C | 5,500,000 | 5,578,760 | ||||||
Series C, Insured: AGM | 7,300,000 | 7,504,327 | ||||||
Guam Power Authority, Revenue Bonds | ||||||||
Series A, Insured: AGM | 4,935,000 | 5,020,030 | ||||||
|
| |||||||
18,103,117 | ||||||||
|
| |||||||
Hawaii 0.6% | ||||||||
Hawaii State Department of Budget and Finance, Hawaiian Electric Co., Revenue Bonds | ||||||||
Series B, Insured: FGIC | 1,450,000 | 1,400,497 | ||||||
6.50%, due 7/1/39 | 3,000,000 | 3,268,770 | ||||||
|
| |||||||
4,669,267 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Illinois 7.0% | ||||||||
¨Chicago Board of Education, General Obligation | ||||||||
Series A, Insured: AGM-CR | $ | 12,750,000 | $ | 12,965,603 | ||||
¨Chicago, Illinois O’ Hare International Airport, Revenue Bonds | ||||||||
Series A Insured: NATL-RE | 2,905,000 | 2,911,478 | ||||||
Series A, Insured: AGM | 7,000,000 | 7,036,120 | ||||||
Series D | 7,555,000 | 7,935,772 | ||||||
Series A | 2,000,000 | 2,079,240 | ||||||
Chicago, Illinois Waterworks, Revenue Bonds | 3,410,000 | 3,389,335 | ||||||
Chicago, lllinois, Unlimited General Obligation | ||||||||
Series A | 2,000,000 | 1,930,500 | ||||||
Illinois Finance Authority, Ingalls Health System, Revenue Bonds | ||||||||
5.00%, due 5/15/25 | 1,120,000 | 1,159,133 | ||||||
5.00%, due 5/15/26 | 1,175,000 | 1,203,188 | ||||||
Illinois Finance Authority, Rehab Institute of Chicago, Revenue Bonds | ||||||||
Series A | 9,600,000 | 9,908,064 | ||||||
Kendall Kane & Will Counties, Community Unit School District No. 308, Unlimited General Obligation | ||||||||
Series A | 7,000,000 | 7,373,310 | ||||||
Knox & Warren Counties, Illinois Community Unit School District No. 205 Galesburg, Unlimited General Obligation | ||||||||
Series A | 240,000 | 263,652 | ||||||
Series A | 205,000 | 233,235 | ||||||
|
| |||||||
58,388,630 | ||||||||
|
| |||||||
Indiana 1.3% | ||||||||
Indiana State Finance Authority, Butler University, Revenue Bonds | ||||||||
Series B | 2,100,000 | 2,315,565 | ||||||
Series A | 4,425,000 | 4,807,807 |
Principal Amount | Value | |||||||
Indiana (continued) | ||||||||
Indiana State Finance Authority, Butler University, Revenue Bonds (continued) | ||||||||
Series B | $ | 2,320,000 | $ | 2,488,664 | ||||
Indianapolis, Indiana Public Improvement Bond Bank, Revenue Bonds | ||||||||
Series A, Insured: GTY | 1,100,000 | 1,161,545 | ||||||
|
| |||||||
10,773,581 | ||||||||
|
| |||||||
Kentucky 0.6% | ||||||||
Kentucky Economic Development Finance Authority, Ashland Hospital Corp. Kings, Revenue Bonds | ||||||||
Series C | 1,400,000 | 1,538,502 | ||||||
Kentucky Economic Development Finance Authority, Baptist Healthcare System, Revenue Bonds | ||||||||
Series B-1 | 3,830,000 | 3,830,000 | ||||||
|
| |||||||
5,368,502 | ||||||||
|
| |||||||
Louisiana 2.7% | ||||||||
Jefferson Parish, Louisiana Hospital Service District No. 1, West Jefferson Medical Center, Revenue Bonds | ||||||||
Series A, Insured: AGM | 3,500,000 | 3,715,950 | ||||||
Louisiana Local Government Environmental Facilities & Community Development Authority, Parking Facilities Corp., Revenue Bonds | 1,000,000 | 931,910 | ||||||
Louisiana Public Facilities Authority, Franciscan Missionaries, Revenue Bonds | 3,000,000 | 3,303,390 | ||||||
Louisiana Public Facilities Authority, Ochsner Clinic, Revenue Bonds | 5,690,000 | 6,126,480 | ||||||
Louisiana State Citizens Property Insurance Corp., Revenue Bonds | ||||||||
Series B, Insured: AMBAC | 2,340,000 | 2,521,490 | ||||||
Series C-3, Insured: GTY | 5,000,000 | 5,713,350 | ||||||
|
| |||||||
22,312,570 | ||||||||
|
| |||||||
Maine 0.9% | ||||||||
Maine Health & Higher Educational Facilities Authority, Eastern Maine Medical Center Obligation Group, Revenue Bonds | 7,500,000 | 7,459,275 | ||||||
|
|
14 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Maryland 2.4% | ||||||||
¨Maryland Health & Higher Educational Facilities Authority, Medstar Health, Revenue Bonds | ||||||||
Series B | $ | 20,000,000 | $ | 20,006,200 | ||||
|
| |||||||
Massachusetts 2.0% | ||||||||
Massachusetts Educational Financing Authority, Revenue Bonds | ||||||||
Series B | 2,140,000 | 2,182,094 | ||||||
Series I | 2,880,000 | 3,079,641 | ||||||
Massachusetts State Health & Educational Facilities Authority, Suffolk University, Revenue Bonds | ||||||||
Series A | 2,000,000 | 2,261,480 | ||||||
Series A | 6,400,000 | 7,034,752 | ||||||
Metropolitan Boston Transit Parking Corp., Revenue Bonds | 2,000,000 | 2,133,620 | ||||||
|
| |||||||
16,691,587 | ||||||||
|
| |||||||
Michigan 7.9% | ||||||||
Detroit, Michigan City School District, Unlimited General Obligation | ||||||||
Series A, Insured: Q-SBLF | 7,500,000 | 7,845,150 | ||||||
Series A, Insured: Q-SBLF | 4,535,000 | 4,563,072 | ||||||
Detroit, Michigan Distribution State Aid, General Obligation Limited | 5,150,000 | 4,917,374 | ||||||
Detroit, Michigan Sewerage Disposal System, Revenue Bonds | ||||||||
Series A, Insured: NATL-RE | 2,000,000 | 2,000,640 | ||||||
Series C-1, Insured: AGM | 3,500,000 | 3,701,215 | ||||||
Detroit, Michigan Water and Sewerage Department, Senior Lien, | ||||||||
Series A | 4,150,000 | 3,831,238 | ||||||
Detroit, Michigan Water Supply System, Revenue Bonds | ||||||||
Series D, Insured: AGM | 1,535,000 | 1,360,348 |
Principal Amount | Value | |||||||
Michigan (continued) | ||||||||
Detroit, Michigan Water Supply System, Revenue Bonds (continued) | ||||||||
Series A, Insured: AGM | $ | 1,600,000 | $ | 1,470,352 | ||||
Senior Lien—Series A | 3,015,000 | 2,775,971 | ||||||
Series A | 5,550,000 | 5,327,944 | ||||||
Detroit, Michigan, City School District, Improvement School Building and Site, Unlimited General Obligation | ||||||||
Series A, Insured: Q-SBLF | 750,000 | 791,805 | ||||||
Series A, Insured: Q-SBLF | 3,620,000 | 3,728,636 | ||||||
Michigan Finance Authority Revenue, Local Government Loan Program, Revenue Bonds | ||||||||
Series C | 7,290,000 | 7,553,461 | ||||||
Michigan Finance Authority, Revenue Bonds | ||||||||
5.00%, due 6/1/18 | 175,000 | 192,516 | ||||||
5.00%, due 6/1/19 | 1,300,000 | 1,428,154 | ||||||
5.00%, due 6/1/20 | 950,000 | 1,036,859 | ||||||
5.50%, due 6/1/21 | 5,000,000 | 5,549,850 | ||||||
Michigan Tobacco Settlement Finance Authority, Revenue Bonds | ||||||||
Series A | 250,000 | 199,915 | ||||||
Wayne County Airport Authority, Detroit Met Wayne County Airport, Revenue Bonds | 8,000,000 | 7,766,320 | ||||||
|
| |||||||
66,040,820 | ||||||||
|
| |||||||
Minnesota 0.5% | ||||||||
Minneapolis, St. Paul Housing & Redevelopment Authority, Allina Health Systems, Revenue Bonds | ||||||||
Series B-2 | 4,450,000 | 4,450,000 | ||||||
|
| |||||||
Nebraska 1.7% | ||||||||
Central Plains Energy, Project No. 3, Revenue Bonds | 12,500,000 | 12,247,250 | ||||||
Nebraska Educational Finance Authority, Creighton University Projects, Revenue Bonds | 1,620,000 | 1,620,000 | ||||||
|
| |||||||
13,867,250 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New Hampshire 0.2% | ||||||||
Manchester, NH General Airport, Revenue Bonds | ||||||||
Series A, Insured: AGM | $ | 1,800,000 | $ | 1,939,860 | ||||
|
| |||||||
New Jersey 6.5% | ||||||||
Camden County Improvement Authority, Heath Care Redevelopment, Revenue Bonds | ||||||||
Series A | 3,500,000 | 3,510,500 | ||||||
New Jersey Economic Development Authority, MSU Student Housing Project, Provident Group-Montclair LLC, Revenue Bonds | 4,500,000 | 4,884,255 | ||||||
New Jersey Health Care Facilities Financing Authority, Revenue Bonds | ||||||||
Series A | 3,710,000 | 3,947,885 | ||||||
Insured: GTY | 2,760,000 | 2,876,527 | ||||||
New Jersey Health Care Facilities Financing Authority, Virtua Health, Revenue Bonds | ||||||||
Series B | 4,200,000 | 4,200,000 | ||||||
Series C | 1,100,000 | 1,100,000 | ||||||
New Jersey Higher Education Student Assistance Authority, Revenue Bonds | ||||||||
Series 1 | 4,130,000 | 4,323,945 | ||||||
New Jersey State Higher Education Student Assistance Authority, Student Loan, Revenue Bonds | ||||||||
Series A, Insured: GTY | 3,870,000 | 4,080,180 | ||||||
New Jersey State Turnpike Authority, Revenue Bonds | ||||||||
Series A | 10,000,000 | 10,398,600 | ||||||
Series A | 2,000,000 | 2,050,780 | ||||||
Newark, New Jersey Housing Authority, South Ward Police Facility, Revenue Bonds | ||||||||
Insured: GTY | 1,135,000 | 1,241,917 | ||||||
Insured: GTY | 4,000,000 | 4,585,120 |
Principal Amount | Value | |||||||
New Jersey (continued) | ||||||||
Rutgers State University, Revenue Bonds | ||||||||
Series L | $ | 7,000,000 | $ | 7,373,310 | ||||
|
| |||||||
54,573,019 | ||||||||
|
| |||||||
New York 6.0% | ||||||||
Build NYC Resource Corp., Parking Facility, Revenue Bonds | ||||||||
Insured: AGM | 880,000 | 998,518 | ||||||
Insured: AGM | 930,000 | 1,067,910 | ||||||
Insured: AGM | 975,000 | 1,119,076 | ||||||
Insured: AGM | 1,025,000 | 1,173,174 | ||||||
Insured: AGM | 1,075,000 | 1,218,136 | ||||||
Insured: AGM | 740,000 | 834,528 | ||||||
City of New York, Unlimited General Obligation | ||||||||
Series H-5 | 1,000,000 | 1,000,000 | ||||||
Metropolitan Transportation Authority, Revenue Bonds | ||||||||
Series B | 3,900,000 | 3,992,040 | ||||||
New York Liberty Development Corp., 4 World Trade Center Project, Revenue Bonds | 11,200,000 | 11,979,520 | ||||||
New York Liberty Development Corp., Bank of America, Revenue Bonds Class 3 | 5,000,000 | 5,310,450 | ||||||
New York Liberty Development Corp., Goldman Sachs Headquarters, Revenue Bonds | 2,090,000 | 2,293,524 | ||||||
New York Liberty Development Corp., World Trade Center, Revenue Bonds Class 3 | 4,000,000 | 3,896,120 | ||||||
New York State Dormitory Authority, Revenue Bonds | ||||||||
5.00%, due 7/1/42 | 1,760,000 | 1,803,419 | ||||||
5.50%, due 7/1/40 | 540,000 | 567,913 | ||||||
New York, General Obligation | ||||||||
Series A-7 | 2,100,000 | 2,100,000 | ||||||
Series E2 | 3,800,000 | 3,800,000 |
16 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
New York (continued) | ||||||||
Port Authority of New York & New Jersey, Consolidated 177th, Revenue Bonds | $ | 5,000,000 | $ | 4,679,800 | ||||
Triborough Bridge & Tunnel Authority, Revenue Bonds | ||||||||
Series B | 5,800,000 | 2,393,196 | ||||||
|
| |||||||
50,227,324 | ||||||||
|
| |||||||
North Carolina 0.4% | ||||||||
North Carolina Turnpike Authority, Revenue Bonds | ||||||||
Series A, Insured: GTY | 3,000,000 | 3,232,530 | ||||||
|
| |||||||
North Dakota 0.3% | ||||||||
McLean County North Dakota Solid Waste Facilities, Revenue Bonds | ||||||||
Series A | 2,700,000 | 2,800,116 | ||||||
|
| |||||||
Ohio 0.8% | ||||||||
Akron Bath Copley Joint Township Hospital District, Childrens Hospital Medical Center of Akron, Revenue Bonds | 1,000,000 | 1,005,630 | ||||||
Cleveland-Cuyahoga County Port Authority, Revenue Bonds | 1,980,000 | 2,257,616 | ||||||
Hamilton County Ohio Health Care Facility, Christ Hospital Project, Revenue Bonds | 2,000,000 | 2,030,640 | ||||||
Toledo-Lucas County Port Authority, Revenue Bonds | ||||||||
Series B | 1,030,000 | 1,032,132 | ||||||
University of Cincinnati, Ohio, Revenue Bonds | ||||||||
Series A, Insured: AMBAC | 395,000 | 402,102 | ||||||
|
| |||||||
6,728,120 | ||||||||
|
| |||||||
Pennsylvania 1.7% | ||||||||
Montgomery County Industrial Development Authority, Revenue Bonds | 175,000 | 184,324 | ||||||
Pennsylvania State Turnpike Commission, Revenue Bonds | ||||||||
Series D | 4,200,000 | 4,324,320 | ||||||
Series B | 4,000,000 | 4,206,000 |
Principal Amount | Value | |||||||
Pennsylvania (continued) | ||||||||
Philadelphia, PA, Unlimited General Obligation | $ | 5,125,000 | $ | 5,677,834 | ||||
|
| |||||||
14,392,478 | ||||||||
|
| |||||||
Rhode Island 0.7% | ||||||||
Providence, RI, Unlimited General Obligation | ||||||||
Series A | 1,095,000 | 1,159,200 | ||||||
Series A | 1,100,000 | 1,151,073 | ||||||
Series A | 1,150,000 | 1,190,238 | ||||||
Rhode Island Housing & Mortgage Finance Corp., Rental Housing Program, Revenue Bonds | ||||||||
Series B-1A, Insured: AGM | 2,000,000 | 2,105,920 | ||||||
|
| |||||||
5,606,431 | ||||||||
|
| |||||||
South Carolina 1.6% | ||||||||
Piedmont Municipal Power Agency, Revenue Bonds | ||||||||
Series C, Insured: GTY | 5,320,000 | 5,826,198 | ||||||
South Carolina Jobs-Economic Development Authority, Palmetto Health, Revenue Bonds | ||||||||
Series A | 7,500,000 | 7,628,250 | ||||||
|
| |||||||
13,454,448 | ||||||||
|
| |||||||
Tennessee 1.3% | ||||||||
Johnson City Health & Educational Facilities Board, Mountain States Health Alliance, Revenue Bonds | 3,605,000 | 3,820,579 | ||||||
Johnson City Tennessee Health & Educational Facilities Board Hospital, Revenue Bonds | ||||||||
Series A | 6,500,000 | 7,079,085 | ||||||
|
| |||||||
10,899,664 | ||||||||
|
| |||||||
Texas 10.4% | ||||||||
Central Texas Regional Mobility Authority, Revenue Bonds | 2,100,000 | 2,189,880 | ||||||
Dallas-Fort Worth International Airport, Revenue Bonds | ||||||||
Series G | 2,500,000 | 2,545,800 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Texas (continued) | ||||||||
Harris County Cultural Education Facilities Finance Corp., Baylor Medical College, Revenue Bonds | $ | 10,000,000 | $ | 10,028,600 | ||||
Harris County-Houston Sports Authority, Revenue Bonds | ||||||||
Series A, Insured: NATL-RE | 25,015,000 | 4,483,438 | ||||||
Series G, Insured: NATL-RE | 580,000 | 579,965 | ||||||
Houston Higher Education Finance Corp., Revenue Bonds | ||||||||
Series A | 1,000,000 | 919,210 | ||||||
Series A | 1,050,000 | 1,153,582 | ||||||
Series A | 6,450,000 | 7,182,591 | ||||||
Houston, Texas Hotel Occupancy Tax & Special Revenue, Revenue Bonds | ||||||||
Series B | 2,000,000 | 2,040,060 | ||||||
Lower Colorado River Authority, Revenue Bonds | ||||||||
Series A | 3,300,000 | 3,485,328 | ||||||
North Texas Tollway Authority, Revenue Bonds | ||||||||
Series F | 1,800,000 | 1,897,776 | ||||||
San Juan, Texas Higher Education Finance Authority, Idea Public Schools, Revenue Bonds | ||||||||
Series A | 1,275,000 | 1,384,586 | ||||||
¨Texas Municipal Gas Acquisition & Supply Corp. III, Revenue Bonds | 20,250,000 | 19,883,880 | ||||||
¨Texas Private Activity Bond Surface Transportation Corp., LBJ Infrastructure, Revenue Bonds | ||||||||
7.00%, due 6/30/40 | 5,335,000 | 5,838,251 | ||||||
Series Lien-LBG | 4,095,000 | 4,636,728 | ||||||
7.50%, due 6/30/33 | 5,500,000 | 6,211,040 | ||||||
Texas Private Activity Bond Surface Transportation Corp., NTE Mobility, Revenue Bonds | 8,000,000 | 8,654,720 |
Principal Amount | Value | |||||||
Texas (continued) | ||||||||
Texas State Public Finance Authority, Charter School Finance Corp., Revenue Bonds | ||||||||
Series A | $ | 1,000,000 | $ | 1,054,120 | ||||
Texas State Turnpike Authority, Central Texas System, Revenue Bonds Insured: AMBAC | 10,000,000 | 2,550,700 | ||||||
|
| |||||||
86,720,255 | ||||||||
|
| |||||||
U.S. Virgin Islands 4.2% | ||||||||
Virgin Islands Public Finance Authority, Gross Receipts Taxes Loan, Revenue Bonds | 8,880,000 | 8,930,438 | ||||||
Virgin Islands Public Finance Authority, Matching Fund Loan Notes, Revenue Bonds | ||||||||
Series A | 10,000,000 | 9,843,400 | ||||||
¨Virgin Islands Public Finance Authority, Revenue Bonds | ||||||||
Insured: AGM | 10,475,000 | 10,534,498 | ||||||
Series A | 5,000,000 | 5,457,000 | ||||||
|
| |||||||
34,765,336 | ||||||||
|
| |||||||
Utah 0.1% | ||||||||
Herriman, Utah, Special Assessment | ||||||||
5.00%, due 11/1/24 | 575,000 | 605,877 | ||||||
5.00%, due 11/1/29 | 425,000 | 434,937 | ||||||
|
| |||||||
1,040,814 | ||||||||
|
| |||||||
Vermont 0.1% | ||||||||
Burlington, Vermont Electric System, Revenue Bonds | ||||||||
Series A | 610,000 | 654,878 | ||||||
|
| |||||||
Washington 0.8% | ||||||||
King County Washington Public Hospital District No. 1, General Obligation | ||||||||
Series B | 6,500,000 | 6,771,180 | ||||||
|
| |||||||
Wisconsin 0.8% | ||||||||
Wisconsin Center District, Junior Dedicated, Revenue Bonds | ||||||||
Series A | 3,665,000 | 3,834,176 |
18 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Municipal Bonds (continued) | ||||||||
Wisconsin (continued) | ||||||||
Wisconsin Center District, Junior Dedicated, Revenue Bonds (continued) | ||||||||
Series A | $ | 2,850,000 | $ | 2,972,864 | ||||
|
| |||||||
6,807,040 | ||||||||
|
| |||||||
Wyoming 0.1% | ||||||||
West Park Hospital District, Revenue Bonds | ||||||||
Series A | 1,000,000 | 1,103,540 | ||||||
|
| |||||||
Total Investments | 100.0 | % | 835,915,485 | |||||
Other Assets, Less Liabilities | 0.0 | ‡ | 395,596 | |||||
Net Assets | 100.0 | % | $ | 836,311,081 | ||||
Contracts Short | Unrealized Appreciation (Depreciation) (c) | |||||||
Futures Contracts (0.5%) | ||||||||
United States Treasury Notes December 2013 (10 Year) (d) | (1,080 | ) | $ | (3,478,950 | ) | |||
United States Treasury Bond December 2013 (30 Year) (d) | (150 | ) | (565,219 | ) | ||||
|
| |||||||
Total Futures Contracts | $ | (4,044,169 | ) | |||||
|
|
‡ | Less than one-tenth of a percent. |
(a) | Interest on these securities is subject to alternative minimum tax. |
(b) | Variable rate securities that may be tendered back to the issuer at any time prior to maturity at par. Rate shown is the rate in effect as of October 31, 2013. |
(c) | Represents the difference between the value of the contracts at the time they were opened and the value as of October 31, 2013. |
(d) | As of October 31, 2013, cash in the amount of $1,968,000 is on deposit with the broker for futures transactions. |
(e) | As of October 31, 2013, cost is $846,077,996 for federal income tax purposes and net unrealized depreciation is as follows: |
Gross unrealized appreciation | $ | 16,746,352 | ||
Gross unrealized depreciation | (26,908,863 | ) | ||
|
| |||
Net unrealized depreciation | $ | (10,162,511 | ) | |
|
|
The following abbreviations are used in the above portfolio:
AGC—Assured Guaranty Corp.
AGM—Assured Guaranty Municipal Corp.
AMBAC—Ambac Assurance Corp.
BAM—Build America Mutual Assurance Co.
FGIC—Financial Guaranty Insurance Co.
GTY—Assured Guaranty Corp.
NATL-RE—National Public Finance Guarantee Corp.
Q-SBLF—Qualified School Board Loan Fund
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Municipal Bonds | $ | — | $ | 835,915,485 | $ | — | $ | 835,915,485 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investment in Securities | $ | — | $ | 835,915,485 | $ | — | $ | 835,915,485 | ||||||||
|
|
|
|
|
|
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Portfolio of Investments October 31, 2013 (continued)
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Short (b) | $ | (4,044,169 | ) | $ | — | $ | — | $ | (4,044,169 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (4,044,169 | ) | $ | — | $ | — | $ | (4,044,169 | ) | ||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
20 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 835,915,485 | ||
Cash collateral on deposit at broker | 1,968,000 | |||
Cash | 361,018 | |||
Receivables: | ||||
Interest | 12,074,677 | |||
Investment securities sold | 4,674,509 | |||
Fund shares sold | 2,172,846 | |||
Variation margin on futures contracts | 192,188 | |||
Other assets | 48,053 | |||
|
| |||
Total assets | 857,406,776 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 15,420,086 | |||
Fund shares redeemed | 3,978,350 | |||
Manager (See Note 3) | 325,833 | |||
NYLIFE Distributors (See Note 3) | 163,579 | |||
Transfer agent (See Note 3) | 80,903 | |||
Shareholder communication | 26,035 | |||
Professional fees | 14,471 | |||
Custodian | 3,545 | |||
Trustees | 1,933 | |||
Accrued expenses | 5,889 | |||
Dividend payable | 1,075,071 | |||
|
| |||
Total liabilities | 21,095,695 | |||
|
| |||
Net assets | $ | 836,311,081 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 895,816 | ||
Additional paid-in capital | 871,381,693 | |||
|
| |||
872,277,509 | ||||
Distributions in excess of net investment income | (590,144 | ) | ||
Accumulated net realized gain (loss) on investments and futures transactions | (21,183,609 | ) | ||
Net unrealized appreciation (depreciation) on investments and futures contracts | (14,192,675 | ) | ||
|
| |||
Net assets | $ | 836,311,081 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 19,093,648 | ||
|
| |||
Shares of beneficial interest outstanding | 2,036,054 | |||
|
| |||
Net asset value per share outstanding | $ | 9.38 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.82 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 417,983,578 | ||
|
| |||
Shares of beneficial interest outstanding | 44,784,950 | |||
|
| |||
Net asset value per share outstanding | $ | 9.33 | ||
Maximum sales charge (4.50% of offering price) | 0.44 | |||
|
| |||
Maximum offering price per share outstanding | $ | 9.77 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 12,459,068 | ||
|
| |||
Shares of beneficial interest outstanding | 1,335,095 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.33 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 150,244,080 | ||
|
| |||
Shares of beneficial interest outstanding | 16,090,654 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.34 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 236,530,707 | ||
|
| |||
Shares of beneficial interest outstanding | 25,334,880 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.34 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 40,256,611 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 4,479,174 | |||
Distribution/Service—Investor Class (See Note 3) | 50,588 | |||
Distribution/Service—Class A (See Note 3) | 1,194,837 | |||
Distribution/Service—Class B (See Note 3) | 69,048 | |||
Distribution/Service—Class C (See Note 3) | 828,460 | |||
Transfer agent (See Note 3) | 460,020 | |||
Registration | 179,334 | |||
Professional fees | 77,276 | |||
Shareholder communication | 63,280 | |||
Custodian | 23,364 | |||
Trustees | 18,738 | |||
Miscellaneous | 27,473 | |||
|
| |||
Total expenses before waiver/reimbursement | 7,471,592 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (446,159 | ) | ||
|
| |||
Net expenses | 7,025,433 | |||
|
| |||
Net investment income (loss) | 33,231,178 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts | ||||
Net realized gain (loss) on: | ||||
Security transactions | (18,984,252 | ) | ||
Futures transactions | 4,111,434 | |||
|
| |||
Net realized gain (loss) on investments and futures transactions | (14,872,818 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (53,988,965 | ) | ||
Futures contracts | (4,267,669 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (58,256,634 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments and futures transactions | (73,129,452 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | (39,898,274 | ) | |
|
|
22 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 33,231,178 | $ | 21,331,969 | ||||
Net realized gain (loss) on investments and futures transactions | (14,872,818 | ) | 10,862,659 | |||||
Net change in unrealized appreciation (depreciation) on investments and futures contracts | (58,256,634 | ) | 30,289,998 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (39,898,274 | ) | 62,484,626 | |||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (742,323 | ) | (844,342 | ) | ||||
Class A | (17,779,227 | ) | (13,126,144 | ) | ||||
Class B | (471,234 | ) | (391,448 | ) | ||||
Class C | (5,662,029 | ) | (3,895,004 | ) | ||||
Class I | (8,572,221 | ) | (3,144,644 | ) | ||||
|
| |||||||
Total dividends to shareholders | (33,227,034 | ) | (21,401,582 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 534,980,472 | 373,192,486 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 20,388,965 | 12,240,442 | ||||||
Cost of shares redeemed | (390,206,581 | ) | (87,911,281 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 165,162,856 | 297,521,647 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 92,037,548 | 338,604,691 | ||||||
Net Assets | ||||||||
Beginning of year | 744,273,533 | 405,668,842 | ||||||
|
| |||||||
End of year | $ | 836,311,081 | $ | 744,273,533 | ||||
|
| |||||||
Distributions in excess of net investment income at end of year | $ | (590,144 | ) | $ | (594,288 | ) | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 23 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.08 | $ | 9.31 | $ | 9.48 | $ | 9.08 | $ | 8.48 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.36 | 0.38 | (a) | 0.42 | (a) | 0.39 | (a) | 0.34 | (a) | |||||||||||
Net realized and unrealized gain (loss) on investments | (0.70 | ) | 0.77 | (0.16 | ) | 0.41 | 0.63 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.34 | ) | 1.15 | 0.26 | 0.80 | 0.97 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.36 | ) | (0.38 | ) | (0.43 | ) | (0.40 | ) | (0.37 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.38 | $ | 10.08 | $ | 9.31 | $ | 9.48 | $ | 9.08 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.45 | %) | 12.58 | % | 2.93 | % | 9.08 | % | 11.67 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.67 | % | 3.92 | % | 4.67 | % | 4.24 | % | 3.93 | % | ||||||||||
Net expenses | 0.84 | % | 0.86 | % | 0.90 | % | 0.93 | % | 1.02 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.89 | % | 0.91 | % | 0.98 | % | 1.03 | % | 1.25 | % | ||||||||||
Portfolio turnover rate | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 19,094 | $ | 21,437 | $ | 21,547 | $ | 22,220 | $ | 21,683 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.04 | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.45 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.38 | 0.38 | (a) | 0.43 | (a) | 0.40 | (a) | 0.35 | (a) | |||||||||||
Net realized and unrealized gain (loss) on investments | (0.72 | ) | 0.79 | (0.18 | ) | 0.42 | 0.62 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.34 | ) | 1.17 | 0.25 | 0.82 | 0.97 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.37 | ) | (0.39 | ) | (0.43 | ) | (0.42 | ) | (0.38 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.33 | $ | 10.04 | $ | 9.26 | $ | 9.44 | $ | 9.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.52 | %) | 12.81 | % | 2.93 | % | 9.25 | % | 11.72 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.72 | % | 3.91 | % | 4.76 | % | 4.36 | % | 4.04 | % | ||||||||||
Net expenses | 0.78 | % | 0.79 | % | 0.81 | % | 0.82 | % | 0.90 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.83 | % | 0.84 | % | 0.89 | % | 0.92 | % | 1.08 | % | ||||||||||
Portfolio turnover rate | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 417,984 | $ | 424,757 | $ | 258,892 | $ | 242,891 | $ | 162,921 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
24 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.03 | $ | 9.26 | $ | 9.44 | $ | 9.04 | $ | 8.44 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.34 | 0.35 | (a) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | |||||||||||
Net realized and unrealized gain (loss) on investments | (0.70 | ) | 0.78 | (0.18 | ) | 0.41 | 0.63 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.36 | ) | 1.13 | 0.22 | 0.78 | 0.95 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.34 | ) | (0.36 | ) | (0.40 | ) | (0.38 | ) | (0.35 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.33 | $ | 10.03 | $ | 9.26 | $ | 9.44 | $ | 9.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.73 | %) | 12.34 | % | 2.58 | % | 8.85 | % | 11.32 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.41 | % | 3.59 | % | 4.42 | % | 3.99 | % | 3.68 | % | ||||||||||
Net expenses | 1.09 | % | 1.11 | % | 1.15 | % | 1.18 | % | 1.26 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.14 | % | 1.16 | % | 1.23 | % | 1.28 | % | 1.50 | % | ||||||||||
Portfolio turnover rate | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 12,459 | $ | 13,230 | $ | 9,463 | $ | 13,907 | $ | 18,219 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.04 | $ | 8.45 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) | 0.35 | 0.35 | (a) | 0.40 | (a) | 0.37 | (a) | 0.32 | (a) | |||||||||||
Net realized and unrealized gain (loss) on investments | (0.71 | ) | 0.78 | (0.17 | ) | 0.41 | 0.61 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.36 | ) | 1.13 | 0.23 | 0.78 | 0.93 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.34 | ) | (0.36 | ) | (0.40 | ) | (0.38 | ) | (0.34 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (3.72 | %) | 12.33 | % | 2.69 | % | 8.85 | % | 11.31 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.42 | % | 3.58 | % | 4.42 | % | 3.99 | % | 3.68 | % | ||||||||||
Net expenses | 1.09 | % | 1.11 | % | 1.15 | % | 1.18 | % | 1.28 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.14 | % | 1.16 | % | 1.23 | % | 1.28 | % | 1.51 | % | ||||||||||
Portfolio turnover rate | 111 | % | 125 | % | 138 | % | 97 | % | 94 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 150,244 | $ | 142,246 | $ | 81,880 | $ | 65,695 | $ | 22,544 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Financial Highlights selected per share data and ratios
Year ended October 31, | December 21, 2009** through October 31, | |||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | ||||||||||||
Net asset value at beginning of period | $ | 10.04 | $ | 9.27 | $ | 9.44 | $ | 9.07 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net investment income (loss) | 0.40 | 0.40 | (a) | 0.45 | (a) | 0.38 | (a) | |||||||||
Net realized and unrealized gain (loss) on investments | (0.71 | ) | 0.78 | (0.16 | ) | 0.35 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total from investment operations | (0.31 | ) | 1.18 | 0.29 | 0.73 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Less dividends: | ||||||||||||||||
From net investment income | (0.39 | ) | (0.41 | ) | (0.46 | ) | (0.36 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net asset value at end of period | $ | 9.34 | $ | 10.04 | $ | 9.27 | $ | 9.44 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total investment return (b) | (3.18 | %) | 12.97 | % | 3.29 | % | 8.25 | %(c) | ||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Net investment income (loss) | 4.00 | % | 4.06 | % | 4.99 | % | 4.64 | %†† | ||||||||
Net expenses | 0.54 | % | 0.54 | % | 0.56 | % | 0.57 | %†† | ||||||||
Expenses (before waiver/reimbursement) | 0.59 | % | 0.59 | % | 0.64 | % | 0.67 | %†† | ||||||||
Portfolio turnover rate | 111 | % | 125 | % | 138 | % | 97 | % | ||||||||
Net assets at end of period (in 000’s) | $ | 236,531 | $ | 142,603 | $ | 33,888 | $ | 17,394 |
** | Commencement of operations. |
†† | Annualized. |
(a) | Per share data based on average shares outstanding during the period. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
26 | MainStay Tax Free Bond Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Tax Free Bond Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Class I shares commenced operations on December 21, 2009. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $500,000 or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek current income exempt from regular federal income tax.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with
questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Fund’s Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Municipal debt securities are valued at the evaluated mean prices supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities
purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Municipal debt securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare dividends of net investment income, if any, at least daily and intends to pay them at least monthly and declares and pays distributions of net realized capital gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate method over the life of the respective securities or, in the case of a callable security, over
28 | MainStay Tax Free Bond Fund |
the period to the first date of call. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) 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 financial instrument (e.g., interest rate, security, or securities index). The Fund is subject to interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the
counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(I) Concentration of Risk. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(J) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(K) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
mainstayinvestments.com | 29 |
Notes to Financial Statements (continued)
Fair value of derivatives instruments as of October 31, 2013:
Liability Derivatives
Statement of Assets and Liabilities Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (a) | $ | (4,044,169 | ) | $ | (4,044,169 | ) | |||
|
| |||||||||
Total Fair Value | $ | (4,044,169 | ) | $ | (4,044,169 | ) | ||||
|
|
(a) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | 4,111,434 | $ | 4,111,434 | |||||
|
| |||||||||
Total Realized Gain (Loss) | $ | 4,111,434 | $ | 4,111,434 | ||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | (4,267,669 | ) | $ | (4,267,669 | ) | |||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (4,267,669 | ) | $ | (4,267,669 | ) | ||||
|
|
Number of Contracts, Notional Amounts or Shares/Units (1)
Interest Rate Contracts Risk | Total | |||||||
Futures Contracts Short | (1,065 | ) | (1,065 | ) | ||||
|
|
(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.50% up to $500 million; 0.475% from $500 million to $1 billion; and 0.45% in excess of $1 billion, plus a fee for fund accounting services, previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million.
New York Life Investments has contractually agreed to waive a portion of its management fee so that the management fee does not exceed 0.45% up to $500 million; 0.425% from $500 million to $1 billion; and 0.40% in excess of $1 billion. This agreement will remain in effect until February 28, 2014, and shall renew automatically for one-year terms unless New York Life Investments provides written notice of termination prior to the start of the next term or upon approval of the Board. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.50% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
New York Life Investments has contractually agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses for Class A shares do not exceed 0.82% of its average daily net assets. New York Life Investments will apply an equivalent waiver or reimbursement, in an equal number of basis points, to the other share classes. This agreement will remain in effect until February 28, 2014, and shall renew automatically for one-year terms unless New York Life Investments provides written notice of termination prior to the start of the next term or upon approval of the Board. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
30 | MainStay Tax Free Bond Fund |
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $4,479,174 and waived its fees and/or reimbursed expenses in the amount of $446,159.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 0.50%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $9,608 and $155,329, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $93,144, $26,959 and $72,080, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 19,538 | ||
Class A | 182,278 | |||
Class B | 13,339 | |||
Class C | 160,687 | |||
Class I | 84,178 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordi Inc | Undistri buted Tax Exempt Income | Accum ulated Capital and Other Gain (Loss) | Other Temp orary Differences | Unrealized Appre ciation (Depre ciation) | Total Gain (Loss) | |||||||||||||||
$— | $ | 484,927 | $ | (25,213,773 | ) | $ | (1,075,071 | ) | $ | (10,162,511 | ) | $ | (35,966,428 | ) |
The difference between book basis and tax basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments and mark to market of futures contracts. The other temporary differences are primarily due to dividends payable.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $25,213,773 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | |||
2017 2019 Unlimited | $
| 3,952 2,136 19,126 |
| |
Total | $ | 25,214 |
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 96,086 | $ | 110,818 | ||||
Exempt Interest Dividends | 33,130,948 | 21,290,764 | ||||||
Total | $ | 33,227,034 | $ | 21,401,582 |
mainstayinvestments.com | 31 |
Notes to Financial Statements (continued)
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $1,150,338 and $973,625, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 231,445 | $ | 2,295,102 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 66,265 | 648,600 | ||||||
Shares redeemed | (296,651 | ) | (2,898,811 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 1,059 | 44,891 | ||||||
Shares converted into Investor Class (See Note 1) | 124,654 | 1,203,999 | ||||||
Shares converted from Investor Class (See Note 1) | (215,626 | ) | (2,151,601 | ) | ||||
|
| |||||||
Net increase (decrease) | (89,913 | ) | $ | (902,711 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 302,292 | $ | 2,969,559 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 74,537 | 728,718 | ||||||
Shares redeemed | (232,083 | ) | (2,264,814 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 144,746 | 1,433,463 | ||||||
Shares converted into Investor Class (See Note 1) | 98,094 | 958,281 | ||||||
Shares converted from Investor Class (See Note 1) | (431,785 | ) | (4,210,943 | ) | ||||
|
| |||||||
Net increase (decrease) | (188,945 | ) | $ | (1,819,199 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 22,182,089 | $ | 221,017,510 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,204,679 | 11,711,429 | ||||||
Shares redeemed | (21,109,132 | ) | (202,514,838 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 2,277,636 | 30,214,101 | ||||||
Shares converted into Class A (See Note 1) | 275,726 | 2,737,966 | ||||||
Shares converted from Class A (See Note 1) | (95,013 | ) | (907,196 | ) | ||||
|
| |||||||
Net increase (decrease) | 2,458,349 | $ | 32,044,871 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 18,827,755 | $ | 184,035,146 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 816,477 | 7,973,089 | ||||||
Shares redeemed | (5,878,933 | ) | (57,367,459 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 13,765,299 | 134,640,776 | ||||||
Shares converted into Class A (See Note 1) | 666,672 | 6,460,233 | ||||||
Shares converted from Class A (See Note 1) | (49,478 | ) | (486,560 | ) | ||||
|
| |||||||
Net increase (decrease) | 14,382,493 | $ | 140,614,449 | |||||
|
|
32 | MainStay Tax Free Bond Fund |
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 423,149 | $ | 4,243,780 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 40,555 | 394,630 | ||||||
Shares redeemed | (357,814 | ) | (3,459,540 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 105,890 | 1,178,870 | ||||||
Shares converted from Class B (See Note 1) | (89,333 | ) | (883,168 | ) | ||||
|
| |||||||
Net increase (decrease) | 16,557 | $ | 295,702 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 716,260 | $ | 7,012,721 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 30,704 | 299,461 | ||||||
Shares redeemed | (168,094 | ) | (1,633,570 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 578,870 | 5,678,612 | ||||||
Shares converted from Class B (See Note 1) | (281,939 | ) | (2,721,011 | ) | ||||
|
| |||||||
Net increase (decrease) | 296,931 | $ | 2,957,601 | |||||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,994,416 | $ | 69,909,300 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 375,862 | 3,653,731 | ||||||
Shares redeemed | (5,447,067 | ) | (52,029,789 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,923,211 | $ | 21,533,242 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 6,245,133 | $ | 61,118,182 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 218,599 | 2,138,827 | ||||||
Shares redeemed | (1,129,894 | ) | (11,018,783 | ) | ||||
|
| |||||||
Net increase (decrease) | 5,333,838 | $ | 52,238,226 | |||||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 24,212,183 | $ | 237,514,780 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 410,682 | 3,980,575 | ||||||
Shares redeemed | (13,493,041 | ) | (129,303,603 | ) | ||||
|
| |||||||
Net increase (decrease) | 11,129,824 | $ | 112,191,752 | |||||
|
| |||||||
Year ended October 31, 2012 : | ||||||||
Shares sold | 12,037,403 | $ | 118,056,878 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 111,693 | 1,100,347 | ||||||
Shares redeemed | (1,600,338 | ) | (15,626,655 | ) | ||||
|
| |||||||
Net increase (decrease) | 10,548,758 | $ | 103,530,570 | |||||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com | 33 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Tax Free Bond Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Tax Free Bond Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
34 | MainStay Tax Free Bond Fund |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For individual federal income tax purposes, the Fund designated 99.7% of the ordinary income dividends paid during the fiscal year ended October 31, 2013 as attributable to interest income from tax exempt municipal bonds. Such dividends are currently exempt from federal income taxes under Section 103 (a) of the Internal Revenue Code.
In February 2014, shareholders will receive an IRS. Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com | 35 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
36 | MainStay Tax Free Bond Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 37 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
38 | MainStay Tax Free Bond Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 39 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32041 MS322-13 | MST11-12/13 NL013 |
MainStay Convertible Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 17.57 24.42 | %
|
| 14.54 15.85 | %
|
| 7.01 7.61 | %
|
| 1.22 1.22 | %
| ||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 17.91 24.78 | | | 14.81 16.11 | | | 7.14 7.75 | | | 1.00 1.00 | | ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 18.50 23.50 | | | 14.77 15.00 | | | 6.82 6.82 | | | 1.97 1.97 | | ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 22.60 23.60 | | | 14.99 14.99 | | | 6.82 6.82 | | | 1.97 1.97 | | ||||||
Class I Shares4 | No Sales Charge | 25.05 | 16.39 | 8.01 | 0.75 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on November 28, 2008, include the historical performance of Class B shares through November 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Bank of America Merrill Lynch All U.S. Convertibles Index5 | 23.94 | % | 17.77 | % | 7.22 | % | ||||||
Average Lipper Convertible Securities Fund6 | 20.63 | 14.86 | 6.52 |
5. | The Bank of America Merrill Lynch All U.S. Convertibles Index is a market-capitalization weighted index of domestic corporate convertible securities. In order to be included in this Index, bonds and preferred stocks must be convertible only to common stock. The Bank of America Merrill Lynch All U.S. Convertibles Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
6. | The average Lipper convertible securities fund is representative of funds that invest primarily in convertible bonds and/or convertible preferred stock. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Convertible Fund |
Cost in Dollars of a $1,000 Investment in MainStay Convertible Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,122.40 | $ | 6.42 | $ | 1,019.20 | $ | 6.11 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,123.60 | $ | 5.25 | $ | 1,020.30 | $ | 4.99 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,118.00 | $ | 10.41 | $ | 1,015.40 | $ | 9.91 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,118.10 | $ | 10.41 | $ | 1,015.40 | $ | 9.91 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,124.80 | $ | 3.91 | $ | 1,021.50 | $ | 3.72 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.20% for Investor Class, 0.98% for Class A, 1.95% for Class B and Class C and 0.73% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.), (zero coupon), due 5/5/15 |
2. | Gilead Sciences, Inc., 1.00%, due 5/1/14 |
3. | Chart Industries, Inc., 2.00%, due 8/1/18 |
4. | Novellus Systems, Inc., 2.625%, due 5/15/41 |
5. | Danaher Corp., (zero coupon), due 1/22/21 |
6. | United Technologies Corp., 7.50% |
7. | Jarden Corp., 1.875%, due 9/15/18 |
8. | MetLife, Inc., 5.00% |
9. | Stanley Black & Decker, Inc., 4.75% |
10. | Salix Pharmaceuticals, Ltd., 1.50%, due 3/15/19 |
8 | MainStay Convertible Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio manager Edward Silverstein, CFA, of MacKay Shields LLC, the Fund’s Subadvisor.
How did MainStay Convertible Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Convertible Fund returned 24.42% for Investor Class shares, 24.78% for Class A shares, 23.50% for Class B shares and 23.60% for Class C shares for the 12 months ended October 31, 2013. Over the same period, Class I shares returned 25.05%. During the reporting period, Investor Class, Class A and Class I shares outperformed—and Class B and Class C shares underperformed—the 23.94% return of the Bank of America Merrill Lynch All U.S. Convertibles Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes outperformed the 20.63% return of the average Lipper2 convertible securities fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
Convertible bond performance is largely determined by the returns of the underlying equity securities. Our decision-making process is guided by our analysis of the underlying equity and whether the convertible security will participate in the equity’s upside and provide some measure of protection on the downside. Our equity analysis looks at the health and prospects of the underlying business, the strength of management, financial stability and valuation.
The Fund’s performance relative to the Bank of America Merrill Lynch All U.S. Convertibles Index was driven by a number of factors. The Fund’s relative performance was aided by a higher equity sensitivity, or delta, than the average convertible bond in the benchmark. The Fund tends to avoid convertible securities that have low sensitivity to equity prices, known as “busted” convertible bonds. Busted convertibles tend to underperform the market when equities are rising. They also tend to underperform the market when interest rates are rising and bond prices are falling.
An underweight position in the biotechnology sector slightly detracted from the Fund’s performance relative to the Bank of America Merrill Lynch All U.S. Convertibles Index, as the sector was a strong performer in the benchmark.
During the reporting period, which sectors made the strongest contributions to the Fund’s performance and which sectors were particularly weak?
The biotechnology sector was the strongest contributor to the Fund’s performance, followed by industrials. (Contributions take weightings and total returns into account.) The weakest sectors were natural resources, energy exploration & production, and medical devices.
During the reporting period, which individual Fund holdings were the strongest absolute performers and which Fund holdings were particularly weak?
Investors continued to push up biotechnology stocks, as their growth prospects are viewed as relatively attractive in the mature health care sector. Particularly strong biotechnology securities in the Fund were convertible bonds of Gilead Sciences and Biomarin Pharmaceuticals. Gilead Sciences’ share price rose sharply as the company is expected to receive approval by year’s end for a novel treatment for hepatitis C. This therapy, if approved, is expected to achieve annual sales of several billions of dollars. Biomarin Pharmaceuticals was also a strong performer, as the company’s drug franchise for rare diseases remains a profitable niche. In addition, the company has several promising potential therapies in its pipeline. Shares of many industrial companies rose during the reporting period, as the economic recovery enhanced their prospects. The convertible bonds of machinery company Chart Industries and manufacturing company Danaher, in particular, were strong performers for the Fund. Chart Industries sells equipment into the growing natural gas-to-liquids market. Danaher benefited from growth in its industrial and life-sciences end markets. Another strong-performing industry was semiconductors, which benefited from growth in demand and a rationalization of supply. These factors have led to improved pricing. Fund holdings that benefited from this trend were the convertible bonds of Micron Technology, Microchip Technology and Novellus Systems.
Among the Fund’s weakest absolute performers were convertible bonds of natural resources company Peabody Energy and convertible preferred shares of Cliffs Natural Resources. Prices for coal and metal declined as demand from China softened. Within the energy exploration & production industry, convertible bonds of Cobalt International Energy and convertible preferred shares of Energy XXI were weak. Shares of Cobalt International Energy fell after the company announced disappointing results from a drilling project in Africa. Energy XXI’s shares declined after the company announced a shortfall in second-quarter production because of operational inefficiencies. Within the medical device industry, the Fund’s position in China Medical Technologies performed poorly after the integrity of the company’s management was called into question.
Did the Fund make any significant purchases and sales during the reporting period?
We initiated a position in convertible preferred shares of cereal maker Post Holdings. We found the company’s significant free cash flow generation attractive. We also initiated a position in
convertible bonds of marine transportation company SEACOR
1. | See footnote on page 6 for more information on the Bank of America Merrill Lynch All U.S. Convertibles Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
Holdings. The purchase reflected our belief that day rates for the company’s marine vessels were likely to improve. The position also reflected our confidence in the company’s management.
We sold our position in the convertible bonds of Amarin Corp. as we became increasingly convinced that the company’s drug to treat ultrahigh triglycerides would not receive U.S. Food & Drug Administration (FDA) approval. We also sold the convertible bonds of apparel licenser Iconix Brand Group, as we believed that the company’s shares were fully valued.
Were there any changes in the Fund’s sector weightings during the reporting period?
Sector weightings are a result of our bottom-up security-specific selection process and do not reflect top-down opinions about
the economy or the attractiveness of specific sectors. During the reporting period, we increased the Fund’s weightings in the consumer discretionary, industrial and telecommunication services sectors. Over the same period, we reduced the Fund’s weightings in the energy and health care sectors.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund was overweight relative to the Bank of America Merrill Lynch All U.S. Convertibles Index in the energy, industrials and consumer discretionary sectors. As of the same date, the Fund was underweight relative to the Index in the financials sector.
The opinions expressed are those of the portfolio manager as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Convertible Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Convertible Securities 89.6%† Convertible Bonds 77.5% |
| |||||||
Aerospace & Defense 0.9% |
| |||||||
GenCorp, Inc. | $ | 1,997,000 | $ | 3,785,563 | ||||
Kaman Corp. | 3,037,000 | 3,765,880 | ||||||
|
| |||||||
7,551,443 | ||||||||
|
| |||||||
Airlines 1.4% | ||||||||
United Airlines, Inc. | 6,550,000 | 12,187,094 | ||||||
|
| |||||||
Auto Manufacturers 2.4% | ||||||||
Ford Motor Co. | 4,606,000 | 9,304,120 | ||||||
Wabash National Corp. | 8,792,000 | 11,281,235 | ||||||
|
| |||||||
20,585,355 | ||||||||
|
| |||||||
Biotechnology 5.3% | ||||||||
Cubist Pharmaceuticals, Inc. | ||||||||
1.125%, due 9/1/18 (a) | 4,885,000 | 5,294,119 | ||||||
1.875%, due 9/1/20 (a) | 8,266,000 | 8,901,449 | ||||||
¨Gilead Sciences, Inc. | 7,802,000 | 24,610,433 | ||||||
Medicines Co. (The) | 4,252,000 | 5,777,405 | ||||||
|
| |||||||
44,583,406 | ||||||||
|
| |||||||
Commercial Services 1.9% | ||||||||
Hertz Global Holdings, Inc. | 2,618,000 | 7,302,597 | ||||||
ServiceSource International, Inc. | 8,571,000 | 8,571,000 | ||||||
|
| |||||||
15,873,597 | ||||||||
|
| |||||||
Computers 1.7% | ||||||||
EMC Corp. | 9,557,000 | 14,449,037 | ||||||
|
| |||||||
Distribution & Wholesale 0.5% | ||||||||
WESCO International, Inc. | 1,353,000 | 4,113,120 | ||||||
|
| |||||||
Energy—Alternate Sources 0.3% | ||||||||
Clean Energy Fuels Corp. | 2,330,000 | 2,305,244 | ||||||
|
|
Principal Amount | Value | |||||||
Entertainment 0.6% | ||||||||
International Game Technology | $ | 4,406,000 | $ | 4,874,138 | ||||
|
| |||||||
Environmental Controls 1.3% | ||||||||
Covanta Holding Corp. | 9,561,000 | 10,845,759 | ||||||
|
| |||||||
Finance—Leasing Companies 1.3% | ||||||||
Air Lease Corp. | 8,569,000 | 11,075,432 | ||||||
|
| |||||||
Finance—Mortgage Loan/Banker 0.7% |
| |||||||
Walter Investment Management Corp. | 5,708,000 | 5,961,293 | ||||||
|
| |||||||
Health Care—Products 4.1% | ||||||||
Hologic, Inc. | 7,990,000 | 8,374,519 | ||||||
Insulet Corp. | 4,050,000 | 6,249,656 | ||||||
Teleflex, Inc. | 8,849,000 | 13,793,379 | ||||||
Wright Medical Group, Inc. | 5,289,000 | 6,677,362 | ||||||
|
| |||||||
35,094,916 | ||||||||
|
| |||||||
Health Care—Services 1.1% | ||||||||
WellPoint, Inc. | 7,160,000 | 9,334,850 | ||||||
|
| |||||||
Home Builders 1.6% | ||||||||
KB Home | 5,169,000 | 5,136,694 | ||||||
Lennar Corp. | 3,785,000 | 6,337,509 | ||||||
Ryland Group, Inc. (The) | 2,072,000 | 1,926,960 | ||||||
|
| |||||||
13,401,163 | ||||||||
|
| |||||||
Household Products & Wares 2.1% | ||||||||
¨Jarden Corp. | 13,430,000 | 17,828,325 | ||||||
|
| |||||||
Insurance 2.0% | ||||||||
American Equity Investment Life Holding Co. | 6,287,000 | 10,849,005 | ||||||
Radian Group, Inc. | 4,321,000 | 6,508,506 | ||||||
|
| |||||||
17,357,511 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Internet 3.2% | ||||||||
At Home Corp. | $ | 9,147,056 | $ | 915 | ||||
Blucora, Inc. | 3,003,000 | 3,853,224 | ||||||
Dealertrack Technologies, Inc. | 1,661,000 | 1,980,743 | ||||||
Move, Inc. | 2,670,000 | 3,120,562 | ||||||
priceline.com, Inc. | ||||||||
0.35%, due 6/15/20 (a) | 5,890,000 | 6,449,550 | ||||||
1.00%, due 3/15/18 | 2,767,000 | 3,678,381 | ||||||
Shutterfly, Inc. | 7,266,000 | 7,760,996 | ||||||
|
| |||||||
26,844,371 | ||||||||
|
| |||||||
Lodging 0.8% | ||||||||
MGM Resorts International | 5,309,000 | 6,516,798 | ||||||
|
| |||||||
Machinery—Diversified 2.2% | ||||||||
¨Chart Industries, Inc. | 11,153,000 | 18,709,157 | ||||||
|
| |||||||
Media 0.0%‡ | ||||||||
Liberty Interactive LLC | 763,000 | 400,575 | ||||||
|
| |||||||
Metal Fabricate & Hardware 1.4% | ||||||||
RTI International Metals, Inc. | 10,874,000 | 11,730,327 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 2.1% |
| |||||||
¨Danaher Corp. | 8,558,000 | 17,945,056 | ||||||
|
| |||||||
Oil & Gas 1.3% | ||||||||
Alon USA Energy, Inc. | 4,616,000 | 4,959,315 | ||||||
Cobalt International Energy, Inc. | 6,170,000 | 6,335,819 | ||||||
|
| |||||||
11,295,134 | ||||||||
|
| |||||||
Oil & Gas Services 7.0% | ||||||||
Helix Energy Solutions Group, Inc. | 7,642,000 | 9,714,893 | ||||||
Hornbeck Offshore Services, Inc. | 3,683,000 | 4,675,108 | ||||||
¨JPMorgan Chase & Co. (Convertible into Schlumberger, Ltd.) | 15,988,000 | 26,202,733 |
Principal Amount | Value | |||||||
Oil & Gas Services (continued) | ||||||||
Newpark Resources, Inc. | $ | 3,673,000 | $ | 5,146,791 | ||||
SEACOR Holdings, Inc. | 2,507,000 | 3,235,597 | ||||||
Subsea 7 S.A. | ||||||||
1.00%, due 10/5/17 | 3,000,000 | 3,143,100 | ||||||
3.50%, due 10/13/14 | 5,100,000 | 7,078,800 | ||||||
|
| |||||||
59,197,022 | ||||||||
|
| |||||||
Pharmaceuticals 8.5% | ||||||||
Akorn, Inc. | 3,322,000 | 7,918,818 | ||||||
Biomarin Pharmaceutical, Inc. | 8,470,000 | 8,814,094 | ||||||
Medivation, Inc. | 6,240,000 | 8,833,500 | ||||||
Mylan, Inc. | 2,825,000 | 8,128,938 | ||||||
Omnicare, Inc. | 10,135,000 | 9,786,609 | ||||||
¨Salix Pharmaceuticals, Ltd. | 11,041,000 | 14,512,014 | ||||||
Teva Pharmaceutical Finance Co. LLC 0.25%, due 2/1/26 | 13,686,000 | 14,293,316 | ||||||
|
| |||||||
72,287,289 | ||||||||
|
| |||||||
Real Estate Investment Trusts 2.5% | ||||||||
Host Hotels & Resorts, L.P. | 6,278,000 | 9,150,185 | ||||||
SL Green Operating Partnership, L.P. 3.00%, due 10/15/17 (a) | 9,324,000 | 11,882,272 | ||||||
|
| |||||||
21,032,457 | ||||||||
|
| |||||||
Semiconductors 7.1% | ||||||||
Intel Corp. | 6,629,000 | 8,684,023 | ||||||
Microchip Technology, Inc. | 8,326,000 | 13,862,790 | ||||||
Micron Technology, Inc. | 8,173,000 | 14,042,236 | ||||||
¨Novellus Systems, Inc. | 11,133,000 | 18,599,068 | ||||||
Rambus, Inc. | 3,292,000 | 3,304,345 | ||||||
Xilinx, Inc. | 997,000 | 1,590,215 | ||||||
|
| |||||||
60,082,677 | ||||||||
|
| |||||||
Software 7.4% | ||||||||
Bottomline Technologies, Inc. | 8,466,000 | 10,503,131 | ||||||
Cornerstone OnDemand, Inc. | 9,791,000 | 11,180,098 |
12 | MainStay Convertible Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Convertible Bonds (continued) | ||||||||
Software (continued) | ||||||||
Medidata Solutions, Inc. | $ | 9,054,000 | $ | 11,017,587 | ||||
NetSuite, Inc. | 7,871,000 | 8,707,294 | ||||||
Nuance Communications, Inc. | 8,349,000 | 8,192,456 | ||||||
Salesforce.com, Inc. | 7,731,000 | 8,455,781 | ||||||
Workday, Inc. | 3,793,000 | 4,307,426 | ||||||
|
| |||||||
62,363,773 | ||||||||
|
| |||||||
Telecommunications 4.1% | ||||||||
Ciena Corp. | 5,732,000 | 8,336,478 | ||||||
Ixia | 8,275,000 | 9,288,687 | ||||||
JDS Uniphase Corp. | 11,201,000 | 11,810,054 | ||||||
SBA Communications Corp. | 1,869,000 | 5,392,065 | ||||||
|
| |||||||
34,827,284 | ||||||||
|
| |||||||
Transportation 0.7% | ||||||||
XPO Logistics, Inc. | 4,020,000 | 5,720,963 | ||||||
|
| |||||||
Total Convertible Bonds | 656,374,566 | |||||||
|
| |||||||
Shares | ||||||||
Convertible Preferred Stocks 12.1% | ||||||||
Aerospace & Defense 2.1% | ||||||||
¨United Technologies Corp. | 283,546 | 17,942,791 | ||||||
|
| |||||||
Auto Manufacturers 1.6% | ||||||||
General Motors Co. | 259,468 | 13,315,898 | ||||||
|
| |||||||
Auto Parts & Equipment 0.7% | ||||||||
Goodyear Tire & Rubber Co. (The) | 103,400 | 6,197,796 | ||||||
|
| |||||||
Food 0.5% | ||||||||
Post Holdings, Inc. (a) | 39,161 | 4,266,004 | ||||||
|
|
Shares | Value | |||||||
Hand & Machine Tools 2.0% | ||||||||
¨Stanley Black & Decker, Inc. | 131,122 | $ | 16,744,279 | |||||
|
| |||||||
Insurance 2.4% | ||||||||
Maiden Holdings, Ltd. | 61,807 | 2,891,950 | ||||||
¨MetLife, Inc. | 618,659 | 17,774,073 | ||||||
|
| |||||||
20,666,023 | ||||||||
|
| |||||||
Iron & Steel 0.3% | ||||||||
Cliffs Natural Resources, Inc. | 98,506 | 2,237,071 | ||||||
|
| |||||||
Oil & Gas 1.1% | ||||||||
Energy XXI Bermuda, Ltd. | 14,407 | 4,470,672 | ||||||
Sanchez Energy Corp. (a) | 71,500 | 5,087,668 | ||||||
|
| |||||||
9,558,340 | ||||||||
|
| |||||||
Pharmaceuticals 1.1% | ||||||||
Omnicare Capital Trust II | 133,550 | 9,102,768 | ||||||
|
| |||||||
Real Estate Investment Trusts 0.3% | ||||||||
Health Care REIT, Inc. | 47,800 | 2,818,288 | ||||||
|
| |||||||
Total Convertible Preferred Stocks | 102,849,258 | |||||||
|
| |||||||
Total Convertible Securities | 759,223,824 | |||||||
|
| |||||||
Common Stocks 3.8% | ||||||||
Banks 0.4% | ||||||||
Bank of America Corp. | 116,717 | 1,629,369 | ||||||
Citigroup, Inc. | 41,431 | 2,021,004 | ||||||
|
| |||||||
3,650,373 | ||||||||
|
| |||||||
Internet 0.3% | ||||||||
TIBCO Software, Inc. (h) | 108,466 | 2,663,925 | ||||||
|
| |||||||
Oil & Gas 0.2% | ||||||||
Ensco PLC Class A | 28,000 | 1,614,200 | ||||||
|
| |||||||
Oil & Gas Services 1.9% | ||||||||
Baker Hughes, Inc. | 124,900 | 7,255,441 | ||||||
Cameron International Corp. (h) | 46,635 | 2,558,396 | ||||||
Halliburton Co. | 113,326 | 6,009,678 | ||||||
|
| |||||||
15,823,515 | ||||||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Transportation 1.0% | ||||||||
Tidewater, Inc. | 136,413 | $ | 8,214,791 | |||||
|
| |||||||
Total Common Stocks | 31,966,804 | |||||||
|
| |||||||
Number of Warrants | ||||||||
Warrants 0.0%‡ | ||||||||
Auto Manufacturers 0.0%‡ | ||||||||
General Motors Co. | 1,016 | 28,245 | ||||||
Strike Price $18.33 | 1,016 | 19,893 | ||||||
|
| |||||||
Total Warrants |
| 48,138 | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 6.0% | ||||||||
Repurchase Agreement 6.0% | ||||||||
State Street Bank and Trust Co. | $ | 50,461,109 | 50,461,109 | |||||
|
| |||||||
Total Short-Term Investment | 50,461,109 | |||||||
|
| |||||||
Total Investments | 99.4 | % | 841,699,875 | |||||
Other Assets, Less Liabilities | 0.6 | 5,055,113 | ||||||
Net Assets | 100.0 | % | $ | 846,754,988 |
‡ | Less than one-tenth of a percent. |
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(b) | Step coupon—Rate shown is the rate in effect as of October 31, 2013. |
(c) | Issue in default. |
(d) | Illiquid security—The total market value of this security as of October 31, 2013 is $915, which represents less than one-tenth of a percent of the Fund’s net assets. |
(e) | Restricted security. |
(f) | Fair valued security—The total market value of this security as of October 31, 2013 is $915, which represents less than one-tenth of a percent of the Fund’s net assets. |
(g) | Synthetic Convertible Bond—Security structured by an investment bank that provides exposure to a specific company’s stock, represents 3.1% of the Fund’s net assets. |
(h) | Non-income producing security. |
(i) | As of October 31, 2013, cost is $724,176,087 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 127,121,778 | ||
Gross unrealized depreciation | (9,597,990 | ) | ||
|
| |||
Net unrealized appreciation | $ | 117,523,788 | ||
|
|
14 | MainStay Convertible Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Convertible Securities | ||||||||||||||||
Convertible Bonds (b) | $ | — | $ | 656,373,651 | $ | 915 | $ | 656,374,566 | ||||||||
Convertible Preferred Stocks | 94,112,582 | 8,736,676 | — | 102,849,258 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Convertible Securities | 94,112,582 | 665,110,327 | 915 | 759,223,824 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks | 31,966,804 | — | — | 31,966,804 | ||||||||||||
Warrants | 48,138 | — | — | 48,138 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 50,461,109 | — | 50,461,109 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 126,127,524 | $ | 715,571,436 | $ | 915 | $ | 841,699,875 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 security valued at $915 is held in Internet within the Convertible Bonds section of the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
As of October 31, 2013, convertible preferred stocks with a total value of $10,179,844 were transferred from Level 1 to Level 2 as the prices of these securities were based on evaluated bid pricing compared with the prior year prices which were based on quoted prices. Values as of October 31, 2013, for these securities are based on evaluated bid prices in active markets for identical investments.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in Securities | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers in to Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of October 31, 2013 | ||||||||||||||||||||||||||||||
Convertible Bonds | ||||||||||||||||||||||||||||||||||||||||
Internet | $ | 915 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 915 | $ | — | ||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Auto Manufacturers | 57 | — | — | — | — | (57 | )(a) | — | — | — | — | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 972 | $ | — | $ | — | $ | — | $ | — | $ | (57 | )(a) | $ | — | $ | — | $ | 915 | $ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Sales include security that was written off during the year. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 841,699,875 | ||
Cash | 6,220 | |||
Receivables: | ||||
Investment securities sold | 11,418,498 | |||
Dividends and interest | 3,287,843 | |||
Fund shares sold | 1,757,087 | |||
Other assets | 27,931 | |||
|
| |||
Total assets | 858,197,454 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 9,483,284 | |||
Fund shares redeemed | 1,074,566 | |||
Manager (See Note 3) | 424,933 | |||
NYLIFE Distributors (See Note 3) | 195,578 | |||
Transfer agent (See Note 3) | 191,593 | |||
Shareholder communication | 44,709 | |||
Professional fees | 17,228 | |||
Custodian | 2,149 | |||
Trustees | 1,771 | |||
Accrued expenses | 6,655 | |||
|
| |||
Total liabilities | 11,442,466 | |||
|
| |||
Net assets | $ | 846,754,988 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 488,349 | ||
Additional paid-in capital | 695,628,126 | |||
|
| |||
696,116,475 | ||||
Distributions in excess of net investment income | 16,857,207 | |||
Accumulated net realized gain (loss) on investments | 7,584,075 | |||
Net unrealized appreciation (depreciation) on investments | 126,197,231 | |||
|
| |||
Net assets | $ | 846,754,988 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 86,136,123 | ||
|
| |||
Shares of beneficial interest outstanding | 4,972,494 | |||
|
| |||
Net asset value per share outstanding | $ | 17.32 | ||
Maximum sales charge (5.50% of offering price) | 1.01 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.33 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 391,576,597 | ||
|
| |||
Shares of beneficial interest outstanding | 22,597,624 | |||
|
| |||
Net asset value per share outstanding | $ | 17.33 | ||
Maximum sales charge (5.50% of offering price) | 1.01 | |||
|
| |||
Maximum offering price per share outstanding | $ | 18.34 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 32,628,966 | ||
|
| |||
Shares of beneficial interest outstanding | 1,878,243 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.37 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 78,134,716 | ||
|
| |||
Shares of beneficial interest outstanding | 4,501,817 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.36 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 258,278,586 | ||
|
| |||
Shares of beneficial interest outstanding | 14,884,764 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 17.35 | ||
|
|
16 | MainStay Convertible Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 9,021,278 | ||
Dividends | 6,210,368 | |||
|
| |||
Total income | 15,231,646 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 4,290,428 | |||
Distribution/Service—Investor Class (See Note 3) | 212,632 | |||
Distribution/Service—Class A (See Note 3) | 819,850 | |||
Distribution/Service—Class B (See Note 3) | 322,991 | |||
Distribution/Service—Class C (See Note 3) | 742,547 | |||
Transfer agent (See Note 3) | 1,126,838 | |||
Shareholder communication | 99,153 | |||
Registration | 87,547 | |||
Professional fees | 78,736 | |||
Trustees | 14,765 | |||
Custodian | 14,008 | |||
Miscellaneous | 24,789 | |||
|
| |||
Total expenses | 7,834,284 | |||
|
| |||
Net investment income (loss) | 7,397,362 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 35,031,999 | |||
Net change in unrealized appreciation (depreciation) on investments | 113,193,173 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 148,225,172 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 155,622,534 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 7,397,362 | $ | 14,090,779 | ||||
Net realized gain (loss) on investments | 35,031,999 | 33,409,121 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 113,193,173 | (8,108,273 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 155,622,534 | 39,391,627 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,477,771 | ) | (1,534,966 | ) | ||||
Class A | (6,357,636 | ) | (7,001,464 | ) | ||||
Class B | (365,178 | ) | (417,670 | ) | ||||
Class C | (826,807 | ) | (911,844 | ) | ||||
Class I | (4,265,788 | ) | (5,091,499 | ) | ||||
|
| |||||||
(13,293,180 | ) | (14,957,443 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | (3,334,878 | ) | (4,312,356 | ) | ||||
Class A | (12,200,801 | ) | (18,447,914 | ) | ||||
Class B | (1,367,580 | ) | (2,175,818 | ) | ||||
Class C | (3,062,828 | ) | (4,456,329 | ) | ||||
Class I | (7,472,559 | ) | (11,630,815 | ) | ||||
|
| |||||||
(27,438,646 | ) | (41,023,232 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (40,731,826 | ) | (55,980,675 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 266,727,438 | 163,780,168 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 35,446,361 | 39,617,060 | ||||||
Cost of shares redeemed | (256,685,968 | ) | (329,417,252 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 45,487,831 | (126,020,024 | ) | |||||
|
| |||||||
Net increase (decrease) in net assets | 160,378,539 | (142,609,072 | ) | |||||
Net Assets | ||||||||
Beginning of year | 686,376,449 | 828,985,521 | ||||||
|
| |||||||
End of year | $ | 846,754,988 | $ | 686,376,449 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of year | $ | 16,857,207 | $ | 1,797,462 | ||||
|
|
18 | MainStay Convertible Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 14.79 | $ | 15.11 | $ | 15.12 | $ | 13.02 | $ | 10.16 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.15 | 0.26 | 0.30 | 0.32 | 0.35 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.28 | 0.47 | (0.02 | ) | 2.10 | 2.82 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.43 | 0.73 | 0.28 | 2.42 | 3.17 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.28 | ) | (0.28 | ) | (0.29 | ) | (0.32 | ) | (0.31 | ) | ||||||||||
From net realized gain on investments | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.90 | ) | (1.05 | ) | (0.29 | ) | (0.32 | ) | (0.31 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 17.32 | $ | 14.79 | $ | 15.11 | $ | 15.12 | $ | 13.02 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 24.42 | % | 5.07 | % | 1.98 | % | 18.78 | % | 31.77 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.93 | % | 1.74 | % | 1.89 | % | 2.25 | % | 3.16 | % | ||||||||||
Net expenses | 1.22 | % | 1.22 | % | 1.19 | % | 1.28 | % | 1.30 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.22 | % | 1.22 | % | 1.19 | % | 1.28 | % | 1.43 | % | ||||||||||
Portfolio turnover rate | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 86,136 | $ | 80,378 | $ | 85,747 | $ | 86,301 | $ | 78,734 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 14.79 | $ | 15.12 | $ | 15.13 | $ | 13.03 | $ | 10.16 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.18 | 0.29 | 0.33 | 0.35 | 0.38 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.29 | 0.46 | (0.02 | ) | 2.10 | 2.82 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.47 | 0.75 | 0.31 | 2.45 | 3.20 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.31 | ) | (0.31 | ) | (0.32 | ) | (0.35 | ) | (0.33 | ) | ||||||||||
From net realized gain on investments | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.93 | ) | (1.08 | ) | (0.32 | ) | (0.35 | ) | (0.33 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 17.33 | $ | 14.79 | $ | 15.12 | $ | 15.13 | $ | 13.03 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 24.78 | % | 5.30 | % | 2.13 | % | 19.05 | % | 32.11 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.13 | % | 1.96 | % | 2.08 | % | 2.48 | % | 3.34 | % | ||||||||||
Net expenses | 0.99 | % | 1.00 | % | 0.99 | % | 1.05 | % | 1.10 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.99 | % | 1.00 | % | 0.99 | % | 1.05 | % | 1.15 | % | ||||||||||
Portfolio turnover rate | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 391,577 | $ | 317,267 | $ | 367,398 | $ | 367,972 | $ | 355,311 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 14.84 | $ | 15.15 | $ | 15.16 | $ | 13.05 | $ | 10.18 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.03 | 0.15 | 0.18 | 0.21 | 0.27 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.29 | 0.47 | (0.02 | ) | 2.11 | 2.83 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.32 | 0.62 | 0.16 | 2.32 | 3.10 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.17 | ) | (0.16 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||
From net realized gain on investments | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.79 | ) | (0.93 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 17.37 | $ | 14.84 | $ | 15.15 | $ | 15.16 | $ | 13.05 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 23.50 | % | 4.31 | % | 1.19 | % | 17.93 | % | 30.83 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.19 | % | 0.99 | % | 1.13 | % | 1.51 | % | 2.42 | % | ||||||||||
Net expenses | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.05 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.19 | % | ||||||||||
Portfolio turnover rate | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 32,629 | $ | 33,103 | $ | 43,420 | $ | 54,646 | $ | 59,041 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 14.82 | $ | 15.14 | $ | 15.15 | $ | 13.04 | $ | 10.18 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.03 | 0.15 | 0.18 | 0.21 | 0.27 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.30 | 0.46 | (0.02 | ) | 2.11 | 2.82 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.33 | 0.61 | 0.16 | 2.32 | 3.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.17 | ) | (0.16 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||
From net realized gain on investments | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.79 | ) | (0.93 | ) | (0.17 | ) | (0.21 | ) | (0.23 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 17.36 | $ | 14.82 | $ | 15.14 | $ | 15.15 | $ | 13.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 23.60 | % | 4.24 | % | 1.20 | % | 17.94 | % | 30.73 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.19 | % | 0.98 | % | 1.13 | % | 1.49 | % | 2.39 | % | ||||||||||
Net expenses | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.05 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.97 | % | 1.97 | % | 1.94 | % | 2.03 | % | 2.18 | % | ||||||||||
Portfolio turnover rate | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 78,135 | $ | 75,372 | $ | 90,273 | $ | 90,474 | $ | 72,563 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
20 | MainStay Convertible Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | November 28, 2008** October 31, | |||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of period | $ | 14.81 | $ | 15.13 | $ | 15.15 | $ | 13.04 | $ | 9.55 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.22 | 0.33 | 0.38 | 0.38 | 0.38 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.29 | 0.47 | (0.04 | ) | 2.12 | 3.44 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.51 | 0.80 | 0.34 | 2.50 | 3.82 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.35 | ) | (0.35 | ) | (0.36 | ) | (0.39 | ) | (0.33 | ) | ||||||||||
From net realized gain on investments | (0.62 | ) | (0.77 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.97 | ) | (1.12 | ) | (0.36 | ) | (0.39 | ) | (0.33 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of period | $ | 17.35 | $ | 14.81 | $ | 15.13 | $ | 15.15 | $ | 13.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 25.05 | % | 5.56 | % | 2.39 | % | 19.41 | % | 40.46 | %(c)(d) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.37 | % | 2.21 | % | 2.33 | % | 2.66 | % | 3.33 | %†† | ||||||||||
Net expenses | 0.74 | % | 0.75 | % | 0.74 | % | 0.80 | % | 0.86 | %†† | ||||||||||
Expenses (before waiver/reimbursement) | 0.74 | % | 0.75 | % | 0.74 | % | 0.80 | % | 0.89 | %†† | ||||||||||
Portfolio turnover rate | 77 | % | 61 | % | 80 | % | 80 | % | 68 | % | ||||||||||
Net assets at end of period (in 000’s) | $ | 258,279 | $ | 180,257 | $ | 242,147 | $ | 206,563 | $ | 64,931 |
** | Commencement of operations. |
†† | Annualized. |
(a) | Per share data based on average shares outstanding during the period. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
(d) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Convertible Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on May 1, 1986. Class C shares commenced operations on September 1, 1998. Investor Class shares commenced operations on February 28, 2008. Class I shares commenced operations on November 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek capital appreciation together with current income.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures.
The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
22 | MainStay Convertible Fund |
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund held securities with a value of $915 that were fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Sub-
advisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund’s Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor measure the liquidity of the Fund’s investments; in doing so, the Manager or Subadvisor may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least quarterly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants if such warrants are not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights.
(I) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also
24 | MainStay Convertible Fund |
record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(J) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 5)
(K) Concentration of Risk. The Fund may invest in high-yield securities (sometimes called “junk bonds”), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
(L) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(M) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Asset Derivatives
Statement of Assets and Liabilities Location | Equity Contracts Risk | Total | ||||||||
Warrants | Investments in securities, at value | $ | 48,138 | $ | 48,138 | |||||
|
| |||||||||
Total Fair Value | $ | 48,138 | $ | 48,138 | ||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Equity Contracts Risk | Total | ||||||||
Warrants | Net change in unrealized appreciation (depreciation) on investments | $ | 20,990 | $ | 20,990 | |||||
|
| |||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | 20,990 | $ | 20,990 | ||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units (1)
Equity Contracts Risk | Total | |||||
Warrants | 2,032 | 2,032 | ||||
|
(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
assets as follows: 0.60% up to $500 million; 0.55% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services, previously provided by New York Life Investments under a separate fund accounting agreement, furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.60% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $4,290,428.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $22,415 and $67,735, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $32, $1,983, $42,462 and $7,910, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf
of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 274,767 | ||
Class A | 317,309 | |||
Class B | 104,447 | |||
Class C | 239,950 | |||
Class I | 190,365 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accumulated Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||
$33,114,725 | $ | — | $ | — | $ | 117,523,788 | $ | 150,638,513 |
The difference between book basis and tax basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments, return of capital distributions received, defaulted bond income accruals, Contingent Payment Debt Instruments (CPDI) and equity to debt tax adjustments.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$20,955,563 | $ | (20,955,566 | ) | $ | 3 |
The reclassifications for the Fund are primarily due to return of capital distributions received, defaulted bonds, equity to debt tax adjustments, capital gain distributions from Real Estate Investment Trusts and CPDI.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 15,879,570 | $ | 24,131,923 | ||||
Long-Term Capital Gain | 24,852,256 | 31,848,752 | ||||||
Total | $ | 40,731,826 | $ | 55,980,675 |
26 | MainStay Convertible Fund |
Note 5–Restricted Security
As of October 31, 2013, the Fund held the following restricted security:
Security | Date of Acquisition | Principal Amount | Cost | 10/31/13 Value | Percentage of Net Assets | |||||||||||||||
At Home Corp. Convertible Bond | 5/4/01 | $ | 9,147,056 | $ | 674,023 | $ | 915 | 0.0 | %‡ |
‡ | Less than one-tenth of a percent. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $532,288 and $531,297, respectively.
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 310,997 | $ | 4,896,641 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 331,058 | 4,786,481 | ||||||
Shares redeemed | (720,235 | ) | (11,247,710 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (78,180 | ) | (1,564,588 | ) | ||||
Shares converted into Investor Class (See Note 1) | 278,167 | 4,382,976 | ||||||
Shares converted from Investor Class (See Note 1) | (663,421 | ) | (10,875,430 | ) | ||||
|
| |||||||
Net increase (decrease) | (463,434 | ) | $ | (8,057,042 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 315,524 | $ | 4,692,773 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 415,428 | 5,815,700 | ||||||
Shares redeemed | (831,278 | ) | (12,361,399 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (100,326 | ) | (1,852,926 | ) | ||||
Shares converted into Investor Class (See Note 1) | 430,501 | 6,352,436 | ||||||
Shares converted from Investor Class (See Note 1) | (569,292 | ) | (8,576,018 | ) | ||||
|
| |||||||
Net increase (decrease) | (239,117 | ) | $ | (4,076,508 | ) | |||
|
|
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 8,389,260 | $ | 136,242,120 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,145,934 | 16,645,522 | ||||||
Shares redeemed | (9,051,031 | ) | (141,427,604 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 484,163 | 11,460,038 | ||||||
Shares converted into Class A (See Note 1) | 738,350 | 12,045,134 | ||||||
Shares converted from Class A (See Note 1) | (74,062 | ) | (1,209,456 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,148,451 | $ | 22,295,716 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 4,620,849 | $ | 69,277,054 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,594,182 | 22,325,718 | ||||||
Shares redeemed | (9,794,989 | ) | (145,007,590 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (3,579,958 | ) | (53,404,818 | ) | ||||
Shares converted into Class A (See Note 1) | 806,991 | 12,070,125 | ||||||
Shares converted from Class A (See Note 1) | (84,644 | ) | (1,294,142 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,857,611 | ) | $ | (42,628,835 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 189,448 | $ | 2,971,146 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 100,435 | 1,446,145 | ||||||
Shares redeemed | (364,062 | ) | (5,645,010 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (74,179 | ) | (1,227,719 | ) | ||||
Shares converted from Class B (See Note 1) | (278,752 | ) | (4,343,224 | ) | ||||
|
| |||||||
Net increase (decrease) | (352,931 | ) | $ | (5,570,943 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 231,752 | $ | 3,443,183 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 156,211 | 2,183,308 | ||||||
Shares redeemed | (439,861 | ) | (6,546,653 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (51,898 | ) | (920,162 | ) | ||||
Shares converted from Class B (See Note 1) | (582,297 | ) | (8,552,401 | ) | ||||
|
| |||||||
Net increase (decrease) | (634,195 | ) | $ | (9,472,563 | ) | |||
|
|
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 636,115 | $ | 10,134,289 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 197,260 | 2,838,498 | ||||||
Shares redeemed | (1,415,929 | ) | (21,969,809 | ) | ||||
|
| |||||||
Net increase (decrease) | (582,554 | ) | $ | (8,997,022 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 622,852 | $ | 9,186,755 | |||||
Shares issued to shareholders in reinvestments of dividends and distributions | 270,074 | 3,774,904 | ||||||
Shares redeemed | (1,770,212 | ) | (26,195,413 | ) | ||||
|
| |||||||
Net increase (decrease) | (877,286 | ) | $ | (13,233,754 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,913,957 | $ | 112,483,242 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 668,462 | 9,729,715 | ||||||
Shares redeemed | (4,867,986 | ) | (76,395,835 | ) | ||||
|
| |||||||
Net increase (decrease) | 2,714,433 | $ | 45,817,122 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 5,186,678 | $ | 77,180,403 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 392,510 | 5,517,430 | ||||||
Shares redeemed | (9,409,185 | ) | (139,306,197 | ) | ||||
|
| |||||||
Net increase (decrease) | (3,829,997 | ) | $ | (56,608,364 | ) | |||
|
|
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
28 | MainStay Convertible Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Convertible Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Convertible Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 29 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years. Accordingly, the Fund paid $24,852,256 as long term capital distribution.
For the fiscal year ended October 31, 2013, the Fund designated approximately $2,486,380 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 18.1% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
30 | MainStay Convertible Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 31 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
32 | MainStay Convertible Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 33 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
34 | MainStay Convertible Fund |
MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31999 MS322-13 | MSC11-12/13 NL005 |
MainStay Income Builder Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 11.15 17.62 | %
|
| 12.09 13.37 | %
|
| 5.96 6.56 | %
|
| 1.37 1.37 | %
| ||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges | | 11.42 17.90 | | | 12.42 13.70 | | | 6.12 6.72 | | | 1.06 1.06 | | ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges | | 11.74 16.74 | | | 12.28 12.53 | | | 5.77 5.77 | | | 2.12 2.12 | | ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges | | 15.70 16.70 | | | 12.52 12.52 | | | 5.76 5.76 | | | 2.12 2.12 | | ||||||
Class I Shares4 | No Sales Charge | 18.25 | 14.00 | 7.14 | 0.81 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
MSCI World Index5 | 25.77 | % | 13.34 | % | 7.38 | % | ||||||
Russell 1000® Index6 | 28.40 | 15.84 | 7.83 | |||||||||
Income Builder Composite Index7 | 11.68 | 10.10 | 6.42 | |||||||||
Barclays U.S. Aggregate Bond Index8 | –1.08 | 6.09 | 4.78 | |||||||||
Average Lipper Mixed-Asset Target Allocation Growth Fund9 | 17.93 | 12.32 | 6.38 |
5. | The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
6. | The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® Index represents approximately 92% of the U.S. market. The Russell 1000® Index is the Fund’s secondary benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | The Income Builder Composite Index consists of the MSCI World Index and the Barclays U.S. Aggregate Bond Index weighted 50%/50% respectively. The Fund has selected the Income Builder Composite Index as an additional benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
8. | The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasurys, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. The Fund has selected the Barclays U.S. Aggregate Bond Index as an additional benchmark. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
9. | The average Lipper mixed-asset target allocation growth fund is representative of funds that, by portfolio practice, maintain a mix of between 60%–80% equity securities, with the remainder invested in bonds, cash, and cash equivalents. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital-gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Income Builder Fund |
Cost in Dollars of a $1,000 Investment in MainStay Income Builder Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,050.30 | $ | 6.77 | $ | 1,018.60 | $ | 6.67 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,051.80 | $ | 5.43 | $ | 1,019.90 | $ | 5.35 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,046.20 | $ | 10.62 | $ | 1,014.80 | $ | 10.46 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,046.30 | $ | 10.68 | $ | 1,014.80 | $ | 10.51 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,052.70 | $ | 4.09 | $ | 1,021.20 | $ | 4.02 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.31% for Investor Class, 1.05% for Class A, 2.06% for Class B, 2.07% for Class C and 0.79% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Portfolio Composition as of October 31, 2013 (Unaudited)
See Portfolio of Investments beginning on page 13 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings or Issuers Held as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | United States Treasury Bonds, 2.875%–4.375%, due 5/15/40–5/15/43 |
2. | Vodafone Group PLC |
3. | MGM Resorts International, 6.75%–8.625%, due 2/1/19–10/1/20 |
4. | Total S.A. |
5. | Lockheed Martin Corp. |
6. | Vinci S.A. |
7. | Altria Group, Inc. |
8. | National Grid PLC |
9. | Verizon Communications, Inc. |
10. | Deutsche Telekom A.G. |
8 | MainStay Income Builder Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, CFA, Louis N. Cohen, CFA, and Taylor Wagenseil of MacKay Shields LLC (“MacKay Shields”), the Subadvisor for the fixed-income portion of the Fund, and Eric Sappenfield, William Priest, CFA, and Michael A. Welhoelter, CFA, of Epoch Investment Partners, Inc. (“Epoch”), the Subadvisor for the equity portion of the Fund.
How did MainStay Income Builder Fund perform relative to its benchmarks and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Income Builder Fund returned 17.62% for Investor Class shares, 17.90% for Class A shares, 16.74% for Class B shares and 16.70% for Class C shares for the 12 months ended October 31, 2013. Over the same period, Class I shares returned 18.25%. For the 12 months ended October 31, 2013, all share classes underperformed the 25.77% return of the MSCI World Index,1 which is the Fund’s broad-based securities-market index, and outperformed the –1.08% return of the Barclays U.S. Aggregate Bond Index,1 which is an additional benchmark for the Fund. Over the same period, Class I shares outperformed—and Investor Class, Class A, Class B and Class C shares underperformed—the 17.93% return of the average Lipper2 mixed-asset target allocation growth fund. See page 5 for Fund returns with sales charges.
During the reporting period, how was the Fund materially affected by investments in derivatives?
During the reporting period, Epoch did not use any derivatives. MacKay Shields, however, used S&P 500® equity futures to raise the Fund’s overall equity sensitivity and U.S. Treasury note futures to lower the Fund’s interest-rate sensitivity. These positions in derivatives had a positive impact on the Fund’s overall performance during the reporting period.
What factors affected the relative performance of the equity portion of the Fund during the reporting period?
The equity portion of the Fund had strong absolute returns for the reporting period but trailed the MSCI World Index in a fast-rising equity market. The diversified group of companies in the equity portion of the Fund continued to achieve growth in free cash flow and provide shareholders with positive returns from cash dividends, share buybacks and debt reduction. The largest relative contributions came from the materials, information technology and industrials sectors. (Contributions take weightings and total returns into account.) In the equity portion of the Fund, poor stock selection in telecommunication services and consumer discretionary hurt relative performance, as did an overweight position in the utilities sector, which had a lower return than the MSCI World Index. From a country perspective, Germany and France contributed positively to relative results, while the United Kingdom and the United States detracted.
In the equity portion of the Fund, which sectors were the strongest contributors to the Fund’s relative performance and which sectors detracted the most?
Returns in the equity portion of the Fund are primarily the result of finding companies that can grow their free cash flow and are committed to returning a significant portion of that cash to shareholders. The vast majority of stocks in the equity portion of the Fund were able to achieve this and increase their dividends during the reporting period. We believe understanding this “slow and steady” approach is more helpful to understanding returns than parsing returns in terms of sector weights and relative returns within those sectors. That said, commentary may provide additional insight if it is viewed in the proper context for this strategy.
A lower weighting than the MSCI World Index in the poorly performing materials sector was the largest positive contributor to relative performance. An underweight position compared to the MSCI World Index and favorable stock selection in information technology also helped relative results, as did effective stock selection in industrials.
Stock selection in consumer discretionary and telecommunication services was a drag on relative results in the equity portion of the Fund. An overweight position relative to the MSCI World Index in the utilities sector also detracted, as did the cash position in the equity portion of the Fund. Utilities underperformed the market as a whole, and cash hurt results in a fast-rising equity market.
During the reporting period, which individual stocks made the strongest contributions to absolute performance in the equity portion of the Fund and which stocks detracted the most?
Among the stocks with the strongest positive contributions to absolute performance in the equity portion of the Fund were luxury automobile and truck manufacturer Daimler, U.S. prime defense company Lockheed Martin and French road construction and toll operator Vinci. Daimler benefited as investors anticipated increased sales of the new model cycle and associated earnings momentum. Lockheed Martin performed because of the company’s competitive position and high dividend yield compared to its domestic peers. Vinci increased operating cash flow from toll roads and from better-than-expected summer traffic trends.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
During the reporting period, the most significant detractors from absolute performance in the equity portion of the Fund were U.S.-based global mail-stream technology company Pitney Bowes, U.K. and North America bus and rail operator FirstGroup, and U.S. telecommunications company CenturyLink. Pitney Bowes was hurt by the prolonged sluggish macroeconomic environment. As a result, management laid out a plan to increase the importance of some of the adjacent businesses that offer long-term growth potential—e-commerce and digital mailing solutions. FirstGroup’s management announced a rights offering and a discontinuation of its dividend in May 2013. The dilution from the rights offer and the change in capital allocation substantially reduced the value of the company’s shares. CenturyLink is the third-largest telecommunications company in the United States, providing data, voice and hosted information technology solutions. The company underperformed the MSCI World Index during the reporting period when management lowered the company’s 2013 guidance. The lowering was due to slower-than-anticipated growth in CenturyLink’s strategic services business segment and persistent declines in the company’s legacy business segment.
Did the equity portion of the Fund make any significant purchases or sales during the reporting period?
The equity portion of the Fund made several significant purchases during the reporting period. Among them were positions in consumer electronics and entertainment company Apple, drug company AbbVie, public utility holding company Ameren, and mail delivery and logistic services company Deutsche Post. All of these stocks were added because of their favorable shareholder-yield attributes.
Positions eliminated from the equity portion of the Fund during the reporting period included Pitney Bowes and FirstGroup, both of which were major detractors. We sold the position in Pitney Bowes when the sustainability of its dividend came into question. After the sale, the company significantly reduced its dividend. We sold the position in FirstGroup after the company announced a rights offering and a discontinuation of its dividend.
How did the Fund’s equity sector weightings change during the reporting period?
Sector weightings in the equity portion of the Fund are generally a result of our bottom-up stock-selection process. During the reporting period, the equity portion of the Fund reduced its exposure to consumer staples, consumer discretionary and
information technology. The largest increases in sector weightings in the equity portion of the Fund were in utilities, materials and financials.
How was the equity portion of the Fund positioned at the end of the reporting period?
We continue to seek attractive returns for the equity portion of the Fund through a diversified group of companies focused on generating significant free cash flow and returning it to shareholders through a combination of dividends, share repurchases and debt reduction. This stock-by-stock process often results in the equity portion of the Fund having a different composition than the MSCI World Index. The benchmark index contains many companies that either lack free cash flow or use their free cash flow primarily to reinvest and make acquisitions. The composition of the equity portion of the Fund may also differ in terms of sector weightings.
As of October 31, 2013, we had lowered absolute exposure to consumer staples, consumer discretionary and information technology in the equity portion of the Fund and had increased its exposure in several sectors, most notably utilities, financials and materials.
What factors affected relative performance in the fixed-income portion of the Fund during the reporting period?
The fixed-income portion of the Fund outperformed the Barclays U.S. Aggregate Bond Index during the reporting period, primarily because of an overweight position in spread product,3 specifically high-yield corporate bonds. In light of a continuing low interest-rate environment, investors continued to hunger for yield and return, moving them to invest in riskier asset classes. High-yield corporate bonds and equities benefited from this demand. Stocks generally rose, and companies did not disappoint with their earnings. During the reporting period, the durability of corporate earnings had a positive influence high-yield corporate-bond performance across the ratings spectrum.
Lower-risk assets, such as U.S. Treasury securities and agency mortgages, underperformed spread product during the reporting period. Fortunately, the fixed-income portion of the Fund had underweight positions in these asset classes, which helped performance relative to the Barclays U.S. Aggregate Bond Index. Additionally, we used U.S. Treasury futures to further reduce the duration4 of the fixed-income portion of the Fund relative to that of the Index. The shorter duration helped relative performance as interest rates rose during the reporting period.
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time. The term “spread product” may refer to securities or asset classes that typically trade at a spread to comparable U.S. Treasury securities. |
4. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
10 | MainStay Income Builder Fund |
During the reporting period, what was the duration strategy of the fixed-income portion of the Fund?
The duration of the fixed-income portion of the Fund was shorter than that of the Barclays U.S. Aggregate Bond Index, in large part because of an overweight position in high-yield corporate bonds. These bonds tend to have shorter durations than investment-grade corporate bonds. They also tend to have a low correlation to U.S. Treasury securities, so they have a lower sensitivity to interest rates but are not immune to interest-rate changes. To further insulate the fixed-income portion of the Fund from a potential rise in interest rates, we increased its exposure to a short position in U.S. Treasury futures to reduce a duration that was already shorter than that of the Index. Exposure to lower-duration high-yield corporate bonds had a positive impact on performance in the fixed-income portion of the Fund, while exposure to U.S. Treasury futures had a minimal impact on performance during the reporting period.
What specific factors, risks or market forces prompted significant decisions in the fixed-income portion of the Fund during the reporting period?
There were many macro factors to consider during the reporting period, including the Federal Reserve’s suggestion that it might taper its bond purchases, and the fixed-income portion of the Fund experienced some periods of volatility. Nevertheless, we did not make any material changes to the positioning of the fixed-income portion of the Fund. For some time, we have judged the Federal Reserve’s accommodative monetary policy, along with improving economic data, to be a positive for spread products such as high-yield corporate bonds. In addition, improving profitability signaled that many corporations were doing more with less: less leverage, less short-term debt and smaller funding gaps. In our opinion, improving credit fundamentals would support narrower spreads—or less compensation for assuming credit risk—alongside a favorable balance of supply and demand for corporate debt. For these reasons, we maintained a risk profile that was higher than that of the Barclays U.S. Aggregate Bond Index, specifically through an overweight position relative to the Index in high-yield corporate bonds.
During the reporting period, which market segments were the strongest contributors to performance in the fixed-income portion of the Fund and which market segments were particularly weak?
In the fixed-income portion of the Fund, an overweight position in high-yield corporate bonds was the driving force behind outperformance of the Barclays U.S. Aggregate Bond Index. Within the high-yield corporate bond sector, holdings in industries that are more cyclical—such as financials, gaming, home
builders, building materials and steel—were among strongest performers in the fixed-income portion of the Fund. To a lesser degree, positions in convertible bonds and bank loans were also positive contributors to performance relative to the Barclays U.S. Aggregate Bond Index. Though a position in investment-grade credit performed well relative to the Barclays U.S. Aggregate Bond Index, investment-grade corporate bonds underperformed high-yield corporate bonds during the reporting period.
With an overweight position in high-yield corporate bonds came underweight positions in U.S. Treasury securities and agency mortgages. These underweight sector positions contributed positively to the fixed-income portion of the Fund’s relative performance, as U.S. Treasury securities and agency mortgages posted negative absolute returns during the reporting period.
Did the fixed-income portion of the Fund make any significant purchases or sales during the reporting period?
While there were no significant changes in overall positioning of the fixed-income portion of the Fund during the reporting period, we added some positions and eliminated others. The fixed-income portion of the Fund purchased bonds of U.S. Airways Group, Valeant Pharmaceuticals International and Sprint. We purchased bonds of U.S. Airways Group because we believed the fundamental landscape for airlines had improved. With consolidation and more revenue from ancillary services, airlines have been able to book relatively solid results. The Valeant Pharmaceuticals International bonds were issued to fund the company’s acquisition of Bausch & Lomb. The Sprint bonds were issued to fund a comprehensive capital-expenditure program, as the telecommunications company was being acquired by Softbank, an investment-grade company. We believed that the bonds from Valeant Pharmaceuticals International and Sprint were issued at attractive levels.
During the reporting period, the fixed-income portion of the Fund sold positions in telecommunications equipment company Lucent Technologies and premium office products manufacturer Acco Brands. Lucent was sold when restructuring news sent the price of the bonds higher and it reached our target price. Acco’s products are sold through the big-box office supply channel as well as specialty stores. The demand for office products had been lagging, and we believed that the consolidation of the buyers of Acco’s products (OfficeMax was acquired by Office Depot) will result in Acco’s margins being squeezed, so we sold the bonds.
mainstayinvestments.com | 11 |
How did sector weightings change in the fixed-income portion of the Fund’s during the reporting period?
Aside from the purchases and sales already mentioned, we made no significant changes to sector weightings relative to the Barclays U.S. Aggregate Bond Index in the fixed-income portion of the Fund. Instead, we maintained the positioning of the fixed-income portion of the Fund as we sought to take advantage of a market where we believed credit spreads would continue to tighten. Any modest changes in sector weightings were driven by individual security selection rather than sector rotation.
How was the fixed-income portion of the Fund positioned at the end of the reporting period?
As of October 31, 2013, the fixed-income portion of the Fund maintained its emphasis on spread product, with high-yield corporate bonds remaining the most substantially overweight sector relative to the Barclays U.S. Aggregate Bond Index in the fixed-income portion of the Fund. As of the same date, the fixed-income portion of the Fund held underweight positions relative to the Index in more rate-sensitive sectors, such as U.S. Treasury securities and agency mortgage-backed securities. As of October 31, 2013, the fixed-income portion of the Fund had a shorter duration than the Barclays U.S. Aggregate Bond Index.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
12 | MainStay Income Builder Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Long-Term Bonds 41.3%† Asset-Backed Securities 1.3% | ||||||||
Home Equity 1.2% | ||||||||
Ameriquest Mortgage Securities, Inc. | $ | 97,536 | $ | 96,906 | ||||
Carrington Mortgage Loan Trust | 430,967 | 361,456 | ||||||
Chase Funding Mortgage Loan Asset-Backed Certificates | 229,110 | 234,111 | ||||||
CIT Group Home Equity Loan Trust | 53,001 | 53,969 | ||||||
Citifinancial Mortgage Securities, Inc. | 184,897 | 183,517 | ||||||
Citigroup Mortgage Loan Trust | 1,138,455 | 862,628 | ||||||
Countrywide Asset-Backed Certificates | 485,496 | 502,787 | ||||||
Equity One ABS, Inc. | 237,294 | 240,639 | ||||||
Series 2003-3, Class AF4 | 366,712 | 354,044 | ||||||
GSAA Home Equity Trust | 6,486,972 | 3,152,313 | ||||||
HSI Asset Securitization Corp. Trust | 306,602 | 274,180 | ||||||
JP Morgan Mortgage Acquisition Corp. | 972,701 | 690,034 | ||||||
Master Asset Backed Securities Trust | 845,296 | 351,472 | ||||||
Merrill Lynch Mortgage Investors Trust | 3,362,119 | 2,281,605 | ||||||
RAMP Trust | ||||||||
Series 2003-RZ5, Class A7 | 110,676 | 114,652 |
Principal Amount | Value | |||||||
Home Equity (continued) | ||||||||
RAMP Trust (continued) | ||||||||
Series 2003-RS7, Class AI6 | $ | 59,972 | $ | 60,150 | ||||
RASC Trust | 84,176 | 86,325 | ||||||
Saxon Asset Securities Trust | 96,707 | 101,325 | ||||||
Soundview Home Equity Loan Trust | 1,385,767 | 853,578 | ||||||
Specialty Underwriting & Residential Finance Trust | 966,941 | 515,088 | ||||||
Terwin Mortgage Trust | 111,148 | 115,054 | ||||||
|
| |||||||
11,485,833 | ||||||||
|
| |||||||
Student Loans 0.1% | ||||||||
Keycorp Student Loan Trust | 986,966 | 906,820 | ||||||
|
| |||||||
Total Asset-Backed Securities | 12,392,653 | |||||||
|
| |||||||
Corporate Bonds 35.1% | ||||||||
Aerospace & Defense 0.4% | ||||||||
B/E Aerospace, Inc. | ||||||||
5.25%, due 4/1/22 | 540,000 | 554,850 | ||||||
6.875%, due 10/1/20 | 1,805,000 | 1,990,012 | ||||||
TransDigm, Inc. | 1,600,000 | 1,744,000 | ||||||
|
| |||||||
4,288,862 | ||||||||
|
| |||||||
Agriculture 0.0%‡ |
| |||||||
Lorillard Tobacco Co. | 255,000 | 314,648 | ||||||
|
| |||||||
Airlines 0.9% | ||||||||
Continental Airlines, Inc. | ||||||||
Series A | 1,898,529 | 2,164,322 | ||||||
7.875%, due 1/2/20 | 1,304,839 | 1,389,654 | ||||||
U.S. Airways Group, Inc. | 1,257,906 | 1,333,380 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings or issuers held, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Airlines (continued) | ||||||||
U.S. Airways, Inc. | $ | 2,357,941 | $ | 2,475,838 | ||||
UAL 2009-1 Pass-Through Trust | 912,145 | 1,030,724 | ||||||
|
| |||||||
8,393,918 | ||||||||
|
| |||||||
Auto Manufacturers 0.7% |
| |||||||
Chrysler Group LLC / CG Co-Issuer, Inc. | 2,100,000 | 2,375,625 | ||||||
Ford Motor Co. | ||||||||
6.625%, due 10/1/28 | 1,500,000 | 1,720,848 | ||||||
7.45%, due 7/16/31 | 450,000 | 561,581 | ||||||
8.90%, due 1/15/32 | 215,000 | 277,872 | ||||||
Navistar International Corp. | 1,525,000 | 1,557,406 | ||||||
|
| |||||||
6,493,332 | ||||||||
|
| |||||||
Auto Parts & Equipment 0.5% |
| |||||||
Continental Rubber of America Corp. | 2,200,000 | 2,307,140 | ||||||
Goodyear Tire & Rubber Co. (The) | ||||||||
6.50%, due 3/1/21 | 625,000 | 660,937 | ||||||
8.25%, due 8/15/20 | 1,200,000 | 1,356,000 | ||||||
|
| |||||||
4,324,077 | ||||||||
|
| |||||||
Banks 3.2% | ||||||||
AgriBank FCB | 300,000 | 391,456 | ||||||
Banco Santander Mexico S.A. | 2,260,000 | 2,161,125 | ||||||
Bank of America Corp. | ||||||||
5.625%, due 7/1/20 | 1,200,000 | 1,375,211 | ||||||
6.50%, due 8/1/16 | 135,000 | 153,370 | ||||||
7.625%, due 6/1/19 | 1,015,000 | 1,265,365 | ||||||
8.00%, due 12/29/49 (c) | 1,500,000 | 1,661,250 | ||||||
Bank of America NA | 990,000 | 1,141,080 | ||||||
BBVA Bancomer S.A. | 1,985,000 | 2,153,725 | ||||||
CIT Group, Inc. | ||||||||
4.25%, due 8/15/17 | 100,000 | 104,875 | ||||||
5.00%, due 5/15/17 | 1,745,000 | 1,875,875 | ||||||
Citigroup, Inc. | ||||||||
6.875%, due 6/1/25 | 1,715,000 | 2,032,573 | ||||||
8.50%, due 5/22/19 | 85,000 | 109,980 | ||||||
Discover Bank | 1,064,000 | 1,357,953 | ||||||
Goldman Sachs Group, Inc. (The) | 3,045,000 | 2,970,595 |
Principal Amount | Value | |||||||
Banks (continued) | ||||||||
HSBC Holdings PLC | $ | 115,000 | $ | 128,090 | ||||
JPMorgan Chase & Co. | 3,300,000 | 3,638,250 | ||||||
LBG Capital No.1 PLC 8.00%, due 12/29/49 (c)(d) | 1,550,000 | 1,646,875 | ||||||
Mellon Capital III | £ | 1,950,000 | 3,117,249 | |||||
Morgan Stanley | $ | 1,125,000 | 1,158,141 | |||||
Royal Bank of Scotland Group PLC | 800,000 | 928,457 | ||||||
Wells Fargo & Co. | 1,200,000 | 1,353,000 | ||||||
|
| |||||||
30,724,495 | ||||||||
|
| |||||||
Beverages 0.1% |
| |||||||
Embotelladora Andina S.A. 5.00%, due 10/1/23 (d) | 1,350,000 | 1,387,831 | ||||||
|
| |||||||
Building Materials 0.7% | ||||||||
USG Corp. | ||||||||
6.30%, due 11/15/16 | 4,695,000 | 5,023,650 | ||||||
9.75%, due 1/15/18 | 1,330,000 | 1,562,750 | ||||||
|
| |||||||
6,586,400 | ||||||||
|
| |||||||
Chemicals 0.9% |
| |||||||
Dow Chemical Co. (The) | ||||||||
4.125%, due 11/15/21 | 1,605,000 | 1,659,194 | ||||||
8.55%, due 5/15/19 | 225,000 | 291,216 | ||||||
Hexion U.S. Finance Corp. 6.625%, due 4/15/20 | 1,735,000 | 1,761,025 | ||||||
Huntsman International LLC 8.625%, due 3/15/21 | 2,900,000 | 3,255,250 | ||||||
Rockwood Specialties Group, Inc. 4.625%, due 10/15/20 | 1,525,000 | 1,566,938 | ||||||
|
| |||||||
8,533,623 | ||||||||
|
| |||||||
Coal 0.1% |
| |||||||
Alpha Natural Resources, Inc. | ||||||||
6.00%, due 6/1/19 | 1,100,000 | 946,000 | ||||||
6.25%, due 6/1/21 | 110,000 | 93,225 | ||||||
|
| |||||||
1,039,225 | ||||||||
|
| |||||||
Commercial Services 0.9% | ||||||||
Avis Budget Car Rental LLC / Avis Budget Finance, Inc. | 2,640,000 | 2,877,600 | ||||||
Hertz Corp. (The) | ||||||||
5.875%, due 10/15/20 | 450,000 | 473,625 | ||||||
7.375%, due 1/15/21 | 2,700,000 | 2,997,000 |
14 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Commercial Services (continued) | ||||||||
Quebecor World, Inc. | $ | 110,000 | $ | 1,617 | ||||
United Rentals North America, Inc. 8.375%, due 9/15/20 | 1,625,000 | 1,815,937 | ||||||
|
| |||||||
8,165,779 | ||||||||
|
| |||||||
Computers 0.5% | ||||||||
NCR Corp. | 2,730,000 | 2,689,050 | ||||||
SunGard Data Systems, Inc. | ||||||||
6.625%, due 11/1/19 | 1,100,000 | 1,149,500 | ||||||
7.375%, due 11/15/18 | 700,000 | 742,000 | ||||||
7.625%, due 11/15/20 | 200,000 | 217,750 | ||||||
|
| |||||||
4,798,300 | ||||||||
|
| |||||||
Cosmetics & Personal Care 0.2% | ||||||||
Albea Beauty Holdings S.A. | 1,850,000 | 1,947,125 | ||||||
|
| |||||||
Diversified Financial Services 0.5% | ||||||||
Alterra Finance LLC | 200,000 | 227,129 | ||||||
GE Capital Trust II | € | 2,240,000 | 3,197,137 | |||||
General Electric Capital Corp. | £ | 760,000 | 1,302,666 | |||||
|
| |||||||
4,726,932 | ||||||||
|
| |||||||
Electric 0.6% | ||||||||
Abu Dhabi National Energy Co. | $ | 2,200,000 | 2,068,000 | |||||
Great Plains Energy, Inc. | 1,130,000 | 1,233,416 | ||||||
Puget Energy, Inc. | 815,000 | 879,207 | ||||||
Wisconsin Energy Corp. | 1,554,717 | 1,593,585 | ||||||
|
| |||||||
5,774,208 | ||||||||
|
| |||||||
Engineering & Construction 0.2% | ||||||||
MasTec, Inc. | 1,760,000 | 1,678,600 | ||||||
|
| |||||||
Entertainment 0.2% | ||||||||
Mohegan Tribal Gaming Authority | 1,935,000 | 2,084,963 | ||||||
|
|
Principal Amount | Value | |||||||
Finance—Auto Loans 0.3% | ||||||||
Banque PSA Finance S.A. | $ | 1,800,000 | $ | 1,827,540 | ||||
Ford Motor Credit Co. LLC | 350,000 | 400,986 | ||||||
General Motors Financial Co., Inc. | 325,000 | 323,781 | ||||||
|
| |||||||
2,552,307 | ||||||||
|
| |||||||
Finance—Consumer Loans 0.7% | ||||||||
HSBC Finance Capital Trust IX | 2,400,000 | 2,476,512 | ||||||
SLM Corp. | 1,700,000 | 1,850,875 | ||||||
Springleaf Finance Corp. 7.75%, due 10/1/21 (d) | 1,765,000 | 1,897,375 | ||||||
|
| |||||||
6,224,762 | ||||||||
|
| |||||||
Finance—Credit Card 0.3% | ||||||||
American Express Co. 6.80%, due 9/1/66 (c) | 1,600,000 | 1,708,000 | ||||||
Discover Financial Services 3.85%, due 11/21/22 | 1,491,000 | 1,446,218 | ||||||
|
| |||||||
3,154,218 | ||||||||
|
| |||||||
Finance—Investment Banker/Broker 0.2% |
| |||||||
Jefferies Group LLC | ||||||||
5.125%, due 1/20/23 | 722,000 | 731,928 | ||||||
6.45%, due 6/8/27 | 1,000,000 | 1,042,670 | ||||||
|
| |||||||
1,774,598 | ||||||||
|
| |||||||
Finance—Mortgage Loan/Banker 0.1% |
| |||||||
Countrywide Financial Corp. 6.25%, due 5/15/16 | 1,200,000 | 1,329,289 | ||||||
|
| |||||||
Finance—Other Services 0.2% | ||||||||
Icahn Enterprises, L.P. / Icahn Enterprises Finance Corp. | 2,085,000 | 2,186,644 | ||||||
|
| |||||||
Food 1.4% | ||||||||
Grupo Bimbo S.A.B. de C.V. | 1,640,000 | 1,674,583 | ||||||
JBS Finance II, Ltd. | 675,000 | 707,063 | ||||||
JBS USA LLC / JBS USA Finance, Inc. | 480,000 | 514,800 | ||||||
Kerry Group Financial Services | 2,899,000 | 2,708,875 | ||||||
Minerva Luxembourg S.A. | 2,500,000 | 2,425,000 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Food (continued) | ||||||||
Post Holdings, Inc. 7.375%, due 2/15/22 (d) | $ | 2,110,000 | $ | 2,249,787 | ||||
Smithfield Foods, Inc. | ||||||||
6.625%, due 8/15/22 | 575,000 | 605,188 | ||||||
7.75%, due 7/1/17 | 925,000 | 1,075,312 | ||||||
Virgolino de Oliveira Finance, Ltd. 11.75%, due 2/9/22 (d) | 1,700,000 | 1,360,000 | ||||||
|
| |||||||
13,320,608 | ||||||||
|
| |||||||
Forest Products & Paper 0.2% | ||||||||
Boise Paper Holdings LLC / Boise Co-Issuer Co. | 1,400,000 | 1,586,200 | ||||||
|
| |||||||
Health Care—Products 0.4% | ||||||||
Alere, Inc. | 1,850,000 | 2,030,375 | ||||||
Kinetic Concepts, Inc. / KCI U.S.A., Inc. | 1,300,000 | 1,465,750 | ||||||
|
| |||||||
3,496,125 | ||||||||
|
| |||||||
Health Care—Services 0.7% | ||||||||
CHS / Community Health Systems, Inc. | 1,775,000 | 1,846,000 | ||||||
CIGNA Corp. | 270,000 | 287,492 | ||||||
Fresenius Medical Care U.S. Finance II, Inc. | 1,985,000 | 2,104,100 | ||||||
HCA, Inc. | 1,825,000 | 2,144,375 | ||||||
|
| |||||||
6,381,967 | ||||||||
|
| |||||||
Holding Company—Diversified 0.0%‡ | ||||||||
Hutchison Whampoa International, Ltd. | 215,000 | 261,800 | ||||||
|
| |||||||
Home Builders 1.5% | ||||||||
Beazer Homes USA, Inc. | 1,875,000 | 1,809,375 | ||||||
K Hovnanian Enterprises, Inc. | 5,435,000 | 5,788,275 | ||||||
MDC Holdings, Inc. | 2,750,000 | 2,866,372 | ||||||
Shea Homes, L.P. / Shea Homes Funding Corp. | 1,575,000 | 1,744,312 | ||||||
Standard Pacific Corp. | 2,000,000 | 2,320,000 | ||||||
|
| |||||||
14,528,334 | ||||||||
|
|
Principal Amount | Value | |||||||
Household Products & Wares 0.0%‡ | ||||||||
Reynolds Group Issuer, Inc. | $ | 260,000 | $ | 287,625 | ||||
|
| |||||||
Insurance 3.1% | ||||||||
Allstate Corp. (The) | 3,790,000 | 3,989,354 | ||||||
American International Group, Inc. | ||||||||
4.875%, due 3/15/67 (c) | € | 1,300,000 | 1,730,214 | |||||
Series A2 | £ | 1,100,000 | 1,723,173 | |||||
Chubb Corp. (The) | $ | 1,660,000 | 1,809,400 | |||||
Hartford Financial Services Group, Inc. 6.10%, due 10/1/41 | 4,100,000 | 4,874,605 | ||||||
Hartford Life, Inc. | 355,000 | 435,403 | ||||||
Liberty Mutual Group, Inc. | ||||||||
4.25%, due 6/15/23 | 250,000 | 250,015 | ||||||
7.80%, due 3/7/87 (d) | 1,760,000 | 1,918,400 | ||||||
10.75%, due 6/15/88 (c)(d) | 750,000 | 1,140,000 | ||||||
Oil Insurance, Ltd. | 1,320,000 | 1,201,683 | ||||||
Pacific Life Insurance Co. 7.90%, due 12/30/23 (d) | 2,575,000 | 3,332,583 | ||||||
Progressive Corp. (The) | 3,700,000 | 3,996,000 | ||||||
Swiss Re Capital I, L.P. | 1,350,000 | 1,437,750 | ||||||
XL Group PLC | 2,120,000 | 2,079,720 | ||||||
|
| |||||||
29,918,300 | ||||||||
|
| |||||||
Investment Company 0.3% | ||||||||
CDP Financial, Inc. | 2,300,000 | 2,576,994 | ||||||
|
| |||||||
Iron & Steel 0.6% | ||||||||
AK Steel Corp. | 1,900,000 | 2,090,000 | ||||||
Cliffs Natural Resources, Inc. | ||||||||
3.95%, due 1/15/18 | 745,000 | 754,429 | ||||||
5.90%, due 3/15/20 | 1,085,000 | 1,133,768 | ||||||
Vale S.A. | 1,545,000 | 1,394,466 | ||||||
|
| |||||||
5,372,663 | ||||||||
|
| |||||||
Lodging 1.7% | ||||||||
Caesars Entertainment Operating Co., Inc. | 2,705,000 | 2,535,937 | ||||||
¨MGM Resorts International | ||||||||
6.75%, due 10/1/20 | 8,531,000 | 9,298,790 | ||||||
8.625%, due 2/1/19 | 80,000 | 93,900 |
16 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Lodging (continued) | ||||||||
Starwood Hotels & Resorts Worldwide, Inc. | ||||||||
6.75%, due 5/15/18 | $ | 265,000 | $ | 313,665 | ||||
7.15%, due 12/1/19 | 1,900,000 | 2,318,061 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 1,500,000 | 1,691,250 | ||||||
|
| |||||||
16,251,603 | ||||||||
|
| |||||||
Media 0.7% | ||||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 1,555,000 | 1,473,362 | ||||||
Clear Channel Communications, Inc. | ||||||||
5.50%, due 12/15/16 | 335,000 | 287,263 | ||||||
6.875%, due 6/15/18 | 2,070,000 | 1,749,150 | ||||||
DISH DBS Corp. | 1,400,000 | 1,547,000 | ||||||
NBC Universal Media LLC 5.15%, due 4/30/20 | 160,000 | 182,942 | ||||||
Time Warner Cable, Inc. | ||||||||
8.25%, due 2/14/14 | 340,000 | 346,871 | ||||||
8.75%, due 2/14/19 | 800,000 | 953,392 | ||||||
Time Warner, Inc. | 300,000 | 383,525 | ||||||
|
| |||||||
6,923,505 | ||||||||
|
| |||||||
Mining 0.8% | ||||||||
Aleris International, Inc. | 1,900,000 | 2,014,000 | ||||||
Anglo American Capital PLC | 250,000 | 315,899 | ||||||
FMG Resources August 2006 Pty., Ltd. | 2,000,000 | 2,220,000 | ||||||
Rio Tinto Finance USA, Ltd. | 1,300,000 | 1,702,729 | ||||||
Vedanta Resources PLC | 1,690,000 | 1,740,700 | ||||||
|
| |||||||
7,993,328 | ||||||||
|
| |||||||
Miscellaneous—Manufacturing 0.4% | ||||||||
Amsted Industries, Inc. | 3,500,000 | 3,705,625 | ||||||
Siemens Financieringsmaatschappij N.V. | 300,000 | 358,368 | ||||||
|
| |||||||
4,063,993 | ||||||||
|
| |||||||
Office & Business Equipment 0.0%‡ | ||||||||
Xerox Corp. | 300,000 | 312,512 | ||||||
|
|
Principal Amount | Value | |||||||
Oil & Gas 3.2% | ||||||||
Berry Petroleum Co. | $ | 1,490,000 | $ | 1,534,700 | ||||
Chesapeake Energy Corp. | 2,350,000 | 2,649,625 | ||||||
Denbury Resources, Inc. | 485,000 | 517,738 | ||||||
ENI S.p.A. | 1,825,000 | 1,883,582 | ||||||
EP Energy LLC / EP Energy Finance, Inc. | 1,850,000 | 2,136,750 | ||||||
Gazprom OAO Via Gaz Capital S.A. | 1,460,000 | 1,447,225 | ||||||
Linn Energy LLC / Linn Energy Finance Corp. | 6,190,000 | 6,592,350 | ||||||
Petrobras Global Finance B.V. | 2,610,000 | 2,411,885 | ||||||
Plains Exploration & Production Co. | 1,700,000 | 1,858,324 | ||||||
Precision Drilling Corp. | ||||||||
6.50%, due 12/15/21 | 1,495,000 | 1,592,175 | ||||||
6.625%, due 11/15/20 | 635,000 | 676,275 | ||||||
Rosneft Finance S.A. | 1,270,000 | 1,450,975 | ||||||
Samson Investment Co. | 1,820,000 | 1,965,600 | ||||||
SM Energy Co. | 1,970,000 | 1,925,675 | ||||||
Swift Energy Co. | 1,875,000 | 1,879,688 | ||||||
|
| |||||||
30,522,567 | ||||||||
|
| |||||||
Oil & Gas Services 0.6% | ||||||||
Basic Energy Services, Inc. | 2,520,000 | 2,614,500 | ||||||
Hornbeck Offshore Services, Inc. | ||||||||
5.00%, due 3/1/21 | 1,300,000 | 1,277,250 | ||||||
5.875%, due 4/1/20 | 1,700,000 | 1,746,750 | ||||||
|
| |||||||
5,638,500 | ||||||||
|
| |||||||
Pharmaceuticals 0.4% | ||||||||
Perrigo Co. | 2,505,000 | 2,449,204 | ||||||
Valeant Pharmaceuticals International | 1,500,000 | 1,665,000 | ||||||
|
| |||||||
4,114,204 | ||||||||
|
| |||||||
Pipelines 2.4% | ||||||||
Access Midstream Partners, L.P. / ACMP Finance Corp. | 2,745,000 | 2,731,275 | ||||||
Atlas Pipeline Partners, L.P. / Atlas Pipeline Finance Corp. | 1,850,000 | 1,942,500 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Pipelines (continued) | ||||||||
Energy Transfer Partners, L.P. | ||||||||
4.65%, due 6/1/21 | $ | 1,455,000 | $ | 1,523,650 | ||||
7.60%, due 2/1/24 (d) | 650,000 | 802,196 | ||||||
Kinder Morgan, Inc. | 2,465,000 | 2,476,117 | ||||||
MarkWest Energy Partners, L.P. / MarkWest Energy Finance Corp. | ||||||||
5.50%, due 2/15/23 | 1,975,000 | 2,044,125 | ||||||
6.25%, due 6/15/22 | 91,000 | 98,735 | ||||||
ONEOK, Inc. | 350,000 | 324,600 | ||||||
Regency Energy Partners, L.P. / Regency Energy Finance Corp. | 1,265,000 | 1,366,200 | ||||||
Spectra Energy Partners, L.P. | 1,740,000 | 1,829,440 | ||||||
Targa Resources Partners, L.P. / Targa Resources Partners Finance Corp. | ||||||||
4.25%, due 11/15/23 (d) | 2,165,000 | 2,024,275 | ||||||
5.25%, due 5/1/23 | 4,240,000 | 4,240,000 | ||||||
Williams Cos., Inc. (The) | 1,900,000 | 1,746,890 | ||||||
|
| |||||||
23,150,003 | ||||||||
|
| |||||||
Real Estate Investment Trusts 0.0%‡ | ||||||||
Health Care REIT, Inc. | 290,000 | 317,354 | ||||||
|
| |||||||
Retail 0.7% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | ||||||||
6.75%, due 5/20/20 | 740,000 | 806,600 | ||||||
7.00%, due 5/20/22 | 1,400,000 | 1,512,000 | ||||||
Brinker International, Inc. | 1,885,000 | 1,885,714 | ||||||
CVS Caremark Corp. | 240,342 | 264,033 | ||||||
Macy’s Retail Holdings, Inc. | 1,750,000 | 1,747,694 | ||||||
Wal-Mart Stores, Inc. | 314,000 | 400,189 | ||||||
|
| |||||||
6,616,230 | ||||||||
|
| |||||||
Semiconductors 0.3% | ||||||||
Freescale Semiconductor, Inc. | ||||||||
5.00%, due 5/15/21 (d) | 400,000 | 389,000 | ||||||
6.00%, due 1/15/22 (d) | 1,000,000 | 1,011,250 | ||||||
9.25%, due 4/15/18 (d) | 1,025,000 | 1,108,281 | ||||||
|
| |||||||
2,508,531 | ||||||||
|
|
Principal Amount | Value | |||||||
Software 0.6% | ||||||||
Fidelity National Information Services, Inc. 7.875%, due 7/15/20 | $ | 1,485,000 | $ | 1,635,754 | ||||
First Data Corp. | ||||||||
7.375%, due 6/15/19 (d) | 2,535,000 | 2,728,294 | ||||||
8.875%, due 8/15/20 (d) | 1,635,000 | 1,823,025 | ||||||
|
| |||||||
6,187,073 | ||||||||
|
| |||||||
Telecommunications 2.1% | ||||||||
CC Holdings GS V LLC / Crown Castle GS III Corp. | 2,140,000 | 2,118,433 | ||||||
CommScope, Inc. | 3,485,000 | 3,824,787 | ||||||
GTP Towers Issuer LLC | 1,500,000 | 1,546,639 | ||||||
Hughes Satellite Systems Corp. | 1,200,000 | 1,314,000 | ||||||
SBA Tower Trust | 2,650,000 | 2,698,302 | ||||||
Sprint Communications, Inc. | 1,900,000 | 1,871,500 | ||||||
Sprint Corp. | 1,300,000 | 1,400,750 | ||||||
Telefonica Emisiones SAU | ||||||||
4.57%, due 4/27/23 | 2,552,000 | 2,543,566 | ||||||
5.462%, due 2/16/21 | 395,000 | 418,508 | ||||||
¨Verizon Communications, Inc. 5.15%, due 9/15/23 | 2,325,000 | 2,522,597 | ||||||
|
| |||||||
20,259,082 | ||||||||
|
| |||||||
Transportation 0.6% | ||||||||
CHC Helicopter S.A. | 2,130,000 | 2,300,400 | ||||||
Hapag-Lloyd A.G. | 375,000 | 392,813 | ||||||
PHI, Inc. | 1,475,000 | 1,574,562 | ||||||
Ukraine Railways via Shortline PLC | 1,750,000 | 1,487,500 | ||||||
|
| |||||||
5,755,275 | ||||||||
|
| |||||||
Total Corporate Bonds | 336,828,512 | |||||||
|
| |||||||
Foreign Bonds 0.9% | ||||||||
Banks 0.4% | ||||||||
Barclays Bank PLC | £ | 1,186,000 | 2,527,572 | |||||
Canada Square Operations Ltd. | 1,035,000 | 1,642,923 | ||||||
|
| |||||||
4,170,495 | ||||||||
|
|
18 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Foreign Bonds (continued) | ||||||||
Diversified Financial Services 0.3% | ||||||||
Ageas Hybrid Financing S.A. | € | 1,700,000 | $ | 2,348,567 | ||||
|
| |||||||
Packaging & Containers 0.2% | ||||||||
Rexam PLC | 1,250,000 | 1,790,532 | ||||||
|
| |||||||
Total Foreign Bonds | 8,309,594 | |||||||
|
| |||||||
Foreign Government Bond 0.1% | ||||||||
Portugal 0.1% | ||||||||
Portugal Obrigacoes do Tesouro OT Series Reg S | 1,000,000 | 1,233,882 | ||||||
|
| |||||||
Total Foreign Government Bond | 1,233,882 | |||||||
|
| |||||||
Loan Assignments & Participations 1.4% (h) | ||||||||
Airlines 0.2% | ||||||||
U.S. Airways Group, Inc. | $ | 2,000,000 | 2,000,714 | |||||
|
| |||||||
Auto Parts & Equipment 0.3% | ||||||||
Allison Transmission, Inc. | 2,669,156 | 2,675,828 | ||||||
|
| |||||||
Entertainment 0.3% | ||||||||
Scientific Games International, Inc. New Term Loan B | 2,500,000 | 2,500,893 | ||||||
|
| |||||||
Media 0.3% | ||||||||
Clear Channel Communications, Inc. | 497,303 | 482,295 | ||||||
Term Loan D 6.918%, due 1/30/19 | 1,466,831 | 1,401,924 | ||||||
Virgin Media Investment Holdings, Ltd. USD Term Loan B | 1,500,000 | 1,498,542 | ||||||
|
| |||||||
3,382,761 | ||||||||
|
| |||||||
Mining 0.1% | ||||||||
FMG Resources August 2006 Pty., Ltd. Term Loan | 1,089,000 | 1,090,733 | ||||||
|
|
Principal Amount | Value | |||||||
Pharmaceuticals 0.2% | ||||||||
Valeant Pharmaceuticals International, Inc. Term Loan E | $ | 1,736,875 | $ | 1,758,152 | ||||
|
| |||||||
Total Loan Assignments & Participations | 13,409,081 | |||||||
|
| |||||||
Mortgage-Backed Securities 1.0% | ||||||||
Commercial Mortgage Loans |
| |||||||
Banc of America Commercial Mortgage Trust | 400,000 | 448,104 | ||||||
Bayview Commercial Asset Trust | 259,783 | 219,573 | ||||||
Bear Stearns Commercial Mortgage Securities Trust | ||||||||
Series 2006-PW12, Class AAB | 90,463 | 91,182 | ||||||
Series 2007-PW16, Class A4 | 400,000 | 451,748 | ||||||
Citigroup Commercial Mortgage Trust | 200,000 | 228,817 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | 1,000,000 | 1,074,530 | ||||||
Commercial Mortgage Pass-Through Certificates | 165,729 | 168,090 | ||||||
Four Times Square Trust | 860,000 | 970,517 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||
Series 2004-C3, Class A5 | 510,000 | 526,587 | ||||||
Series 2007-CB20, Class A3 | 500,000 | 503,489 | ||||||
Series 2007-LD12, Class A3 | 500,000 | 512,621 | ||||||
LB-UBS Commercial Mortgage Trust | ||||||||
Series 2006-C7, Class A3 | 500,000 | 552,820 | ||||||
Series 2007-C6, Class AAB | 364,171 | 372,010 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Mortgage-Backed Securities (continued) | ||||||||
Commercial Mortgage Loans |
| |||||||
LB-UBS Commercial Mortgage Trust (continued) | ||||||||
Series 2007-C6, Class A3 5.933%, due 7/15/40 | $ | 235,666 | $ | 239,172 | ||||
Merrill Lynch / Countrywide Commercial Mortgage Trust | 368,890 | 375,913 | ||||||
Morgan Stanley Capital I Trust | ||||||||
Series 2007-IQ14, Class AAB | 366,258 | 380,396 | ||||||
Series 2006-HQ9, Class AM | 500,000 | 548,777 | ||||||
Timberstar Trust | 280,000 | 307,941 | ||||||
Wachovia Bank Commercial Mortgage Trust | 500,000 | 552,648 | ||||||
WaMu Mortgage Pass-Through Certificates | 688,556 | 573,386 | ||||||
|
| |||||||
9,098,321 | ||||||||
|
| |||||||
Residential Mortgage (Collateralized Mortgage Obligation) 0.0%‡ |
| |||||||
Mortgage Equity Conversion Asset Trust | 638,063 | 465,776 | ||||||
|
| |||||||
Total Mortgage-Backed Securities | 9,564,097 | |||||||
|
| |||||||
U.S. Government & Federal Agencies 1.3% | ||||||||
Federal Home Loan Mortgage Corporation |
| |||||||
6.50%, due 11/1/16 | 11,229 | 11,778 | ||||||
6.50%, due 2/1/27 | 120 | 132 | ||||||
6.50%, due 5/1/29 | 35,594 | 39,300 | ||||||
6.50%, due 6/1/29 | 13,170 | 14,646 | ||||||
6.50%, due 7/1/29 | 60,847 | 67,323 | ||||||
6.50%, due 8/1/29 | 13,513 | 14,955 | ||||||
6.50%, due 9/1/29 | 1,748 | 1,971 | ||||||
6.50%, due 6/1/32 | 6,998 | 7,723 | ||||||
6.50%, due 1/1/37 | 6,534 | 7,391 | ||||||
7.00%, due 3/1/26 | 193 | 200 | ||||||
7.00%, due 9/1/26 | 9,286 | 10,851 | ||||||
7.00%, due 7/1/32 | 24,529 | 28,136 | ||||||
7.50%, due 1/1/16 | 1,110 | 1,154 | ||||||
7.50%, due 5/1/32 | 8,905 | 10,215 | ||||||
|
| |||||||
215,775 | ||||||||
|
|
Principal Amount | Value | |||||||
Federal National Mortgage Association |
| |||||||
4.50%, due 7/1/20 | $ | 5,034 | $ | 5,355 | ||||
4.50%, due 3/1/21 | 14,267 | 15,181 | ||||||
6.00%, due 4/1/19 | 1,813 | 1,983 | ||||||
7.00%, due 10/1/37 | 1,775 | 1,976 | ||||||
7.00%, due 11/1/37 | 26,821 | 31,244 | ||||||
7.50%, due 10/1/15 | 9,459 | 9,831 | ||||||
|
| |||||||
65,570 | ||||||||
|
| |||||||
Government National Mortgage Association |
| |||||||
5.00%, due 12/15/37 | 7,745 | 8,444 | ||||||
5.50%, due 9/15/35 | 30,589 | 33,448 | ||||||
6.50%, due 4/15/29 | 42 | 46 | ||||||
6.50%, due 5/15/29 | 175 | 196 | ||||||
6.50%, due 8/15/29 | 27 | 30 | ||||||
6.50%, due 10/15/31 | 5,037 | 5,649 | ||||||
7.00%, due 9/15/23 | 922 | 948 | ||||||
7.00%, due 7/15/25 | 1,696 | 1,702 | ||||||
7.00%, due 12/15/25 | 4,226 | 4,319 | ||||||
7.00%, due 11/15/27 | 13,513 | 15,242 | ||||||
7.00%, due 12/15/27 | 59,596 | 67,410 | ||||||
7.00%, due 6/15/28 | 4,523 | 4,691 | ||||||
7.50%, due 6/15/26 | 476 | 541 | ||||||
7.50%, due 10/15/30 | 27,654 | 31,639 | ||||||
8.00%, due 9/15/26 | 145 | 147 | ||||||
8.00%, due 10/15/26 | 8,711 | 9,960 | ||||||
8.50%, due 11/15/26 | 22,282 | 22,898 | ||||||
|
| |||||||
207,310 | ||||||||
|
| |||||||
¨United States Treasury Bonds 1.1% | ||||||||
2.875%, due 5/15/43 | 10,885,000 | 9,338,993 | ||||||
4.375%, due 5/15/40 | 475,000 | 543,504 | ||||||
|
| |||||||
9,882,497 | ||||||||
|
| |||||||
United States Treasury Notes 0.2% | ||||||||
0.25%, due 12/15/15 | 1,435,000 | 1,432,309 | ||||||
1.25%, due 3/15/14 | 235,000 | 235,992 | ||||||
1.375%, due 6/30/18 | 95,000 | 95,690 | ||||||
|
| |||||||
1,763,991 | ||||||||
|
| |||||||
Total U.S. Government & Federal Agencies | 12,135,143 | |||||||
|
| |||||||
Yankee Bond 0.2% (j) | ||||||||
Banks 0.2% | ||||||||
Royal Bank of Scotland Group PLC | 1,530,000 | 1,581,829 | ||||||
|
| |||||||
Total Yankee Bond | 1,581,829 | |||||||
| �� | |||||||
Total Long-Term Bonds | 395,454,791 | |||||||
|
|
20 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Shares | Value | |||||||
Common Stocks 50.1% | ||||||||
Aerospace & Defense 1.8% | ||||||||
BAE Systems PLC | 1,100,660 | $ | 8,024,534 | |||||
¨Lockheed Martin Corp. | 67,210 | 8,961,781 | ||||||
|
| |||||||
16,986,315 | ||||||||
|
| |||||||
Agriculture 4.3% | ||||||||
¨Altria Group, Inc. | 231,598 | 8,622,394 | ||||||
British American Tobacco PLC | 66,477 | 3,662,404 | ||||||
Imperial Tobacco Group PLC | 203,290 | 7,591,492 | ||||||
Lorillard, Inc. | 161,350 | 8,230,463 | ||||||
Philip Morris International, Inc. | 63,463 | 5,655,823 | ||||||
Reynolds American, Inc. | 146,400 | 7,520,568 | ||||||
|
| |||||||
41,283,144 | ||||||||
|
| |||||||
Auto Manufacturers 0.9% | ||||||||
Daimler A.G. | 81,720 | 6,706,137 | ||||||
Ford Motor Co. | 125,000 | 2,138,750 | ||||||
|
| |||||||
8,844,887 | ||||||||
|
| |||||||
Banks 1.6% | ||||||||
Citigroup, Inc. | 41,000 | 1,999,980 | ||||||
Commonwealth Bank of Australia | 39,370 | 2,830,979 | ||||||
Svenska Handelsbanken AB Class A | 58,520 | 2,651,441 | ||||||
Wells Fargo & Co. | 85,230 | 3,638,469 | ||||||
Westpac Banking Corp. | 117,326 | 3,802,442 | ||||||
|
| |||||||
14,923,311 | ||||||||
|
| |||||||
Beverages 1.1% | ||||||||
Anheuser-Busch InBev N.V. | 28,097 | 2,922,189 | ||||||
Coca-Cola Co. (The) | 57,830 | 2,288,333 | ||||||
Diageo PLC, Sponsored ADR | 18,970 | 2,420,383 | ||||||
PepsiCo., Inc. | 31,190 | 2,622,767 | ||||||
|
| |||||||
10,253,672 | ||||||||
|
| |||||||
Building Materials 0.2% | ||||||||
U.S. Concrete, Inc. (e)(g) | 69,091 | 1,509,638 | ||||||
|
| |||||||
Chemicals 1.9% | ||||||||
BASF S.E. | 66,754 | 6,945,375 | ||||||
Dow Chemical Co. (The) | 101,410 | 4,002,653 | ||||||
E.I. du Pont de Nemours & Co. | 46,826 | 2,865,751 | ||||||
Yara International ASA | 104,240 | 4,500,160 | ||||||
|
| |||||||
18,313,939 | ||||||||
|
| |||||||
Commercial Services 0.7% | ||||||||
Automatic Data Processing, Inc. | 39,820 | 2,985,306 | ||||||
R.R. Donnelley & Sons Co. | 226,690 | 4,209,633 | ||||||
|
| |||||||
7,194,939 | ||||||||
|
| |||||||
Computers 0.4% | ||||||||
Apple, Inc. | 7,730 | 4,037,765 | ||||||
|
|
Shares | Value | |||||||
Electric 5.9% | ||||||||
Ameren Corp. | 161,340 | $ | 5,837,281 | |||||
Dominion Resources, Inc. | 41,460 | 2,643,075 | ||||||
Duke Energy Corp. | 114,763 | 8,231,950 | ||||||
Electricite de France S.A. | 173,300 | 6,080,099 | ||||||
Integrys Energy Group, Inc. | 53,630 | 3,147,008 | ||||||
PPL Corp. | 241,690 | 7,402,965 | ||||||
Southern Co. | 91,810 | 3,755,947 | ||||||
SSE PLC | 326,470 | 7,412,218 | ||||||
TECO Energy, Inc. | 235,100 | 4,036,667 | ||||||
Terna S.p.A. | 1,663,940 | 8,246,129 | ||||||
|
| |||||||
56,793,339 | ||||||||
|
| |||||||
Electrical Components & Equipment 0.4% |
| |||||||
Emerson Electric Co. | 56,193 | 3,763,245 | ||||||
|
| |||||||
Electronics 0.3% | ||||||||
Honeywell International, Inc. | 34,230 | 2,968,768 | ||||||
|
| |||||||
Engineering & Construction 0.9% | ||||||||
¨Vinci S.A. | 138,865 | 8,907,754 | ||||||
|
| |||||||
Entertainment 0.4% | ||||||||
Regal Entertainment Group Class A | 194,410 | 3,695,734 | ||||||
|
| |||||||
Environmental Controls 0.5% | ||||||||
Waste Management, Inc. | 117,550 | 5,118,127 | ||||||
|
| |||||||
Finance—Other Services 0.3% | ||||||||
CME Group, Inc. | 36,790 | 2,730,186 | ||||||
|
| |||||||
Food 0.6% | ||||||||
Nestle S.A. Registered | 41,215 | 2,975,239 | ||||||
WM Morrison Supermarkets PLC | 592,750 | 2,676,368 | ||||||
|
| |||||||
5,651,607 | ||||||||
|
| |||||||
Food Services 0.3% | ||||||||
Compass Group PLC | 184,760 | 2,657,309 | ||||||
|
| |||||||
Gas 1.4% | ||||||||
Centrica PLC | 931,810 | 5,280,020 | ||||||
¨National Grid PLC | 681,730 | 8,575,255 | ||||||
|
| |||||||
13,855,275 | ||||||||
|
| |||||||
Household Products & Wares 0.7% | ||||||||
Kimberly-Clark Corp. | 59,715 | 6,449,220 | ||||||
|
| |||||||
Insurance 1.7% | ||||||||
Arthur J. Gallagher & Co. | 63,240 | 3,000,738 | ||||||
Muenchener Rueckversicherungs-Gesellschaft A.G. Registered | 32,320 | 6,753,510 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Insurance (continued) | ||||||||
SCOR SE | 172,250 | $ | 6,088,866 | |||||
|
| |||||||
15,843,114 | ||||||||
|
| |||||||
Investment Company 0.0%‡ | ||||||||
BGP Holdings PLC (e)(f)(g) | 20,068 | 3 | ||||||
|
| |||||||
Machinery—Diversified 0.3% | ||||||||
Deere & Co. | 29,540 | 2,417,554 | ||||||
|
| |||||||
Media 1.6% | ||||||||
Comcast Corp. Class A | 66,050 | 3,058,115 | ||||||
Dex Media, Inc. (g) | 464 | 3,131 | ||||||
Pearson PLC | 238,160 | 4,979,527 | ||||||
Shaw Communications, Inc. | 187,370 | 4,481,857 | ||||||
Time Warner, Inc. | 44,040 | 3,027,309 | ||||||
|
| |||||||
15,549,939 | ||||||||
|
| |||||||
Mining 0.4% | ||||||||
BHP Billiton, Ltd. | 108,670 | 3,868,038 | ||||||
|
| |||||||
Miscellaneous—Manufacturing 0.3% | ||||||||
Orkla ASA | 353,390 | 2,864,257 | ||||||
|
| |||||||
Oil & Gas 3.0% | ||||||||
ConocoPhillips | 96,010 | 7,037,533 | ||||||
Diamond Offshore Drilling, Inc. | 85,000 | 5,264,050 | ||||||
Royal Dutch Shell PLC, ADR | 107,950 | 7,195,947 | ||||||
¨Total S.A. | 150,128 | 9,226,645 | ||||||
|
| |||||||
28,724,175 | ||||||||
|
| |||||||
Pharmaceuticals 4.6% | ||||||||
AbbVie, Inc. | 74,560 | 3,612,432 | ||||||
AstraZeneca PLC, Sponsored ADR | 157,630 | 8,332,322 | ||||||
Bristol-Myers Squibb Co. | 49,365 | 2,592,650 | ||||||
GlaxoSmithKline PLC | 282,660 | 7,448,618 | ||||||
Johnson & Johnson | 42,377 | 3,924,534 | ||||||
Merck & Co., Inc. | 70,499 | 3,178,800 | ||||||
Novartis A.G. | 63,920 | 4,962,984 | ||||||
Roche Holding A.G., Genusscheine | 22,230 | 6,154,379 | ||||||
Sanofi | 38,180 | 4,071,425 | ||||||
|
| |||||||
44,278,144 | ||||||||
|
| |||||||
Pipelines 1.5% | ||||||||
Enterprise Products Partners, L.P. | 59,490 | 3,764,527 | ||||||
Kinder Morgan Energy Partners, L.P. | 83,600 | 6,746,520 | ||||||
MarkWest Energy Partners, L.P. | 49,670 | 3,689,488 | ||||||
|
| |||||||
14,200,535 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.1% | ||||||||
Corrections Corporation of America | 100,940 | 3,734,780 |
Shares | Value | |||||||
Real Estate Investment Trusts (continued) |
| |||||||
Health Care REIT, Inc. | 112,170 | $ | 7,274,224 | |||||
|
| |||||||
11,009,004 | ||||||||
|
| |||||||
Retail 0.3% | ||||||||
McDonald’s Corp. | 33,292 | 3,213,344 | ||||||
|
| |||||||
Semiconductors 0.8% | ||||||||
KLA-Tencor Corp. | 63,010 | 4,133,456 | ||||||
Microchip Technology, Inc. | 83,360 | 3,581,146 | ||||||
|
| |||||||
7,714,602 | ||||||||
|
| |||||||
Software 0.3% | ||||||||
Microsoft Corp. | 81,473 | 2,880,071 | ||||||
|
| |||||||
Telecommunications 7.4% | ||||||||
AT&T, Inc. | 166,497 | 6,027,191 | ||||||
BCE, Inc. | 177,600 | 7,728,108 | ||||||
CenturyLink, Inc. | 205,161 | 6,946,751 | ||||||
¨Deutsche Telekom A.G. | 532,030 | 8,379,415 | ||||||
Philippine Long Distance Telephone Co., Sponsored ADR | 35,170 | 2,326,496 | ||||||
Rogers Communications, Inc. Class B | 82,940 | 3,764,179 | ||||||
Swisscom A.G. | 16,360 | 8,349,938 | ||||||
Telstra Corp., Ltd. | 1,485,440 | 7,272,532 | ||||||
¨Verizon Communications, Inc. | 117,804 | 5,950,280 | ||||||
Vivendi S.A. | 201,173 | 5,106,399 | ||||||
¨Vodafone Group PLC | 2,659,657 | 9,573,784 | ||||||
|
| |||||||
71,425,073 | ||||||||
|
| |||||||
Toys, Games & Hobbies 0.6% | ||||||||
Mattel, Inc. | 120,110 | 5,329,281 | ||||||
|
| |||||||
Transportation 0.6% | ||||||||
Deutsche Post A.G. Registered | 175,850 | 5,951,098 | ||||||
|
| |||||||
Water 1.0% | ||||||||
Severn Trent PLC | 120,390 | 3,584,627 | ||||||
United Utilities Group PLC | 522,920 | 5,906,877 | ||||||
|
| |||||||
9,491,504 | ||||||||
|
| |||||||
Total Common Stocks | 480,697,910 | |||||||
|
|
22 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Number of Warrants | Value | |||||||
Warrants 0.0%‡ | ||||||||
Media 0.0%‡ | ||||||||
ION Media Networks, Inc. | ||||||||
Second Lien | 6 | $ | 0 | (l) | ||||
Unsecured Debt | 6 | 0 | (l) | |||||
|
| |||||||
Total Warrants | 0 | (l) | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 7.6% | ||||||||
Repurchase Agreement 7.6% | ||||||||
State Street Bank and Trust Co. | $ | 73,212,038 | 73,212,038 | |||||
|
| |||||||
Total Short-Term Investment | 73,212,038 | |||||||
|
| |||||||
Total Investments | 99.0 | % | 949,364,739 | |||||
Other Assets, Less Liabilities | 1.0 | 9,285,428 | ||||||
Net Assets | 100.0 | % | $ | 958,650,167 | ||||
Contracts Long | Unrealized Appreciation (Depreciation) (m) | |||||||
Futures Contracts 0.8% | ||||||||
Standard & Poor’s 500 Index Mini December 2013 (n) | 2,065 | $ | 9,068,750 | |||||
|
| |||||||
Total Futures Contracts Long (Settlement Value $180,790,750) | 9,068,750 | |||||||
|
| |||||||
Contracts Short | ||||||||
United States Treasury Notes December 2013 (5 Year) (n) | (457 | ) | (1,007,971 | ) | ||||
|
| |||||||
Total Futures Contracts Short (Settlement Value $55,611,187) | (1,007,971 | ) | ||||||
|
| |||||||
Total Futures Contracts (Settlement Value $125,179,563) | $ | 8,060,779 |
‡ | Less than one-tenth of a percent. |
(a) | Step coupon—Rate shown is the rate in effect as of October 31, 2013. |
(b) | Subprime mortgage investment or other asset-backed security. The total market value of these securities as of October 31, 2013 is $11,485,833, which represents 1.2% of the Fund’s net assets. |
(c) | Floating rate—Rate shown is the rate in effect as of October 31, 2013. |
(d) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(e) | Illiquid security—The total market value of these securities as of October 31, 2013 is $2,196,607, which represents 0.2% of the Fund’s net assets. |
(f) | Fair valued security—The total market value of these securities as of October 31, 2013, is $731,429, which represents 0.1% of the Fund’s net assets. |
(g) | Non-income producing security. |
(h) | Floating Rate Loan—generally pays interest at rates which are periodically re-determined at a margin above the London InterBank Offered Rate or other short-term rates. The rate shown is the weighted average interest rate of all contracts within the floating rate loan facility as of October 31, 2013. |
(i) | Collateral strip rate—A bond whose interest is based on the weighted net interest rate of the collateral. The coupon rate adjusts periodically based on a predetermined schedule. Rate shown is the rate in effect as of October 31, 2013. |
(j) | Yankee Bond—Dollar-denominated bond issued in the United States by a foreign bank or corporation. |
(k) | Restricted security. |
(l) | Less than one dollar. |
(m) | Represents the difference between the value of the contracts at the time they were opened and the value as of October 31, 2013. |
(n) | As of October 31, 2013, cash in the amount of $8,877,800 is on deposit with the broker for futures transactions. |
(o) | As of October 31, 2013, cost is $832,995,023 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 124,558,728 | ||
Gross unrealized depreciation | (8,189,012 | ) | ||
|
| |||
Net unrealized appreciation | $ | 116,369,716 | ||
|
|
The following abbreviations are used in the above portfolio:
ADR—American Depositary Receipt
£—British Pound Sterling
€—Euro
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 23 |
Portfolio of Investments October 31, 2013 (continued)
As of October 31, 2013, the Fund held the following foreign currency forward contracts:
Foreign Currency Sale Contracts | Expiration Date | Counterparty | Contract Amount Sold | Contract Amount Purchased | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||||
Euro vs. U.S. Dollar | 12/17/13 | JPMorgan Chase Bank | EUR | 42,955,000 | USD | 57,175,762 | USD | (1,150,732 | ) | |||||||||||||||||||||||
Pound Sterling vs. U.S.Dollar | 12/17/13 | JPMorgan Chase Bank | GBP | 26,616,000 | 42,090,017 | (572,280 | ) | |||||||||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts |
| USD | (1,723,012 | ) |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Asset-Backed Securities | $ | — | $ | 12,392,653 | $ | — | $ | 12,392,653 | ||||||||
Corporate Bonds (b) | — | 336,562,862 | 265,650 | 336,828,512 | ||||||||||||
Foreign Bonds | — | 8,309,594 | — | 8,309,594 | ||||||||||||
Foreign Government Bond | — | 1,233,882 | — | 1,233,882 | ||||||||||||
Loan Assignments & Participations (c) | — | 10,733,253 | 2,675,828 | 13,409,081 | ||||||||||||
Mortgage-Backed Securities (d) | — | 9,098,321 | 465,776 | 9,564,097 | ||||||||||||
U.S. Government & Federal Agencies | — | 12,135,143 | — | 12,135,143 | ||||||||||||
Yankee Bond | — | 1,581,829 | — | 1,581,829 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 392,047,537 | 3,407,254 | 395,454,791 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Common Stocks (e) | 480,697,907 | — | 3 | 480,697,910 | ||||||||||||
Warrants (f) | — | — | 0 | (e) | 0 | (e) | ||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 73,212,038 | — | 73,212,038 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 480,697,907 | 465,259,575 | 3,407,257 | 949,364,739 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts Long (g) | 9,068,750 | — | — | 9,068,750 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | 489,766,657 | $ | 465,259,575 | $ | 3,407,257 | $ | 958,433,489 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (g) | $ | — | $ | (1,723,012 | ) | $ | — | $ | (1,723,012 | ) | ||||||
Futures Contracts Short (g) | (1,007,971 | ) | — | — | (1,007,971 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (1,007,971 | ) | $ | (1,723,012 | ) | $ | — | $ | (2,730,983 | ) | |||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The Level 3 securities valued at $1,617 and $264,033 are held in Commercial Services and Retail, respectively, within the Corporate Bonds section of the Portfolio of Investments. |
(c) | The Level 3 security valued at $2,675,828 represents Loan Assignments & Participations whose value was obtained from an independent pricing service which used a single broker quote to measure such value as referenced in the Portfolio of Investments. |
24 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
(d) | The Level 3 security valued at $465,776 is held in Residential Mortgage (Collateralized Mortgage Obligation) within the Mortgage-Backed Securities section of the Portfolio of Investments. |
(e) | The Level 3 security valued at $3 is held in Investment Company within the Common Stocks section of the Portfolio of Investments. |
(f) | The Level 3 securities valued less than one dollar are held in Media within the Warrants section of the Portfolio of Investments. |
(g) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
During the year ended October 31, 2013, a security with a total value of $2,870,668 transferred from Level 2 to Level 3. The transfer occurred as a result of the value for certain Loan Assignments & Participations obtained from the independent pricing service which were derived based on single broker quote.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales (a) | Transfers into Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held at October 31, 2013 (b) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Corporate Bonds | ||||||||||||||||||||||||||||||||||||||||
Commercial Services | $ | 1,760 | $ | — | $ | — | $ | (143 | ) | $ | — | $ | — | $ | — | $ | — | $ | 1,617 | $ | (143 | ) | ||||||||||||||||||
Retail | 284,193 | (260 | ) | (260 | ) | (5,992 | ) | — | (13,648 | ) | — | — | 264,033 | (4,628 | ) | |||||||||||||||||||||||||
Loan Assignments & Participations | ||||||||||||||||||||||||||||||||||||||||
Auto Parts & Equipment | — | 10,909 | 3,076 | (9,105 | ) | — | (199,720 | ) | 2,870,668 | — | 2,675,828 | (9,105 | ) | |||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||||||
Commercial Mortgage Loans (Collateralized Mortgage Obligations) | 544,253 | — | — | (37,674 | ) | — | (40,803 | ) | — | — | 465,776 | (45,765 | ) | |||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Investment Company | 3 | — | — | — | — | — | — | — | 3 | — | ||||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Media | 0 | (c) | — | — | — | — | — | — | — | 0 | (c) | — | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 830,209 | $ | 10,649 | $ | 2,816 | $ | (52,914 | ) | $ | — | $ | (254,171 | ) | $ | 2,870,668 | $ | — | $ | 3,407,257 | $ | (59,641 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Sales include principal reductions. |
(b) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
(c) | Less than one dollar. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 25 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value (identified cost $832,752,103) | $ | 949,364,739 | ||
Cash collateral on deposit at broker | 8,877,800 | |||
Cash denominated in foreign currencies (identified cost $94,684) | 93,730 | |||
Receivables: | ||||
Dividends and interest | 7,107,270 | |||
Fund shares sold | 2,086,223 | |||
Investment securities sold | 432,950 | |||
Other assets | 34,283 | |||
|
| |||
Total assets | 967,996,995 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 4,942,319 | |||
Variation margin on futures contracts | 994,770 | |||
Fund shares redeemed | 596,856 | |||
Manager (See Note 3) | 502,385 | |||
Transfer agent (See Note 3) | 264,338 | |||
NYLIFE Distributors (See Note 3) | 203,937 | |||
Shareholder communication | 65,964 | |||
Professional fees | 19,328 | |||
Custodian | 14,313 | |||
Trustees | 2,045 | |||
Accrued expenses | 17,561 | |||
Unrealized depreciation on foreign currency forward contracts | 1,723,012 | |||
|
| |||
Total liabilities | 9,346,828 | |||
|
| |||
Net assets | $ | 958,650,167 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 482,116 | ||
Additional paid-in capital | 818,575,704 | |||
|
| |||
819,057,820 | ||||
Undistributed net investment income | 825,001 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | 15,806,653 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 124,673,415 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,712,722 | ) | ||
|
| |||
Net assets | $ | 958,650,167 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 168,097,265 | ||
|
| |||
Shares of beneficial interest outstanding | 8,472,315 | |||
|
| |||
Net asset value per share outstanding | $ | 19.84 | ||
Maximum sales charge (5.50% of offering price) | 1.15 | |||
|
| |||
Maximum offering price per share outstanding | $ | 20.99 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 397,101,319 | ||
|
| |||
Shares of beneficial interest outstanding | 20,023,013 | |||
|
| |||
Net asset value per share outstanding | $ | 19.83 | ||
Maximum sales charge (5.50% of offering price) | 1.15 | |||
|
| |||
Maximum offering price per share outstanding | $ | 20.98 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 51,137,746 | ||
|
| |||
Shares of beneficial interest outstanding | 2,565,726 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.93 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 55,888,835 | ||
|
| |||
Shares of beneficial interest outstanding | 2,808,385 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.90 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 286,425,002 | ||
|
| |||
Shares of beneficial interest outstanding | 14,342,171 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 19.97 | ||
|
|
26 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 21,333,969 | ||
Dividends (a) | 18,270,867 | |||
|
| |||
Total income | 39,604,836 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 5,299,726 | |||
Distribution/Service—Investor Class (See Note 3) | 413,956 | |||
Distribution/Service—Class A (See Note 3) | 837,025 | |||
Distribution/Service—Class B (See Note 3) | 503,789 | |||
Distribution/Service—Class C (See Note 3) | 354,478 | |||
Transfer agent (See Note 3) | 1,502,621 | |||
Shareholder communication | 152,374 | |||
Professional fees | 92,371 | |||
Registration | 91,184 | |||
Custodian | 87,383 | |||
Trustees | 17,279 | |||
Miscellaneous | 50,360 | |||
|
| |||
Total expenses | 9,402,546 | |||
|
| |||
Net investment income (loss) | 30,202,290 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 27,235,409 | |||
Futures transactions | 22,620,364 | |||
Foreign currency transactions | (1,279,970 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 48,575,803 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 47,793,507 | |||
Futures contracts | 11,282,976 | |||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,320,228 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | 57,756,255 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | 106,332,058 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 136,534,348 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $800,562. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 27 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 30,202,290 | $ | 26,383,487 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 48,575,803 | 25,766,728 | ||||||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | 57,756,255 | 35,642,292 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 136,534,348 | 87,792,507 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (5,611,090 | ) | (5,900,968 | ) | ||||
Class A | (12,582,135 | ) | (10,557,156 | ) | ||||
Class B | (1,326,383 | ) | (1,558,486 | ) | ||||
Class C | (972,526 | ) | (417,633 | ) | ||||
Class I | (9,677,969 | ) | (7,601,444 | ) | ||||
|
| |||||||
Total dividends to shareholders | (30,170,103 | ) | (26,035,687 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 224,065,417 | 102,526,815 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 28,400,593 | 25,166,825 | ||||||
Cost of shares redeemed | (131,828,751 | ) | (98,350,492 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | 120,637,259 | 29,343,148 | ||||||
|
| |||||||
Net increase (decrease) in net assets | 227,001,504 | 91,099,968 | ||||||
Net Assets | ||||||||
Beginning of year | 731,648,663 | 640,548,695 | ||||||
|
| |||||||
End of year | $ | 958,650,167 | $ | 731,648,663 | ||||
|
| |||||||
Undistributed net investment income at end of year | $ | 825,001 | $ | 135,567 | ||||
|
|
28 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 17.46 | $ | 15.93 | $ | 15.58 | $ | 13.89 | $ | 12.58 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.64 | 0.62 | 0.60 | 0.59 | 0.30 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.44 | 1.39 | 0.37 | 1.81 | 1.36 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.02 | 2.15 | 0.92 | 2.24 | 1.66 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.64 | ) | (0.62 | ) | (0.57 | ) | (0.55 | ) | (0.35 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 19.84 | $ | 17.46 | $ | 15.93 | $ | 15.58 | $ | 13.89 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 17.62 | % | 13.72 | % | 5.92 | % | 16.39 | % | 13.57 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.46 | % | 3.73 | % | 3.73 | % | 4.02 | % | 2.40 | % | ||||||||||
Net expenses | 1.32 | % | 1.37 | % | 1.40 | % | 1.50 | % | 1.40 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.32 | % | 1.37 | % | 1.40 | % | 1.50 | % | 1.72 | % | ||||||||||
Portfolio turnover rate | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 168,097 | $ | 160,758 | $ | 163,168 | $ | 170,852 | $ | 161,824 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 17.46 | $ | 15.92 | $ | 15.58 | $ | 13.88 | $ | 12.57 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.69 | 0.67 | 0.66 | 0.64 | 0.33 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.43 | 1.40 | 0.35 | 1.82 | 1.36 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.06 | 2.21 | 0.96 | 2.30 | 1.69 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.69 | ) | (0.67 | ) | (0.62 | ) | (0.60 | ) | (0.38 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 19.83 | $ | 17.46 | $ | 15.92 | $ | 15.58 | $ | 13.88 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 17.90 | % | 14.16 | % | 6.21 | % | 16.80 | % | 13.82 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.71 | % | 4.03 | % | 4.05 | % | 4.37 | % | 2.60 | % | ||||||||||
Net expenses | 1.04 | % | 1.06 | % | 1.08 | % | 1.15 | % | 1.20 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.04 | % | 1.06 | % | 1.08 | % | 1.15 | % | 1.23 | % | ||||||||||
Portfolio turnover rate | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 397,101 | $ | 292,603 | $ | 242,939 | $ | 239,564 | $ | 222,648 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 29 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 17.54 | $ | 15.99 | $ | 15.64 | $ | 13.93 | $ | 12.61 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.51 | 0.50 | 0.49 | 0.48 | 0.21 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.44 | 1.40 | 0.35 | 1.84 | 1.35 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | 0.14 | (0.05 | ) | (0.17 | ) | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.89 | 2.04 | 0.79 | 2.15 | 1.56 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 19.93 | $ | 17.54 | $ | 15.99 | $ | 15.64 | $ | 13.93 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 16.74 | % | 12.87 | % | 5.14 | % | 15.53 | % | 12.77 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.73 | % | 2.99 | % | 2.98 | % | 3.25 | % | 1.65 | % | ||||||||||
Net expenses | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.14 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.47 | % | ||||||||||
Portfolio turnover rate | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 51,138 | $ | 51,233 | $ | 59,225 | $ | 71,239 | $ | 79,742 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 17.52 | $ | 15.97 | $ | 15.62 | $ | 13.92 | $ | 12.59 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.49 | 0.49 | 0.48 | 0.48 | 0.22 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.45 | 1.41 | 0.36 | 1.82 | 1.35 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.88 | 2.04 | 0.79 | 2.14 | 1.57 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.50 | ) | (0.49 | ) | (0.44 | ) | (0.44 | ) | (0.24 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 19.90 | $ | 17.52 | $ | 15.97 | $ | 15.62 | $ | 13.92 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 16.70 | % | 12.96 | % | 5.08 | % | 15.55 | % | 12.69 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 2.61 | % | 2.88 | % | 2.98 | % | 3.27 | % | 1.67 | % | ||||||||||
Net expenses | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.17 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.07 | % | 2.12 | % | 2.15 | % | 2.24 | % | 2.47 | % | ||||||||||
Portfolio turnover rate | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 55,889 | $ | 22,444 | $ | 10,899 | $ | 10,312 | $ | 9,622 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
30 | MainStay Income Builder Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 17.57 | $ | 16.02 | $ | 15.67 | $ | 13.97 | $ | 12.65 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.74 | 0.72 | 0.70 | 0.68 | 0.77 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 2.46 | 1.40 | 0.36 | 1.82 | 0.97 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.06 | ) | 0.14 | (0.05 | ) | (0.16 | ) | 0.00 | ‡ | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.14 | 2.26 | 1.01 | 2.34 | 1.74 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.74 | ) | (0.71 | ) | (0.66 | ) | (0.64 | ) | (0.42 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 19.97 | $ | 17.57 | $ | 16.02 | $ | 15.67 | $ | 13.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 18.25 | % | 14.41 | % | 6.50 | % | 17.07 | % | 14.14 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 3.97 | % | 4.28 | % | 4.30 | % | 4.60 | % | 3.74 | % | ||||||||||
Net expenses | 0.79 | % | 0.81 | % | 0.83 | % | 0.89 | % | 0.97 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.79 | % | 0.81 | % | 0.83 | % | 0.89 | % | 0.97 | % | ||||||||||
Portfolio turnover rate | 31 | % | 25 | % | 33 | % | 76 | % | 182 | %(c) | ||||||||||
Net assets at end of year (in 000’s) | $ | 286,425 | $ | 204,611 | $ | 164,317 | $ | 164,393 | $ | 189,333 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | The portfolio turnover rate not including mortgage dollar rolls was 151% for the year ended October 31, 2009. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 31 |
Note 1–Organization and Business
The MainStay Funds (the ‘‘Trust’’) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the ‘‘Funds’’). These financial statements and notes relate only to the MainStay Income Builder Fund (the “Fund”), a diversified fund.
The Fund currently offers five classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on December 29, 1987. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on January 2, 2004. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek current income consistent with reasonable opportunity for future growth of capital and income.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The
Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisors (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of
32 | MainStay Income Builder Fund |
unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisors reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund held securities with a value of $731,429 that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisors conclude that such events may have affected the accuracy of the last price of such securities reported on the local foreign market, the Sub-Committee may, pursuant to procedures adopted by the Board, adjust the value of the local price to reflect the estimated impact on the price of such securities as a result of such events. In this instance, securities are generally categorized as Level 3 in the hierarchy. Additionally, certain foreign equity securities are also fair valued whenever the
movement of a particular index exceeds an established threshold. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2013, foreign equity securities held by the Fund were not fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisors, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisors, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values measured on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
Loan assignments, participations and commitments are valued at the average of bid quotations obtained from the engaged independent pricing agent and are generally categorized as Level 2 in the hierarchy. Certain loan assignments, participations and commitments may be valued by single broker quotes obtained from the pricing agent with
mainstayinvestments.com | 33 |
Notes to Financial Statements (continued)
significant unobservable inputs and are generally categorized as Level 3 in the hierarchy. For these loan assignments, participations and commitments the Manager may consider additional factors such as liquidity of the Fund’s investments. As of October 31, 2013, the Fund held a security with a value of $2,675,828 that was valued by a single broker quote and/or deemed to be illiquid.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund’s Manager or Subadvisors might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisors measure the liquidity of the Fund’s investments; in doing so, the Manager or Subadvisors may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Foreign Taxes. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
The Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. The Fund will accrue such taxes as applicable based upon its current interpretation of tax rules and regulations that exist in the market in which it invests. Capital gains taxes relating to positions still held are reflected as a liability on the Statement of Assets and Liabilities, as well as an adjustment to the Fund’s net unrealized appreciation (depreciation). Taxes related to capital gains realized during the year ended October 31, 2013, if any, are reflected as part of net realized gain (loss) in the Statement of Operations. Changes in tax liabilities related to capital gains taxes on unrealized investment gains, if any, are reflected as part of the change in net unrealized appreciation (depreciation) on investments in the Statement of Operations. Transaction-based charges are generally assessed as a percentage of the transaction amount.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least quarterly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method and include gains and losses from repayments of principal on mortgage-backed securities. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the
34 | MainStay Income Builder Fund |
expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisors to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisors will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Loan Assignments, Participations and Commitments. The Fund may invest in loan assignments and loan participations (“loans”). Loans are agreements to make money available (a “commitment”) to a borrower in a specified amount, at a specified rate and within a specified time. Such loans are typically senior, secured and collateralized in nature. The Fund records an investment when the borrower withdraws money and records interest as earned. These loans pay interest at rates that are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate.
The loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. For example, the Fund may be contractually obligated to receive approval from the agent bank and/or borrower prior to the sale of these investments. The Fund assumes the credit risk of the borrower, the selling participant and any other persons interpositioned between the Fund and the borrower (“intermediate participants”). In the event that the borrower, selling participant or intermediate participants become insolvent or enters into bankruptcy, the Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest.
Unfunded commitments represent the remaining obligation of the Fund to the borrower. At any point in time, up to the maturity date of the issue, the borrower may demand the unfunded portion. These unfunded amounts are marked to market and any unrealized gains and losses are recorded in the Statement of Assets and Liabilities. As of October 31, 2013, the Fund did not hold any unfunded commitments.
(J) 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 financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and/or interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by ‘‘marking-to-market’’ such contract on a daily basis to reflect the market value of the contract at the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as ‘‘variation margin.’’ When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation 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. Cash movement occurs on settlement date. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund may enter into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward
mainstayinvestments.com | 35 |
Notes to Financial Statements (continued)
contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in 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, and |
(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(M) Dollar Rolls. The Fund may enter into dollar roll transactions in which it sells mortgage-backed securities (“MBS”) from its portfolio to a counterparty from whom it simultaneously agrees to buy a similar security on a delayed delivery basis. The dollar roll transactions of the Fund are classified as purchase and sale transactions. The securities sold in connection with the dollar rolls are removed from the portfolio and a realized gain or loss is recognized. The securities the Fund has agreed to acquire are included at market value in the Portfolio of Investments and liabilities for such purchase commitments are included as payables for investments purchased. During the roll period, the Fund foregoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the forward price for the future as well as by the earnings on the cash proceeds of the initial sale. Dollar rolls may be renewed without physical delivery of the securities subject to the contract. The Fund maintains liquid assets from its portfolio having a value not less than the repurchase price, including accrued interest. Dollar roll transactions involve certain risks, including the risk that the MBS returned to the Fund at the end of the roll period,
while substantially similar, could be inferior to what was initially sold to the counterparty.
(N) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants, if such warrants are not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights.
(O) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(P) Restricted Securities. A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended. The Fund may not have the right to demand that such securities be registered. Disposal of these securities may involve time-consuming negotiations and expenses and it may be difficult to obtain a prompt sale at an acceptable price. (See Note 5)
(Q) Concentration of Risk. The Fund may invest in high-yield securities (sometimes called ‘‘junk bonds’’), which are generally
36 | MainStay Income Builder Fund |
considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
The Fund may invest in floating rate loans which are usually rated below investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. Moreover, such securities may, under certain circumstances, be less liquid than higher quality debt securities. Although certain floating rate loans are collateralized, there is no guarantee that the value of the collateral will be sufficient to repay the loan. In the
event of a recession or serious credit event, among other eventualities, the Fund’s investments in floating rate loans are more likely to decline.
(R) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(S) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Asset Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Warrants | Investments in securities, at value | $ | — | $ | 0 | (a) | $ | — | $ | 0 | (a) | |||||||
Futures Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | — | 9,068,750 | — | 9,068,750 | |||||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | — | $ | 9,068,750 | $ | — | $ | 9,068,750 | ||||||||||
|
|
Liability Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net Assets—Net unrealized appreciation (depreciation) on investments and futures contracts (b) | $ | — | $ | — | $ | (1,007,971 | ) | $ | (1,007,971 | ) | |||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (1,723,012 | ) | — | — | (1,723,012 | ) | |||||||||||
|
| |||||||||||||||||
Total Fair Value | $ | (1,723,012 | ) | $ | — | $ | (1,007,971 | ) | $ | (2,730,983 | ) | |||||||
|
|
(a) | Less than one dollar. |
(b) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
mainstayinvestments.com | 37 |
Notes to Financial Statements (continued)
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | — | $ | 21,408,457 | $ | 1,211,907 | $ | 22,620,364 | |||||||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | (1,222,705 | ) | — | — | (1,222,705 | ) | |||||||||||
|
| |||||||||||||||||
Total Realized Gain (Loss) | $ | (1,222,705 | ) | $ | 21,408,457 | $ | 1,211,907 | $ | 21,397,659 | |||||||||
|
|
Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | — | $ | 12,236,250 | $ | (953,274 | ) | $ | 11,282,976 | ||||||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | (1,333,875 | ) | — | — | (1,333,875 | ) | |||||||||||
|
| |||||||||||||||||
Total Change in Unrealized Appreciation (Depreciation) | $ | (1,333,875 | ) | $ | 12,236,250 | $ | (953,274 | ) | $ | 9,949,101 | ||||||||
|
|
Number of Contracts, Notional Amounts or Shares/Units
Foreign Exchange Contracts Risk | Equity Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||||
Warrants | — | 12 | — | 12 | ||||||||||||
Futures Contracts Long (1) | — | 1,848 | — | 1,848 | ||||||||||||
Futures Contracts Short | — | — | (457 | ) | (457 | ) | ||||||||||
Forward Contracts Long (1) | $ | 86,576,905 | — | — | $ | 86,576,905 | ||||||||||
Forward Contracts Short (1) | $ | (92,198,433 | ) | — | — | $ | (92,198,433 | ) | ||||||||
|
|
(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisors. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as a Subadvisor, pursuant to
the terms of an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, is responsible for the overall asset allocation decisions of the Fund and is responsible for the day-to-day portfolio management of the fixed-income portion of the Fund. Epoch Investment Partners, Inc. (“Epoch” or “Subadvisor”), a registered investment advisor, also serves as a Subadvisor pursuant to the terms of a Subadvisory Agreement between New York Life Investments and Epoch and is responsible for the day-to-day portfolio management of the equity portion of the Fund. New York Life Investments pays for the services of the Subadvisors.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.64% up to $500 million; 0.60% from $500 million to $1 billion; and 0.575% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual
38 | MainStay Income Builder Fund |
rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.63% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $5,299,726.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $32,414 and $156,717, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $134, $1,542, $51,394 and $11,022, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses
incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 622,058 | ||
Class A | 322,152 | |||
Class B | 189,264 | |||
Class C | 133,075 | |||
Class I | 236,072 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 4,100 | 0.0 | %‡ | ||||
Class I | 92,999,113 | 32.5 |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accumulated Other Gain (Loss) | Capital Loss | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||
$3,108,903 | $ | 25,396,525 | $ | (5,293,086 | ) | $ | 116,380,005 | $ | 139,592,347 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments, mark to market of foreign forward contracts, mark to market of future contracts, return of capital distributions received, partnerships and straddle deferrals.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||||
$657,247 | $ | (825,361 | ) | $ | 168,114 |
The reclassifications for the Fund are primarily due to foreign currency gain (loss), defaulted bonds, return of capital distributions received, Contingent Payment Debt Instruments, consent fees and preferred stocks treated as debt.
mainstayinvestments.com | 39 |
Notes to Financial Statements (continued)
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $5,293,086 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to share-
holders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||
2016 | $5,293 | $— |
The Fund utilized $31,744,429 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 30,170,103 | $ | 26,035,687 |
Note 5–Restricted Securities
As of October 31, 2013, the Fund held the following restricted securities:
Security | Date(s) of Acquisition | Number of Warrants/Shares | Cost | 10/31/2013 Value | Percent of Net Assets | |||||||||||||||
ION Media Networks, Inc. | ||||||||||||||||||||
Warrant, Second Lien, Expires 12/18/16 | 12/20/10 | 6 | $— | $ | 0 | (a) | 0.0 | %‡ | ||||||||||||
Warrant, Unsecured Debt, Expires 12/18/16 | 3/12/10 | 6 | 21 | 0 | (a) | 0.0 | ‡ | |||||||||||||
Quebecor World, Inc. (Litigation Recovery Trust—Escrow Shares) | ||||||||||||||||||||
Corporate Bond 9.75% | 9/4/09 | 110,000 | — | 1,617 | 0.0 | ‡ | ||||||||||||||
Total | $21 | $ | 1,617 | 0.0 | %‡ |
‡ | Less than one-tenth of a percent. |
(a) | Less than one dollar. |
Note 6–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 7–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or
the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 8–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of U.S. government securities were $24,397 and $22,073, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $340,878 and $217,000, respectively.
40 | MainStay Income Builder Fund |
Note 9–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 414,341 | $ | 7,722,680 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 302,990 | 5,575,201 | ||||||
Shares redeemed | (983,435 | ) | (18,263,550 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (266,104 | ) | (4,965,669 | ) | ||||
Shares converted into Investor Class (See Note 1) | 453,977 | 8,438,282 | ||||||
Shares converted from Investor Class (See Note 1) | (921,488 | ) | (17,385,123 | ) | ||||
|
| |||||||
Net increase (decrease) | (733,615 | ) | $ | (13,912,510 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 300,478 | $ | 5,034,969 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 352,875 | 5,859,051 | ||||||
Shares redeemed | (1,157,017 | ) | (19,304,664 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (503,664 | ) | (8,410,644 | ) | ||||
Shares converted into Investor Class (See Note 1) | 561,420 | 9,379,360 | ||||||
Shares converted from Investor Class (See Note 1) | (1,097,592 | ) | (18,805,363 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,039,836 | ) | $ | (17,836,647 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 4,307,421 | $ | 80,858,708 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 652,593 | 12,027,693 | ||||||
Shares redeemed | (2,729,186 | ) | (50,631,121 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 2,230,828 | 42,255,280 | ||||||
Shares converted into Class A (See Note 1) | 1,109,917 | 20,900,874 | ||||||
Shares converted from Class A (See Note 1) | (79,797 | ) | (1,520,144 | ) | ||||
|
| |||||||
Net increase (decrease) | 3,260,948 | $ | 61,636,010 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 2,112,879 | $ | 35,891,107 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 601,558 | 10,007,149 | ||||||
Shares redeemed | (2,524,241 | ) | (42,299,856 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 190,196 | 3,598,400 | ||||||
Shares converted into Class A (See Note 1) | 1,371,450 | 23,393,132 | ||||||
Shares converted from Class A (See Note 1) | (59,140 | ) | (1,036,401 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,502,506 | $ | 25,955,131 | |||||
|
|
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 472,626 | $ | 8,892,388 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 69,643 | 1,287,353 | ||||||
Shares redeemed | (336,964 | ) | (6,279,449 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 205,305 | 3,900,292 | ||||||
Shares converted from Class B (See Note 1) | (560,188 | ) | (10,433,889 | ) | ||||
|
| |||||||
Net increase (decrease) | (354,883 | ) | $ | (6,533,597 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 362,058 | $ | 6,096,769 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 91,121 | 1,517,631 | ||||||
Shares redeemed | (462,521 | ) | (7,756,057 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (9,342 | ) | (141,657 | ) | ||||
Shares converted from Class B (See Note 1) | (773,238 | ) | (12,930,728 | ) | ||||
|
| |||||||
Net increase (decrease) | (782,580 | ) | $ | (13,072,385 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,786,852 | $ | 33,760,286 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 37,970 | 706,537 | ||||||
Shares redeemed | (297,840 | ) | (5,648,670 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,526,982 | $ | 28,818,153 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 697,896 | $ | 11,977,966 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 17,535 | 294,626 | ||||||
Shares redeemed | (116,451 | ) | (1,931,390 | ) | ||||
|
| |||||||
Net increase (decrease) | 598,980 | $ | 10,341,202 | |||||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 4,940,656 | $ | 92,831,355 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 474,713 | 8,803,809 | ||||||
Shares redeemed | (2,716,749 | ) | (51,005,961 | ) | ||||
|
| |||||||
Net increase (decrease) | 2,698,620 | $ | 50,629,203 | |||||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 2,546,530 | $ | 43,526,004 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 447,441 | 7,488,368 | ||||||
Shares redeemed | (1,605,981 | ) | (27,058,525 | ) | ||||
|
| |||||||
Net increase (decrease) | 1,387,990 | $ | 23,955,847 | |||||
|
|
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
mainstayinvestments.com | 41 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Income Builder Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Income Builder Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
42 | MainStay Income Builder Fund |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $17,193,366 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 25.4% to arrive at the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling (1-800-SEC-0330).
mainstayinvestments.com | 43 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
44 | MainStay Income Builder Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 45 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
46 | MainStay Income Builder Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 47 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32125 MS322-13 | MSIB11-12/13 NL014 |
MainStay Global High Income Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year-Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –6.58 –2.18 | %
|
| 14.23 15.28 | %
|
| 8.21 8.71 | %
|
| 1.29 1.29 | %
| ||||||
Class A Shares | Maximum 4.5% Initial Sales Charge | With sales charges Excluding sales charges |
| –6.39 –1.98 |
| | 14.40 15.46 | | | 8.30 8.80 | | | 1.17 1.17 | | ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| –7.44 –2.89 |
| | 14.21 14.44 | | | 7.90 7.90 | | | 2.04 2.04 | | ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| –3.71 –2.80 |
|
| 14.45 14.45 |
| | 7.92 7.92 | |
| 2.04 2.04 |
| ||||||
Class I Shares4 | No Sales Charge | –1.73 | 15.75 | 9.08 | 0.92 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on August 31, 2007, include the historical performance of Class A shares through August 30, 2007 adjusted for certain fees and expenses. Unadjusted, the performance shown for Class I shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
JPMorgan EMBI Global Diversified Index5 | –2.27 | % | 14.28 | % | 8.73 | % | ||||||
Average Lipper Emerging Markets Hard Currency Debt Fund6 | –1.69 | 14.96 | 8.74 |
5. | The JPMorgan EMBI Global Diversified Index is a market-capitalization weighted, total return index tracking the traded market for U.S. dollar-denominated Brady Bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities. The JPMorgan EMBI Global Diversified Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an Index. |
6. | The average Lipper emerging markets hard currency debt fund is representative of funds that seek either current income or total return by investing at least 65% of total assets in emerging market debt securities, where “emerging market” is defined by a country’s GNP per capita or other economic measures. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Global High Income Fund |
Cost in Dollars of a $1,000 Investment in MainStay Global High Income Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 945.20 | $ | 6.52 | $ | 1,018.50 | $ | 6.77 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 946.30 | $ | 5.79 | $ | 1,019.30 | $ | 6.01 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 942.00 | $ | 10.18 | $ | 1,014.70 | $ | 10.56 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 942.90 | $ | 10.19 | $ | 1,014.70 | $ | 10.56 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 947.60 | $ | 4.57 | $ | 1,020.50 | $ | 4.74 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.33% for Investor Class, 1.18% for Class A, 2.08% for Class B and Class C and 0.93% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Country Composition as of October 31, 2013 (Unaudited)
Brazil | 9.9 | % | ||
Mexico | 8.5 | |||
Russia | 7.6 | |||
Turkey | 6.6 | |||
Venezuela | 6.1 | |||
Indonesia | 5.3 | |||
Poland | 5.2 | |||
Ukraine | 4.6 | |||
Colombia | 4.0 | |||
Peru | 3.4 | |||
El Salvador | 2.5 | |||
Sri Lanka | 2.1 | |||
Belarus | 1.9 | |||
Georgia | 1.9 | |||
Nigeria | 1.9 | |||
Republic of Korea | 1.8 | |||
Argentina | 1.7 | |||
Portugal | 1.7 | |||
Uruguay | 1.6 | |||
United States | 1.4 | |||
Dominican Republic | 1.3 |
Thailand | 1.3 | % | ||
India | 1.2 | |||
Ireland | 1.2 | |||
Panama | 1.2 | |||
Paraguay | 1.2 | |||
Slovenia | 1.2 | |||
Bahrain | 1.1 | |||
United Arab Emirates | 1.1 | |||
United Kingdom | 1.1 | |||
Luxembourg | 1.0 | |||
Ghana | 0.9 | |||
Gabon | 0.8 | |||
Croatia | 0.7 | |||
Guatemala | 0.7 | |||
Vietnam | 0.7 | |||
Chile | 0.5 | |||
Senegal | 0.5 | |||
Kazakhstan | 0.4 | |||
Jamaica | 0.2 | |||
Other Assets, Less Liabilities | 2.0 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Issuers Held as of October 31, 2013 (excluding short-term investments) (Unaudited)
1. | Republic of Turkey, 6.00%–9.00%, due 3/8/17–1/14/41 |
2. | Ukraine Government, 7.75%–7.80%, due 9/23/20–11/28/22 |
3. | Petroleos de Venezuela S.A., 12.75%, due 2/17/22 |
4. | Majapahit Holding B.V., 8.00%, due 8/7/19 |
5. | United Mexican States, 7.25%, due 12/15/16 |
6. | Republic of Venezuela, 9.25%, due 5/7/28 |
7. | Republic of El Salvador, 7.375%–8.25%, due 12/1/19–6/15/35 |
8. | Gaz Capital S.A. for Gazprom, 9.25%, due 4/23/19 |
9. | Republic of Peru, 7.35%, due 7/21/25 |
10. | Poland Government Bond, 5.75%, due 10/25/21 |
8 | MainStay Global High Income Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Dan Roberts, PhD, Michael Kimble, CFA, and Jakob Bak, PhD, CFA, of MacKay Shields LLC, the Fund’s Subadvisor
How did MainStay Global High Income Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Global High Income Fund returned –2.18% for Investor Class shares, –1.98% for Class A shares, –2.89% for Class B shares and –2.80% for Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund’s Class I shares returned –1.73%. For the 12 months ended October 31, 2013, Investor Class, Class A and Class I shares outperformed—and Class B and Class C shares underperformed—the –2.27% return of the JPMorgan EMBI Global Diversified Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes underperformed the –1.69% return of the average Lipper2 emerging markets hard currency debt fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
In the first half of the reporting period, exposure to higher-yielding corporate bonds strengthened the Fund’s absolute and relative performance. In the second half of the reporting period, however, credit spreads3 uncharacteristically widened as U.S. Treasury yields increased. The Fund benefited from having a duration4 that was shorter than that of the JPMorgan EMBI Global Diversified Index. But for the entire reporting period, relative performance was hurt by the Fund’s exposure to higher-yielding corporate bonds. Corporate credits in Brazil were particularly hard hit because of slowing growth, rising inflation and the resulting mass demonstrations against the government.
What was the Fund’s duration strategy during the reporting period?
The Fund’s duration was shorter than that of the JPMorgan EMBI Global Diversified Index, in large part because of the Fund’s corporate-bond exposure. Since corporate bonds generally tend to have shorter maturities than sovereign debt, corporate exposure would tend to lower the Fund’s duration. Corporate debt also tends to have a lower sensitivity to interest rates than sovereign debt. As a result, the Fund lowered its exposure to a higher interest-rate environment on two fronts: by shortening duration and by increasing credit exposure.
What specific factors, risks or market forces prompted significant decisions for the Fund during the reporting period?
Despite the general improvement in global macroeconomic data throughout the reporting period, the emerging-market debt asset class sold off substantially during the summer on the suggestion that the U.S. Federal Reserve might begin to taper its direct security purchases. We saw this as a buying opportunity and increased the Fund’s exposure to local emerging-market currencies and high-beta5 bonds while keeping duration below that of the JPMorgan EMBI Global Diversified Index.
During the reporting period, which market segments were the strongest contributors to the Fund’s performance and which market segments were particularly weak?
Over the medium term, two of the biggest drivers of performance in a credit portfolio can be changes in U.S. Treasury yields and changes in spreads. Usually these two factors are negatively correlated, which dampens return volatility. During the reporting period, however, two factors detracted from the Fund’s absolute performance. U.S. Treasury yields rose on talk of the Federal Reserve tapering its purchases of U.S. Treasury and mortgage-backed securities, and spreads followed suit as fears spread that reduced liquidity would cause disproportionate difficulties for emerging markets. Relative to the JPMorgan EMBI Global Diversified Index, the move in U.S. Treasury yields contributed positively to the Fund’s performance, but performance was slightly hurt by the change in spreads. (Contributions take weightings and total returns into account.) The Fund’s significant excess yield, however, helped mitigate most of the damage from widening spreads.
The Fund’s Portuguese debt was a positive contributor to the Fund’s performance, as the overall crisis in Europe subsided and the financial outlook in Portugal improved dramatically. The Fund’s exposure to Mexican homebuilders was a significant detractor from performance, as changes in government policies put the entire sector under extreme pressure. The Fund’s exposure to OGX Petroleo, a Brazilian oil producer, detracted from performance as the company’s production levels disappointed investors.
1. | See footnote on page 6 for more information on the JPMorgan EMBI Global Diversified Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
3. | The terms “spread” and “yield spread” may refer to the difference in yield between a security or type of security and comparable U.S. Treasury issues. The terms may also refer to the difference in yield between two specific securities or types of securities at a given time. |
4. | Duration is a measure of the price sensitivity of a fixed-income investment to changes in interest rates. Duration is expressed as a number of years and is considered a more accurate sensitivity gauge than average maturity. |
5. | Beta is a measure of volatility in relation to the market as a whole. A beta higher than 1 indicates that a security or portfolio will tend to exhibit higher volatility than the market. A beta lower than 1 indicates that a security or portfolio will tend to exhibit lower volatility than the market. |
mainstayinvestments.com | 9 |
Did the Fund make any significant purchases or sales during the reporting period?
We increased the Fund’s exposure to Sri Lankan sovereign debt, as the end of the country’s long civil war could provide a “peace dividend” to the economy. We also opportunistically added Slovenian debt as the crisis in Cyprus temporarily put Slovenian bonds under pressure. The high yield offered by Nigerian Treasury bills was also attractive, given that the nation’s currency appeared not to be facing downward pressure. Because of the increased political volatility in Venezuela following a contested election, we lowered the Fund’s exposure to the country. Rapidly deteriorating financials for Mexican homebuilders led us to exit the Fund’s positions ahead of their default. We also exited the Fund’s position in OGX Petroleo, as it became clear that the company would not survive in its current form. We increased the Fund’s exposure to Ukraine, as we believed that the high yield of the nation’s debt more than compensated for the political and economic risks involved. We also increased the Fund’s exposure to Belarus for much the same reason.
How did the Fund’s sector and country weightings change during the reporting period?
Other than the position changes mentioned earlier, there were no major changes to the Fund’s sector weightings during the reporting period. From a regional perspective, we slightly decreased the Fund’s exposure to Asia and modestly increased exposure to Europe.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund was overweight relative to the JPMorgan EMBI Global Diversified Index in corporate and local currency bonds and underweight in sovereign bonds. As of the same date, the Fund held overweight positions relative to the JPMorgan EMBI Global Diversified Index in Latin America and held underweight positions relative to the Index in Asia and Africa. We anticipate further spread compression, and we therefore expect to maintain our current risk profile and positioning going into the new reporting period.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Global High Income Fund |
Portfolio of Investments October 31, 2013
Principal Amount | Value | |||||||
Long-Term Bonds 95.4%† Corporate Bonds 49.2% | ||||||||
Argentina 0.4% | ||||||||
WPE International Cooperatief UA | $ | 2,000,000 | $ | 1,400,000 | ||||
|
| |||||||
Brazil 8.4% | ||||||||
Banco Bradesco S.A. | 3,000,000 | 3,082,500 | ||||||
Braskem Finance, Ltd. | 3,000,000 | 3,277,500 | ||||||
Fibria Overseas Finance, Ltd. | 3,000,000 | 3,285,000 | ||||||
Itau Unibanco Holding S.A. | 2,000,000 | 2,140,000 | ||||||
JBS Finance II, Ltd. | 3,000,000 | 3,142,500 | ||||||
Minerva Luxembourg S.A. | 3,750,000 | 3,637,500 | ||||||
Petrobras International Finance Co. | 3,000,000 | 3,050,319 | ||||||
USJ Acucar e Alcool S.A. | 2,000,000 | 1,970,000 | ||||||
Virgolino de Oliveira Finance, Ltd. | 3,000,000 | 2,400,000 | ||||||
|
| |||||||
25,985,319 | ||||||||
|
| |||||||
Chile 0.5% | ||||||||
GeoPark Latin America, Ltd. Agencia en Chile | 1,500,000 | 1,526,250 | ||||||
|
| |||||||
Colombia 2.1% | ||||||||
Colombia Telecomunicaciones S.A. ESP | 5,000,000 | 4,687,500 | ||||||
Pacific Rubiales Energy Corp. | 2,000,000 | 1,915,000 | ||||||
|
| |||||||
6,602,500 | ||||||||
|
| |||||||
Georgia 1.2% | ||||||||
Georgian Oil and Gas Corp. | 3,500,000 | 3,648,750 | ||||||
|
| |||||||
Guatemala 0.7% | ||||||||
Industrial Senior Trust | 2,200,000 | 2,035,000 | ||||||
|
| |||||||
India 1.2% | ||||||||
Vedanta Resources PLC | 3,500,000 | 3,605,000 | ||||||
|
|
Principal Amount | Value | |||||||
Indonesia 5.3% | ||||||||
¨ Majapahit Holding B.V. | $ | 8,300,000 | $ | 9,617,625 | ||||
Pertamina Persero PT | 6,700,000 | 5,628,000 | ||||||
Perusahaan Listrik Negara PT | 1,500,000 | 1,207,500 | ||||||
|
| |||||||
16,453,125 | ||||||||
|
| |||||||
Ireland 1.2% | ||||||||
UT2 Funding PLC | € | 2,700,000 | 3,574,275 | |||||
|
| |||||||
Kazakhstan 0.4% | ||||||||
Kazakhstan Temir Zholy Finance B.V. | $ | 1,000,000 | 1,110,000 | |||||
|
| |||||||
Luxembourg 1.0% | ||||||||
ArcelorMittal | 3,000,000 | 2,962,500 | ||||||
|
| |||||||
Mexico 5.5% | ||||||||
Cemex Espana Luxembourg | 3,000,000 | 3,270,000 | ||||||
Controladora Mabe S.A. de C.V. | ||||||||
7.875%, due 10/28/19 | 1,160,000 | 1,264,400 | ||||||
7.875%, due 10/28/19 (a) | 1,600,000 | 1,744,000 | ||||||
Grupo Bimbo S.A.B. de C.V. | 3,000,000 | 3,063,261 | ||||||
Petroleos Mexicanos | 4,000,000 | 4,260,000 | ||||||
Satelites Mexicanos S.A. de C.V. | 3,000,000 | 3,247,500 | ||||||
|
| |||||||
16,849,161 | ||||||||
|
| |||||||
Paraguay 1.2% | ||||||||
Banco Continental S.A.E. | 3,500,000 | 3,727,500 | ||||||
|
| |||||||
Peru 1.0% | ||||||||
BBVA Bancomer S.A. | 3,000,000 | 3,067,500 | ||||||
|
| |||||||
Poland 2.8% | ||||||||
Eileme 2 AB | € | 4,000,000 | 6,416,723 | |||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest issuers held, as of October 31, 2013, excluding short-term investments. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Corporate Bonds (continued) | ||||||||
Poland (continued) | ||||||||
TVN Finance Corp. III AB | € | 1,500,000 | $ | 2,148,638 | ||||
|
| |||||||
8,565,361 | ||||||||
|
| |||||||
Republic of Korea 1.8% | ||||||||
Korea Finance Corp. | $ | 3,000,000 | 3,235,926 | |||||
Korea Gas Corp. | 2,000,000 | 2,349,814 | ||||||
|
| |||||||
5,585,740 | ||||||||
|
| |||||||
Russia 6.6% | ||||||||
ALROSA Finance S.A. | 3,500,000 | 3,955,000 | ||||||
¨Gaz Capital S.A. for Gazprom | 6,000,000 | 7,485,000 | ||||||
Lukoil International Finance B.V. | ||||||||
6.656%, due 6/7/22 (a) | 1,000,000 | 1,123,750 | ||||||
7.25%, due 11/5/19 (a) | 2,000,000 | 2,333,400 | ||||||
Novatek Finance, Ltd. | 2,000,000 | 2,242,500 | ||||||
Vimpelcom Holdings B.V. | 3,000,000 | 3,217,500 | ||||||
|
| |||||||
20,357,150 | ||||||||
|
| |||||||
Thailand 1.3% | ||||||||
Bangkok Bank PCL | 3,750,000 | 3,967,005 | ||||||
|
| |||||||
Ukraine 1.2% | ||||||||
Ukraine Railways via Shortline PLC | 4,500,000 | 3,825,000 | ||||||
|
| |||||||
United Arab Emirates 1.1% | ||||||||
Abu Dhabi National Energy Co. | 3,750,000 | 3,525,000 | ||||||
|
| |||||||
United Kingdom 1.1% | ||||||||
Lloyds TSB Bank PLC | A$ | 3,000,000 | 3,398,296 | |||||
|
| |||||||
Venezuela 3.2% | ||||||||
¨Petroleos de Venezuela S.A. | $ | 9,900,000 | 9,801,000 | |||||
|
| |||||||
Total Corporate Bonds | 151,571,432 | |||||||
|
|
Principal Amount | Value | |||||||
Government & Federal Agencies 46.2% | ||||||||
Argentina 1.3% | ||||||||
Republic of Argentina | $ | 11,360,000 | $ | 4,146,400 | ||||
|
| |||||||
Bahrain 1.1% | ||||||||
Bahrain Government International Bond | 3,200,000 | 3,320,000 | ||||||
|
| |||||||
Belarus 1.9% | ||||||||
Republic of Belarus | 6,000,000 | 5,970,000 | ||||||
|
| |||||||
Brazil 1.5% | ||||||||
Brazil Notas Do Tesouro Nacional | B$ | 11,000,000 | 4,635,890 | |||||
|
| |||||||
Colombia 1.9% | ||||||||
Republic of Colombia | C$ | 9,600,000,000 | 5,802,056 | |||||
|
| |||||||
Croatia 0.7% | ||||||||
Republic of Croatia | $ | 2,000,000 | 2,122,500 | |||||
|
| |||||||
Dominican Republic 1.3% | ||||||||
Dominican Republic | 3,500,000 | 3,872,750 | ||||||
|
| |||||||
El Salvador 2.5% | ||||||||
¨ Republic of El Salvador | ||||||||
Series Reg S 7.375%, due 12/1/19 (a) | 3,000,000 | 3,375,000 | ||||||
7.65%, due 6/15/35 | 2,450,000 | 2,590,875 | ||||||
8.25%, due 4/10/32 (a) | 1,550,000 | 1,767,000 | ||||||
|
| |||||||
7,732,875 | ||||||||
|
| |||||||
Gabon 0.8% | ||||||||
Gabonese Republic | 2,200,000 | 2,557,500 | ||||||
|
| |||||||
Georgia 0.7% | ||||||||
Republic of Georgia | 2,000,000 | 2,177,500 | ||||||
|
|
12 | MainStay Global High Income Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Government & Federal Agencies (continued) | ||||||||
Ghana 0.9% | ||||||||
Republic of Ghana | ||||||||
7.875%, due 8/7/23 (a) | $ | 2,010,344 | $ | 1,995,266 | ||||
Series Reg S 8.50%, due 10/4/17 | 735,000 | 802,988 | ||||||
|
| |||||||
2,798,254 | ||||||||
|
| |||||||
Jamaica 0.2% | ||||||||
Jamaica Government | 650,000 | 635,375 | ||||||
|
| |||||||
Mexico 3.0% | ||||||||
¨United Mexican States | M$ | 111,250,000 | 9,213,544 | |||||
|
| |||||||
Nigeria 0.7% | ||||||||
Nigeria Government International Bond Series Reg S | $ | 2,000,000 | 2,205,000 | |||||
|
| |||||||
Panama 1.2% | ||||||||
Republic of Panama | 3,058,000 | 3,616,085 | ||||||
|
| |||||||
Peru 2.4% | ||||||||
¨Republic of Peru | 5,800,000 | 7,476,200 | ||||||
|
| |||||||
Poland 2.4% | ||||||||
¨Poland Government Bond | PLN | 20,300,000 | 7,331,553 | |||||
|
| |||||||
Portugal 1.7% | ||||||||
Portugal Obrigacoes do Tesouro OT Series Reg S | € | 4,200,000 | 5,182,304 | |||||
|
| |||||||
Russia 1.0% | ||||||||
Russian Federal Bond-OFZ | RUB | 100,000,000 | 3,102,515 | |||||
|
| |||||||
Senegal 0.5% | ||||||||
Republic of Senegal | $ | 1,250,000 | 1,371,875 | |||||
|
| |||||||
Slovenia 1.2% | ||||||||
Republic of Slovenia | 4,000,000 | 3,825,000 | ||||||
|
|
Principal Amount | Value | |||||||
Sri Lanka 2.1% | ||||||||
Republic of Sri Lanka | $ | 6,500,000 | $ | 6,589,375 | ||||
|
| |||||||
Turkey 6.6% | ||||||||
¨Republic of Turkey | ||||||||
6.00%, due 1/14/41 | 5,000,000 | 5,025,000 | ||||||
7.375%, due 2/5/25 | 6,225,000 | 7,283,250 | ||||||
9.00%, due 3/8/17 | TRY | 9,400,000 | 4,840,676 | |||||
Turkey Government Bond | 6,750,000 | 3,059,268 | ||||||
|
| |||||||
20,208,194 | ||||||||
|
| |||||||
Ukraine 3.4% | ||||||||
¨Ukraine Government | ||||||||
7.75%, due 9/23/20 (a) | $ | 6,000,000 | 5,430,000 | |||||
7.80%, due 11/28/22 (a) | 5,800,000 | 5,046,000 | ||||||
|
| |||||||
10,476,000 | ||||||||
|
| |||||||
Uruguay 1.6% | ||||||||
Republica Orient Uruguay | $U | 99,602,310 | 5,020,698 | |||||
|
| |||||||
Venezuela 2.9% | ||||||||
¨Republic of Venezuela | $ | 11,095,000 | 8,820,525 | |||||
|
| |||||||
Vietnam 0.7% | ||||||||
Socialist Republic of Vietnam | 2,000,000 | 2,187,500 | ||||||
|
| |||||||
Total Government & Federal Agencies | 142,397,468 | |||||||
|
| |||||||
Total Long-Term Bonds | 293,968,900 | |||||||
|
| |||||||
Short-Term Investments 2.6% | ||||||||
Nigeria Government 1.2% | ||||||||
Nigeria Treasury Bill | NGN | 600,000,000 | 3,754,133 | |||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Principal Amount | Value | |||||||
Short-Term Investments (continued) | ||||||||
Repurchase Agreement 1.4% | ||||||||
State Street Bank and Trust Co. 0.00%, dated 10/31/13 | $ | 4,480,053 | $ | 4,480,053 | ||||
|
| |||||||
Total Short-Term Investments (Cost $8,256,567) | 8,234,186 | |||||||
|
| |||||||
Total Investments | 98.0 | % | 302,203,086 | |||||
Other Assets, Less Liabilities | 2.0 | 6,143,900 | ||||||
Net Assets | 100.0 | % | $ | 308,346,986 |
Contracts Short | Unrealized Appreciation (Depreciation) (e) | |||||||
Futures Contracts (0.1%) | ||||||||
United States Treasury Notes December 2013 (2 Year) (f) | (547 | ) | $ | (403,071 | ) | |||
|
| |||||||
Total Futures Contracts | $ | (403,071 | ) | |||||
|
|
(a) | May be sold to institutional investors only under Rule 144A or securities offered pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. |
(b) | Floating rate—Rate shown is the rate in effect as of October 31, 2013. |
(c) | Step coupon—Rate shown is the rate in effect as of October 31, 2013. |
(d) | Interest rate presented is yield to maturity. |
(e) | Represents the difference between the value of the contracts at the time they were opened and the value as of October 31, 2013. |
(f) | At October 31, 2013, cash in the amount of $136,750 is on deposit with broker for futures transactions. |
(g) | As of October 31, 2013, cost is $291,906,707 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 16,866,021 | ||
Gross unrealized depreciation | (6,569,642 | ) | ||
|
| |||
Net unrealized appreciation | $ | 10,296,379 | ||
|
|
The following abbreviations are used in the above portfolio:
$U—Uruguayan Peso
€—Euro
A$—Australian Dollar
B$—Brazilian Real
C$—Colombian Peso
M$—Mexican Peso
NGN—Nigerian Naira
PLN—Polish Zloty
RUB—New Russian Ruble
TRY—Turkish Lira
As of October 31, 2013, the Fund held the following foreign currency forward contracts:
Foreign Currency Buy Contracts | Expiration Date | Counterparty | Contract Amount Purchased | Contract Amount Sold | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||
New Russian Ruble vs. U.S. Dollar | 2/3/14 | HSBC Bank USA | RUB | 196,300,000 | USD | 6,088,238 | USD | (60,880 | ) | |||||||||||||||||||||
Polish Zloty vs. U.S. Dollar | 2/3/14 | Barclays Bank PLC | PLN | 10,700,000 | 3,510,176 | (55,426 | ) | |||||||||||||||||||||||
South Korean Won vs. U.S. Dollar | 2/3/14 | HSBC Bank USA | KRW | 7,300,000,000 | 6,833,287 | 6,502 | ||||||||||||||||||||||||
Foreign Currency Sales Contracts | Contract Amount Sold | Contract Amount Purchased | ||||||||||||||||||||||||||||
Australian Dollar vs. U.S. Dollar | 2/3/14 | HSBC Bank USA | AUD | 3,150,000 | USD | 3,010,455 | USD | 51,023 | ||||||||||||||||||||||
Brazilian Real vs. U.S. Dollar | 2/3/14 | Barclays Bank PLC | BRL | 10,609,255 | USD | 4,570,000 | (66,674 | ) | ||||||||||||||||||||||
Euro vs. Polish Zloty | 2/3/14 | HSBC Bank USA | EUR | 2,662,293 | PLN | 11,200,000 | 962 | |||||||||||||||||||||||
Euro vs. U.S. Dollar | 2/3/14 | HSBC Bank USA | EUR | 10,500,000 | USD | 14,496,720 | 238,383 | |||||||||||||||||||||||
Pound Sterling vs. U.S. Dollar | 2/3/14 | HSBC Bank USA | GBP | 2,000,000 | USD | 3,237,586 | 33,022 | |||||||||||||||||||||||
Swiss Franc vs. Euro | 2/3/14 | JPMorgan Chase Bank | CHF | 9,300,000 | EUR | 7,557,842 | 5,507 | |||||||||||||||||||||||
Net unrealized appreciation (depreciation) on foreign currency forward contracts | USD | 152,419 |
14 | MainStay Global High Income Fund |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets and liabilities.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Long-Term Bonds | ||||||||||||||||
Corporate Bonds | $ | — | $ | 151,571,432 | $ | — | $ | 151,571,432 | ||||||||
U.S. Government & Federal Agencies | — | 142,397,468 | — | 142,397,468 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Long-Term Bonds | — | 293,968,900 | — | 293,968,900 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Short-Term Investments | ||||||||||||||||
Nigeria Government | — | 3,754,133 | — | 3,754,133 | ||||||||||||
Repurchase Agreement | — | 4,480,053 | — | 4,480,053 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Short-Term Investments | — | 8,234,186 | — | 8,234,186 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 302,203,086 | 302,203,086 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (b) | — | 335,399 | — | 335,399 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities and Other Financial Instruments | $ | — | $ | 302,538,485 | $ | — | $ | 302,538,485 | ||||||||
|
|
|
|
|
|
|
|
Liability Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Foreign Currency Forward Contracts (b) | $ | — | $ | (182,980 | ) | $ | — | $ | (182,980 | ) | ||||||
Futures Contracts Short (b) | (403,071 | ) | — | — | (403,071 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Other Financial Instruments | $ | (403,071 | ) | $ | (182,980 | ) | $ | — | $ | (586,051 | ) | |||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
(b) | The value listed for these securities reflects unrealized appreciation (depreciation) as shown on the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
Investments in | Balance as of October 31, 2012 | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales | Transfers into Level 3 | Transfers out of Level 3 | Balance as of October 31, 2013 | Change in Unrealized Appreciation (Depreciation) from Investments Still Held as of October 31, 2013 (a) | ||||||||||||||||||||||||||||||
Long-Term Bonds | ||||||||||||||||||||||||||||||||||||||||
Government & | $ | 2,999,902 | $ | — | $ | (25,566 | ) | $ | 2,643 | $ | — | $ | (2,976,979 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | $ | 2,999,902 | $ | — | $ | (25,566 | ) | $ | 2,643 | $ | — | $ | (2,976,979 | ) | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 302,203,086 | ||
Cash denominated in foreign currencies | 1,202,194 | |||
Cash collateral on deposit at broker | 136,750 | |||
Receivables: | ||||
Interest | 5,505,213 | |||
Fund shares sold | 746,645 | |||
Other assets | 33,169 | |||
Unrealized appreciation on foreign currency forward contracts | 335,399 | |||
|
| |||
Total assets | 310,162,456 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | 860,059 | |||
Manager (See Note 3) | 186,239 | |||
NYLIFE Distributors (See Note 3) | 108,983 | |||
Transfer agent (See Note 3) | 90,798 | |||
Shareholder communication | 32,495 | |||
Variation margin on futures contracts | 17,094 | |||
Professional fees | 15,317 | |||
Custodian | 7,078 | |||
Trustees | 714 | |||
Accrued expenses | 4,425 | |||
Dividend payable | 309,288 | |||
Unrealized depreciation on foreign currency forward contracts | 182,980 | |||
|
| |||
Total liabilities | 1,815,470 | |||
|
| |||
Net assets | $ | 308,346,986 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 268,482 | ||
Additional paid-in capital | 297,288,381 | |||
|
| |||
297,556,863 | ||||
Distributions in excess of net investment income | (309,288 | ) | ||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions | 1,035,247 | |||
Net unrealized appreciation (depreciation) on investments and futures contracts | 9,893,308 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 170,856 | |||
|
| |||
Net assets | $ | 308,346,986 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 27,917,610 | ||
|
| |||
Shares of beneficial interest outstanding | 2,406,105 | |||
|
| |||
Net asset value per share outstanding | $ | 11.60 | ||
Maximum sales charge (4.50% of offering price) | 0.55 | |||
|
| |||
Maximum offering price per share outstanding | $ | 12.15 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 152,831,718 | ||
|
| |||
Shares of beneficial interest outstanding | 13,268,486 | |||
|
| |||
Net asset value per share outstanding | $ | 11.52 | ||
Maximum sales charge (4.50% of offering price) | 0.54 | |||
|
| |||
Maximum offering price per share outstanding | $ | 12.06 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 15,290,456 | ||
|
| |||
Shares of beneficial interest outstanding | 1,346,692 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.35 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 68,629,383 | ||
|
| |||
Shares of beneficial interest outstanding | 6,038,413 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.37 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 43,677,819 | ||
|
| |||
Shares of beneficial interest outstanding | 3,788,527 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 11.53 | ||
|
|
16 | MainStay Global High Income Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Interest | $ | 23,955,748 | ||
|
| |||
Expenses | ||||
Manager (See Note 3) | 2,546,348 | |||
Distribution/Service—Investor Class (See Note 3) | 70,092 | |||
Distribution/Service—Class A (See Note 3) | 425,540 | |||
Distribution/Service—Class B (See Note 3) | 185,841 | |||
Distribution/Service—Class C (See Note 3) | 840,270 | |||
Transfer agent (See Note 3) | 564,752 | |||
Registration | 94,622 | |||
Professional fees | 69,300 | |||
Shareholder communication | 66,792 | |||
Custodian | 48,101 | |||
Trustees | 7,292 | |||
Miscellaneous | 14,560 | |||
|
| |||
Total expenses | 4,933,510 | |||
|
| |||
Net investment income (loss) | 19,022,238 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 1,089,513 | |||
Futures transactions | (24,306 | ) | ||
Foreign currency transactions | 115,403 | |||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 1,180,610 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (29,017,043 | ) | ||
Futures contracts | (403,071 | ) | ||
Translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 140,653 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | (29,279,461 | ) | ||
|
| |||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | (28,098,851 | ) | ||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | (9,076,613 | ) | |
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 19,022,238 | $ | 16,394,428 | ||||
Net realized gain (loss) on investments, futures transactions, swap transactions and foreign currency transactions | 1,180,610 | 5,453,749 | ||||||
Net change in unrealized appreciation (depreciation) on investments, futures contracts, swap contracts and foreign currency transactions | (29,279,461 | ) | 25,889,771 | |||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | (9,076,613 | ) | 47,737,948 | |||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,921,312 | ) | (1,279,141 | ) | ||||
Class A | (12,129,709 | ) | (8,448,828 | ) | ||||
Class B | (1,174,107 | ) | (920,192 | ) | ||||
Class C | (5,282,302 | ) | (3,803,138 | ) | ||||
Class I | (3,851,086 | ) | (2,392,977 | ) | ||||
|
| |||||||
(24,358,516 | ) | (16,844,276 | ) | |||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | — | (630,762 | ) | |||||
Class A | — | (3,912,908 | ) | |||||
Class B | — | (595,783 | ) | |||||
Class C | — | (2,218,133 | ) | |||||
Class I | — | (1,033,355 | ) | |||||
|
| |||||||
— | (8,390,941 | ) | ||||||
|
| |||||||
Total dividends and distributions to shareholders | (24,358,516 | ) | (25,235,217 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 113,501,610 | 116,559,348 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 17,184,103 | 17,050,329 | ||||||
Cost of shares redeemed | (155,453,579 | ) | (95,612,363 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (24,767,866 | ) | 37,997,314 | |||||
|
| |||||||
Net increase (decrease) in net assets | (58,202,995 | ) | 60,500,045 | |||||
Net Assets | ||||||||
Beginning of year | 366,549,981 | 306,049,936 | ||||||
|
| |||||||
End of year | $ | 308,346,986 | $ | 366,549,981 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of year | $ | (309,288 | ) | $ | 4,942,861 | |||
|
|
18 | MainStay Global High Income Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.71 | $ | 11.90 | $ | 12.49 | $ | 11.16 | $ | 8.07 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.67 | 0.61 | 0.59 | 0.66 | 0.65 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.94 | ) | 1.12 | (0.41 | ) | 1.33 | 3.00 | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.01 | 0.02 | 0.03 | 0.05 | 0.13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.26 | ) | 1.75 | 0.21 | 2.04 | 3.78 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.85 | ) | (0.62 | ) | (0.64 | ) | (0.71 | ) | (0.69 | ) | ||||||||||
From net realized gain on investments | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.85 | ) | (0.94 | ) | (0.80 | ) | (0.71 | ) | (0.69 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 11.60 | $ | 12.71 | $ | 11.90 | $ | 12.49 | $ | 11.16 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.18 | %) | 15.52 | % | 1.94 | % | 18.95 | % | 48.62 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.49 | % | 5.10 | % | 4.93 | % | 5.65 | % | 6.69 | % | ||||||||||
Net expenses | 1.30 | % | 1.29 | % | 1.32 | % | 1.37 | % | 1.49 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.30 | % | 1.29 | % | 1.32 | % | 1.37 | % | 1.57 | % | ||||||||||
Portfolio turnover rate | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 27,918 | $ | 27,165 | $ | 23,439 | $ | 21,834 | $ | 17,581 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.62 | $ | 11.83 | $ | 12.42 | $ | 11.09 | $ | 8.02 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.68 | 0.62 | 0.60 | 0.67 | 0.66 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.93 | ) | 1.11 | (0.41 | ) | 1.33 | 2.99 | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.24 | ) | 1.75 | 0.22 | 2.05 | 3.77 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.86 | ) | (0.64 | ) | (0.65 | ) | (0.72 | ) | (0.70 | ) | ||||||||||
From net realized gain on investments | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.86 | ) | (0.96 | ) | (0.81 | ) | (0.72 | ) | (0.70 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 11.52 | $ | 12.62 | $ | 11.83 | $ | 12.42 | $ | 11.09 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (1.98 | %) | 15.68 | % | 1.96 | % | 19.09 | % | 49.04 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.58 | % | 5.22 | % | 5.03 | % | 5.77 | % | 6.77 | % | ||||||||||
Net expenses | 1.16 | % | 1.17 | % | 1.22 | % | 1.25 | % | 1.32 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.16 | % | 1.17 | % | 1.22 | % | 1.25 | % | 1.40 | % | ||||||||||
Portfolio turnover rate | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 152,832 | $ | 179,430 | $ | 144,272 | $ | 159,834 | $ | 119,132 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.45 | $ | 11.68 | $ | 12.28 | $ | 10.97 | $ | 7.94 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.56 | 0.51 | 0.49 | 0.56 | 0.57 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.91 | ) | 1.09 | (0.41 | ) | 1.32 | 2.96 | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.34 | ) | 1.62 | 0.11 | 1.93 | 3.65 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.76 | ) | (0.53 | ) | (0.55 | ) | (0.62 | ) | (0.62 | ) | ||||||||||
From net realized gain on investments | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.76 | ) | (0.85 | ) | (0.71 | ) | (0.62 | ) | (0.62 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 11.35 | $ | 12.45 | $ | 11.68 | $ | 12.28 | $ | 10.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.89 | %) | 14.60 | % | 1.13 | % | 18.11 | % | 47.69 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.70 | % | 4.35 | % | 4.18 | % | 4.90 | % | 5.98 | % | ||||||||||
Net expenses | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.24 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.32 | % | ||||||||||
Portfolio turnover rate | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 15,290 | $ | 20,101 | $ | 21,961 | $ | 27,314 | $ | 25,651 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.46 | $ | 11.69 | $ | 12.29 | $ | 10.98 | $ | 7.95 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.56 | 0.51 | 0.49 | 0.56 | 0.56 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.90 | ) | 1.09 | (0.41 | ) | 1.32 | 2.97 | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.01 | 0.02 | 0.03 | 0.05 | 0.12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.33 | ) | 1.62 | 0.11 | 1.93 | 3.65 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.76 | ) | (0.53 | ) | (0.55 | ) | (0.62 | ) | (0.62 | ) | ||||||||||
From net realized gain on investments | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.76 | ) | (0.85 | ) | (0.71 | ) | (0.62 | ) | (0.62 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 11.37 | $ | 12.46 | $ | 11.69 | $ | 12.29 | $ | 10.98 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (2.80 | %) | 14.59 | % | 1.13 | % | 18.20 | % | 47.50 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 4.69 | % | 4.35 | % | 4.18 | % | 4.89 | % | 5.85 | % | ||||||||||
Net expenses | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.23 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.05 | % | 2.04 | % | 2.07 | % | 2.12 | % | 2.31 | % | ||||||||||
Portfolio turnover rate | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 68,629 | $ | 91,002 | $ | 80,351 | $ | 87,597 | $ | 57,731 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
20 | MainStay Global High Income Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.63 | $ | 11.84 | $ | 12.43 | $ | 11.10 | $ | 8.02 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.71 | 0.66 | 0.63 | 0.69 | 0.66 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.93 | ) | 1.10 | (0.41 | ) | 1.34 | 3.01 | |||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | 0.01 | 0.02 | 0.03 | 0.05 | 0.13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.21 | ) | 1.78 | 0.25 | 2.08 | 3.80 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.89 | ) | (0.67 | ) | (0.68 | ) | (0.75 | ) | (0.72 | ) | ||||||||||
From net realized gain on investments | — | (0.32 | ) | (0.16 | ) | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.89 | ) | (0.99 | ) | (0.84 | ) | (0.75 | ) | (0.72 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 11.53 | $ | 12.63 | $ | 11.84 | $ | 12.43 | $ | 11.10 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | (1.73 | %) | 15.95 | % | 2.22 | % | 19.48 | % | 49.31 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 5.86 | % | 5.47 | % | 5.31 | % | 5.89 | % | 6.32 | % | ||||||||||
Net expenses | 0.91 | % | 0.92 | % | 0.97 | % | 1.00 | % | 1.12 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.91 | % | 0.92 | % | 0.97 | % | 1.00 | % | 1.12 | % | ||||||||||
Portfolio turnover rate | 36 | % | 31 | % | 65 | % | 92 | % | 133 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 43,678 | $ | 48,852 | $ | 36,027 | $ | 52,188 | $ | 3,972 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Notes to Financial Statements
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Global High Income Fund (the “Fund”), a non-diversified fund.
The Fund currently offers five classes of shares. Class A and Class B shares commenced operations on June 1, 1998. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on August 31, 2007. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The five classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class and Class A shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee.
The Fund’s investment objective is to seek maximum current income by investing in high-yield debt securities of non-U.S. issuers. Capital appreciation is a secondary objective.
The Fund is “non-diversified,” which means that it may invest a greater percentage of its assets than diversified funds in a particular issuer. This may make it more susceptible than diversified funds to risks associated with an individual issuer, and to single economic, political or regulatory occurrences.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility
for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
22 | MainStay Global High Income Fund |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of con-
vertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values measured on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
Credit default swaps are valued at prices supplied by a pricing agent or brokers selected by the Fund’s Manager in consultation with the Fund’s Subadvisor whose prices reflect broker/dealer supplied valuations and electronic data processing techniques. Swaps are marked-to-market daily and the change in value, if any, is recorded as unrealized appreciation or depreciation. These securities are generally categorized as Level 2 in the hierarchy.
Generally, a security is considered illiquid if it cannot be sold or disposed of in the ordinary course of business at approximately the price at which it is valued within seven days. Its illiquidity might prevent the sale of such security at a time when the Fund’s Manager or Subadvisor might wish to sell, and these securities could have the effect of decreasing the overall level of a Fund’s liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, requiring the Fund to rely on judgments that may be somewhat subjective in measuring value, which could vary from the amount that the Fund could realize upon disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to the Fund. Under the supervision of the Board, the Manager or Subadvisor measure the liquidity of the Fund’s investments; in doing so, the Manager or Subadvisor may consider various factors, including (i) the frequency of trades and quotations, (ii) the number of dealers and prospective purchasers, (iii) dealer undertakings to make a market, and (iv) the nature of the security and the market in which it trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
mechanics of transfer). Illiquid securities generally will be valued in good faith in such a manner as the Board deems appropriate to reflect their fair value.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Foreign Taxes. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income, if any, at least monthly and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) 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 financial instrument (e.g., foreign currency, interest rate, security, or securities index). The Fund is subject to equity price risk and/or interest rate risk in the normal course of investing in these transactions. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation 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
24 | MainStay Global High Income Fund |
difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may invest in futures contracts to help manage the duration and yield curve of the portfolio while minimizing the exposure to wider bid/ask spreads in traditional bonds. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund.
(J) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation 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. Cash movement occurs on settlement date. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund may enter into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward contracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(K) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in
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, and |
(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(L) Swap Contracts. The Fund may enter into credit default, interest rate, index and currency exchange rate contracts (“swaps”) for the purpose of attempting to obtain a desired return at a lower cost to the Fund, rather than directly investing in an instrument yielding that desired return or to hedge against credit and interest rate risk. In a typical swap transaction, two parties agree to exchange the returns (or differentials in rates of returns) earned or realized on a particular investment or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a notional amount. The payments may be adjusted for transaction costs, interest payments, the amount of interest paid on the investment or instrument or other factors. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the custodian bank or broker in accordance with the swap.
Credit default swaps, in particular, are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive a specified return in the event of a default by a third party on its obligation. Such periodic payments are accrued daily and recorded as a realized gain or loss. Credit default swaps may be used to provide a measure of protection against defaults of sovereign or corporate issuers.
Swaps are “marked-to-market” daily based upon quotations from pricing agents, brokers, or market makers and the change in value, if any, is recorded as unrealized appreciation or depreciation. Any payments made or received upon entering a swap would be amortized or accreted over the life of the swap and recorded as a realized gain or loss. Early termination of a swap is recorded as a realized gain or loss.
The Fund bears the risk of loss of the amount expected to be received under a swap in the event of the default or bankruptcy of the swap counterparty. The Fund may be able to eliminate its exposure under a swap either by assignment or other disposition, or by entering into an offsetting swap with the same party or a similar creditworthy party.
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
Swaps are not actively traded on financial markets. Entering into swaps involves elements of credit, market, and documentation risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibilities that there will be no liquid market for these swaps, that the counterparty to the swaps may default on its obligation to perform or disagree as to the meaning of the contractual terms in the swaps and that there may be unfavorable changes in interest rates, the price of the index or the security underlying these transactions. As of October 31, 2013, the Fund did not hold any swap contracts.
(M) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. Government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(N) Concentration of Risk. The Fund’s principal investments include high yield securities (sometimes called ‘‘junk bonds’’), which are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities pay investors a premium—a high interest rate or yield—because of the increased risk of loss. These securities can also be subject to greater price volatility.
The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(O) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in
the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(P) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
Fair value of derivatives instruments as of October 31, 2013:
Asset Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||
Forward Contracts | Unrealized appreciation on foreign currency forward contracts | $ | 335,399 | $ | — | $ | 335,399 | |||||||
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Total Fair Value | $ | 335,399 | $ | — | $ | 335,399 | ||||||||
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Liability Derivatives
Statement of Assets and Liabilities Location | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||
Futures Contracts | Net Assets-Net unrealized appreciation (depreciation) on investments and futures contracts (a) | $ | $ | (403,071 | ) | $ | (403,071 | ) | ||||||
Forward Contracts | Unrealized depreciation on foreign currency forward contracts | (182,980 | ) | — | (182,980 | ) | ||||||||
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Total Fair Value | $ | (182,980 | ) | $ | (403,071 | ) | $ | (586,051 | ) | |||||
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(a) | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Portfolio of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
26 | MainStay Global High Income Fund |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||
Futures Contracts | Net realized gain (loss) on futures transactions | $ | — | $ | (24,306 | ) | $ | (24,306 | ) | |||||
Forward Contracts | Net realized gain (loss) on foreign currency transactions | 242,800 | — | 242,800 | ||||||||||
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Total Realized Gain (Loss) | $ | 242,800 | $ | (24,306 | ) | $ | 218,494 | |||||||
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Change in Unrealized Appreciation (Depreciation)
Statement of Operations Location | Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | |||||||||||
Futures Contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | — | $ | (403,071 | ) | $ | (403,071 | ) | |||||
Forward Contracts | Net change in unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies and foreign currency forward contracts | 122,866 | — | 122,866 | ||||||||||
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Total Change in Unrealized Appreciation (Depreciation) | $ | 122,866 | $ | (403,071 | ) | $ | (280,205 | ) | ||||||
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Number of Contracts, Notional Amounts or Shares/Units (1)
Foreign Exchange Contracts Risk | Interest Rate Contracts Risk | Total | ||||||||
Futures Contracts Short | — | (461 | ) | (461 | ) | |||||
Forward Contracts Long | $37,243,706 | — | $ | 37,243,706 | ||||||
Forward Contracts Short | $(40,974,686) | — | $ | (40,974,686 | ) | |||||
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(1) | Amount disclosed represents the average held during the year ended October 31, 2013. |
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of
New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. MacKay Shields LLC (“MacKay Shields” or the “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and MacKay Shields, New York Life Investments pays for the services of the Subadvisor.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.70% to $500 million and 0.65% in excess of $500 million, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate was 0.72% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.02% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $2,546,348.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution and Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class and Class A Plans, the Distributor receives a monthly distribution fee from the Investor Class and Class A shares at an annual rate of 0.25% of the average daily net assets of the Investor Class and Class A shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $19,193 and $80,626, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Class A, Class B and Class C shares of $4,498, $38,893 and $11,653, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 69,593 | ||
Class A | 183,487 | |||
Class B | 45,916 | |||
Class C | 207,363 | |||
Class I | 58,393 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 6,870,689 | 4.5 | % |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary Income | Accumulated Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||||
$316,119 | $ | 468,475 | $ | (309,288 | ) | $ | 10,314,817 | $ | 10,790,123 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to mark to market of foreign forward contracts and mark to market of future contracts.
The other temporary differences are primarily due to dividends payable.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||||
$84,129 | $ | (84,129 | ) | $ | — |
The reclassifications for the Fund are primarily due to foreign currency gain (loss), defaulted bond income accruals, consent fees and distribution redesignations.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The Fund utilized $31,681 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013, and October 31, 2012, shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 24,358,516 | $ | 18,673,611 | ||||
Long-Term Capital Gain | — | 6,561,606 | ||||||
Total | $ | 24,358,516 | $ | 25,235,217 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds
28 | MainStay Global High Income Fund |
Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of U.S. government securities were $18,144 and $18,053, respectively. Purchases and sales of securities, other than U.S. government securities and short-term securities, were $103,423 and $135,926, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 435,085 | $ | 5,404,971 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 155,201 | 1,882,967 | ||||||
Shares redeemed | (431,784 | ) | (5,224,159 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | 158,502 | 2,063,779 | ||||||
Shares converted into Investor Class (See Note 1) | 241,359 | 2,891,415 | ||||||
Shares converted from Investor Class (See Note 1) | (131,697 | ) | (1,611,994 | ) | ||||
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Net increase (decrease) | 268,164 | $ | 3,343,200 | |||||
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Year ended October 31, 2012: | ||||||||
Shares sold | 372,134 | $ | 4,460,524 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 159,077 | 1,875,394 | ||||||
Shares redeemed | (317,774 | ) | (3,793,141 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | 213,437 | 2,542,777 | ||||||
Shares converted into Investor Class (See Note 1) | 172,480 | 2,062,845 | ||||||
Shares converted from Investor Class (See Note 1) | (216,830 | ) | (2,612,364 | ) | ||||
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Net increase (decrease) | 169,087 | $ | 1,993,258 | |||||
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Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 5,213,370 | $ | 63,530,381 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 773,876 | 9,312,782 | ||||||
Shares redeemed | (7,020,385 | ) | (84,782,472 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | (1,033,139 | ) | (11,939,309 | ) | ||||
Shares converted into Class A (See Note 1) | 206,962 | 2,502,031 | ||||||
Shares converted from Class A (See Note 1) | (124,073 | ) | (1,455,358 | ) | ||||
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Net increase (decrease) | (950,250 | ) | $ | (10,892,636 | ) | |||
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Year ended October 31, 2012: | ||||||||
Shares sold | 5,119,258 | $ | 61,476,229 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 742,513 | 8,700,600 | ||||||
Shares redeemed | (4,180,155 | ) | (49,963,776 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | 1,681,616 | 20,213,053 | ||||||
Shares converted into Class A (See Note 1) | 369,189 | 4,390,805 | ||||||
Shares converted from Class A (See Note 1) | (27,285 | ) | (339,062 | ) | ||||
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Net increase (decrease) | 2,023,520 | $ | 24,264,796 | |||||
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Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 253,576 | $ | 3,084,566 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 79,687 | 951,451 | ||||||
Shares redeemed | (404,914 | ) | (4,752,162 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | (71,651 | ) | (716,145 | ) | ||||
Shares converted from Class B (See Note 1) | (196,099 | ) | (2,326,094 | ) | ||||
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Net increase (decrease) | (267,750 | ) | $ | (3,042,239 | ) | |||
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Year ended October 31, 2012: | ||||||||
Shares sold | 260,630 | $ | 3,060,681 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 109,051 | 1,255,122 | ||||||
Shares redeemed | (333,617 | ) | (3,919,815 | ) | ||||
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Net increase (decrease) in shares outstanding before conversion | 36,064 | 395,988 | ||||||
Shares converted from Class B (See Note 1) | (301,184 | ) | (3,502,224 | ) | ||||
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Net increase (decrease) | (265,120 | ) | $ | (3,106,236 | ) | |||
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Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,116,473 | $ | 13,606,499 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 307,948 | 3,679,563 | ||||||
Shares redeemed | (2,688,175 | ) | (31,722,330 | ) | ||||
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| |||||
Net increase (decrease) | (1,263,754 | ) | $ | (14,436,268 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 1,550,892 | $ | 18,281,318 | |||||
Shares issued to shareholders in reinvestments of dividends and distributions | 333,307 | 3,849,049 | ||||||
Shares redeemed | (1,453,119 | ) | (17,017,512 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 431,080 | $ | 5,112,855 | |||||
|
|
|
| |||||
mainstayinvestments.com | 29 |
Notes to Financial Statements (continued)
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 2,253,019 | $ | 27,875,193 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 111,908 | 1,357,340 | ||||||
Shares redeemed | (2,444,405 | ) | (28,972,456 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (79,478 | ) | $ | 260,077 | ||||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 2,465,677 | $ | 29,280,596 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 116,597 | 1,370,164 | ||||||
Shares redeemed | (1,757,404 | ) | (20,918,119 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 824,870 | $ | 9,732,641 | |||||
|
|
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
30 | MainStay Global High Income Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Global High Income Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Global High Income Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 31 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
32 | MainStay Global High Income Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 33 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
34 | MainStay Global High Income Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 35 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
36 | MainStay Global High Income Fund |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32112 MS322-13 | MSGH11-12/13 NL020 |
MainStay International Equity Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 8.74 15.07 | %
| 6.35% 7.56 |
| 6.01% 6.61 |
|
| 1.74% 1.74 |
| ||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 9.08 15.43 |
| 6.67 7.89 |
| 6.19 6.79 |
|
| 1.40 1.40 |
| ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 9.15 14.15 |
| 6.44 6.75 |
| 5.79 5.79 |
|
| 2.49 2.49 |
| ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 13.15 14.15 |
| 6.74 6.74 |
| 5.79 5.79 |
|
| 2.49 2.49 |
| ||||||
Class I Shares4 | No Sales Charge | 15.72 | 8.17 | 7.21 | 1.15 | |||||||||||||
Class R1 Shares4 | No Sales Charge | 15.68 | 8.09 | 7.07 | 1.25 | |||||||||||||
Class R2 Shares4 | No Sales Charge | 15.34 | 7.80 | 6.85 | 1.50 | |||||||||||||
Class R3 Shares5 | No Sales Charge | 15.02 | 7.53 | 6.48 | 1.75 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the periods of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. Performance figures shown reflect non-recurring reimbursements from affiliates for professional fees and losses attributable to shareholder trading arrangements. If these non-recurring reimbursements had not been made the total return (excluding sales charges) would have been 6.77% for Class A, 5.77% for Class B, 5.77% for Class C, 7.19% for Class I, 7.05% for Class R1, and 6.82% for Class R2 for the ten-year period ended October 31, 2013. Investor Class and Class R3 shares were not affected, because the reimbursement occurred prior to the launch of these share classes. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class I, R1 and R2 shares, each of which was first offered on January 2, 2004, include the historical performance of Class B shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I, R1 and R2 shares would likely have been different. |
5. | Performance figures for Class R3 shares, which were first offered on April 28, 2006, include the historical performance of Class B shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
MSCI ACWI® Ex U.S.6 | 20.29% | 12.48% | 8.48 | % | ||||||||
MSCI EAFE® Index7 | 26.88 | 11.99 | 7.71 | |||||||||
Average Lipper International Multi-Cap Growth Fund8 | 21.94 | 12.43 | 7.47 |
6. | The MSCI ACWI® Ex U.S. is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the United States. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. Effective July 1, 2013, the Fund has selected the MSCI ACWI® Ex U.S. as its broad-based securities market index. |
7. | The MSCI EAFE® Index consists of international stocks representing the developed world outside of North America. The MSCI EAFE® Index is the Fund’s secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
8. | The average Lipper international multi-cap growth fund is representative of funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. International multi-cap growth funds typically have above-average characteristics compared to the MSCI EAFE® Index. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay International Equity Fund |
Cost in Dollars of a $1,000 Investment in MainStay International Equity Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,063.70 | $ | 8.84 | $ | 1,016.60 | $ | 8.64 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,065.30 | $ | 7.13 | $ | 1,018.30 | $ | 6.97 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,059.60 | $ | 12.72 | $ | 1,012.90 | $ | 12.43 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,058.70 | $ | 12.71 | $ | 1,012.90 | $ | 12.43 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,066.60 | $ | 5.83 | $ | 1,019.60 | $ | 5.70 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,066.20 | $ | 6.35 | $ | 1,019.10 | $ | 6.21 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,064.30 | $ | 7.65 | $ | 1,017.80 | $ | 7.48 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,062.90 | $ | 8.94 | $ | 1,016.50 | $ | 8.74 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.70% for Investor Class, 1.37% for Class A, 2.45% for Class B and Class C, 1.12% for Class I, 1.22% for Class R1, 1.47% for Class R2 and 1.72% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Country Composition as of October 31, 2013 (Unaudited)
United Kingdom | 25.2 | % | ||
Germany | 15.2 | |||
France | 7.2 | |||
United States | 5.4 | |||
Japan | 4.9 | |||
Ireland | 4.4 | |||
Sweden | 4.2 | |||
Denmark | 4.0 | |||
Israel | 3.8 | |||
Spain | 3.6 | |||
Switzerland | 3.4 |
China | 2.8 | % | ||
India | 2.4 | |||
Canada | 2.2 | |||
Italy | 2.1 | |||
Brazil | 2.0 | |||
Thailand | 2.0 | |||
Czech Republic | 1.8 | |||
Hong Kong | 1.7 | |||
Indonesia | 0.7 | |||
Other Assets, Less Liabilities | 1.0 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
Top Ten Holdings as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Svenska Handelsbanken AB Class A |
2. | Experian PLC |
3. | Grifols S.A. |
4. | Adidas A.G. |
5. | SABMiller PLC |
6. | Intertek Group PLC |
7. | Linde A.G. |
8. | Johnson Matthey PLC |
9. | Petrofac, Ltd. |
10. | Shire PLC |
8 | MainStay International Equity Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Edward Ramos, CFA, Carlos Garcia-Tunon, CFA, and Eve Glatt of Cornerstone Capital Management Holdings LLC, the Fund’s Subadvisor.
How did MainStay International Equity Fund perform relative to its benchmarks and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay International Equity Fund returned 15.07% for Investor Class shares, 15.43% for Class A shares, 14.15% for Class B shares and 14.15% for Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund’s Class I shares returned 15.72%, Class R1 shares returned 15.68%, Class R2 shares returned 15.34% and Class R3 shares returned 15.02%. For the 12 months ended October 31, 2013, all share classes underperformed the 20.29% return of the MSCI ACWI® Ex U.S.,1 which is the Fund’s broad-based securities-market index; the 26.88% return of the MSCI EAFE® Index,1 which is the Fund’s secondary benchmark; and the 21.94% return of the average Lipper2 international multi-cap growth fund. See page 5 for Fund returns with sales charges.
Were there any changes to the Fund in addition to those discussed in the semiannual report?
Effective July 1, 2013, the Fund selected the MSCI ACWI® (All Country World Index) Ex. U.S., which was previously the Fund’s secondary benchmark, as its primary benchmark in replace-ment of the MSCI EAFE® Index. The MSCI EAFE® Index has been retained as the Fund’s secondary benchmark. The Fund selected the MSCI ACWI® Ex U.S. as its primary benchmark because it believes that this Index is more reflective of its current investment style.
What factors affected the Fund’s relative performance during the reporting period?
Country allocation and stock selection adversely affected the Fund’s performance relative to the MSCI ACWI® Ex U.S. during the reporting period. The impact of country allocation came primarily from an underweight position in Japan, which was among the strongest-performing markets in the Index. Sector allocation contributed positively to the Fund’s relative performance, driven by an overweight allocation to the health care sector, which performed well, and underweight allocations to the materials and energy sectors, which performed poorly. (Contributions take weightings and total returns into account.)
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The strongest-contributing sectors to the Fund’s relative performance were information technology, materials and health care. The Fund’s relative performance in all three sectors benefited from favorable allocation effects, as the Fund was over-
weight relative to the MSCI ACWI® Ex U.S. in health care and information technology, which performed well, and was underweight relative to the Index in materials sector, which under-performed. Relative performance in each of these sectors benefited from favorable stock selection.
The sectors that detracted the most from the Fund’s relative performance were consumer discretionary, industrials and financials. While the Fund benefited from its overweight posi-tion relative to the MSCI ACWI® Ex U.S. in the industrials sector, the Fund was hurt by underweight positions relative to the Index in the financials and consumer discretionary sectors. Stock selection was unfavorable in each of these sectors. The Fund’s quality bias left it underexposed to economically-sensitive companies, which tend to experience greater benefit as the economy improves.
During the reporting period, which individual stocks made the strongest positive contributions to the Fund’s absolute performance and which stocks detracted the most?
The stocks that made the strongest positive contributions to the Fund’s absolute performance were Scandinavian banking group Svenska Handelsbanken, German sportswear maker Adidas and Chinese Internet search engine Baidu. Svenska Handelsbanken benefited from ongoing growth in its core markets as well as in the U.K. Adidas increased sales and profits in light of strength in its retail division and ongoing sales growth in China. Baidu benefited from increased investor confidence in the company’s mobile search strategy. The company’s recent acquisitions may help extend the company’s high market share in personal-computer search to the mobile market.
The stocks that detracted the most from the Fund’s absolute performance were U.K. power solutions company Aggreko, Brazilian retailer Cia Hering and Hong Kong–based consumer goods sourcing company Li & Fung. Aggreko’s stock suffered from the expiration of high-margin contracts in Japan and from weaker-than-expected emerging-market demand. Cia Hering felt the effects of a sluggish consumer-spending environment in Brazil. Li & Fung’s stock was negatively affected by weaker-than-expected results for the company’s U.S. distribution business. We sold the Fund’s positions in Cia Hering and Li & Fung by the end of the reporting period.
Did the Fund make any significant purchases or sales during the reporting period?
Noteworthy purchases during the reporting period included new positions in Swiss crop-protection chemical company Syngenta, U.K. hospitality company Whitbread and Chinese Internet search engine Baidu.
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
During the reporting period, the Fund sold its positions in Hong Kong consumer goods sourcing company Li & Fung, Brazilian retailer Cia Hering and Australian share registry manager Computershare Limited.
How did the Fund’s sector weightings change during the reporting period?
During the 12 months ended October 31, 2013, the Fund increased its weightings in the materials, information technology and energy sectors. Over the same period, the Fund reduced its weightings in the consumer staples, consumer discretionary and financials sectors.
How was the Fund positioned at the end of the reporting period?
As of October 2013, the Fund held overweight positions relative to the MSCI ACWI® Ex U.S. in the health care, information technology and industrials sectors. As of the same date, the Fund held underweight positions relative to the MSCI ACWI® Ex U.S. in the financials, consumer staples and telecommunication services sectors.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay International Equity Fund |
Portfolio of Investments October 31, 2013
Shares | Value | |||||||
Common Stocks 97.0%† | ||||||||
Brazil 2.0% |
| |||||||
Cielo S.A. (IT Services) | 219,380 | $ | 6,659,155 | |||||
|
| |||||||
Canada 2.2% | ||||||||
Open Text Corp. (Software) | 99,559 | 7,301,657 | ||||||
|
| |||||||
China 2.8% | ||||||||
Baidu, Inc., Sponsored ADR (Internet Software & Services) (a) | 31,944 | 5,139,790 | ||||||
China Shenhua Energy Co., Ltd. Class H (Oil, Gas & Consumable Fuels) | 1,378,200 | 4,186,329 | ||||||
|
| |||||||
9,326,119 | ||||||||
|
| |||||||
Czech Republic 1.8% | ||||||||
Komercni Banka A.S. (Commercial Banks) | 24,880 | 6,176,959 | ||||||
|
| |||||||
Denmark 4.0% | ||||||||
Coloplast A/S Class B (Health Care Equipment & Supplies) | 101,728 | 6,633,408 | ||||||
FLSmidth & Co. A/S (Construction & Engineering) | 139,112 | 6,951,485 | ||||||
|
| |||||||
13,584,893 | ||||||||
|
| |||||||
France 7.2% | ||||||||
Bureau Veritas S.A. (Professional Services) | 244,920 | 7,395,689 | ||||||
Essilor International S.A. (Health Care Equipment & Supplies) | 82,425 | 8,852,277 | ||||||
Technip S.A. (Energy Equipment & Services) | 75,827 | 7,942,905 | ||||||
|
| |||||||
24,190,871 | ||||||||
|
| |||||||
Germany 15.2% | ||||||||
¨Adidas A.G. (Textiles, Apparel & Luxury Goods) | 104,883 | 11,973,397 | ||||||
Brenntag A.G. (Trading Companies & Distributors) | 41,576 | 7,044,933 | ||||||
Fresenius Medical Care A.G. & Co. KGaA (Health Care Providers & Services) | 125,314 | 8,296,270 | ||||||
¨Linde A.G. (Chemicals) | 59,230 | 11,254,708 | ||||||
United Internet A.G. (Internet Software & Services) | 193,677 | 7,652,276 | ||||||
Wirecard A.G. (IT Services) | 129,615 | 4,726,068 | ||||||
|
| |||||||
50,947,652 | ||||||||
|
| |||||||
Hong Kong 1.7% | ||||||||
Samsonite International S.A. (Textiles, Apparel & Luxury Goods) | 2,109,600 | 5,754,939 | ||||||
|
|
Shares | Value | |||||||
India 2.4% | ||||||||
Genpact, Ltd. (IT Services) (a) | 202,995 | $ | 4,025,391 | |||||
Housing Development Finance Corp. (Thrifts & Mortgage Finance) | 283,825 | 3,957,986 | ||||||
|
| |||||||
7,983,377 | ||||||||
|
| |||||||
Indonesia 0.7% | ||||||||
Media Nusantara Citra Tbk PT (Media) | 10,124,000 | 2,245,287 | ||||||
|
| |||||||
Ireland 4.4% | ||||||||
ICON PLC (Life Sciences Tools & Services) (a) | 105,404 | 4,262,538 | ||||||
¨Shire PLC (Pharmaceuticals) | 235,516 | 10,388,496 | ||||||
|
| |||||||
14,651,034 | ||||||||
|
| |||||||
Israel 3.8% | ||||||||
Check Point Software Technologies, Ltd. (Software) (a) | 144,832 | 8,403,153 | ||||||
Teva Pharmaceutical Industries, Ltd., Sponsored ADR (Pharmaceuticals) | 116,158 | 4,308,300 | ||||||
|
| |||||||
12,711,453 | ||||||||
|
| |||||||
Italy 2.1% | ||||||||
DiaSorin S.p.A. (Health Care Equipment & Supplies) | 146,492 | 6,933,633 | ||||||
|
| |||||||
Japan 4.9% | ||||||||
Avex Group Holdings, Inc. (Media) | 190,000 | 4,803,621 | ||||||
Daito Trust Construction Co., Ltd. (Real Estate Management & Development) | 56,000 | �� | 5,700,803 | |||||
Sysmex Corp. (Health Care Equipment & Supplies) | 92,300 | 6,073,233 | ||||||
|
| |||||||
16,577,657 | ||||||||
|
| |||||||
Spain 3.6% | ||||||||
¨Grifols S.A. (Biotechnology) | 297,497 | 12,200,595 | ||||||
|
| |||||||
Sweden 4.2% | ||||||||
¨Svenska Handelsbanken AB Class A (Commercial Banks) | 307,473 | 13,931,076 | ||||||
|
| |||||||
Switzerland 3.4% | ||||||||
DKSH Holding A.G. (Professional Services) | 40,912 | 3,420,042 | ||||||
Syngenta A.G. (Chemicals) | 19,480 | 7,868,430 | ||||||
|
| |||||||
11,288,472 | ||||||||
|
| |||||||
Thailand 2.0% | ||||||||
Kasikornbank PCL (Commercial Banks) | 1,088,300 | 6,783,300 | ||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
United Kingdom 25.2% | ||||||||
Aggreko PLC (Commercial Services & Supplies) | 387,634 | $ | 10,006,666 | |||||
¨Experian PLC (Professional Services) | 614,462 | 12,512,394 | ||||||
¨Intertek Group PLC (Professional Services) | 221,245 | 11,820,072 | ||||||
¨Johnson Matthey PLC (Chemicals) | 229,536 | 11,055,857 | ||||||
¨Petrofac, Ltd. (Energy Equipment & Services) | 449,584 | 10,546,220 | ||||||
¨SABMiller PLC (Beverages) | 227,524 | 11,870,976 | ||||||
Standard Chartered PLC (Commercial Banks) | 320,912 | 7,715,678 | ||||||
Telecity Group PLC (Internet Software & Services) | 315,240 | 3,854,099 | ||||||
Whitbread PLC (Hotels, Restaurants & Leisure) | 95,451 | 5,254,071 | ||||||
|
| |||||||
84,636,033 | ||||||||
|
| |||||||
United States 3.4% | ||||||||
Accenture PLC Class A (IT Services) | 45,193 | 3,321,686 | ||||||
ResMed, Inc. (Health Care Equipment & Supplies) | 159,395 | 8,247,097 | ||||||
|
| |||||||
11,568,783 | ||||||||
|
| |||||||
Total Common Stocks | 325,452,945 | |||||||
|
| |||||||
Principal Amount | Value | |||||||
Short-Term Investment 2.0% | ||||||||
Repurchase Agreement 2.0% | ||||||||
United States 2.0% | ||||||||
State Street Bank and Trust Co. | $ | 6,861,080 | $ | 6,861,080 | ||||
|
| |||||||
Total Short-Term Investment | 6,861,080 | |||||||
|
| |||||||
Total Investments | 99.0 | % | 332,314,025 | |||||
Other Assets, Less Liabilities | 1.0 | 3,303,699 | ||||||
Net Assets | 100.0 | % | $ | 335,617,724 |
(a) | Non-income producing security. |
(b) | As of October 31, 2013, cost is $265,590,682 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 74,133,451 | ||
Gross unrealized depreciation | (7,410,108 | ) | ||
|
| |||
Net unrealized appreciation | $ | 66,723,343 | ||
|
|
The following abbreviation is used in the above portfolio:
ADR—American Depositary Receipt
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 325,452,945 | $ | — | $ | — | $ | 325,452,945 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 6,861,080 | — | 6,861,080 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 325,452,945 | $ | 6,861,080 | $ | — | $ | 332,314,025 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
12 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The table below sets forth the diversification of MainStay International Equity Fund investments by industry.
Industry Diversification (Unaudited)
Value | Percent † | |||||||
Beverages | $ | 11,870,976 | 3.5 | % | ||||
Biotechnology | 12,200,595 | 3.6 | ||||||
Capital Markets | 6,861,080 | 2.0 | ||||||
Chemicals | 30,178,995 | 9.0 | ||||||
Commercial Banks | 34,607,013 | 10.3 | ||||||
Commercial Services & Supplies | 10,006,666 | 3.0 | ||||||
Construction & Engineering | 6,951,485 | 2.1 | ||||||
Energy Equipment & Services | 18,489,125 | 5.5 | ||||||
Health Care Equipment & Supplies | 36,739,648 | 10.9 | ||||||
Health Care Providers & Services | 8,296,270 | 2.5 | ||||||
Hotels, Restaurants & Leisure | 5,254,071 | 1.6 | ||||||
Internet Software & Services | 16,646,165 | 4.9 | ||||||
IT Services | 18,732,300 | 5.6 | ||||||
Life Sciences Tools & Services | 4,262,538 | 1.3 | ||||||
Media | 7,048,908 | 2.1 | ||||||
Oil, Gas & Consumable Fuels | 4,186,329 | 1.2 | ||||||
Pharmaceuticals | 14,696,796 | 4.4 | ||||||
Professional Services | 35,148,197 | 10.5 | ||||||
Real Estate Management & Development | 5,700,803 | 1.7 | ||||||
Software | 15,704,810 | 4.7 | ||||||
Textiles, Apparel & Luxury Goods | 17,728,336 | 5.3 | ||||||
Thrifts & Mortgage Finance | 3,957,986 | 1.2 | ||||||
Trading Companies & Distributors | 7,044,933 | 2.1 | ||||||
|
|
|
| |||||
332,314,025 | 99.0 | |||||||
Other Assets, Less Liabilities | 3,303,699 | 1.0 | ||||||
|
|
|
| |||||
Net Assets | $ | 335,617,724 | 100.0 | % | ||||
|
|
|
|
† | 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. | mainstayinvestments.com | 13 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 332,314,025 | ||
Cash denominated in foreign currencies | 3,000,500 | |||
Receivables: | ||||
Investment securities sold | 1,600,661 | |||
Dividends and interest | 301,882 | |||
Fund shares sold | 100,651 | |||
Other assets | 23,602 | |||
|
| |||
Total assets | 337,341,321 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 704,673 | |||
Foreign capital gains tax (See Note 2(C)) | 295,245 | |||
Fund shares redeemed | 252,917 | |||
Manager (See Note 3) | 252,329 | |||
Transfer agent (See Note 3) | 101,950 | |||
NYLIFE Distributors (See Note 3) | 42,925 | |||
Shareholder communication | 39,996 | |||
Professional fees | 16,394 | |||
Custodian | 11,629 | |||
Trustees | 733 | |||
Accrued expenses | 4,806 | |||
|
| |||
Total liabilities | 1,723,597 | |||
|
| |||
Net assets | $ | 335,617,724 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 251,722 | ||
Additional paid-in capital | 382,465,530 | |||
|
| |||
382,717,252 | ||||
Undistributed net investment income | 1,002,562 | |||
Accumulated net realized gain (loss) on investments, futures transactions and foreign currency transactions (a) | (115,046,361 | ) | ||
Net unrealized appreciation (depreciation) on investments (b) | 66,952,224 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | (7,953 | ) | ||
|
| |||
Net assets | $ | 335,617,724 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 37,456,693 | ||
|
| |||
Shares of beneficial interest outstanding | 2,805,968 | |||
|
| |||
Net asset value per share outstanding | $ | 13.35 | ||
Maximum sales charge (5.50% of offering price) | 0.78 | |||
|
| |||
Maximum offering price per share outstanding | $ | 14.13 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 57,947,524 | ||
|
| |||
Shares of beneficial interest outstanding | 4,333,888 | |||
|
| |||
Net asset value per share outstanding | $ | 13.37 | ||
Maximum sales charge (5.50% of offering price) | 0.78 | |||
|
| |||
Maximum offering price per share outstanding | $ | 14.15 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 13,980,841 | ||
|
| |||
Shares of beneficial interest outstanding | 1,140,246 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 12.26 | ||
|
| |||
Class C |
| |||
Net assets applicable to outstanding shares | $ | 10,088,403 | ||
|
| |||
Shares of beneficial interest outstanding | 822,550 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 12.26 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 202,289,308 | ||
|
| |||
Shares of beneficial interest outstanding | 15,034,565 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.45 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 4,002,724 | ||
|
| |||
Shares of beneficial interest outstanding | 299,426 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.37 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 8,487,189 | ||
|
| |||
Shares of beneficial interest outstanding | 633,374 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.40 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,365,042 | ||
|
| |||
Shares of beneficial interest outstanding | 102,219 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 13.35 | ||
|
|
(a) | Realized gain (loss) on security transactions net of foreign capital gains tax in the amount of $153,708. |
(b) | Unrealized appreciation (depreciation) on investments net of foreign capital gains tax in the amount of $295,245. |
14 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 5,626,679 | ||
Interest (b) | 2,459 | |||
|
| |||
Total income | 5,629,138 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 2,868,486 | |||
Transfer agent (See Note 3) | 628,806 | |||
Distribution/Service—Investor Class (See Note 3) | 90,014 | |||
Distribution/Service—Class A (See Note 3) | 146,559 | |||
Distribution/Service—Class B (See Note 3) | 147,366 | |||
Distribution/Service—Class C (See Note 3) | 105,258 | |||
Distribution/Service—Class R2 (See Note 3) | 20,891 | |||
Distribution/Service—Class R3 (See Note 3) | 6,162 | |||
Registration | 98,373 | |||
Shareholder communication | 82,153 | |||
Custodian | 77,012 | |||
Professional fees | 64,646 | |||
Shareholder service (See Note 3) | 13,771 | |||
Trustees | 6,567 | |||
Miscellaneous | 23,522 | |||
|
| |||
Total expenses | 4,379,586 | |||
|
| |||
Net investment income (loss) | 1,249,552 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions (c) | 12,748,525 | |||
Futures transactions | 81,842 | |||
Foreign currency transactions | (93,189 | ) | ||
|
| |||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 12,737,178 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments (d) | 32,220,379 | |||
Translation of other assets and liabilities in foreign currencies | (108,340 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 32,112,039 | |||
|
| |||
Net realized and unrealized gain (loss) on investments, futures transactions and foreign currency transactions | 44,849,217 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 46,098,769 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $550,918. |
(b) | Interest recorded net of foreign withholding taxes in the amount of $95. |
(c) | Realized gain (loss) on security transactions net of foreign capital gains tax in the amount of $153,708. |
(d) | Change in unrealized appreciation (depreciation) on investments net of foreign capital gains tax in the amount of $295,245. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,249,552 | $ | 2,783,960 | ||||
Net realized gain (loss) on investments, futures transactions and foreign currency transactions | 12,737,178 | (8,735,093 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 32,112,039 | 37,442,478 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 46,098,769 | 31,491,345 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (176,467 | ) | (893,973 | ) | ||||
Class A | (498,406 | ) | (1,933,319 | ) | ||||
Class B | — | (379,000 | ) | |||||
Class C | — | (232,501 | ) | |||||
Class I | (1,910,002 | ) | (5,180,205 | ) | ||||
Class R1 | (43,128 | ) | (142,357 | ) | ||||
Class R2 | (57,790 | ) | (330,290 | ) | ||||
Class R3 | (3,211 | ) | (39,158 | ) | ||||
|
| |||||||
Total dividends to shareholders | (2,689,004 | ) | (9,130,803 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 52,425,896 | 71,221,509 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 2,623,458 | 8,641,477 | ||||||
Cost of shares redeemed | (80,429,479 | ) | (128,600,287 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (25,380,125 | ) | (48,737,301 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 18,029,640 | (26,376,759 | ) | |||||
Net Assets | ||||||||
Beginning of year | 317,588,084 | 343,964,843 | ||||||
|
| |||||||
End of year | $ | 335,617,724 | $ | 317,588,084 | ||||
|
| |||||||
Undistributed net investment income at end of year | $ | 1,002,562 | $ | 2,688,911 | ||||
|
|
16 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.66 | $ | 10.81 | $ | 12.66 | $ | 12.24 | $ | 10.96 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.01 | 0.06 | 0.21 | 0.22 | (b) | 0.23 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.75 | 1.07 | (1.62 | ) | 0.44 | 1.73 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.75 | 1.13 | (1.50 | ) | 0.74 | 2.14 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.06 | ) | (0.28 | ) | (0.35 | ) | (0.32 | ) | (0.86 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 13.35 | $ | 11.66 | $ | 10.81 | $ | 12.66 | $ | 12.24 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 15.07 | % | 10.81 | % | (12.19 | %) | 6.11 | % | 21.20 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.05 | % | 0.54 | % | 1.77 | % | 1.82 | %(b) | 2.19 | % | ||||||||||
Net expenses | 1.72 | % | 1.77 | % | 1.71 | % | 1.75 | % | 1.71 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.72 | % | 1.77 | % | 1.71 | % | 1.75 | % | 1.86 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 37,457 | $ | 34,822 | $ | 34,895 | $ | 39,843 | $ | 39,969 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.68 | $ | 10.82 | $ | 12.66 | $ | 12.24 | $ | 10.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.05 | 0.10 | 0.26 | 0.25 | (b) | 0.26 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.75 | 1.07 | (1.63 | ) | 0.44 | 1.73 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.79 | 1.17 | (1.46 | ) | 0.77 | 2.17 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.10 | ) | (0.31 | ) | (0.38 | ) | (0.35 | ) | (0.90 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 13.37 | $ | 11.68 | $ | 10.82 | $ | 12.66 | $ | 12.24 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 15.43 | % | 11.27 | % | (11.96 | %) | 6.31 | % | 21.57 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.38 | % | 0.87 | % | 2.11 | % | 2.11 | %(b) | 2.40 | % | ||||||||||
Net expenses | 1.40 | % | 1.43 | % | 1.46 | % | 1.44 | % | 1.39 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.40 | % | 1.43 | % | 1.46 | % | 1.44 | % | 1.42 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 57,948 | $ | 60,303 | $ | 72,699 | $ | 104,169 | $ | 117,023 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.73 | $ | 9.95 | $ | 11.67 | $ | 11.33 | $ | 10.17 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.02 | ) | 0.11 | 0.12 | (b) | 0.14 | ||||||||||||
Net realized and unrealized gain (loss) on investments | 1.62 | 0.99 | (1.49 | ) | 0.39 | 1.61 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.08 | ) | 0.07 | 0.16 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.53 | 0.97 | (1.46 | ) | 0.58 | 1.91 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | — | (0.19 | ) | (0.26 | ) | (0.24 | ) | (0.75 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 12.26 | $ | 10.73 | $ | 9.95 | $ | 11.67 | $ | 11.33 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 14.26 | % (e) | 10.05 | % | (12.81 | %) | 5.17 | % | 20.31 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.73 | %) | (0.22 | %) | 1.02 | % | 1.04 | %(b) | 1.41 | % | ||||||||||
Net expenses | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.46 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.62 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 13,981 | $ | 16,186 | $ | 20,509 | $ | 31,314 | $ | 36,397 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(e) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 10.74 | $ | 9.96 | $ | 11.68 | $ | 11.32 | $ | 10.17 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.08 | ) | (0.02 | ) | 0.12 | 0.12 | (b) | 0.13 | ||||||||||||
Net realized and unrealized gain (loss) on investments | 1.61 | 0.99 | (1.50 | ) | 0.41 | 1.61 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.08 | ) | 0.07 | 0.16 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.52 | 0.97 | (1.46 | ) | 0.60 | 1.90 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | — | (0.19 | ) | (0.26 | ) | (0.24 | ) | (0.75 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 12.26 | $ | 10.74 | $ | 9.96 | $ | 11.68 | $ | 11.32 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 14.15 | % | 10.05 | % | (12.88 | %) | 5.23 | % | 20.32 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.71 | %) | (0.21 | %) | 1.07 | % | 1.09 | %(b) | 1.34 | % | ||||||||||
Net expenses | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.46 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.47 | % | 2.52 | % | 2.46 | % | 2.50 | % | 2.60 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 10,088 | $ | 11,111 | $ | 12,960 | $ | 19,242 | $ | 19,079 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
18 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.75 | $ | 10.89 | $ | 12.75 | $ | 12.33 | $ | 11.05 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.08 | 0.13 | 0.26 | 0.29 | (b) | 0.29 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.76 | 1.07 | (1.62 | ) | 0.43 | 1.75 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.83 | 1.20 | (1.45 | ) | 0.80 | 2.22 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.13 | ) | (0.34 | ) | (0.41 | ) | (0.38 | ) | (0.94 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 13.45 | $ | 11.75 | $ | 10.89 | $ | 12.75 | $ | 12.33 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 15.72 | % | 11.45 | % | (11.73 | %) | 6.61 | % | 22.01 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.62 | % | 1.15 | % | 2.16 | % | 2.40 | %(b) | 2.70 | % | ||||||||||
Net expenses | 1.14 | % | 1.18 | % | 1.21 | % | 1.18 | % | 1.08 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.14 | % | 1.18 | % | 1.21 | % | 1.18 | % | 1.17 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 202,289 | $ | 177,726 | $ | 184,373 | $ | 373,332 | $ | 387,245 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
Year ended October 31, | ||||||||||||||||||||
Class R1 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.67 | $ | 10.82 | $ | 12.67 | $ | 12.25 | $ | 10.98 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.06 | 0.11 | 0.26 | 0.27 | (b) | 0.28 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.76 | 1.07 | (1.62 | ) | 0.44 | 1.74 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.18 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.81 | 1.18 | (1.45 | ) | 0.79 | 2.20 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.11 | ) | (0.33 | ) | (0.40 | ) | (0.37 | ) | (0.93 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 13.37 | $ | 11.67 | $ | 10.82 | $ | 12.67 | $ | 12.25 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (d) | 15.68 | % | 11.41 | % | (11.89 | %) | 6.58 | % | 21.89 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.49 | % | 1.04 | % | 2.12 | % | 2.30 | %(b) | 2.58 | % | ||||||||||
Net expenses | 1.25 | % | 1.28 | % | 1.31 | % | 1.29 | % | 1.19 | % | ||||||||||
Expenses (before reimbursement/waiver) | 1.25 | % | 1.28 | % | 1.31 | % | 1.29 | % | 1.27 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 4,003 | $ | 4,677 | $ | 4,760 | $ | 6,225 | $ | 5,348 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class R2 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.70 | $ | 10.84 | $ | 12.69 | $ | 12.27 | $ | 10.99 | ||||||||||
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Net investment income (loss) (a) | 0.03 | 0.09 | 0.24 | 0.25 | (b) | 0.16 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.76 | 1.06 | (1.63 | ) | 0.43 | 1.82 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.08 | 0.19 | ||||||||||||
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Total from investment operations | 1.78 | 1.15 | (1.48 | ) | 0.76 | 2.17 | ||||||||||||||
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From net investment income | (0.08 | ) | (0.29 | ) | (0.37 | ) | (0.34 | ) | (0.89 | ) | ||||||||||
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Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
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Net asset value at end of year | $ | 13.40 | $ | 11.70 | $ | 10.84 | $ | 12.69 | $ | 12.27 | ||||||||||
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Total investment return (d) | 15.34 | % | 11.12 | % | (12.09 | %) | 6.32 | % | 21.53 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.26 | % | 0.82 | % | 2.02 | % | 2.09 | %(b) | 1.39 | % | ||||||||||
Net expenses | 1.49 | % | 1.53 | % | 1.55 | % | 1.54 | % | 1.50 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.49 | % | 1.53 | % | 1.55 | % | 1.54 | % | 1.54 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 8,487 | $ | 10,545 | $ | 12,176 | $ | 10,942 | $ | 7,826 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Year ended October 31, | ||||||||||||||||||||
Class R3 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.64 | $ | 10.79 | $ | 12.64 | $ | 12.24 | $ | 10.95 | ||||||||||
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Net investment income (loss) (a) | (0.01 | ) | 0.06 | 0.24 | 0.24 | (b) | 0.26 | |||||||||||||
Net realized and unrealized gain (loss) on investments | 1.76 | 1.06 | (1.65 | ) | 0.41 | 1.72 | ||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.01 | ) | 0.00 | ‡ | (0.09 | ) | 0.07 | 0.17 | ||||||||||||
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Total from investment operations | 1.74 | 1.12 | (1.50 | ) | 0.72 | 2.15 | ||||||||||||||
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From net investment income | (0.03 | ) | (0.27 | ) | (0.35 | ) | (0.32 | ) | (0.86 | ) | ||||||||||
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Redemption fee (a)(c) | — | — | — | 0.00 | ‡ | 0.00 | ‡ | |||||||||||||
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Net asset value at end of year | $ | 13.35 | $ | 11.64 | $ | 10.79 | $ | 12.64 | $ | 12.24 | ||||||||||
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Total investment return (d) | 15.02 | % | 10.82 | % | (12.28 | %) | 5.99 | % | 21.31 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.05 | %) | 0.56 | % | 1.98 | % | 2.00 | %(b) | 2.45 | % | ||||||||||
Net expenses | 1.74 | % | 1.78 | % | 1.80 | % | 1.79 | % | 1.69 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.74 | % | 1.78 | % | 1.80 | % | 1.79 | % | 1.77 | % | ||||||||||
Portfolio turnover rate | 29 | % | 43 | % | 80 | % | 54 | % | 88 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 1,365 | $ | 2,218 | $ | 1,592 | $ | 737 | $ | 322 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Included in net investment income per share and the ratio of net investment income to average net assets are $0.03 per share and 0.29%, respectively, resulting from a special one-time dividend from Ryanair Holdings PLC that paid $0.30 per share. |
(c) | The redemption fee was discontinued as of April 1, 2010. |
(d) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
20 | MainStay International Equity Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay International Equity Fund (the “Fund”), a diversified fund.
The Fund currently offers eight classes of shares. Class A shares commenced operations on January 3, 1995. Class B shares commenced operations on September 13, 1994. Class C shares commenced operations on September 1, 1998. Class I, Class R1 and Class R2 shares commenced operations on January 2, 2004. Class R3 shares commenced operations on April 28, 2006. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class R1 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek long-term growth of capital.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation
Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
mainstayinvestments.com | 21 |
Notes to Financial Statements (continued)
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Broker Dealer Quotes | • Reported Trades | |
• Two-sided markets | • Issuer Spreads | |
• Bids / Offers | • Benchmark securities | |
• Industry and economic events | • Reference Data (corporate actions or material event notices) | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisor conclude that such events may have affected the accuracy of the last price of such securities reported on the local foreign market, the Sub-Committee may, pursuant to procedures adopted by the Board, adjust the value of the local price to reflect the estimated impact on the price
of such securities as a result of such events. In this instance, securities are generally categorized as Level 3 in the hierarchy. Additionally, certain foreign equity securities are also fair valued whenever the movement of a particular index exceeds an established threshold. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2013, foreign equity securities held by the Fund were not fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Futures contracts are valued at the last posted settlement price on the market where such futures are primarily traded. Options contracts are valued at the last posted settlement price on the market where such options are principally traded. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values measured on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The
22 | MainStay International Equity Fund |
Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Foreign Taxes. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
The Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. The Fund will accrue such taxes as applicable based upon its current interpretation of tax rules and regulations that exist in the market in which it invests. Capital gains taxes relating to positions still held are reflected as a liability on the Statement of Assets and Liabilities, as well as an adjustment to the Fund’s net unrealized appreciation (depreciation). Taxes related to capital gains realized during the year ended October 31, 2013, if any, are reflected as part of net realized gain (loss) in the Statement of Operations. Changes in tax liabilities related to capital gains taxes on unrealized investment gains, if any, are reflected as part of the change in net unrealized appreciation (depreciation) on investments in the Statement of Operations. Transaction-based charges are generally assessed as a percentage of the transaction amount.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees
incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants if such warrants are not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights or warrants.
(J) 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 financial instrument (e.g., foreign currency, interest rate, security, or securities index). During the period the futures contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation by “marking-to-market” such contract on a daily basis to reflect the market value of the contract at
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
the end of each day’s trading. The Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin.” When the futures contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund enters into futures contracts for hedging purposes and market exposure.
The use of futures contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract or notional amounts and variation margin reflect the extent of the Fund’s involvement in open futures positions. Risks arise from the possible imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. However, the Fund’s activities in futures contracts have minimal counterparty risk as they are conducted through regulated exchanges that guarantee the futures against default by the counterparty. In the event of a bankruptcy or insolvency of a futures commission merchant that holds margin on behalf of the Fund, the Fund may not be entitled to the return of all of the margin owed to the Fund, potentially resulting in a loss. The Fund may also enter into futures contracts traded on foreign futures exchanges such as those located in Frankfurt, Tokyo, London or Paris as long as trading on foreign exchanges does not subject a Fund to risks that are materially greater than the risks associated with trading on U.S. exchanges. The Fund’s investment in futures contracts and other derivatives may increase the volatility of the Fund’s NAV and may result in a loss to the Fund. The Fund invests in futures contracts to reduce the Fund’s return volatility. As of October 31, 2013, the Fund did not hold any futures contracts.
(K) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in 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, and |
(ii) | purchases and sales of investment securities, income and expenses — at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(L) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(M) Concentration of Risk. The Fund invests in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of securities held by the Fund to meet their obligations may be affected by economic and political developments in a specific country, industry or region.
(N) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(O) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
24 | MainStay International Equity Fund |
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Equity Contracts Risk | Total | ||||||||
Rights | Net realized gain (loss) on security transactions | $ | 194,759 | $ | 194,759 | |||||
Futures Contracts | Net realized gain (loss) on futures transactions | 81,842 | 81,842 | |||||||
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Total Realized Gain (Loss) | $ | 276,601 | $ | 276,601 | ||||||
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Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. Cornerstone Capital Management Holdings LLC (“Cornerstone Holdings” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Cornerstone Capital Holdings, New York Life Investments pays for the services of the Subadvisor.
Effective February 28, 2013, the Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.89% up to $500 million and 0.85% in excess of $500 million.
Prior to February 28, 2013, the Fund paid the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.90% up to $500 million and 0.85% in excess of $500 million, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.90% for the year ended October 31, 2013, inclusive of the effective fund accounting services rate of 0.01% of the Fund’s average daily net assets. The fund accounting fee was discontinued February 28, 2013.
New York Life Investments has voluntarily agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses of a class do not exceed the following percentages of average daily net assets: Investor Class, 1.85%; Class B, 2.60%; and Class C, 2.60%. These voluntary waivers or reimbursements may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $2,868,486.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the ‘‘Distributor’’), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the ‘‘Plans’’) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution and/or service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I and Class R1 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and Class R3 shares, the Manager has agreed to provide, through its affiliates or independent third parties, various shareholder and administrative support services to shareholders of the Class R1, Class R2 and Class R3 shares. For its services, the Manager, its affiliates, or independent third party service provider are entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2013, were as follows:
Class R1 | $ | 4,182 | ||
Class R2 | 8,357 | |||
Class R3 | 1,232 |
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $9,704 and $5,044, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $2, $182, $16,802 and $584, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 166,540 | ||
Class A | 79,132 | |||
Class B | 68,290 | |||
Class C | 48,763 | |||
Class I | 247,507 | |||
Class R1 | 5,673 | |||
Class R2 | 11,251 | |||
Class R3 | 1,650 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class I | $ | 67,152,534 | 33.2 | % |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accumulated Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||||
$1,008,170 | $ | (114,527,843 | ) | $ | — | $ | 66,420,145 | $ | (47,099,528 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments and Passive Foreign Investment Companies (PFICs).
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||||
$(246,897) | $ | 246,897 | $ | — |
The reclassifications for the Fund are primarily due to foreign currency gain (loss) and foreign capital gains taxes.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $114,527,843 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2016 | $ | 25,242 | $ | — | ||||
2017 | 53,693 | — | ||||||
2019 | 35,593 | — | ||||||
Unlimited | — | — | ||||||
Total | $ | 114,528 | $ | — |
26 | MainStay International Equity Fund |
The Fund utilized $12,745,038 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | $ | 2,689,004 | $ | 9,130,803 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $90,821 and $119,685, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 165,565 | $ | 2,036,162 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,879 | 175,577 | ||||||
Shares redeemed | (437,361 | ) | (5,378,249 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (256,917 | ) | (3,166,510 | ) | ||||
Shares converted into Investor Class (See Note 1) | 197,637 | 2,431,945 | ||||||
Shares converted from Investor Class (See Note 1) | (121,214 | ) | (1,549,878 | ) | ||||
|
| |||||||
Net increase (decrease) | (180,494 | ) | $ | (2,284,443 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 196,224 | $ | 2,141,258 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 86,352 | 887,712 | ||||||
Shares redeemed | (575,649 | ) | (6,302,435 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (293,073 | ) | (3,273,465 | ) | ||||
Shares converted into Investor Class (See Note 1) | 228,238 | 2,472,290 | ||||||
Shares converted from Investor Class (See Note 1) | (176,452 | ) | (1,974,946 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (241,287 | ) | $ | (2,776,121 | ) | |||
|
|
|
| |||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 743,092 | $ | 9,123,621 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 39,354 | 463,599 | ||||||
Shares redeemed | (1,759,515 | ) | (21,661,366 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (977,069 | ) | (12,074,146 | ) | ||||
Shares converted into Class A | 172,336 | 2,184,729 | ||||||
Shares converted from Class A | (24,864 | ) | (313,613 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (829,597 | ) | $ | (10,203,030 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 690,751 | $ | 7,565,303 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 167,449 | 1,719,726 | ||||||
Shares redeemed | (2,707,184 | ) | (29,445,459 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (1,848,984 | ) | (20,160,430 | ) | ||||
Shares converted into Class A | 301,754 | 3,320,325 | ||||||
Shares converted from Class A | (10,161 | ) | (118,949 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (1,557,391 | ) | $ | (16,959,054 | ) | |||
|
|
|
| |||||
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 132,529 | $ | 1,513,644 | |||||
Shares redeemed | (257,167 | ) | (2,908,992 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (124,638 | ) | (1,395,348 | ) | ||||
Shares converted from Class B | (242,881 | ) | (2,753,183 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (367,519 | ) | $ | (4,148,531 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 145,998 | $ | 1,465,620 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 37,762 | 359,869 | ||||||
Shares redeemed | (365,412 | ) | (3,685,754 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (181,652 | ) | (1,860,265 | ) | ||||
Shares converted from Class B | (371,315 | ) | (3,698,720 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (552,967 | ) | $ | (5,558,985 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 99,339 | $ | 1,129,142 | |||||
Shares redeemed | (311,511 | ) | (3,544,061 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (212,172 | ) | $ | (2,414,919 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 67,205 | $ | 672,940 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 17,749 | 169,161 | ||||||
Shares redeemed | (351,969 | ) | (3,528,369 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (267,015 | ) | $ | (2,686,268 | ) | |||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 2,952,872 | $ | 36,520,371 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 159,232 | 1,883,717 | ||||||
Shares redeemed | (3,199,613 | ) | (39,391,612 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (87,509 | ) | $ | (987,524 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 5,017,234 | $ | 55,099,791 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 488,524 | 5,036,688 | ||||||
Shares redeemed | (7,310,229 | ) | (78,460,736 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (1,804,471 | ) | $ | (18,324,257 | ) | |||
|
|
|
| |||||
Class R1 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 23,171 | $ | 280,443 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,668 | 43,128 | ||||||
Shares redeemed | (128,028 | ) | (1,545,151 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (101,189 | ) | $ | (1,221,580 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 31,458 | $ | 334,344 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,609 | 139,492 | ||||||
Shares redeemed | (84,394 | ) | (922,049 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (39,327 | ) | $ | (448,213 | ) | |||
|
|
|
|
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 107,198 | $ | 1,317,409 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,588 | 54,225 | ||||||
Shares redeemed | (379,608 | ) | (4,499,409 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (267,822 | ) | $ | (3,127,775 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 249,216 | $ | 2,727,325 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 28,124 | 289,671 | ||||||
Shares redeemed | (499,811 | ) | (5,462,254 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (222,471 | ) | $ | (2,445,258 | ) | |||
|
|
|
| |||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 40,971 | $ | 505,104 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 272 | 3,212 | ||||||
Shares redeemed | (129,541 | ) | (1,500,639 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (88,298 | ) | $ | (992,323 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 111,377 | $ | 1,214,928 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,813 | 39,158 | ||||||
Shares redeemed | (72,312 | ) | (793,231 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 42,878 | $ | 460,855 | |||||
|
|
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
28 | MainStay International Equity Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay International Equity Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay International Equity Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 29 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $3,393,725 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 2.7% to arrive at the amount eligible for the corporate dividends received deduction.
In accordance with federal tax law, the Fund elects to provide each shareholder with their portion of the Fund’s foreign taxes paid and the income sourced from foreign countries. Accordingly, the Fund made the following designations regarding its fiscal year ended October 31, 2013:
— the total amount of taxes paid to foreign countries was $704,721
— the total amount of income sourced from foreign countries was $6,031,034
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
30 | MainStay International Equity Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 31 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
32 | MainStay International Equity Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 33 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
34 | MainStay International Equity Fund |
MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31967 MS322-13 | MSIE11-12/13 NL010 |
MainStay Common Stock Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class B shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 22.61 29.75 | %
|
| 11.88 13.15 | %
|
| 5.43 6.02 | %
|
| 1.56 1.56 | %
| ||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 23.18 30.35 |
|
| 12.49 13.77 |
|
| 5.72 6.32 |
|
| 1.06 1.06 |
| ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 23.87 28.87 |
|
| 12.07 12.32 |
|
| 5.24 5.24 |
|
| 2.31 2.31 |
| ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 27.78 28.78 |
|
| 12.33 12.33 |
|
| 5.24 5.24 |
|
| 2.31 2.31 |
| ||||||
Class I Shares4 | No Sales Charge | 30.65 | 14.06 | 6.73 | 0.81 | |||||||||||||||
Class R2 Shares5 | No Sales Charge | 30.22 | 13.66 | 6.21 | 1.16 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Investor Class shares were first offered on February 28, 2008. Performance figures for Investor Class shares include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for the Investor Class shares would likely have been different. |
4. | Performance figures for Class I shares, first offered on December 28, 2004, include the historical performance of Class A shares through December 27, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class I shares would likely have been different. |
5. | Performance figures for Class R2 shares, first offered on December 14, 2007, include the historical performance of Class A shares through October 31, 2013, adjusted for differences in certain fees and expenses. Unadjusted, the performance shown for Class R2 shares would likely have been different. As of October 31, 2013, Class R2 shares had yet to commence investment operations. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||
S&P 500® Index6 | 27.18% | 15.17 | % | 7.46 | % | |||||
Russell 1000® Index7 | 28.40 | 15.84 | 7.83 | |||||||
Average Lipper Multi-Cap Core Fund8 | 29.40 | 15.20 | 7.46 |
6. | “S&P 500®” is a trademark of the McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The S&P 500® Index is the Fund’s broad-based securities market index for comparison purposes. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000® represents approximately 92% of the U.S. market. The |
Russell 1000® Index is the Fund’s secondary benchmark. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
8. | The average Lipper multi-cap core fund is representative of funds that, by portfolio practice, invest in a variety of market capitalization ranges without concentrating 75% of their equity assets in any one market capitalization range over an extended period of time. These funds typically have average characteristics compared to the S&P Super Composite 1500 Index. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Common Stock Fund |
Cost in Dollars of a $1,000 Investment in MainStay Common Stock Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,127.90 | $ | 7.62 | $ | 1,018.00 | $ | 7.22 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,130.10 | $ | 5.58 | $ | 1,020.00 | $ | 5.30 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,123.60 | $ | 11.62 | $ | 1,014.30 | $ | 11.02 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,123.70 | $ | 11.67 | $ | 1,014.20 | $ | 11.07 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,131.20 | $ | 4.24 | $ | 1,021.20 | $ | 4.02 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.42% for Investor Class, 1.04% for Class A, 2.17% for Class B, 2.18% for Class C and 0.79% for Class I) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. See page 5 for more information on Class R2 shares. |
mainstayinvestments.com | 7 |
Industry Composition as of October 31, 2013 (Unaudited)
Oil, Gas & Consumable Fuels | 8.5 | % | ||
Computers & Peripherals | 6.7 | |||
Pharmaceuticals | 5.8 | |||
Insurance | 5.3 | |||
Diversified Financial Services | 4.9 | |||
Media | 4.8 | |||
Specialty Retail | 4.5 | |||
Biotechnology | 4.3 | |||
Health Care Providers & Services | 4.3 | |||
Food & Staples Retailing | 4.1 | |||
Software | 4.1 | |||
Diversified Telecommunication Services | 3.3 | |||
IT Services | 3.3 | |||
Semiconductors & Semiconductor Equipment | 2.6 | |||
Food Products | 2.2 | |||
Aerospace & Defense | 2.1 | |||
Airlines | 1.8 | |||
Beverages | 1.8 | |||
Internet Software & Services | 1.8 | |||
Machinery | 1.8 | |||
Chemicals | 1.7 | |||
Exchange Traded Fund | 1.6 | |||
Energy Equipment & Services | 1.2 | |||
Commercial Banks | 1.1 | |||
Consumer Finance | 1.1 | |||
Health Care Equipment & Supplies | 1.1 |
Household Products | 1.1 | % | ||
Industrial Conglomerates | 1.1 | |||
Auto Components | 1.0 | |||
Internet & Catalog Retail | 1.0 | |||
Professional Services | 1.0 | |||
Textiles, Apparel & Luxury Goods | 1.0 | |||
Commercial Services & Supplies | 0.9 | |||
Communications Equipment | 0.9 | |||
Hotels, Restaurants & Leisure | 0.9 | |||
Tobacco | 0.9 | |||
Multiline Retail | 0.7 | |||
Office Electronics | 0.7 | |||
Capital Markets | 0.5 | |||
Containers & Packaging | 0.5 | |||
Electronic Equipment & Instruments | 0.5 | |||
Household Durables | 0.4 | |||
Leisure Equipment & Products | 0.3 | |||
Independent Power Producers & Energy Traders | 0.2 | |||
Road & Rail | 0.2 | |||
Air Freight & Logistics | 0.1 | |||
Automobiles | 0.1 | |||
Trading Companies & Distributors | 0.1 | |||
Life Sciences Tools & Services | 0.0 | ‡ | ||
Short-Term Investment | 0.0 | ‡ | ||
Other Assets, Less Liabilities | 0.1 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Apple, Inc. |
2. | Exxon Mobil Corp. |
3. | Microsoft Corp. |
4. | Chevron Corp. |
5. | Pfizer, Inc. |
6. | Johnson & Johnson |
7. | JPMorgan Chase & Co. |
8. | International Business Machines Corp. |
9. | AT&T, Inc. |
10. | Berkshire Hathaway, Inc. Class B |
8 | MainStay Common Stock Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by Migene Kim, CFA, and Andrew Ver Planck, CFA, of Cornerstone Capital Management Holdings LLC, the Fund’s Subadvisor.
How did MainStay Common Stock Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Common Stock Fund returned 29.75% for Investor Class shares, 30.35% for Class A shares, 28.87% for Class B shares and 28.78% for Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund’s Class I shares returned 30.65% and Class R2 shares1 returned 30.22%. For the 12 months ended October 31, 2013, all share classes outperformed the 27.18% return of the S&P 500® Index,2 which is the Fund’s broad-based securities-market index. Investor Class, Class A, Class I and Class R2 shares outperformed, and Class B and Class C shares underperformed, the 29.40% return of the average Lipper3 multi-cap core fund for the same period. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s stock-selection model performed well during the reporting period. Valuation factors based on cash flow and on revenue contributed positively to the Fund’s performance relative to the S&P 500® Index. While the Fund’s model was successful in identifying both winner and losers, it was especially effective in predicting stocks that would outperform the Index. The Fund’s high-conviction buy recommendations were important for the Fund’s relative performance.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
The sectors that made the strongest positive contributions to the Fund’s performance relative to the S&P 500® Index were health care, information technology and consumer staples. (Contributions take weightings and total returns into account.) In health care, the Fund benefited from our model’s stock selection. The Fund held several strong-performing biotechnology companies, health care equipment companies and drug distributors. The Fund also made several profitable stock picks in information technology, where turnaround stocks such Seagate Technology, Western Digital and Micron Technology were rewarded. In the consumer staples sector, the Fund benefited from overweight positions relative to the S&P 500® Index in food retailers, such as Walgreen, Safeway and Kroger.
The weakest sector contributions to the Fund’s relative performance came from consumer discretionary, energy and telecommunication services. In consumer discretionary, stock selection was hurt by earnings shortfalls from specialty retailers Abercrombie & Fitch and American Eagle Outfitters.
Disappointing financial results from Internet retailer Expedia also detracted. In energy, our model preferred oil & gas refiners, as they generate cash flows that tend to be more stable than those of oil & gas exploration & production companies. The latter group, however, benefited from higher drilling activity and rising crude oil prices. As a result, the Fund’s energy stock selection detracted from performance. Unfavorable stock selection in telecommunication services was primarily driven by an overweight position relative to the S&P 500® Index in diversified telecommunication services companies AT&T and Verizon Communications, which performed relatively poorly during the reporting period.
During the reporting period, which individual stocks made the strongest positive contributions to the Fund’s absolute performance and which stocks detracted the most?
The individual stocks that made the strongest positive contributions to the Fund’s absolute performance included biotechnology company Gilead Sciences, computer game retailer GameStop and diversified health care company Johnson & Johnson. The Fund held overweight positions in all three stocks. Gilead Sciences, which focuses on the treatment of AIDS, liver diseases and other life-threatening conditions, continued to impress investors with quarterly earnings and sales that beat analysts’ expectations. Analysts seem to be especially positive on the potential revenues from the company’s hepatitis C drug. GameStop, the world’s largest specialty retailer of video games, also delivered strong financial results on market-share gains and strong preorders for PS4 and Xbox. Johnson & Johnson shares climbed during the reporting period, with both pharmaceutical and nonpharmaceutical revenues holding up well.
The individual stocks that detracted the most from the Fund’s absolute performance included computers & peripherals company Apple, IT services company International Business Machines (IBM) and energy drilling company Patterson-UTI Energy. Apple’s share price performance, which peaked in September 2012, has been lackluster until the second half of 2013. During the reporting period, the stock made a negative absolute contribution to the Fund’s performance. IBM, the world’s largest computer services provider, has struggled to increase revenues. The company’s efforts in higher-margin software and services have not made up for the slump in the company’s servers and other hardware businesses. Patterson-UTI Energy provides land-based contract-drilling and pressure-pumping services to oil & gas exploration & production companies. The company’s share price was negatively affected by margin pressure, particularly during the first half of 2013.
1. | See footnote on page 5 for more information on Class R2 shares. |
2. | See footnote on page 6 for more information on the S&P 500® Index. |
3. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
Did the Fund make any significant purchases or sales during the reporting period?
The Fund’s largest weighting increase during the reporting period was in its position in Boeing. The company makes commercial jet aircraft as well as military aircraft and missile systems. The Fund initially purchased shares in December 2012, on the basis of attractive valuation. We steadily increased the Fund’s position throughout the reporting period, as the stock’s momentum scores improved. The Fund also began to a build position in Berkshire Hathaway—a holding company operating in a variety of business sectors, including insurance, railway and chemical businesses—in the second quarter of 2013. The primary reason was the strength of the company’s momentum scores. The Fund went from a significantly underweight to a significantly overweight position, as Berkshire Hathaway’s valuation metrics also started to improve.
The Fund started trimming its position in Apple at the end of 2012, because of poor revenue, sentiment and momentum readings. As the company’s momentum and sentiment scores further deteriorated, the Fund sold more shares, until the shareprice decline made the stock attractive again in terms of cash-flow- and revenue-based multiples in May 2013. At that time, the Fund purchased additional shares of Apple. The Fund also sold a large number of Bank of America shares during the first half of 2013, moving from an overweight position to a position that was fully underweight according to the quantitative filters used in our investment process. The stock’s model score turned negative, as the stock’s valuation became expensive as measured by earnings and by revenues.
How did the Fund’s sector weightings change during the reporting period?
The Fund saw its largest sector-weighting increase in the industrials sector. The Fund was significantly underweight
stocks in industrials relative to the S&P 500® Index, but narrowed the underexposure through purchases of airlines and professional services companies. The Fund began the reporting period modestly overweight relative to the S&P 500® Index in health care. By accumulating positions in health care distributors and select pharmaceutical stocks the Fund became increasingly overweight in the sector.
During the reporting period, the Fund’s most substantial weighting decrease relative to the S&P 500® Index was in the telecommunication services sector. The Fund moved from an overweight to a modestly overweight position. The Fund was overweight wireless telecommunication companies, such as MetroPCS and Sprint, whose positions were respectively closed when MetroPCS merged with T-mobile USA and when Softbank acquired Sprint. An underweight position relative to the S&P 500® Index in energy became more substantially underweight when the model trimmed some overweight positions in refiners during the second half of the reporting period.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund’s most substantially overweight sector positions relative to the S&P 500® Index were in information technology, health care and consumer discretionary. As of the same date, the Fund held underweight positions relative to the Index in the financials, utilities and industrials sectors.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Common Stock Fund |
Portfolio of Investments October 31, 2013
Shares | Value | |||||||
Common Stocks 98.3%† | ||||||||
Aerospace & Defense 2.1% |
| |||||||
Alliant Techsystems, Inc. | 3,756 | $ | 408,915 | |||||
Boeing Co. (The) | 12,002 | 1,566,261 | ||||||
General Dynamics Corp. | 2,476 | 214,496 | ||||||
Northrop Grumman Corp. | 2,737 | 294,255 | ||||||
United Technologies Corp. | 771 | 81,919 | ||||||
|
| |||||||
2,565,846 | ||||||||
|
| |||||||
Air Freight & Logistics 0.1% |
| |||||||
FedEx Corp. | 147 | 19,257 | ||||||
United Parcel Service, Inc. Class B | 1,236 | 121,425 | ||||||
|
| |||||||
140,682 | ||||||||
|
| |||||||
Airlines 1.8% |
| |||||||
Alaska Air Group, Inc. | 12,048 | 851,312 | ||||||
Delta Air Lines, Inc. | 17,294 | 456,216 | ||||||
Southwest Airlines Co. | 56,279 | 969,124 | ||||||
|
| |||||||
2,276,652 | ||||||||
|
| |||||||
Auto Components 1.0% |
| |||||||
Delphi Automotive PLC | 2,407 | 137,680 | ||||||
Gentex Corp. | 8,611 | 253,508 | ||||||
Goodyear Tire & Rubber Co. (The) | 38,178 | 800,975 | ||||||
|
| |||||||
1,192,163 | ||||||||
|
| |||||||
Automobiles 0.1% |
| |||||||
General Motors Co. (a) | 2,644 | 97,696 | ||||||
|
| |||||||
Beverages 1.8% |
| |||||||
Coca-Cola Co. (The) | 11,405 | 451,296 | ||||||
PepsiCo., Inc. | 21,384 | 1,798,180 | ||||||
|
| |||||||
2,249,476 | ||||||||
|
| |||||||
Biotechnology 4.3% |
| |||||||
Amgen, Inc. | 12,775 | 1,481,900 | ||||||
Biogen Idec, Inc. (a) | 1,299 | 317,203 | ||||||
Celgene Corp. (a) | 7,631 | 1,133,127 | ||||||
Cubist Pharmaceuticals, Inc. (a) | 5,791 | 359,042 | ||||||
Gilead Sciences, Inc. (a) | 17,914 | 1,271,715 | ||||||
United Therapeutics Corp. (a) | 9,712 | 859,706 | ||||||
Vertex Pharmaceuticals, Inc. (a) | 93 | 6,635 | ||||||
|
| |||||||
5,429,328 | ||||||||
|
| |||||||
Capital Markets 0.5% |
| |||||||
Franklin Resources, Inc. | 9,179 | 494,381 | ||||||
State Street Corp. | 1,330 | 93,193 | ||||||
|
| |||||||
587,574 | ||||||||
|
| |||||||
Chemicals 1.7% |
| |||||||
Dow Chemical Co. (The) | 29,194 | 1,152,287 | ||||||
LyondellBasell Industries, N.V. Class A | 13,544 | 1,010,383 | ||||||
|
| |||||||
2,162,670 | ||||||||
|
|
Shares | Value | |||||||
Commercial Banks 1.1% |
| |||||||
Fifth Third Bancorp | 17,996 | $ | 342,464 | |||||
First Niagara Financial Group, Inc. | 16,934 | 186,782 | ||||||
Wells Fargo & Co. | 19,927 | 850,684 | ||||||
|
| |||||||
1,379,930 | ||||||||
|
| |||||||
Commercial Services & Supplies 0.9% |
| |||||||
Pitney Bowes, Inc. | 43,265 | 923,275 | ||||||
Tyco International, Ltd. | 3,624 | 132,457 | ||||||
|
| |||||||
1,055,732 | ||||||||
|
| |||||||
Communications Equipment 0.9% |
| |||||||
Cisco Systems, Inc. | 8,412 | 189,270 | ||||||
Harris Corp. | 13,822 | 856,411 | ||||||
QUALCOMM, Inc. | 1,877 | 130,395 | ||||||
|
| |||||||
1,176,076 | ||||||||
|
| |||||||
Computers & Peripherals 6.7% |
| |||||||
¨Apple, Inc. | 8,325 | 4,348,564 | ||||||
Hewlett-Packard Co. | 47,693 | 1,162,278 | ||||||
SanDisk Corp. | 14,311 | 994,615 | ||||||
Seagate Technology PLC | 19,843 | 965,957 | ||||||
Western Digital Corp. | 13,100 | 912,153 | ||||||
|
| |||||||
8,383,567 | ||||||||
|
| |||||||
Consumer Finance 1.1% |
| |||||||
American Express Co. | 17,428 | 1,425,610 | ||||||
|
| |||||||
Containers & Packaging 0.5% |
| |||||||
Packaging Corporation of America | 6,713 | 418,085 | ||||||
Sealed Air Corp. | 6,921 | 208,876 | ||||||
|
| |||||||
626,961 | ||||||||
|
| |||||||
Diversified Financial Services 4.9% |
| |||||||
Bank of America Corp. | 29,547 | 412,476 | ||||||
¨Berkshire Hathaway, Inc. Class B (a) | 17,802 | 2,048,654 | ||||||
Citigroup, Inc. | 8,415 | 410,484 | ||||||
¨JPMorgan Chase & Co. | 44,520 | 2,294,561 | ||||||
McGraw Hill Financial, Inc. | 1,069 | 74,488 | ||||||
Moody’s Corp. | 1,155 | 81,612 | ||||||
NASDAQ OMX Group, Inc. (The) | 24,092 | 853,580 | ||||||
|
| |||||||
6,175,855 | ||||||||
|
| |||||||
Diversified Telecommunication Services 3.3% |
| |||||||
¨AT&T, Inc. | 58,951 | 2,134,027 | ||||||
Frontier Communications Corp. | 19,154 | 84,469 | ||||||
Verizon Communications, Inc. | 37,820 | 1,910,288 | ||||||
|
| |||||||
4,128,784 | ||||||||
|
| |||||||
Electronic Equipment & Instruments 0.5% |
| |||||||
Jabil Circuit, Inc. | 8,809 | 183,756 | ||||||
TE Connectivity, Ltd. | 8,397 | 432,361 | ||||||
|
| |||||||
616,117 | ||||||||
|
|
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of October 31, 2013. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Energy Equipment & Services 1.2% |
| |||||||
Baker Hughes, Inc. | 8,984 | $ | 521,881 | |||||
Halliburton Co. | 798 | 42,318 | ||||||
Oil States International, Inc. (a) | 7,646 | 830,585 | ||||||
Schlumberger, Ltd. | 1,716 | 160,823 | ||||||
|
| |||||||
1,555,607 | ||||||||
|
| |||||||
Food & Staples Retailing 4.1% |
| |||||||
CVS Caremark Corp. | 4,216 | 262,488 | ||||||
Kroger Co. (The) | 22,973 | 984,163 | ||||||
Safeway, Inc. | 26,430 | 922,407 | ||||||
Wal-Mart Stores, Inc. | 22,931 | 1,759,954 | ||||||
Walgreen Co. | 21,102 | 1,250,083 | ||||||
|
| |||||||
5,179,095 | ||||||||
|
| |||||||
Food Products 2.2% |
| |||||||
Archer-Daniels-Midland Co. | 25,534 | 1,044,341 | ||||||
General Mills, Inc. | 4,787 | 241,361 | ||||||
Green Mountain Coffee Roasters, Inc. (a) | 4,398 | 276,238 | ||||||
Kraft Foods Group, Inc. | 4,701 | 255,640 | ||||||
Mondelez International, Inc. Class A | 13,951 | 469,312 | ||||||
Tyson Foods, Inc. Class A | 18,173 | 502,847 | ||||||
|
| |||||||
2,789,739 | ||||||||
|
| |||||||
Health Care Equipment & Supplies 1.1% |
| |||||||
Abbott Laboratories | 12,229 | 446,970 | ||||||
Boston Scientific Corp. (a) | 78,597 | 918,799 | ||||||
|
| |||||||
1,365,769 | ||||||||
|
| |||||||
Health Care Providers & Services 4.3% |
| |||||||
AmerisourceBergen Corp. | 14,313 | 935,068 | ||||||
Cardinal Health, Inc. | 13,657 | 801,120 | ||||||
Express Scripts Holding Co. (a) | 6,034 | 377,246 | ||||||
McKesson Corp. | 7,341 | 1,147,692 | ||||||
Omnicare, Inc. | 8,214 | 453,002 | ||||||
UnitedHealth Group, Inc. | 10,189 | 695,501 | ||||||
WellPoint, Inc. | 11,346 | 962,141 | ||||||
|
| |||||||
5,371,770 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 0.9% |
| |||||||
International Game Technology | 43,404 | 815,995 | ||||||
Wyndham Worldwide Corp. | 3,280 | 217,792 | ||||||
Wynn Resorts, Ltd. | 576 | 95,760 | ||||||
|
| |||||||
1,129,547 | ||||||||
|
| |||||||
Household Durables 0.4% |
| |||||||
Whirlpool Corp. | 3,108 | 453,799 | ||||||
|
| |||||||
Household Products 1.1% |
| |||||||
Energizer Holdings, Inc. | 1,350 | 132,448 | ||||||
Procter & Gamble Co. (The) | 15,933 | 1,286,590 | ||||||
|
| |||||||
1,419,038 | ||||||||
|
|
Shares | Value | |||||||
Independent Power Producers & Energy Traders 0.2% |
| |||||||
AES Corp. (The) | 16,093 | $ | 226,750 | |||||
|
| |||||||
Industrial Conglomerates 1.1% |
| |||||||
3M Co. | 424 | 53,361 | ||||||
General Electric Co. | 49,158 | 1,284,990 | ||||||
|
| |||||||
1,338,351 | ||||||||
|
| |||||||
Insurance 5.3% |
| |||||||
Aflac, Inc. | 15,931 | 1,035,197 | ||||||
Allstate Corp. (The) | 336 | 17,828 | ||||||
American International Group, Inc. | 27,128 | 1,401,161 | ||||||
Assurant, Inc. | 6,011 | 351,523 | ||||||
Genworth Financial, Inc. Class A (a) | 62,226 | 904,144 | ||||||
Lincoln National Corp. | 19,613 | 890,626 | ||||||
Protective Life Corp. | 13,921 | 641,480 | ||||||
Travelers Companies, Inc. (The) | 6,232 | 537,822 | ||||||
Unum Group | 27,003 | 857,075 | ||||||
|
| |||||||
6,636,856 | ||||||||
|
| |||||||
Internet & Catalog Retail 1.0% |
| |||||||
Amazon.com, Inc. (a) | 1,394 | 507,458 | ||||||
Expedia, Inc. | 12,930 | 761,318 | ||||||
|
| |||||||
1,268,776 | ||||||||
|
| |||||||
Internet Software & Services 1.8% |
| |||||||
Akamai Technologies, Inc. (a) | 2,699 | 120,753 | ||||||
eBay, Inc. (a) | 3,497 | 184,327 | ||||||
Google, Inc. Class A (a) | 1,893 | 1,950,888 | ||||||
|
| |||||||
2,255,968 | ||||||||
|
| |||||||
IT Services 3.3% |
| |||||||
Computer Sciences Corp. | 16,193 | 797,667 | ||||||
¨International Business Machines Corp. | 12,308 | 2,205,717 | ||||||
Total System Services, Inc. | 12,436 | 370,966 | ||||||
Visa, Inc. Class A | 68 | 13,374 | ||||||
Western Union Co. (The) | 39,520 | 672,630 | ||||||
|
| |||||||
4,060,354 | ||||||||
|
| |||||||
Leisure Equipment & Products 0.3% |
| |||||||
Hasbro, Inc. | 8,244 | 425,803 | ||||||
|
| |||||||
Life Sciences Tools & Services 0.0%‡ |
| |||||||
Agilent Technologies, Inc. | 353 | 17,918 | ||||||
|
| |||||||
Machinery 1.8% |
| |||||||
AGCO Corp. | 10,644 | 621,396 | ||||||
Dover Corp. | 9,310 | 854,565 | ||||||
Oshkosh Corp. (a) | 15,647 | 744,641 | ||||||
|
| |||||||
2,220,602 | ||||||||
|
| |||||||
Media 4.8% |
| |||||||
Cablevision Systems Corp. Class A | 9,347 | 145,346 | ||||||
Comcast Corp. Class A | 33,273 | 1,583,129 |
12 | MainStay Common Stock Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Media (continued) |
| |||||||
DIRECTV (a) | 14,014 | $ | 875,735 | |||||
Gannett Co., Inc. | 31,030 | 858,600 | ||||||
Time Warner Cable, Inc. | 8,856 | 1,064,048 | ||||||
Twenty-First Century Fox, Inc. Class A | 15,543 | 529,705 | ||||||
Walt Disney Co. (The) | 2,118 | 145,274 | ||||||
Washington Post Co. (The) Class B | 1,283 | 825,380 | ||||||
|
| |||||||
6,027,217 | ||||||||
|
| |||||||
Multiline Retail 0.7% |
| |||||||
Target Corp. | 14,155 | 917,102 | ||||||
|
| |||||||
Office Electronics 0.7% |
| |||||||
Xerox Corp. | 86,903 | 863,816 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels 8.5% |
| |||||||
Anadarko Petroleum Corp. | 11,886 | 1,132,617 | ||||||
Apache Corp. | 4,336 | 385,037 | ||||||
Chesapeake Energy Corp. | 16,515 | 461,759 | ||||||
¨Chevron Corp. | 21,427 | 2,570,383 | ||||||
ConocoPhillips | 17,506 | 1,283,190 | ||||||
¨Exxon Mobil Corp. | 42,956 | 3,849,717 | ||||||
Marathon Petroleum Corp. | 13,196 | 945,625 | ||||||
|
| |||||||
10,628,328 | ||||||||
|
| |||||||
Pharmaceuticals 5.8% |
| |||||||
AbbVie, Inc. | 12,599 | 610,422 | ||||||
Bristol-Myers Squibb Co. | 14,606 | 767,107 | ||||||
Eli Lilly & Co. | 1,982 | 98,743 | ||||||
Endo Health Solutions, Inc. (a) | 17,672 | 772,797 | ||||||
¨Johnson & Johnson | 24,840 | 2,300,432 | ||||||
Merck & Co., Inc. | 7,193 | 324,332 | ||||||
¨Pfizer, Inc. | 77,472 | 2,376,841 | ||||||
|
| |||||||
7,250,674 | ||||||||
|
| |||||||
Professional Services 1.0% |
| |||||||
ManpowerGroup, Inc. | 5,214 | 407,213 | ||||||
Towers Watson & Co. Class A | 7,428 | 852,809 | ||||||
|
| |||||||
1,260,022 | ||||||||
|
| |||||||
Road & Rail 0.2% |
| |||||||
Union Pacific Corp. | 1,567 | 237,244 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 2.6% |
| |||||||
First Solar, Inc. (a) | 17,331 | 871,230 | ||||||
Intel Corp. | 72,807 | 1,778,675 | ||||||
Lam Research Corp. (a) | 3,552 | 192,625 | ||||||
Micron Technology, Inc. (a) | 20,168 | 356,570 | ||||||
|
| |||||||
3,199,100 | ||||||||
|
|
Shares | Value | |||||||
Software 4.1% |
| |||||||
¨Microsoft Corp. | 80,262 | $ | 2,837,262 | |||||
Oracle Corp. | 51,585 | 1,728,097 | ||||||
Symantec Corp. | 23,611 | 536,914 | ||||||
|
| |||||||
5,102,273 | ||||||||
|
| |||||||
Specialty Retail 4.5% |
| |||||||
Best Buy Co., Inc. | 21,413 | 916,476 | ||||||
GameStop Corp. Class A | 15,344 | 841,158 | ||||||
Gap, Inc. (The) | 3,799 | 140,525 | ||||||
Home Depot, Inc. (The) | 20,868 | 1,625,409 | ||||||
Lowe’s Companies, Inc. | 23,964 | 1,192,928 | ||||||
Staples, Inc. | 55,862 | 900,495 | ||||||
|
| |||||||
5,616,991 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 1.0% |
| |||||||
Fossil Group, Inc. (a) | 3,186 | 404,431 | ||||||
Hanesbrands, Inc. | 12,452 | 848,230 | ||||||
|
| |||||||
1,252,661 | ||||||||
|
| |||||||
Tobacco 0.9% |
| |||||||
Philip Morris International, Inc. | 12,885 | 1,148,311 | ||||||
|
| |||||||
Trading Companies & Distributors 0.1% |
| |||||||
United Rentals, Inc. (a) | 873 | 56,387 | ||||||
|
| |||||||
Total Common Stocks |
| 122,946,587 | ||||||
|
| |||||||
Exchange Traded Fund 1.6% (b) | ||||||||
S&P 500 Index—SPDR Trust Series 1 | 11,390 | 2,001,565 | ||||||
|
| |||||||
Total Exchange Traded Fund |
| 2,001,565 | ||||||
|
| |||||||
Principal Amount | ||||||||
Short-Term Investment 0.0%‡ | ||||||||
Repurchase Agreement 0.0%‡ | ||||||||
State Street Bank and Trust Co. | $ | 43,922 | 43,922 | |||||
|
| |||||||
Total Short-Term Investment |
| 43,922 | ||||||
|
| |||||||
Total Investments | 99.9 | % | 124,992,074 | |||||
Other Assets, Less Liabilities | 0.1 | 132,053 | ||||||
Net Assets | 100.0 | % | $ | 125,124,127 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
(b) | Exchange Traded Fund—An investment vehicle that represents a basket of securities that is traded on an exchange. |
(c) | As of October 31, 2013, cost is $107,572,098 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 17,839,970 | ||
Gross unrealized depreciation | (419,994 | ) | ||
|
| |||
Net unrealized appreciation | $ | 17,419,976 | ||
|
|
The following abbreviation is used in the above portfolio:
SPDR—Standard & Poor’s Depositary Receipt
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 122,946,587 | $ | — | $ | — | $ | 122,946,587 | ||||||||
Exchange Traded Fund | 2,001,565 | — | — | 2,001,565 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 43,922 | — | 43,922 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 124,948,152 | $ | 43,922 | $ | — | $ | 124,992,074 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
14 | MainStay Common Stock Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 124,992,074 | ||
Cash | 856 | |||
Receivables: | ||||
Fund shares sold | 181,522 | |||
Dividends and interest | 124,672 | |||
Other assets | 22,215 | |||
|
| |||
Total assets | 125,321,339 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Manager (See Note 3) | 57,379 | |||
Fund shares redeemed | 51,051 | |||
Transfer agent (See Note 3) | 32,466 | |||
Shareholder communication | 21,152 | |||
NYLIFE Distributors (See Note 3) | 16,145 | |||
Professional fees | 11,999 | |||
Custodian | 3,087 | |||
Trustees | 274 | |||
Accrued expenses | 3,659 | |||
|
| |||
Total liabilities | 197,212 | |||
|
| |||
Net assets | $ | 125,124,127 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 75,810 | ||
Additional paid-in capital | 171,953,599 | |||
|
| |||
172,029,409 | ||||
Undistributed net investment income | 1,192,740 | |||
Accumulated net realized gain (loss) on investments | (66,035,839 | ) | ||
Net unrealized appreciation (depreciation) on investments | 17,937,817 | |||
|
| |||
Net assets | $ | 125,124,127 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 18,436,315 | ||
|
| |||
Shares of beneficial interest outstanding | 1,111,791 | |||
|
| |||
Net asset value per share outstanding | $ | 16.58 | ||
Maximum sales charge (5.50% of offering price) | 0.96 | |||
|
| |||
Maximum offering price per share outstanding | $ | 17.54 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 19,011,089 | ||
|
| |||
Shares of beneficial interest outstanding | 1,145,741 | |||
|
| |||
Net asset value per share outstanding | $ | 16.59 | ||
Maximum sales charge (5.50% of offering price) | 0.97 | |||
|
| |||
Maximum offering price per share outstanding | $ | 17.56 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 6,759,804 | ||
|
| |||
Shares of beneficial interest outstanding | 442,802 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 15.27 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 3,441,349 | ||
|
| |||
Shares of beneficial interest outstanding | 225,490 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 15.26 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 77,475,570 | ||
|
| |||
Shares of beneficial interest outstanding | 4,655,151 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 16.64 | ||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 2,544,577 | ||
Interest | 11 | |||
|
| |||
Total income | 2,544,588 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 652,886 | |||
Transfer agent (See Note 3) | 182,468 | |||
Distribution/Service—Investor Class (See Note 3) | 41,166 | |||
Distribution/Service—Class A (See Note 3) | 37,383 | |||
Distribution/Service—Class B (See Note 3) | 62,935 | |||
Distribution/Service—Class C (See Note 3) | 24,129 | |||
Registration | 80,513 | |||
Professional fees | 47,756 | |||
Shareholder communication | 39,558 | |||
Custodian | 18,374 | |||
Trustees | 2,417 | |||
Miscellaneous | 8,730 | |||
|
| |||
Total expenses | 1,198,315 | |||
|
| |||
Net investment income (loss) | 1,346,273 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments | 19,932,214 | |||
Net change in unrealized appreciation (depreciation) on investments | 9,631,770 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 29,563,984 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 30,910,257 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $9,900. |
16 | MainStay Common Stock Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 1,346,273 | $ | 1,478,930 | ||||
Net realized gain (loss) on investments | 19,932,214 | 10,898,706 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 9,631,770 | 3,860,672 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 30,910,257 | 16,238,308 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (130,443 | ) | (154,586 | ) | ||||
Class A | (166,969 | ) | (173,110 | ) | ||||
Class B | (10,313 | ) | (25,337 | ) | ||||
Class C | (2,697 | ) | (4,598 | ) | ||||
Class I | (1,174,580 | ) | (1,961,353 | ) | ||||
|
| |||||||
Total dividends to shareholders | (1,485,002 | ) | (2,318,984 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 29,255,750 | 48,665,925 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 1,465,253 | 1,993,945 | ||||||
Cost of shares redeemed | (45,912,553 | ) | (98,399,615 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (15,191,550 | ) | (47,739,745 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 14,233,705 | (33,820,421 | ) | |||||
Net Assets | ||||||||
Beginning of year | 110,890,422 | 144,710,843 | ||||||
|
| |||||||
End of year | $ | 125,124,127 | $ | 110,890,422 | ||||
|
| |||||||
Undistributed net investment income at end of year | $ | 1,192,740 | $ | 1,360,464 | ||||
|
|
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.89 | $ | 11.32 | $ | 10.77 | $ | 9.69 | $ | 9.27 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.10 | 0.09 | 0.06 | 0.03 | 0.07 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.70 | 1.61 | 0.53 | 1.13 | 0.40 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.80 | 1.70 | 0.59 | 1.16 | 0.47 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.11 | ) | (0.13 | ) | (0.04 | ) | (0.08 | ) | (0.05 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 16.58 | $ | 12.89 | $ | 11.32 | $ | 10.77 | $ | 9.69 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 29.75 | % | 15.15 | % | 5.47 | % | 11.99 | % | 5.12 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.72 | % | 0.72 | % | 0.56 | % | 0.25 | % | 0.81 | % | ||||||||||
Net expenses | 1.46 | % | 1.56 | % | 1.52 | % | 1.61 | % | 1.46 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.46 | % | 1.56 | % | 1.52 | % | 1.61 | % | 1.73 | % | ||||||||||
Portfolio turnover rate | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 18,436 | $ | 15,093 | $ | 13,917 | $ | 13,661 | $ | 12,752 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.90 | $ | 11.34 | $ | 10.79 | $ | 9.70 | $ | 9.28 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.16 | 0.15 | 0.13 | 0.09 | 0.12 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.71 | 1.60 | 0.53 | 1.13 | 0.40 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.87 | 1.75 | 0.66 | 1.22 | 0.52 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.18 | ) | (0.19 | ) | (0.11 | ) | (0.13 | ) | (0.10 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 16.59 | $ | 12.90 | $ | 11.34 | $ | 10.79 | $ | 9.70 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 30.35 | % | 15.64 | % | 6.10 | % | 12.64 | % | 5.80 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.11 | % | 1.22 | % | 1.12 | % | 0.90 | % | 1.38 | % | ||||||||||
Net expenses | 1.05 | % | 1.06 | % | 0.97 | % | 0.96 | % | 0.94 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.05 | % | 1.06 | % | 0.97 | % | 0.96 | % | 0.98 | % | ||||||||||
Portfolio turnover rate | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 19,011 | $ | 12,402 | $ | 10,662 | $ | 12,140 | $ | 11,579 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
18 | MainStay Common Stock Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.60 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.00 | )‡ | (0.00 | )‡ | (0.02 | ) | (0.05 | ) | 0.01 | |||||||||||
Net realized and unrealized gain (loss) on investments | 3.42 | 1.48 | 0.49 | 1.05 | 0.36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.42 | 1.48 | 0.47 | 1.00 | 0.37 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.02 | ) | (0.04 | ) | (0.00 | )‡ | (0.01 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 15.27 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.87 | % | 14.23 | % | 4.75 | % | 11.14 | % | 4.30 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.03 | %) | (0.02 | %) | (0.17 | %) | (0.49 | %) | 0.14 | % | ||||||||||
Net expenses | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.20 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.49 | % | ||||||||||
Portfolio turnover rate | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 6,760 | $ | 5,836 | $ | 6,762 | $ | 8,466 | $ | 10,371 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | $ | 8.59 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.01 | ) | (0.00 | )‡ | (0.02 | ) | (0.05 | ) | 0.01 | |||||||||||
Net realized and unrealized gain (loss) on investments | 3.42 | 1.48 | 0.49 | 1.05 | 0.37 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.41 | 1.48 | 0.47 | 1.00 | 0.38 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.02 | ) | (0.04 | ) | (0.00 | )‡ | (0.01 | ) | — | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 15.26 | $ | 11.87 | $ | 10.43 | $ | 9.96 | $ | 8.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.78 | % | 14.23 | % | 4.75 | % | 11.12 | % | 4.42 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.10 | %) | (0.02 | %) | (0.18 | %) | (0.49 | %) | 0.12 | % | ||||||||||
Net expenses | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.21 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.21 | % | 2.31 | % | 2.27 | % | 2.36 | % | 2.49 | % | ||||||||||
Portfolio turnover rate | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 3,441 | $ | 1,575 | $ | 1,221 | $ | 1,352 | $ | 1,357 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 12.94 | $ | 11.38 | $ | 10.82 | $ | 9.72 | $ | 9.32 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.20 | 0.18 | 0.16 | 0.12 | 0.15 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 3.71 | 1.60 | 0.53 | 1.14 | 0.39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.91 | 1.78 | 0.69 | 1.26 | 0.54 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.21 | ) | (0.22 | ) | (0.13 | ) | (0.16 | ) | (0.14 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 16.64 | $ | 12.94 | $ | 11.38 | $ | 10.82 | $ | 9.72 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 30.65 | % | 15.89 | % | 6.43 | % | 13.00 | % | 5.99 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.40 | % | 1.48 | % | 1.39 | % | 1.16 | % | 1.69 | % | ||||||||||
Net expenses | 0.80 | % | 0.81 | % | 0.72 | % | 0.71 | % | 0.65 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.80 | % | 0.81 | % | 0.72 | % | 0.71 | % | 0.73 | % | ||||||||||
Portfolio turnover rate | 150 | % | 182 | % | 139 | % | 152 | % | 138 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 77,476 | $ | 75,985 | $ | 112,148 | $ | 230,246 | $ | 260,081 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
20 | MainStay Common Stock Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Common Stock Fund (the “Fund”), a diversified fund.
The Fund currently offers six classes of shares. Class A and Class B shares commenced operations on June 1, 1998. Class C shares commenced operations on September 1, 1998. Class I shares commenced operations on December 28, 2004. Class R2 shares were first offered on December 14, 2007. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I and Class R2 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The six classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A and Class R2 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I shares are not subject to a distribution and/or service fee. Class R2 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable. There were no investment operations for Class R2 during the year ended October 31, 2013.
The Fund’s investment objective is to seek long-term growth of capital.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has
authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
mainstayinvestments.com | 21 |
Notes to Financial Statements (continued)
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Broker Dealer Quotes | • Reported Trades | |
• Two-sided markets | • Issuer Spreads | |
• Bids / Offers | • Benchmark securities | |
• Industry and economic events | • Reference Data (corporate actions or material event notices) | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a
matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the
22 | MainStay Common Stock Fund |
expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(I) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. Cornerstone Capital Management Holdings LLC (“Cornerstone Holdings” or “Subadvisor”), a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of a Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Cornerstone Capital Holdings, New York Life Investments pays for the services of the Subadvisor.
Effective February 28, 2013, the Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.55% up to $500 million; 0.525% from $500 million to $1 billion; and 0.50% on assets in excess of $1 billion.
Prior to February 28, 2013, the Fund paid the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.55% up to $500 million; 0.525% from $500 million to $1 billion; and 0.50% in excess of $1 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.56% for the year ended
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets. The fund accounting fee was discontinued February 28, 2013.
New York Life Investments has voluntarily agreed to waive fees and/or reimburse expenses so that Total Annual Fund Operating Expenses of a class do not exceed the following percentages of average daily net assets: Investor Class, 1.85%; Class B, 2.60%; and Class C, 2.60%. These voluntary waivers or reimbursements may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $652,886.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Class I shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
In accordance with the Shareholder Services Plan for the Class R2 shares, the Manager has agreed to provide, through its affiliates or independent third parties, various shareholder and administrative support services to shareholders of the Class R2 shares. For its services, the Manager, its affiliates, or independent third party service providers are entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R2 shares. This is in addition to any fees paid under a distribution plan, where applicable.
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and
Class A shares were $5,158 and $6,442, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $61, $125, $6,302 and $1,117, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 79,389 | ||
Class A | 10,023 | |||
Class B | 30,348 | |||
Class C | 11,617 | |||
Class I | 51,091 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary Income | Accumulated Other Gain (Loss) | Other Temporary Differences | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||||
$1,192,740 | $ | (65,517,998 | ) | $ | — | $ | 17,419,976 | $ | (46,905,282 | ) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments and return of capital distributions received.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$(28,995) | $ | 28,995 | $ | — |
The reclassifications for the Fund are primarily due to partnerships, Real Estate Investment Trusts (REITs), and return of capital distributions received.
24 | MainStay Common Stock Fund |
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $65,517,998 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2017 | $ | 65,518 | $ | — |
The Fund utilized $18,824,473 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | $ | 1,485,002 | $ | 2,318,984 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to
August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $174,467 and $189,643, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 113,078 | $ | 1,670,004 | |||||
Shares issued to shareholders in reinvestment of dividends and distibutions | 9,965 | 129,649 | ||||||
Shares redeemed | (189,270 | ) | (2,684,115 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (66,227 | ) | (884,462 | ) | ||||
Shares converted into Investor Class | 66,768 | 963,577 | ||||||
Shares converted from Investor Class | (59,954 | ) | (897,653 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (59,413 | ) | $ | (818,538 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 85,370 | $ | 1,044,806 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,604 | 153,721 | ||||||
Shares redeemed | (180,434 | ) | (2,192,388 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (81,460 | ) | (993,861 | ) | ||||
Shares converted into Investor Class | 104,206 | 1,253,282 | ||||||
Shares converted from Investor Class | (80,491 | ) | (1,000,500 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (57,745 | ) | $ | (741,079 | ) | |||
|
|
|
| |||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 316,113 | $ | 4,705,861 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 11,848 | 153,672 | ||||||
Shares redeemed | (205,898 | ) | (3,006,406 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 122,063 | 1,853,127 | ||||||
Shares converted into Class A (See Note 1) | 69,340 | 1,034,189 | ||||||
Shares converted from Class A (See Note 1) | (6,805 | ) | (99,894 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 184,598 | $ | 2,787,422 | |||||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 102,868 | $ | 1,265,546 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,309 | 161,110 | ||||||
Shares redeemed | (190,780 | ) | (2,337,511 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (73,603 | ) | (910,855 | ) | ||||
Shares converted into Class A (See Note 1) | 98,947 | 1,223,586 | ||||||
Shares converted from Class A (See Note 1) | (4,355 | ) | (56,206 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 20,989 | $ | 256,525 | |||||
|
|
|
|
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 119,711 | $ | 1,621,134 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 850 | 10,244 | ||||||
Shares redeemed | (94,423 | ) | (1,290,666 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | 26,138 | 340,712 | ||||||
Shares converted from Class B (See Note 1) | (74,978 | ) | (1,000,219 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (48,840 | ) | $ | (659,507 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 73,944 | $ | 824,547 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 2,395 | 25,079 | ||||||
Shares redeemed | (105,218 | ) | (1,180,427 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in shares outstanding before conversion | (28,879 | ) | (330,801 | ) | ||||
Shares converted from Class B (See Note 1) | (127,785 | ) | (1,420,162 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (156,664 | ) | $ | (1,750,963 | ) | |||
|
|
|
| |||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 124,092 | $ | 1,684,178 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 192 | 2,318 | ||||||
Shares redeemed | (31,481 | ) | (413,610 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 92,803 | $ | 1,272,886 | |||||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 29,459 | $ | 337,801 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 329 | 3,443 | ||||||
Shares redeemed | (14,200 | ) | (162,581 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | 15,588 | $ | 178,663 | |||||
|
|
|
| |||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,363,501 | $ | 19,574,573 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 90,090 | 1,169,370 | ||||||
Shares redeemed | (2,669,598 | ) | (38,517,756 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (1,216,007 | ) | $ | (17,773,813 | ) | |||
|
|
|
| |||||
Year ended October 31, 2012: | ||||||||
Shares sold | 3,579,954 | $ | 45,193,225 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 146,459 | 1,650,592 | ||||||
Shares redeemed | (7,712,875 | ) | (92,526,708 | ) | ||||
|
|
|
| |||||
Net increase (decrease) | (3,986,462 | ) | $ | (45,682,891 | ) | |||
|
|
|
|
Note 9–Litigation
The Fund has been named as a defendant and a putative member of the proposed defendant group of shareholders in the case now entitled Kirschner v. FitzSimons, No. 12-2652 (S.D.N.Y.) (the “FitzSimons action”) as a result of its ownership of shares in the Tribune Company (“Tribune”) in 2007 when Tribune effected a leveraged buyout transaction (“LBO”) by which Tribune converted to a privately-held company. In its complaint, which was served on the Fund in October 2012, the
plaintiff asserts claims against certain insiders, shareholders, professional advisers, and others involved in the LBO. Separately, the complaint also seeks to recover proceeds received by shareholders through the LBO from a putative defendant class comprised of former Tribune shareholders other than the insiders, major shareholders and certain other defendants. The sole claim and cause of action brought against the Fund either as a named defendant or as a member of the putative defendant class is for fraudulent conveyance pursuant to United States Bankruptcy Code Section 548(a)(1)(A).
In June 2011, certain Tribune creditors filed numerous additional actions asserting state law constructive fraudulent conveyance claims (the “SLCFC actions”) against specifically-named former Tribune shareholders and, in some cases, putative defendant classes comprised of former Tribune shareholders. One of the SLCFC actions, entitled Deutsche Bank Trust Co. Americas v. Blackrock Institutional Trust Co., No. 11-9319 (S.D.N.Y.) (the “Deutsche Bank action”), named the Fund as a defendant.
The FitzSimons action and Deutsche Bank action have been consolidated with the majority of the other Tribune LBO-related lawsuits in a multidistrict litigation proceeding entitled In re Tribune Co. Fraudulent Conveyance Litig., No. 11-md-2296 (S.D.N.Y.) (the “MDL Proceeding”).
On August 2, 2013, the plaintiff in the FitzSimons action filed a Fifth Amended Complaint. On October 21, 2013, the District Court granted the plaintiff’s motion to enlarge the time for service of summonses and complaints in the FitzSimons action through and including January 14, 2014.
On September 23, 2013, the District Court granted the defendants’ motion to dismiss the state law constructive fraudulent conveyance actions (“SLCFC actions”), including the Deutsche Bank action, on the basis that the plaintiffs did not have standing to pursue their claims. On September 30, 2013, the plaintiffs in the SLCFC actions filed a notice of appeal to the United States Court of Appeals for the Second Circuit. On October 28, 2013, the defendants filed a joint notice of cross-appeal of that same order.
On November 20, 2013, the District Court issued Master Case Order No. 4 governing the next steps in the FitzSimons action, including the protocol for filing of any motions to dismiss the lawsuit
The value of the proceeds received by the Fund in connection with the LBO and the Fund’s cost basis in shares of Tribune was as follows:
Fund | Proceeds | Cost Basis | ||||||
MainStay Common Stock Fund | $ | 751,774 | $ | 729,369 |
At this stage of the proceedings, it would be difficult to assess with any reasonable certainty the probable outcome of the pending litigation or the effect, if any, on the Fund’s net asset values.
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
26 | MainStay Common Stock Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Common Stock Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Common Stock Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 27 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $1,485,002 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
28 | MainStay Common Stock Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 29 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
30 | MainStay Common Stock Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 31 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
32 | MainStay Common Stock Fund |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31925 MS322-13 | MSCS11-12/13 NL021 |
MainStay Large Cap Growth Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Table of Contents
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class A shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
(With sales charges)
Average Annual Total Returns for the Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 24.86 32.13 | %
|
| 15.36 16.68 | %
|
| 8.30 8.91 | %
|
| 1.10 1.10 | %
| ||||||
Class A Shares4 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 24.83 32.09 |
|
| 15.53 16.84 |
|
| 8.35 8.97 |
| | 1.04 1.04 | | ||||||
Class B Shares5 | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 25.93 30.93 |
|
| 15.58 15.81 |
|
| 8.09 8.09 |
| | 1.85 1.85 | | ||||||
Class C Shares5 | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 30.12 31.12 |
|
| 15.81 15.81 |
|
| 8.09 8.09 |
| | 1.85 1.85 | | ||||||
Class I Shares5 | No Sales Charge | 32.41 | 17.15 | 9.38 | 0.79 | |||||||||||||||
Class R1 Shares5 | No Sales Charge | 32.27 | 17.01 | 9.23 | 0.89 | |||||||||||||||
Class R2 Shares5 | No Sales Charge | 31.88 | 16.71 | 8.96 | 1.14 | |||||||||||||||
Class R3 Shares6 | No Sales Charge | 31.63 | 16.42 | 8.68 | 1.39 | |||||||||||||||
Class R6 Shares7 | No Sales Charge | 32.41 | 17.15 | 9.38 | 0.63 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class A shares include the historical performance of the FMI Winslow Growth Fund (a predecessor to the Fund) through March 31, 2005, adjusted to reflect the current maximum sales charge applicable to Class A shares. Unadjusted, the performance shown for Class A shares would likely have been different. |
5. | Performance figures for Class B, Class C, Class I, Class R1 and Class R2 shares, each of which was first offered on April 1, 2005, include the historical performance of Class A shares through March 31, 2005, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class B, C, I, R1 and R2 shares would likely have been different. |
6. | Performance figures for Class R3 shares, first offered on April 28, 2006, include the historical performance of Class A shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares would likely have been different. |
7. | Performance figures for Class R6 shares, first offered on June 17, 2013, include the historical performance of Class I shares. Performance for Class R6 shares would also likely have been different because of differences in expenses attributable to each share class. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Russell 1000® Growth Index8 | 28.30 | % | 17.51 | % | 7.70 | % | ||||||
S&P 500® Index9 | 27.18 | 15.17 | 7.46 | |||||||||
Average Lipper Large-Cap Growth Fund10 | 29.24 | 15.72 | 7.06 |
8. | The Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000® Growth Index is the Fund’s broad-based securities market index for comparison purposes. Results assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
9. | “S&P 500®” is a trademark of The McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard for measuring large-cap U.S. stock-market performance. The S&P 500® Index is the Fund’s secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
10. | The average Lipper large-cap growth fund is representative of funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap growth funds typically have above-average characteristics compared to the S&P 500® Index. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay Large Cap Growth Fund |
Cost in Dollars of a $1,000 Investment in MainStay Large Cap Growth Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund's ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,168.20 | $ | 5.85 | $ | 1,019.80 | $ | 5.45 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,167.30 | $ | 5.52 | $ | 1,020.10 | $ | 5.14 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,162.70 | $ | 9.92 | $ | 1,016.00 | $ | 9.25 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,164.20 | $ | 9.93 | $ | 1,016.00 | $ | 9.25 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,168.90 | $ | 4.15 | $ | 1,021.40 | $ | 3.87 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,168.60 | $ | 4.70 | $ | 1,020.90 | $ | 4.38 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,167.10 | $ | 6.06 | $ | 1,019.60 | $ | 5.65 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,165.30 | $ | 7.42 | $ | 1,018.30 | $ | 6.92 | ||||||||||
Class R6 Shares2,3 | $ | 1,000.00 | $ | 1,143.00 | $ | 2.48 | $ | 1,016.30 | $ | 2.33 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.07% for Investor Class, 1.01% for Class A, 1.82% for Class B and C, 0.76% for Class I, 0.86% for Class R1, 1.11% for Class R2, 1.36% for Class R3 and 0.62% for Class R6) multiplied by the average account value over the period, divided by 365 and multiplied by 184 days for Investor Class, Class A, Class B, Class C, Class I, Class R1, Class R2 and Class R3 (to reflect the one-half year period) and 136 days for Class R6 (to reflect the since-inception period). The table above represents actual expenses incurred during the one-half year period. |
2. | Expenses paid during the period reflect ongoing costs for the period from inception through October 31, 2013. Had these shares been offered for the full six-month period ended October 31, 2013, and had the Fund provided a hypothetical 5% annualized return, expenses paid during the period would have been $3.16 for Class R6 and the ending account value would have been $1,022.10 for Class R6. |
3. | The inception date for Class R6 shares was June 17, 2013. |
mainstayinvestments.com | 7 |
Industry Composition as of October 31, 2013 (Unaudited)
Internet Software & Services | 9.4 | % | ||
Biotechnology | 9.2 | |||
Internet & Catalog Retail | 6.9 | |||
IT Services | 6.4 | |||
Media | 5.0 | |||
Specialty Retail | 4.4 | |||
Chemicals | 4.1 | |||
Oil, Gas & Consumable Fuels | 4.1 | |||
Road & Rail | 4.1 | |||
Hotels, Restaurants & Leisure | 3.8 | |||
Capital Markets | 3.6 | |||
Software | 3.4 | |||
Aerospace & Defense | 3.2 | |||
Textiles, Apparel & Luxury Goods | 3.2 | |||
Computers & Peripherals | 3.0 | |||
Semiconductors & Semiconductor Equipment | 3.0 | |||
Industrial Conglomerates | 2.7 |
Food & Staples Retailing | 2.4 | % | ||
Pharmaceuticals | 2.1 | |||
Health Care Technology | 1.7 | |||
Communications Equipment | 1.5 | |||
Energy Equipment & Services | 1.5 | |||
Multiline Retail | 1.5 | |||
Real Estate Investment Trusts | 1.5 | |||
Wireless Telecommunication Services | 1.4 | |||
Auto Components | 1.2 | |||
Consumer Finance | 1.2 | |||
Personal Products | 1.1 | |||
Trading Companies & Distributors | 1.0 | |||
Health Care Providers & Services | 0.9 | |||
Airlines | 0.7 | |||
Short-Term Investment | 0.8 | |||
Other Assets, Less Liabilities | 0.0 | ‡ | ||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 11 for specific holdings within these categories.
‡ | Less than one-tenth of a percent. |
Top Ten Holdings as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | Google, Inc. Class A |
2. | Union Pacific Corp. |
3. | Visa, Inc. Class A |
4. | Priceline.com, Inc. |
5. | Amazon.com, Inc. |
6. | Apple, Inc. |
7. | Monsanto Co. |
8. | Salesforce.com, Inc. |
9. | Danaher Corp. |
10. | Celgene Corp. |
8 | MainStay Large Cap Growth Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Clark J. Winslow, Justin H. Kelly, CFA, and Patrick M. Burton, CFA, of Winslow Capital Management, LLC, the Fund’s Subadvisor.
How did MainStay Large Cap Growth Fund perform relative to its benchmark and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay Large Cap Growth Fund returned 32.13% for Investor Class shares, 32.09% for Class A shares, 30.93% for Class B shares and 31.12% for Class C shares for the 12 months ended October 31, 2013. Over the same period, the Fund returned 32.41% for Class I shares, 32.27% for Class R1 shares, 31.88% for Class R2 shares, 31.63% for Class R3 shares and 32.41% for Class R6 shares. For the 12 months ended October 31, 2013, all share classes outperformed the 28.30% return of the Russell 1000® Growth Index,1 which is the Fund’s broad-based securities-market index, and the 29.24% return of the average Lipper2 large-cap growth fund. See page 5 for Fund returns with applicable sales charges.
What factors affected the Fund’s relative performance during the reporting period?
The Fund’s relative performance was primarily driven by stock selection, which contributed positively in six sectors and detracted in three sectors. (Contributions take weightings and total returns into account.) Sector allocation contributed positively in all but two sectors during the reporting period. Our investment team anticipated a decline in systematic risk and believed this decline would lead equity performance to be driven by factors such as company fundamentals. (Systematic risk includes risk factors—such as European debt-market conditions, emerging-market behavior, and U.S. government and fiscal issues—that systematically affect stocks and cannot be easily avoided through diversification.) The market demonstrated lower correlations and higher price dispersion across stocks during the last third of the reporting period. Stable, high-dividend-yielding companies that were not held in the Fund dominated market performance during the first eight months of the reporting period and reached valuations that we viewed as extreme. For the entire reporting period, however, these stocks were significant underperformers. Instead, companies with strong relative growth outperformed. Our team’s focus on research and fundamental stock picking was rewarded with strong absolute and relative performance.
During the reporting period, which sectors were the strongest positive contributors to the Fund’s relative performance and which sectors were particularly weak?
Strong stock selection in the consumer discretionary and information technology sectors contributed positively to the Fund’s performance relative to the Russell 1000® Growth Index.
An underweight position in the consumer staples sector also contributed positively. Stock selection and an overweight position in financials detracted from the Fund’s performance during the reporting period. Stock selection in industrials and an overweight position in energy also detracted.
During the reporting period, which individual stocks made the strongest positive contributions to the Fund’s absolute performance and which stocks detracted the most?
The strongest positive contributor to absolute performance during the reporting period was online travel company priceline.com. The company reported solid revenue and earnings increases that exceeded Wall Street consensus expectations. The advances were driven by new product rollouts and a continuing market share shift to online bookings. Biotechnology company Celgene, which develops therapies for cancer and other diseases, was also a strong contributor. The company’s performance was led by strong growth of existing drugs—such as Revlimid, which advanced in the United States and is expected to launch in Europe in 2014—and an outstanding pipeline of new drugs, including Apremilast for skin cancer. Global credit and debit card company Visa was another strong contributor. The company enjoyed robust revenue growth as people around the world shifted from using cash and checks to relying on credit and debit cards.
Personal computing company Apple was the most substantial detractor from the Fund’s absolute performance. The company was no longer achieving the high growth it had experienced during the previous decade, and the stock languished during the reporting period, in spite of Apple’s cash balances and modest valuation. The Fund maintained an underweight position in the underperforming stock. Robotic technology maker Intuitive Surgical also detracted, as hospitals faced budget constraints and remained reluctant to commit the meaningful capital needed for new Da Vinci robotic systems, which resulted in lower-than-anticipated sales. We sold the Fund’s position in Intuitive Surgical. Chinese Internet search company Baidu was another weak contributor, prompting us to sell the position at a depressed level. We were concerned about Baidu’s plans to increase expenditures in 2013 and 2014.
Did the Fund make any significant purchases or sales during the reporting period?
We initiated a Fund position in airline company Delta Air Lines on the basis of structural improvement in the airline industry’s competitive intensity. The Fund also purchased a position in social network company Facebook because we believe that the
1. | See footnote on page 6 for more information on the Russell 1000® Growth Index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
company may exceed consensus earnings expectations. In our view, advances may be driven by increased advertising spending on mobile devices and the possibility of enhanced advertising opportunities through the use of video.
We sold the Fund’s position in home improvement retailer Home Depot because the stock had reached our near-term valuation target. We also sold the Fund’s position in France-based therapeutic solution developer Sanofi because of slower growth in emerging markets.
How did the Fund’s sector weightings change during the reporting period?
We increased the Fund’s already overweight positions relative to the Russell 1000® Growth Index in the consumer discretionary and financials sectors. We increased the Fund’s weighting in the information technology sector, moving from an underweight
position relative to the Russell 1000® Growth Index to an overweight position. We reduced the Fund’s position in the materials sector, moving from a moderately overweight position relative to the Russell 1000® Growth Index to a moderately underweight position.
How was the Fund positioned at the end of the reporting period?
As of October 31, 2013, the Fund held overweight positions relative to the Russell 1000® Growth Index in the consumer discretionary and health care sectors. As of the same date, the Fund maintained its long-standing significantly underweight position relative to the Russell 1000® Growth Index in the consumer staples sector. As of October 31, 2013, the Fund also held an underweight position relative to the Index in the telecommunication services sector.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
10 | MainStay Large Cap Growth Fund |
Portfolio of Investments October 31, 2013
Shares | Value | |||||||
Common Stocks 99.2%† | ||||||||
Aerospace & Defense 3.2% |
| |||||||
Precision Castparts Corp. | 1,397,300 | $ | 354,145,685 | |||||
United Technologies Corp. | 2,443,800 | 259,653,750 | ||||||
|
| |||||||
613,799,435 | ||||||||
|
| |||||||
Airlines 0.7% |
| |||||||
Delta Air Lines, Inc. | 4,995,900 | 131,791,842 | ||||||
|
| |||||||
Auto Components 1.2% |
| |||||||
BorgWarner, Inc. | 2,181,000 | 224,926,530 | ||||||
|
| |||||||
Biotechnology 9.2% |
| |||||||
Alexion Pharmaceuticals, Inc. (a) | 1,595,600 | 196,179,020 | ||||||
Amgen, Inc. | 2,984,300 | 346,178,800 | ||||||
Biogen Idec, Inc. (a) | 1,515,800 | 370,143,202 | ||||||
¨Celgene Corp. (a) | 3,052,700 | 453,295,423 | ||||||
Gilead Sciences, Inc. (a) | 5,600,700 | 397,593,693 | ||||||
|
| |||||||
1,763,390,138 | ||||||||
|
| |||||||
Capital Markets 3.6% |
| |||||||
BlackRock, Inc. | 1,131,300 | 340,306,353 | ||||||
Charles Schwab Corp. (The) | 2,964,300 | 67,141,395 | ||||||
Morgan Stanley | 10,012,600 | 287,661,998 | ||||||
|
| |||||||
695,109,746 | ||||||||
|
| |||||||
Chemicals 4.1% |
| |||||||
Ecolab, Inc. | 2,081,100 | 220,596,600 | ||||||
¨Monsanto Co. | 5,426,500 | 569,131,320 | ||||||
|
| |||||||
789,727,920 | ||||||||
|
| |||||||
Communications Equipment 1.5% |
| |||||||
F5 Networks, Inc. (a) | 1,298,200 | 105,816,282 | ||||||
QUALCOMM, Inc. | 2,685,900 | 186,589,473 | ||||||
|
| |||||||
292,405,755 | ||||||||
|
| |||||||
Computers & Peripherals 3.0% |
| |||||||
¨Apple, Inc. | 1,114,265 | 582,036,323 | ||||||
|
| |||||||
Consumer Finance 1.2% |
| |||||||
American Express Co. | 2,850,200 | 233,146,360 | ||||||
|
| |||||||
Energy Equipment & Services 1.5% |
| |||||||
Schlumberger, Ltd. | 3,023,300 | 283,343,676 | ||||||
|
| |||||||
Food & Staples Retailing 2.4% |
| |||||||
Costco Wholesale Corp. | 1,515,000 | 178,770,000 | ||||||
CVS Caremark Corp. | 3,349,700 | 208,552,322 | ||||||
Whole Foods Market, Inc. | 1,182,000 | 74,619,660 | ||||||
|
| |||||||
461,941,982 | ||||||||
|
|
Shares | Value | |||||||
Health Care Providers & Services 0.9% |
| |||||||
Catamaran Corp. (a) | 3,544,400 | $ | 166,445,024 | |||||
|
| |||||||
Health Care Technology 1.7% |
| |||||||
athenahealth, Inc. (a) | 792,400 | 105,793,324 | ||||||
Cerner Corp. (a) | 3,848,600 | 215,637,058 | ||||||
|
| |||||||
321,430,382 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure 3.8% |
| |||||||
Chipotle Mexican Grill, Inc. (a) | 250,500 | 132,005,985 | ||||||
Starbucks Corp. | 5,021,700 | 407,008,785 | ||||||
Wynn Resorts, Ltd. | 1,119,200 | 186,067,000 | ||||||
|
| |||||||
725,081,770 | ||||||||
|
| |||||||
Industrial Conglomerates 2.7% |
| |||||||
¨Danaher Corp. | 7,182,700 | 517,800,843 | ||||||
|
| |||||||
Internet & Catalog Retail 6.9% |
| |||||||
¨Amazon.com, Inc. (a) | 1,804,600 | 656,928,538 | ||||||
¨Priceline.com, Inc. (a) | 632,600 | 666,652,858 | ||||||
|
| |||||||
1,323,581,396 | ||||||||
|
| |||||||
Internet Software & Services 9.4% |
| |||||||
Baidu, Inc., Sponsored ADR (a) | 950,600 | 152,951,540 | ||||||
eBay, Inc. (a) | 6,583,000 | 346,989,930 | ||||||
Facebook, Inc. Class A (a) | 7,318,000 | 367,802,680 | ||||||
¨Google, Inc. Class A (a) | 778,200 | 801,997,356 | ||||||
LinkedIn Corp. Class A (a) | 611,900 | 136,863,673 | ||||||
|
| |||||||
1,806,605,179 | ||||||||
|
| |||||||
IT Services 6.4% |
| |||||||
Cognizant Technology Solutions Corp. Class A (a) | 2,637,500 | 229,277,875 | ||||||
MasterCard, Inc. Class A | 440,000 | 315,524,000 | ||||||
¨Visa, Inc. Class A | 3,512,900 | 690,882,043 | ||||||
|
| |||||||
1,235,683,918 | ||||||||
|
| |||||||
Media 5.0% |
| |||||||
CBS Corp. Class B | 4,282,100 | 253,243,394 | ||||||
Liberty Global PLC Class A (a) | 2,541,700 | 199,193,029 | ||||||
Twenty-First Century Fox, Inc. Class A | 8,674,000 | 295,609,920 | ||||||
Walt Disney Co. (The) | 3,136,600 | 215,139,394 | ||||||
|
| |||||||
963,185,737 | ||||||||
|
| |||||||
Multiline Retail 1.5% |
| |||||||
Dollar General Corp. (a) | 4,871,500 | 281,475,270 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels 4.1% |
| |||||||
EOG Resources, Inc. | 933,700 | 166,572,080 | ||||||
Noble Energy, Inc. | 3,056,700 | 229,038,531 | ||||||
Pioneer Natural Resources Co. | 1,020,100 | 208,896,078 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Oil, Gas & Consumable Fuels (continued) |
| |||||||
Range Resources Corp. | 2,464,600 | $ | 186,594,866 | |||||
|
| |||||||
791,101,555 | ||||||||
|
| |||||||
Personal Products 1.1% |
| |||||||
Estee Lauder Cos., Inc. (The) | 2,863,700 | 203,208,152 | ||||||
|
| |||||||
Pharmaceuticals 2.1% |
| |||||||
Bristol-Myers Squibb Co. | 3,333,900 | 175,096,428 | ||||||
Zoetis, Inc. | 7,392,400 | 234,043,384 | ||||||
|
| |||||||
409,139,812 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.5% |
| |||||||
American Tower Corp. | 3,624,700 | 287,619,945 | ||||||
|
| |||||||
Road & Rail 4.1% |
| |||||||
Kansas City Southern | 775,200 | 94,202,304 | ||||||
¨Union Pacific Corp. | 4,615,100 | 698,726,140 | ||||||
|
| |||||||
792,928,444 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 3.0% |
| |||||||
Applied Materials, Inc. | 10,362,900 | 184,977,765 | ||||||
Arm Holdings PLC, Sponsored ADR | 4,374,500 | 206,432,655 | ||||||
NXP Semiconductors N.V. (a) | 4,634,500 | 195,205,140 | ||||||
|
| |||||||
586,615,560 | ||||||||
|
| |||||||
Software 3.4% |
| |||||||
¨Salesforce.com, Inc. (a) | 10,285,700 | 548,844,952 | ||||||
ServiceNow, Inc. (a) | 1,893,100 | 103,382,191 | ||||||
|
| |||||||
652,227,143 | ||||||||
|
| |||||||
Specialty Retail 4.4% |
| |||||||
Best Buy Co., Inc. | 1,571,800 | 67,273,040 | ||||||
Lowe’s Companies, Inc. | 4,817,700 | 239,825,106 | ||||||
Ross Stores, Inc. | 2,753,700 | 212,998,695 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc. (a) | 2,550,600 | 328,644,810 | ||||||
|
| |||||||
848,741,651 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods 3.2% |
| |||||||
Lululemon Athletica, Inc. (a) | 1,937,900 | 133,811,995 | ||||||
NIKE, Inc. Class B | 3,951,600 | 299,373,216 | ||||||
Ralph Lauren Corp. | 1,047,035 | 173,430,877 | ||||||
|
| |||||||
606,616,088 | ||||||||
|
| |||||||
Trading Companies & Distributors 1.0% |
| |||||||
W.W. Grainger, Inc. | 721,370 | 194,026,889 | ||||||
|
| |||||||
Wireless Telecommunication Services 1.4% |
| |||||||
SBA Communications Corp. | 3,083,400 | 269,704,998 | ||||||
|
| |||||||
Total Common Stocks | 19,054,839,463 | |||||||
|
|
Principal Amount | Value | |||||||
Short-Term Investment 0.8% | ||||||||
Repurchase Agreement 0.8% | ||||||||
State Street Bank and Trust Co. | $ | 156,390,965 | $ | 156,390,965 | ||||
|
| |||||||
Total Short-Term Investment | 156,390,965 | |||||||
|
| |||||||
Total Investments | 100.0 | % | 19,211,230,428 | |||||
Other Assets, Less Liabilities | 0.0 | ‡ | 2,426,124 | |||||
Net Assets | 100.0 | % | $ | 19,213,656,552 |
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
(b) | As of October 31, 2013, cost is $13,071,023,262 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 6,182,138,975 | ||
Gross unrealized depreciation | (41,931,809 | ) | ||
|
| |||
Net unrealized appreciation | $ | 6,140,207,166 | ||
|
|
The following abbreviation is used in the above portfolio:
ADR—American Depositary Receipt
12 | MainStay Large Cap Growth Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 19,054,839,463 | $ | — | $ | — | $ | 19,054,839,463 | ||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 156,390,965 | — | 156,390,965 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 19,054,839,463 | $ | 156,390,965 | $ | — | $ | 19,211,230,428 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended October 31, 2013, the Fund did not have any transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value | $ | 19,211,230,428 | ||
Receivables: | ||||
Investment securities sold | 330,409,974 | |||
Fund shares sold | 31,770,628 | |||
Dividends and interest | 4,275,310 | |||
Other assets | 94,498 | |||
|
| |||
Total assets | 19,577,780,838 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 249,385,780 | |||
Fund shares redeemed | 98,698,641 | |||
Manager (See Note 3) | 9,988,019 | |||
Transfer agent (See Note 3) | 4,237,236 | |||
NYLIFE Distributors (See Note 3) | 1,074,026 | |||
Shareholder communication | 472,691 | |||
Professional fees | 74,777 | |||
Custodian | 69,816 | |||
Trustees | 41,307 | |||
Accrued expenses | 81,993 | |||
|
| |||
Total liabilities | 364,124,286 | |||
|
| |||
Net assets | $ | 19,213,656,552 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 18,814,563 | ||
Additional paid-in capital | 12,123,456,447 | |||
|
| |||
12,142,271,010 | ||||
Accumulated net realized gain (loss) on investments | 913,074,101 | |||
Net unrealized appreciation (depreciation) on investments | 6,158,311,441 | |||
|
| |||
Net assets | $ | 19,213,656,552 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 211,110,766 | ||
|
| |||
Shares of beneficial interest outstanding | 21,268,384 | |||
|
| |||
Net asset value per share outstanding | $ | 9.93 | ||
Maximum sales charge (5.50% of offering price) | 0.58 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.51 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 1,615,767,827 | ||
|
| |||
Shares of beneficial interest outstanding | 161,916,314 | |||
|
| |||
Net asset value per share outstanding | $ | 9.98 | ||
Maximum sales charge (5.50% of offering price) | 0.58 | |||
|
| |||
Maximum offering price per share outstanding | $ | 10.56 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 59,671,432 | ||
|
| |||
Shares of beneficial interest outstanding | 6,420,484 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.29 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 403,968,129 | ||
|
| |||
Shares of beneficial interest outstanding | 43,506,962 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.29 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 13,254,459,410 | ||
|
| |||
Shares of beneficial interest outstanding | 1,285,774,342 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.31 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 2,287,241,660 | ||
|
| |||
Shares of beneficial interest outstanding | 224,363,084 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.19 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 1,014,654,647 | ||
|
| |||
Shares of beneficial interest outstanding | 101,529,015 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.99 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 219,158,101 | ||
|
| |||
Shares of beneficial interest outstanding | 22,360,276 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 9.80 | ||
|
| |||
Class R6 | ||||
Net assets applicable to outstanding shares | $ | 147,624,580 | ||
|
| |||
Shares of beneficial interest outstanding | 14,317,437 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 10.31 | ||
|
|
14 | MainStay Large Cap Growth Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 204,513,161 | ||
Interest | 18,465 | |||
|
| |||
Total income | 204,531,626 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 107,601,634 | |||
Transfer agent (See Note 3) | 25,613,215 | |||
Distribution/Service—Investor Class (See Note 3) | 520,376 | |||
Distribution/Service—Class A (See Note 3) | 3,888,940 | |||
Distribution/Service—Class B (See Note 3) | 580,149 | |||
Distribution/Service—Class C (See Note 3) | 3,794,492 | |||
Distribution/Service—Class R2 (See Note 3) | 2,307,228 | |||
Distribution/Service—Class R3 (See Note 3) | 1,056,705 | |||
Shareholder service (See Note 3) | 3,237,108 | |||
Shareholder communication | 1,230,224 | |||
Professional fees | 659,437 | |||
Registration | 572,205 | |||
Trustees | 361,256 | |||
Custodian | 164,424 | |||
Miscellaneous | 474,496 | |||
|
| |||
Total expenses before waiver/reimbursement | 152,061,889 | |||
Expense waiver/reimbursement from Manager (See Note 3) | (110,035 | ) | ||
|
| |||
Net expenses | 151,951,854 | |||
|
| |||
Net investment income (loss) | 52,579,772 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments | ||||
Net realized gain (loss) on investments (b) | 1,477,017,481 | |||
Net change in unrealized appreciation (depreciation) on investments | 3,488,600,418 | |||
|
| |||
Net realized and unrealized gain (loss) on investments | 4,965,617,899 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 5,018,197,671 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $888,382. |
(b) | Includes realized gain of $14,432,792 due to an in-kind redemption during the year ended October 31, 2013. (See Note 9) |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 52,579,772 | $ | (11,181,745 | ) | |||
Net realized gain (loss) on investments (a) | 1,477,017,481 | (512,103,447 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | 3,488,600,418 | 1,549,658,941 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 5,018,197,671 | 1,026,373,749 | ||||||
|
| |||||||
Dividends and distributions to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (123,455 | ) | — | |||||
Class A | (977,498 | ) | — | |||||
Class B | (36,860 | ) | — | |||||
Class C | (240,447 | ) | — | |||||
Class I | (34,238,118 | ) | — | |||||
Class R1 | (4,030,892 | ) | — | |||||
Class R2 | (515,922 | ) | — | |||||
Class R3 | (125,932 | ) | — | |||||
|
| |||||||
(40,289,124 | ) | — | ||||||
|
| |||||||
From net realized gain on investments: | ||||||||
Investor Class | — | (3,134,315 | ) | |||||
Class A | — | (42,302,237 | ) | |||||
Class B | — | (1,683,517 | ) | |||||
Class C | — | (9,016,819 | ) | |||||
Class I | — | (193,020,340 | ) | |||||
Class R1 | — | (29,736,149 | ) | |||||
Class R2 | — | (16,672,198 | ) | |||||
Class R3 | — | (3,756,927 | ) | |||||
|
| |||||||
Total dividends and distributions to shareholders | (40,289,124 | ) | (299,322,502 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 3,626,295,650 | 7,252,755,190 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends and distributions | 30,730,710 | 218,164,571 | ||||||
Cost of shares redeemed (b) | (5,890,648,167 | ) | (4,644,732,279 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (2,233,621,807 | ) | 2,826,187,482 | |||||
|
| |||||||
Net increase (decrease) in net assets | 2,744,286,740 | 3,553,238,729 |
2013 | 2012 | |||||||
Net Assets | ||||||||
Beginning of year | $ | 16,469,369,812 | $ | 12,916,131,083 | ||||
|
| |||||||
End of year | $ | 19,213,656,552 | $ | 16,469,369,812 | ||||
|
| |||||||
Undistributed (distributions in excess of) net investment income at end of year | $ | — | $ | (11,181,745 | ) | |||
|
|
(a) | Includes realized gain of $14,432,792 due to an in-kind redemption during the year ended October 31, 2013. (See Note 9) |
(b) | Includes an in-kind redemption in the amount of $119,677,233 during the year ended October 31, 2013. (See Note 9) |
16 | MainStay Large Cap Growth Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.52 | $ | 7.21 | $ | 6.55 | $ | 5.53 | $ | 4.70 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.01 | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.03 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments | 2.40 | 0.49 | 0.69 | 1.06 | 0.86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.41 | 0.47 | 0.66 | 1.02 | 0.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.93 | $ | 7.52 | $ | 7.21 | $ | 6.55 | $ | 5.53 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 32.13 | % | 6.68 | % | 10.08 | % | 18.44 | % | 17.66 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.09 | % | (0.28 | %) | (0.43 | %) | (0.64 | %) | (0.62 | %) | ||||||||||
Net expenses | 1.08 | % | 1.10 | % | 1.15 | % | 1.27 | % | 1.45 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.08 | % | 1.10 | % | 1.15 | % | 1.28 | % | 1.45 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 211,111 | $ | 199,156 | $ | 130,140 | $ | 93,733 | $ | 59,499 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.55 | $ | 7.24 | $ | 6.58 | $ | 5.54 | $ | 4.70 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.01 | (0.02 | ) | (0.02 | ) | (0.03 | ) | (0.02 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments | 2.42 | 0.49 | 0.68 | 1.07 | 0.86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.43 | 0.47 | 0.66 | 1.04 | 0.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.98 | $ | 7.55 | $ | 7.24 | $ | 6.58 | $ | 5.54 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 32.09 | % | 6.79 | % | 10.03 | % | 18.77 | % | 17.87 | % (c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.17 | % | (0.20 | %) | (0.35 | %) | (0.52 | %) | (0.43 | %) | ||||||||||
Net expenses | 1.02 | % | 1.04 | % | 1.06 | % | 1.17 | % | 1.21 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.02 | % | 1.04 | % | 1.07 | % | 1.18 | % | 1.24 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 1,615,768 | $ | 1,611,374 | $ | 1,887,326 | $ | 1,131,968 | $ | 1,662,622 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.09 | $ | 6.86 | $ | 6.28 | $ | 5.34 | $ | 4.57 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.05 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | (0.06 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 2.25 | 0.46 | 0.66 | 1.02 | 0.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.20 | 0.39 | 0.58 | 0.94 | 0.77 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.29 | $ | 7.09 | $ | 6.86 | $ | 6.28 | $ | 5.34 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 30.93 | % | 5.98 | % | 9.24 | % (c) | 17.60 | % (c) | 16.85 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.65 | %) | (1.01 | %) | (1.18 | %) | (1.38 | %) | (1.35 | %) | ||||||||||
Net expenses | 1.83 | % | 1.84 | % | 1.90 | % | 2.02 | % | 2.20 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.83 | % | 1.85 | % | 1.90 | % | 2.03 | % | 2.21 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 59,671 | $ | 58,392 | $ | 72,591 | $ | 82,590 | $ | 63,327 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.09 | $ | 6.85 | $ | 6.28 | $ | 5.33 | $ | 4.57 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | (0.05 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | (0.07 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 2.25 | 0.47 | 0.65 | 1.03 | 0.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.20 | 0.40 | 0.57 | 0.95 | 0.76 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 9.29 | $ | 7.09 | $ | 6.85 | $ | 6.28 | $ | 5.33 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 31.12 | % | 5.99 | % | 9.08 | % | 17.82 | % (c) | 16.63 | % (c) | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.66 | %) | (1.02 | %) | (1.18 | %) | (1.39 | %) | (1.38 | %) | ||||||||||
Net expenses | 1.83 | % | 1.85 | % | 1.89 | % | 2.02 | % | 2.19 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.83 | % | 1.85 | % | 1.90 | % | 2.03 | % | 2.20 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 403,968 | $ | 375,521 | $ | 380,186 | $ | 262,799 | $ | 174,955 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
(c) | Total investment returns may reflect adjustments to conform to generally accepted accounting principles. |
18 | MainStay Large Cap Growth Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.80 | $ | 7.45 | $ | 6.75 | $ | 5.67 | $ | 4.79 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.03 | 0.00 | ‡ | (0.01 | ) | (0.01 | ) | 0.00 | ‡ | |||||||||||
Net realized and unrealized gain (loss) on investments | 2.50 | 0.51 | 0.71 | 1.09 | 0.88 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.53 | 0.51 | 0.70 | 1.08 | 0.88 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.02 | ) | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.02 | ) | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 10.31 | $ | 7.80 | $ | 7.45 | $ | 6.75 | $ | 5.67 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 32.41 | % | 7.15 | % | 10.37 | % (c) | 19.05 | % (c) | 18.37 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.38 | % | 0.03 | % | (0.09 | %) | (0.23 | %) | 0.00 | %(d) | ||||||||||
Net expenses | 0.77 | % | 0.79 | % | 0.81 | % | 0.85 | % | 0.82 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.77 | % | 0.79 | % | 0.82 | % | 0.94 | % | 0.99 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 13,254,459 | $ | 11,215,464 | $ | 8,465,658 | $ | 3,497,859 | $ | 1,341,715 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
(c) | Total investment return may reflect adjustments to conform to generally accepted accounting principles. |
(d) | Less than one-hundredth of a percent. |
Year ended October 31, | ||||||||||||||||||||
Class R1 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.72 | $ | 7.38 | $ | 6.70 | $ | 5.63 | $ | 4.76 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.02 | (0.01 | ) | (0.02 | ) | (0.02 | ) | (0.01 | ) | |||||||||||
Net realized and unrealized gain (loss) on investments | 2.47 | 0.51 | 0.70 | 1.09 | 0.88 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.49 | 0.50 | 0.68 | 1.07 | 0.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.02 | ) | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (0.02 | ) | (0.16 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 10.19 | $ | 7.72 | $ | 7.38 | $ | 6.70 | $ | 5.63 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 32.27 | % | 6.94 | % | 10.15 | % | 19.01 | % | 18.28 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.28 | % | (0.08 | %) | (0.21 | %) | (0.35 | %) | (0.19 | %) | ||||||||||
Net expenses | 0.87 | % | 0.89 | % | 0.91 | % | 0.97 | % | 0.98 | % | ||||||||||
Expenses (before reimbursement/waiver) | 0.87 | % | 0.89 | % | 0.92 | % | 1.04 | % | 1.09 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 2,287,242 | $ | 1,950,015 | $ | 1,140,164 | $ | 418,253 | $ | 161,642 |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class R2 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.57 | $ | 7.26 | $ | 6.61 | $ | 5.57 | $ | 4.72 | ||||||||||
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|
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|
|
|
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| |||||||||||
Net investment income (loss) (a) | 0.00 | ‡ | (0.02 | ) | (0.03 | ) | (0.04 | ) | (0.02 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 2.42 | 0.49 | 0.68 | 1.08 | 0.87 | |||||||||||||||
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|
|
|
|
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| |||||||||||
Total from investment operations | 2.42 | 0.47 | 0.65 | 1.04 | 0.85 | |||||||||||||||
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| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
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|
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|
|
|
| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
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|
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|
|
|
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|
| |||||||||||
Net asset value at end of year | $ | 9.99 | $ | 7.57 | $ | 7.26 | $ | 6.61 | $ | 5.57 | ||||||||||
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Total investment return (b) | 31.88 | % | 6.77 | % | 9.83 | % | 18.67 | % | 18.01 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.03 | % | (0.32 | %) | (0.46 | %) | (0.66 | %) | (0.45 | %) | ||||||||||
Net expenses | 1.12 | % | 1.14 | % | 1.16 | % | 1.28 | % | 1.24 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.12 | % | 1.14 | % | 1.17 | % | 1.29 | % | 1.35 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 1,014,655 | $ | 854,119 | $ | 701,183 | $ | 217,002 | $ | 113,942 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Year ended October 31, | ||||||||||||||||||||
Class R3 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 7.45 | $ | 7.16 | $ | 6.53 | $ | 5.52 | $ | 4.69 | ||||||||||
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|
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| |||||||||||
Net investment income (loss) (a) | (0.02 | ) | (0.04 | ) | (0.05 | ) | (0.06 | ) | (0.03 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 2.37 | 0.49 | 0.68 | 1.07 | 0.86 | |||||||||||||||
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| |||||||||||
Total from investment operations | 2.35 | 0.45 | 0.63 | 1.01 | 0.83 | |||||||||||||||
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|
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|
|
|
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|
| |||||||||||
Less dividends and distributions: | ||||||||||||||||||||
From net investment income | (0.00 | )‡ | — | — | — | — | ||||||||||||||
From net realized gain on investments | — | (0.16 | ) | — | — | — | ||||||||||||||
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|
|
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| |||||||||||
Total dividends and distributions | (0.00 | )‡ | (0.16 | ) | — | — | — | |||||||||||||
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Net asset value at end of year | $ | 9.80 | $ | 7.45 | $ | 7.16 | $ | 6.53 | $ | 5.52 | ||||||||||
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| |||||||||||
Total investment return (b) | 31.63 | % | 6.44 | % | 9.65 | % | 18.30 | % | 17.70 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | (0.20 | %) | (0.57 | %) | (0.70 | %) | (0.92 | %) | (0.70 | %) | ||||||||||
Net expenses | 1.37 | % | 1.39 | % | 1.41 | % | 1.53 | % | 1.49 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.37 | % | 1.39 | % | 1.42 | % | 1.54 | % | 1.59 | % | ||||||||||
Portfolio turnover rate | 74 | % | 60 | % | 52 | % | 91 | % | 62 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 219,158 | $ | 205,329 | $ | 138,883 | $ | 49,395 | $ | 13,436 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
20 | MainStay Large Cap Growth Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
June 17, 2013** through October 31, | ||||
Class R6 | 2013 | |||
Net asset value at beginning of period | $ | 9.02 | ||
|
| |||
Net investment income (loss) (a) | 0.00 | ‡ | ||
Net realized and unrealized gain (loss) on investments | 1.29 | |||
|
| |||
Total from investment operations | 1.29 | |||
|
| |||
Net asset value at end of period | $ | 10.31 | ||
|
| |||
Total investment return (b) | 14.30 | %(c) | ||
Ratios (to average net assets)/Supplemental Data: | ||||
Net investment income (loss) | 0.04 | %†† | ||
Net expenses | 0.62 | %†† | ||
Portfolio turnover rate | 74 | % | ||
Net assets at end of period (in 000’s) | $ | 147,625 |
** | Inception date. |
†† | Annualized. |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the period. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R6 shares are not subject to sales charges. |
(c) | Total investment return is not annualized. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay Large Cap Growth Fund (the “Fund”), a diversified fund.
The Fund currently offers nine classes of shares. Class A shares commenced operations on July 1, 1995. Class B, Class C, Class I, Class R1 and Class R2 shares commenced operations on April 1, 2005. Class R3 shares commenced operations on April 28, 2006. Investor Class shares commenced operations on February 28, 2008. Class R6 shares commenced operations on June 17, 2013. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2, Class R3 and Class R6 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The nine classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I, Class R1 and Class R6 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek long-term growth of capital.
As of January 13, 2012, the Fund was closed to new investors with certain exceptions. See Note 10 for more information.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisor (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund's third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
22 | MainStay Large Cap Growth Fund |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund's Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Broker Dealer Quotes | • Reported Trades | |
• Two-sided markets | • Issuer Spreads | |
• Bids/Offers | • Benchmark securities | |
• Industry and economic events | • Reference Data (corporate actions or material event notices) | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund's Manager or Subadvisor reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their
respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(D) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(E) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(F) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(G) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisor to be creditworthy, pursuant to guidelines established by the Fund's Board. During the term of any repurchase agreement, the Manager or Subadvisor will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund's custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(H) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund's cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund's portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower's inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as
collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(I) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisor. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. Winslow Capital Management, LLC. (“Winslow” or “Subadvisor”), a registered investment adviser, serves as Subadvisor to the Fund and is responsible for the day-to-day portfolio management of the Fund. Pursuant to the terms of an Amended and Restated Subadvisory Agreement (“Subadvisory Agreement”) between New York Life Investments and Winslow, New York Life Investments pays for the services of the Subadvisor.
Effective February 28, 2013, the Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.75% up to $500 million; 0.725% from $500 million to $750 million; 0.71% from $750 million to $1 billion; 0.70% from $1 billion to $2 billion; 0.66% from $2 billion to $3 billion; 0.61% from $3 billion to $7 billion; 0.585% from $7 billion to $9 billion; and 0.575% in excess of $9 billion.
New York Life Investments has contractually agreed to waive fees and/or reimburse expenses of Class I shares so that Total Annual Fund Operating Expenses of Class I Shares do not exceed 0.88% of the Fund's average daily net assets. This agreement will remain in effect
24 | MainStay Large Cap Growth Fund |
until February 28, 2014, and shall renew automatically for one-year terms unless New York Life Investments provides written notice of termination prior to the start of the next term or upon approval of the Board.
Additionally, New York Life Investments has agreed to further voluntarily waive fees and/or reimburse the expenses of Class R1 shares so that Total Annual Fund Operating Expenses do not exceed 0.95% of its average daily net assets. This voluntary waiver or reimbursement may be discontinued at any time. Total Annual Fund Operating Expenses excludes taxes, interest, litigation, extraordinary expenses, brokerage and other transaction expenses relating to the purchase or sale of portfolio investments, and acquired (underlying) fund fees and expenses.
Prior to February 28, 2013, the Fund paid the Manager a monthly fee for services performed and facilities furnished at an annual percentage of the Fund’s average daily net assets, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to $20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million. New York Life Investments had contractually agreed to waive a portion of its management fee, so that the management fee would not exceed 0.75% up to $500 million. All other management fee breakpoints remained the same. Without that fee waiver, the actual fee would have been 0.80% up to $250 million; 0.75% from $250 million to $500 million; 0.725% from $500 million to $750 million; 0.70% from $750 million to $2 billion; 0.65% from $2 billion to $3 billion; 0.60% from $3 billion to $7 billion; 0.575% from $7 billion to $9 billion; and 0.565% in excess of $9 billion.
The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.60% for the year ended October 31, 2013, inclusive of a fee for fund accounting services that was less than 0.01% of the Fund's average daily net assets. The fund accounting fee was discontinued February 28, 2013.
Prior to February 28, 2013, New York Life Investments had voluntarily agreed to waive a portion of its management fee so that it would not exceed the following percentages of the Fund's average daily net assets: 0.72% up to $500 million; 0.70% from $500 million to $2 billion. All other management fee breakpoints were the same. This voluntary waiver was discontinued February 28, 2013.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $107,601,634 and waived its fees and/or reimbursed expenses in the amount of $110,035.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement
with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution and/or service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I, Class R1 and Class R6 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund's shares and service activities.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and Class R3 shares, the Manager has agreed to provide, through its affiliates or independent third parties, various shareholder and administrative support services to shareholders of the Class R1, Class R2 and Class R3 shares. For its services, the Manager, its affiliates or independent third party service providers are entitled to a Shareholder Service Fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2013, were as follows:
Class R1 | $ | 2,102,848 | ||
Class R2 | 922,916 | |||
Class R3 | 211,344 |
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $19,288 and $17,283, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $135, $8,112, $67,661 and $20,344, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund's transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 426,090 | ||
Class A | 2,216,596 | |||
Class B | 118,768 | |||
Class C | 776,249 | |||
Class I | 17,475,828 | |||
Class R1 | 2,988,120 | |||
Class R2 | 1,310,751 | |||
Class R3 | 300,813 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class C | $ | 4,308 | 0.0 | %‡ | ||||
Class I | 8,016 | 0.0 | ‡ | |||||
Class R6 | 28,575 | 0.0 | ‡ |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary | Accumulated Other Gain (Loss) | Capital Loss Carryforward | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||
$— | $ | 933,873,503 | $ | (2,695,127 | ) | $ | 6,140,207,166 | $ | 7,071,385,542 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments and return of capital distributions received.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$(1,108,903) | $ | (13,251,603 | ) | $ | 14,360,506 |
The reclassifications for the Fund are primarily due to return of capital distributions received, redemptions in-kind and distribution re-designations.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable
years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $2,695,127 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2016 | $ | 2,695 | $ | — | ||||
Total | $ | 2,695 | $ | — |
The Fund utilized $514,427,448 of capital loss carryforwards during the year ended October 31, 2013.
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 39,790,967 | $ | — | ||||
Long-Term Capital Gain | 498,157 | 299,322,502 | ||||||
Total | $ | 40,289,124 | $ | 299,322,502 |
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit
26 | MainStay Large Cap Growth Fund |
Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $12,904,520 and $14,753,528, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 3,142,512 | $ | 26,326,926 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 16,252 | 122,864 | ||||||
Shares redeemed | (8,353,409 | ) | (70,578,834 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (5,194,645 | ) | (44,129,044 | ) | ||||
Shares converted into Investor Class (See Note 1) | 842,562 | 7,153,984 | ||||||
Shares converted from Investor Class (See Note 1) | (864,152 | ) | (7,830,927 | ) | ||||
|
| |||||||
Net increase (decrease) | (5,216,235 | ) | $ | (44,805,987 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 12,391,068 | $ | 90,243,593 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 446,324 | 3,124,635 | ||||||
Shares redeemed | (4,719,951 | ) | (35,519,415 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | 8,117,441 | 57,848,813 | ||||||
Shares converted into Investor Class (See Note 1) | 1,269,652 | 9,384,061 | ||||||
Shares converted from Investor Class (See Note 1) | (958,935 | ) | (7,360,703 | ) | ||||
|
| |||||||
Net increase (decrease) | 8,428,158 | $ | 59,872,171 | |||||
|
|
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 27,157,127 | $ | 229,281,701 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 111,483 | 847,266 | ||||||
Shares redeemed (a) | (79,605,137 | ) | (669,478,037 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (52,336,527 | ) | (439,349,070 | ) | ||||
Shares converted into Class A (See Note 1) | 1,048,418 | 9,432,282 | ||||||
Shares converted from Class A (See Note 1) | (82,213 | ) | (735,432 | ) | ||||
|
| |||||||
Net increase (decrease) | (51,370,322 | ) | $ | (430,652,220 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 67,808,598 | $ | 498,104,060 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,344,897 | 37,575,729 | ||||||
Shares redeemed | (121,882,365 | ) | (888,467,676 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (48,728,870 | ) | (352,787,887 | ) | ||||
Shares converted into Class A (See Note 1) | 1,370,838 | 10,461,371 | ||||||
Shares converted from Class A (See Note 1) | (62,777 | ) | (500,454 | ) | ||||
|
| |||||||
Net increase (decrease) | (47,420,809 | ) | $ | (342,826,970 | ) | |||
|
| |||||||
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 423,755 | $ | 3,362,108 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,464 | 31,781 | ||||||
Shares redeemed | (1,229,027 | ) | (9,768,345 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (800,808 | ) | (6,374,456 | ) | ||||
Shares converted from Class B (See Note 1) | (1,010,043 | ) | (8,019,907 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,810,851 | ) | $ | (14,394,363 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 713,830 | $ | 4,976,197 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 219,228 | 1,457,422 | ||||||
Shares redeemed | (1,567,164 | ) | (11,124,541 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (634,106 | ) | (4,690,922 | ) | ||||
Shares converted from Class B (See Note 1) | (1,715,464 | ) | (11,984,275 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,349,570 | ) | $ | (16,675,197 | ) | |||
|
| |||||||
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,483,845 | $ | 11,782,137 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 13,230 | 94,197 | ||||||
Shares redeemed | (10,974,217 | ) | (86,409,238 | ) | ||||
|
| |||||||
Net increase (decrease) | (9,477,142 | ) | $ | (74,532,904 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 7,495,431 | $ | 50,953,860 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 464,352 | 3,082,334 | ||||||
Shares redeemed | (10,440,443 | ) | (73,636,254 | ) | ||||
|
| |||||||
Net increase (decrease) | (2,480,660 | ) | $ | (19,600,060 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 313,490,989 | $ | 2,748,057,160 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 3,176,714 | 25,128,072 | ||||||
Shares redeemed | (468,071,347 | ) | (4,177,971,444 | ) | ||||
|
| |||||||
Net increase (decrease) | (151,403,644 | ) | $ | (1,404,786,212 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 654,647,732 | $ | 4,998,865,969 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 17,729,231 | 128,359,572 | ||||||
Shares redeemed | (370,957,702 | ) | (2,894,036,604 | ) | ||||
|
| |||||||
Net increase (decrease) | 301,419,261 | $ | 2,233,188,937 | |||||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 31,465,717 | $ | 271,012,078 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 515,173 | 4,028,844 | ||||||
Shares redeemed | (60,288,692 | ) | (527,239,581 | ) | ||||
|
| |||||||
Net increase (decrease) | (28,307,802 | ) | $ | (252,198,659 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 137,395,385 | $ | 1,040,318,139 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,141,499 | 29,694,545 | ||||||
Shares redeemed | (43,352,568 | ) | (331,070,740 | ) | ||||
|
| |||||||
Net increase (decrease) | 98,184,316 | $ | 738,941,944 | |||||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 19,388,922 | $ | 165,797,767 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 48,548 | 369,449 | ||||||
Shares redeemed | (30,681,175 | ) | (264,189,502 | ) | ||||
|
| |||||||
Net increase (decrease) | (11,243,705 | ) | $ | (98,022,286 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 61,660,981 | $ | 458,857,617 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,649,907 | 11,631,846 | ||||||
Shares redeemed | (47,072,369 | ) | (355,480,673 | ) | ||||
|
| |||||||
Net increase (decrease) | 16,238,519 | $ | 115,008,790 | |||||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 4,088,588 | $ | 34,338,709 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 14,470 | 108,237 | ||||||
Shares redeemed | (9,316,136 | ) | (78,169,459 | ) | ||||
|
| |||||||
Net increase (decrease) | (5,213,078 | ) | $ | (43,722,513 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 15,178,283 | $ | 110,435,755 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 465,969 | 3,238,488 | ||||||
Shares redeemed | (7,463,724 | ) | (55,396,376 | ) | ||||
|
| |||||||
Net increase (decrease) | 8,180,528 | $ | 58,277,867 | |||||
|
| |||||||
Class R6 (b) | Shares | Amount | ||||||
Period ended October 31, 2013: | ||||||||
Shares sold | 15,024,124 | $ | 136,337,064 | |||||
Shares redeemed | (706,687 | ) | (6,843,727 | ) | ||||
|
| |||||||
Net increase (decrease) | 14,317,437 | $ | 129,493,337 | |||||
|
|
(a) | Includes the redemption of 13,731,382 shares through an in-kind transfer of securities in the amount of $119,677,233. (See Note 9) |
(b) | Class R6 shares were first offered on June 17, 2013. |
Note 9–In-Kind Transfer of Securities
During the year ended October 31, 2013, the Fund redeemed shares of beneficial interest in exchange for securities. The securities were transferred at their current value on the date of the transaction.
Transaction Date | Shares | Redeemed Value | Gain (Loss) | |||||||||
4/23/13 | 13,731,382 | $ | 119,677,233 | $ | 14,432,792 |
28 | MainStay Large Cap Growth Fund |
Note 10–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund's management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure other than the following:
Pursuant to supplements dated December 17, 2013 and December 18, 2013, effective January 15, 2014, the Fund will be available for purchase by new investors subject to applicable investment minimums and eligibility requirements.
mainstayinvestments.com | 29 |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay Large Cap Growth Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay Large Cap Growth Fund of The MainStay Funds as of October 31, 2013, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
30 | MainStay Large Cap Growth Fund |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise share-holders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years. Accordingly, the Fund paid $498,157 as long term capital distribution. For the fiscal year ended October 31, 2013, the Fund designated approximately $39,790,967 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge, on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
mainstayinvestments.com | 31 |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
32 | MainStay Large Cap Growth Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
mainstayinvestments.com | 33 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
34 | MainStay Large Cap Growth Fund |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
mainstayinvestments.com | 35 |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-31970 MS322-13 | MSLG11-12/13 NL031 |
MainStay MAP Fund
Message from the President and Annual Report
October 31, 2013
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Message from the President
With a few notable exceptions, major stock markets around the world tended to advance strongly during the 12 months ended October 31, 2013. According to Russell data, many U.S. stock indexes rose more than 25%, and some exceeded 30%. In the United States, growth stocks tended to outperform value stocks, but the differences were slight among large-capitalization issues.
European stocks were generally strong, with some regional variations. The market seemed convinced that the European Union would remain intact and that economic recovery would be possible, even in troubled peripheral nations. Japanese stocks advanced as the yen weakened and monetary and fiscal stimulus plans went into effect. Slowing growth prospects for China, however, led to weaker stock-market performance for that nation and its major suppliers, including Peru, Chile and Indonesia.
In the United States, stocks were buoyed by steady progress in corporate earnings and general improvements in profits. Stock prices occasionally faltered as politicians debated the so-called fiscal cliff, imposed a government shutdown and wrangled over debt limits. But stocks quickly recovered when agreements were reached and the government shutdown ended.
The Federal Reserve maintained the federal funds target rate in a range near zero, which drew money into stocks. When the Federal Reserve suggested that it might begin to gradually taper its security purchases, however, U.S. Treasury yields rose sharply. Stocks that tend to serve as a proxy for yield, including real estate investment trusts (REITs) and utilities, sold off. In September, the Federal Reserve noted that economic conditions did not yet warrant the anticipated tapering, and the announcement helped calm investor concerns.
Rising interest rates left many bond investors in negative territory for the 12 months ended October 31, 2013. (Bond prices tend to fall as interest rates rise and tend to rise as interest rates fall.) As an asset class, U.S. Treasury securities generally
provided negative total returns, as did many high-grade bonds. Searching for additional yield, many fixed-income investors took on the higher risk of high-yield bonds, which advanced during the reporting period. Others moved into convertible bonds, which generally benefited from the rising stock market.
Through all of these market changes, the portfolio managers of MainStay Funds focused on the investment objectives of their respective Funds and on the available investment strategies. Our portfolio managers used disciplined investment techniques, seeking to achieve long-term results consistent with their mandate.
Whether the markets go up or down, we believe that shareholders do well to maintain a long-term, wide-range perspective. With appropriate diversification, negative results in one asset class may be balanced by positive results in others. While some investors find volatility troublesome, experienced investors know that without it, market opportunities would be limited.
The following annual report contains more detailed information about the specific markets, securities and decisions that affected your MainStay Fund during the 12 months ended October 31, 2013. While past performance is no guarantee of future results, we encourage you to get invested, stay invested and add to your investments whenever you can.
We thank you for choosing MainStay Funds, and we look forward to strengthening our relationship over time.
Sincerely,
Stephen P. Fisher
President
Not part of the Annual Report
Investors should refer to the Fund’s Summary Prospectus and/or Prospectus and consider the Fund’s investment objectives, strategies, risks, charges and expenses carefully before investing. The Summary Prospectus and/or Prospectus contain this and other information about the Fund. You may obtain copies of the Fund’s Summary Prospectus, Prospectus and Statement of Additional Information free of charge, upon request, by calling toll-free 800-MAINSTAY (624-6782), by writing to NYLIFE Distributors LLC, Attn: MainStay Marketing Department, 169 Lackawanna Avenue, Parsippany, New Jersey 07054 or by sending an e-mail to MainStayShareholderServices@nylim.com. These documents are also available via the MainStay Funds’ website at mainstayinvestments.com/documents. Please read the Summary Prospectus and/or Prospectus carefully before investing.
Investment and Performance Comparison1 (Unaudited)
Performance data quoted represents past performance. Past performance is no guarantee of future results. Because of market volatility, current performance may be lower or higher than the figures shown. Investment return and principal value will fluctuate, and as a result, when shares are redeemed, they may be worth more or less than their original cost. The graph below depicts the historical performance of Class I shares of the Fund. Performance will vary from class to class based on differences in class-specific expenses and sales charges. For performance information current to the most recent month-end, please call 800-MAINSTAY (624-6782) or visit mainstayinvestments.com.
Average Annual Total Returns for Year Ended October 31, 2013
Class | Sales Charge | One Year | Five Years | Ten Years | Gross Expense Ratio2 | |||||||||||||||
Investor Class Shares3 | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 21.20 28.26 | %
|
| 13.16 14.45 | %
|
| 7.57 8.18 | %
|
| 1.34 1.34 | %
| ||||||
Class A Shares | Maximum 5.5% Initial Sales Charge | With sales charges Excluding sales charges |
| 21.41 28.47 |
|
| 13.41 14.70 |
|
| 7.68 8.30 |
|
| 1.14 1.14 |
| ||||||
Class B Shares | Maximum 5% CDSC if Redeemed Within the First Six Years of Purchase | With sales charges Excluding sales charges |
| 22.30 27.30 |
|
| 13.36 13.60 |
|
| 7.37 7.37 |
|
| 2.09 2.09 |
| ||||||
Class C Shares | Maximum 1% CDSC if Redeemed Within One Year of Purchase | With sales charges Excluding sales charges |
| 26.26 27.26 |
|
| 13.59 13.59 |
|
| 7.37 7.37 |
|
| 2.09 2.09 |
| ||||||
Class I Shares | No Sales Charge | 28.79 | 14.97 | 8.62 | 0.89 | |||||||||||||||
Class R1 Shares4 | No Sales Charge | 28.63 | 14.83 | 8.49 | 0.99 | |||||||||||||||
Class R2 Shares4 | No Sales Charge | 28.36 | 14.57 | 8.24 | 1.24 | |||||||||||||||
Class R3 Shares5 | No Sales Charge | 28.03 | 14.27 | 7.93 | 1.49 |
1. | The performance table and graph do not reflect the deduction of taxes that a shareholder would pay on distributions or Fund share redemptions. Total returns reflect maximum applicable sales charges as indicated in the table above, changes in share price, and reinvestment of dividend and capital gain distributions. The graph assumes the initial investment amount shown above and reflects the deduction of all sales charges that would have applied for the period of investment. Performance figures reflect certain fee waivers and/or expense limitations, without which total returns may have been lower. For more information on share classes and current fee waivers and/or expense limitations, please refer to the notes to the financial statements. |
2. | The gross expense ratios presented reflect the Fund’s “Total Annual Fund Operating Expenses” from the most recent Prospectus and may differ from other expense ratios disclosed in this report. |
3. | Performance figures for Investor Class shares, first offered on February 28, 2008, include the historical performance of Class A shares through February 27, 2008, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Investor Class shares would likely have been different. |
4. | Performance figures for Class R1 and R2 shares, each of which was first offered on January 2, 2004, include the historical performance of Class A shares through January 1, 2004, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R1 and R2 shares would likely have been different. |
5. | Performance figures for Class R3 shares, which were first offered on April 28, 2006, include the historical performance of Class A shares through April 27, 2006, adjusted for differences in certain expenses and fees. Unadjusted, the performance shown for Class R3 shares would likely have been different. |
The footnotes on the next page are an integral part of the table and graph and should be carefully read in conjunction with them.
mainstayinvestments.com | 5 |
Benchmark Performance | One Year | Five Years | Ten Years | |||||||||
Russell 3000® Index6 | 28.99 | % | 15.94 | % | 7.92 | % | ||||||
S&P 500® Index7 | 27.18 | 15.17 | 7.46 | |||||||||
Average Lipper Large-Cap Core Fund8 | 26.63 | 14.22 | 7.02 |
6. | The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is the Fund’s broad-based securities market index for comparison purposes. Total returns assume reinvestment of all dividends and capital gains. An investment cannot be made directly in an index. |
7. | “S&P 500®” is a trademark of The McGraw-Hill Companies, Inc. The S&P 500® Index is widely regarded as the standard index for measuring large-cap U.S. stock market performance. The S&P 500® Index is the Fund’s secondary benchmark. Results assume reinvestment of all income and capital gains. An investment cannot be made directly in an index. |
8. | The average Lipper large-cap core fund is representative of funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) above Lipper’s U.S. Diversified Equity large-cap floor. Large-cap core funds have more latitude in the companies in which they invest. These funds typically have average characteristics compared to the S&P 500® Index. This benchmark is a product of Lipper Inc. Lipper Inc. is an independent monitor of fund performance. Results are based on average total returns of similar funds with all dividend and capital gain distributions reinvested. |
The footnotes on the preceding page are an integral part of the table and graph and should be carefully read in conjunction with them.
6 | MainStay MAP Fund |
Cost in Dollars of a $1,000 Investment in MainStay MAP Fund (Unaudited)
The example below is intended to describe the fees and expenses borne by shareholders during the six-month period from May 1, 2013, to October 31, 2013, and the impact of those costs on your investment.
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including exchange fees and sales charges (loads) on purchases (as applicable), and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses (as applicable). This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the six-month period and held for the entire period from May 1, 2013, to October 31, 2013.
This example illustrates your Fund’s ongoing costs in two ways:
Actual Expenses
The second and third data columns in the table below provide information about actual account values and actual expenses. You may use the information in these columns, together with the amount you invested, to estimate the expenses that you paid during the six months ended October 31, 2013. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number under the heading entitled ‘‘Expenses Paid During Period’’ to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The fourth and fifth data columns in the table below provide information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balances or expenses you paid for the six-month period shown. You may use this information to compare the ongoing costs of investing in the Fund with the ongoing costs of investing in other Funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other Funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees or sales charges (loads). Therefore, the fourth and fifth data columns of the table are useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Share Class | Beginning Account Value 5/1/13 | Ending Account Value (Based on Actual Returns and Expenses) 10/31/13 | Expenses Paid During Period1 | Ending Account Value (Based on Hypothetical 5% Annualized Return and Actual Expenses) 10/31/13 | Expenses Paid During Period1 | |||||||||||||||
Investor Class Shares | $ | 1,000.00 | $ | 1,107.30 | $ | 6.85 | $ | 1,018.70 | $ | 6.56 | ||||||||||
Class A Shares | $ | 1,000.00 | $ | 1,108.30 | $ | 5.90 | $ | 1,019.60 | $ | 5.65 | ||||||||||
Class B Shares | $ | 1,000.00 | $ | 1,103.20 | $ | 10.81 | $ | 1,014.90 | $ | 10.36 | ||||||||||
Class C Shares | $ | 1,000.00 | $ | 1,102.90 | $ | 10.81 | $ | 1,014.90 | $ | 10.36 | ||||||||||
Class I Shares | $ | 1,000.00 | $ | 1,109.50 | $ | 4.57 | $ | 1,020.90 | $ | 4.38 | ||||||||||
Class R1 Shares | $ | 1,000.00 | $ | 1,109.20 | $ | 5.10 | $ | 1,020.40 | $ | 4.89 | ||||||||||
Class R2 Shares | $ | 1,000.00 | $ | 1,107.80 | $ | 6.43 | $ | 1,019.10 | $ | 6.16 | ||||||||||
Class R3 Shares | $ | 1,000.00 | $ | 1,106.10 | $ | 7.75 | $ | 1,017.80 | $ | 7.43 |
1. | Expenses are equal to the Fund’s annualized expense ratio of each class (1.29% for Investor Class, 1.11% for Class A, 2.04% for Class B and Class C, 0.86% for Class I, 0.96% for Class R1, 1.21% for Class R2 and 1.46% for Class R3) multiplied by the average account value over the period, divided by 365 and multiplied by 184 (to reflect the six-month period). The table above represents the actual expenses incurred during the six-month period. |
mainstayinvestments.com | 7 |
Industry Composition as of October 31, 2013 (Unaudited)
Oil, Gas & Consumable Fuels | 10.8 | % | ||
Media | 7.7 | |||
Pharmaceuticals | 5.2 | |||
Aerospace & Defense | 4.9 | |||
Diversified Financial Services | 4.5 | |||
Chemicals | 4.2 | |||
Commercial Banks | 4.0 | |||
Health Care Equipment & Supplies | 3.9 | |||
Industrial Conglomerates | 3.8 | |||
Insurance | 3.4 | |||
Consumer Finance | 3.3 | |||
Food & Staples Retailing | 2.8 | |||
Internet Software & Services | 2.8 | |||
Software | 2.3 | |||
Hotels, Restaurants & Leisure | 2.2 | |||
Capital Markets | 2.1 | |||
Wireless Telecommunication Services | 2.1 | |||
Computers & Peripherals | 2.0 | |||
Auto Components | 1.7 | |||
Energy Equipment & Services | 1.7 | |||
Semiconductors & Semiconductor Equipment | 1.7 | |||
Beverages | 1.6 | |||
Electric Utilities | 1.6 | |||
Health Care Providers & Services | 1.6 | |||
Automobiles | 1.4 | |||
Diversified Telecommunication Services | 1.4 |
IT Services | 1.2 | % | ||
Real Estate Investment Trusts | 1.2 | |||
Specialty Retail | 1.2 | |||
Communications Equipment | 0.9 | |||
Electrical Equipment | 0.9 | |||
Road & Rail | 0.9 | |||
Commercial Services & Supplies | 0.8 | |||
Electronic Equipment & Instruments | 0.8 | |||
Internet & Catalog Retail | 0.8 | |||
Biotechnology | 0.7 | |||
Household Products | 0.5 | |||
Real Estate Management & Development | 0.5 | |||
Diversified Consumer Services | 0.4 | |||
Machinery | 0.4 | |||
Construction & Engineering | 0.3 | |||
Food Products | 0.3 | |||
Gas Utilities | 0.3 | |||
Trading Companies & Distributors | 0.3 | |||
Metals & Mining | 0.2 | |||
Multiline Retail | 0.2 | |||
Containers & Packaging | 0.1 | |||
Multi-Utilities | 0.1 | |||
Tobacco | 0.1 | |||
Short-Term Investment | 1.4 | |||
Other Assets, Less Liabilities | 0.8 | |||
|
| |||
100.0 | % | |||
|
|
See Portfolio of Investments beginning on page 12 for specific holdings within these categories.
Top Ten Holdings as of October 31, 2013 (excluding short-term investment) (Unaudited)
1. | General Electric Co. |
2. | Boeing Co. (The) |
3. | Pfizer, Inc. |
4. | Liberty Media Corp. Class A |
5. | Monsanto Co. |
6. | Vodafone Group PLC, Sponsored ADR |
7. | Time Warner, Inc. |
8. | Exxon Mobil Corp. |
9. | CVS Caremark Corp. |
10. | McDonald’s Corp. |
8 | MainStay MAP Fund |
Portfolio Management Discussion and Analysis (Unaudited)
Questions answered by portfolio managers Roger Lob, Christopher Mullarkey and James Mulvey of the Fund’s Subadvisor Markston International LLC (Markston International) and by portfolio managers Thomas R. Wenzel, CFA, Jerrold K. Senser, CFA, and Thomas M. Cole, CFA, of the Fund’s Subadvisor Institutional Capital LLC (ICAP).
How did MainStay MAP Fund perform relative to its benchmarks and peers during the 12 months ended October 31, 2013?
Excluding all sales charges, MainStay MAP Fund returned 28.26% for Investor Class shares, 28.47% for Class A shares, 27.30% for Class B shares and 27.26% for Class C shares for the 12 months ended October 31, 2013. Over the same period, Class I shares returned 28.79%, Class R1 shares returned 28.63%, Class R2 shares returned 28.36% and Class R3 shares returned 28.03%. For the 12 months ended October 31, 2013, all share classes underperformed the 28.99% return of the Russell 3000® Index,1 which is the Fund’s broad-based securities-market index. Over the same period, all share classes outperformed the 27.18% return of the S&P 500® Index,1 which is the Fund’s secondary benchmark, and the 26.63% return of the average Lipper2 large-cap core fund. See page 5 for Fund returns with sales charges.
What factors affected the Fund’s performance during the reporting period?
Markston International
The performance of our portion of the Fund relative to the Russell 3000® Index resulted primarily from our decision to be almost fully invested as we entered 2013. After that, positive relative performance was driven by specific stock selections in subindustries that led to overweight positions relative to the Russell 3000® Index in the energy, financials and consumer discretionary sectors.
ICAP
In our portion of the Fund that invests in U.S. equities, a number of key drivers affected performance relative to the S&P 500® Index. Positive stock selection in the consumer discretionary and information technology sectors added to relative performance. Stock selection in the materials and energy sectors, however, detracted from relative performance. Our portion of the Fund that invests in U.S. equities benefited from an overweight position relative to the S&P 500® Index in the health care sector, but an underweight position relative to the Index in energy detracted from relative performance.
In our portion of the Fund that invests in global equities, consumer discretionary, financials and industrials were the best-performing sectors on an absolute basis. The weakest-performing sectors on an absolute basis were utilities, materials and energy.
Which sectors made the strongest contributions to the Fund’s performance and which sectors were particularly weak?
Markston International
In our portion of the Fund, energy, financials and consumer discretionary made the strongest sector contributions to performance relative to the Russell 3000® Index. (Contributions take weightings and total returns into account.) Favorable stock selection and overweight positions in these sectors contributed positively to relative performance.
The weakest sector contributions to the Fund’s relative performance came from health care, information technology and consumer staples. Underweight positions in each of these sectors detracted from performance relative to the Russell 3000® Index.
ICAP
In our portion of the Fund that invests in U.S. equities, the sectors that contributed most positively to performance relative to the S&P 500® Index were consumer discretionary, information technology and telecommunication services. Favorable stock selection was the primary driver in each of these sectors. The sectors that detracted the most from performance relative to the S&P 500® Index were materials, energy and financials. Stock selection was the primary driver in each case.
In our portion of the Fund that invests in global equities, the top-contributing sectors on an absolute basis were consumer discretionary, financials and health care. The weakest sector contributions on an absolute basis came from utilities, materials and consumer staples.
During the reporting period, which individual stocks made the strongest contributions to the Fund’s absolute performance and which stocks detracted the most?
Markston International
The strongest contributions to absolute performance in our portion of the Fund came from media conglomerate Liberty Media, aerospace & defense contractor Boeing and consumer finance company American Express. Liberty Media, run by John Malone, owns a majority of Sirius XM Holdings, which continues to grow its subscriber base. In addition, Liberty Media made a profitable investment in Charter Communications and publicly announced that the company could be used as a vehicle to help consolidate the U.S. cable industry. Boeing’s stock performed well because of continued strong demand for the 787 family of planes. In addition, the company raised its dividend, revised its stock buy-back program and increased its 2013 earnings-per-share guidance. During the reporting period, earnings-per-share
1. | See footnote on page 6 for more information on this index. |
2. | See footnote on page 6 for more information on Lipper Inc. |
mainstayinvestments.com | 9 |
at American Express benefited from expense containment, strong global network growth, an increased dividend and an enlarged share-repurchase program. As a result of the company’s strong stock performance, we trimmed the Fund’s position in American Express to take some profits.
Stocks that detracted from absolute performance in our portion of the Fund, included computers & peripherals company Apple, apparel retailer J.C. Penney and information technology services company International Business Machines (IBM). Shares of Apple were weak on concerns that the company’s margins and market share would continue to erode because of competition from lower-cost Android phones. We used the weakness in the stock to add to our position in Apple. J.C. Penney’s stock fell below our purchase price on concerns that the company would take longer than expected to return to profitability. As a result, we trimmed our position in the stock. IBM’s shares underperformed the Russell 3000® Index because of tepid sales growth and concerns about earnings quality. We added to our position in the stock because we believed that the shares remained undervalued. We also believed that management’s strategy of exiting slow-growth businesses where IBM does not have a leading share and reinvesting into higher-growth sectors could enhance the company’s profitability, even if the progress takes longer than expected.
ICAP
In our portion of the Fund that invests in U.S. equities, the stocks that made the strongest positive contributions to the Fund’s absolute performance were media companies Time Warner and Viacom and auto parts manufacturer Johnson Controls. Time Warner outperformed the S&P 500® Index, as the company continued its strong operational performance and provided expectations of growth in affiliate-fee revenue. Viacom benefited from improved network ratings as advertising revenue beat expectations. Johnson Controls provided strong results as its profit margins improved because of the company’s restructuring initiatives. All three positions remained in the Fund at the end of the reporting period.
In our portion of the Fund that invests in global equities, the stocks that made the greatest contributions to absolute performance were media companies Time Warner and Viacom and U.K. retail and commercial bank Lloyds Banking Group. Lloyds Banking Group benefited from improved net interest margins and strong cost control. All three positions remained in the Fund at the end of the reporting period.
In both our U.S. and global equity portions of the Fund, the largest individual detractors from absolute performance were gold miner Barrick Gold, integrated electric utility Exelon and natural gas producer Encana. Barrick Gold lagged as production delays and cost overruns hampered the company’s results and outlook. Since there was a risk that these issues would continue
rather than be resolved, we sold our positions in the stock in both our U.S. and global equity portions of the Fund. Exelon underperformed the S&P 500® Index when the results of an electricity price auction suggested that electricity prices might decline. Encana lagged as continued low natural gas prices and increased capital expenditures weighed on results. Exelon and Encana remained in the Fund at the end of the reporting period, as we believed these stocks were attractively valued with strong catalysts for potential appreciation.
Did the Fund make any significant purchases or sales during the reporting period?
Markston International
We added to existing positions in Apple and IBM in our portion of the Fund during the reporting period. We felt that Wall Street had underestimated the ability of these companies to drive long-term shareholder value.
We reduced our position in electric utility Duke Energy, partially because we felt it was approaching full valuation. We used the reduction as a source of capital to meet shareholder redemptions. We sold financial exchange operator CME Group both to meet shareholder redemptions and to reduce the overweight position in the financials sector in our portion of the Fund.
ICAP
We continued to look for stocks with attractive valuations and specific catalysts that we believed could trigger appreciation over a 12- to 18-month time frame.
In our domestic and global equity portions of the Fund, we added diversified financial services company Bank of America. We believe that the company may increase profits, as the U.S. economic recovery drives loan growth and subsequent revenue increases while management executes a cost-cutting program. We also added aerospace & defense contractor Boeing. We anticipate strong delivery growth and cost improvement on the new 787 airplane. In our global equity portion of the Fund, we purchased a position in global dialysis equipment and services provider Fresenius. We believe the stock may benefit from continued geographic expansion into emerging markets that need existing low-priced injectable drugs and supplies.
In addition to the sales already mentioned, we sold software maker Microsoft and diversified health care company Johnson & Johnson in our domestic and global equity portions of the Fund. In our global equity portion of the Fund, we also sold French food, beverage and nutrition company Danone. In all three cases, we sold the positions when we found other stocks that we believed had greater upside potential and were more attractive on a relative-valuation basis.
10 | MainStay MAP Fund |
How did the Fund’s sector weightings change during the reporting period?
Markston International
In our portion of the Fund, we added exposure—slightly reducing the degree to which our portion of the Fund was underweight relative to the Russell 3000® Index—in the industrials and information technology sectors. During the reporting period, we reduced cash holdings in our portion of the Fund.
ICAP
In our portion of the Fund that invests in U.S. equities, we increased sector weightings relative to the S&P 500® Index in the consumer discretionary and utilities sectors during the reporting period. In consumer discretionary, our domestic equity portion of the Fund added to an already overweight position relative to the S&P 500® Index. Despite increased exposure to utilities, our domestic equity portion of the Fund remained underweight relative to the S&P 500® Index in the sector.
Our domestic equity portion of the Fund decreased its sector weightings relative to the S&P 500® Index in health care and information technology. In health care, our domestic equity portion of the Fund moved from an overweight position to a slightly underweight position relative to the S&P 500® Index. In information technology, the decreased exposure increased the degree to which the domestic equity portion of the Fund was underweight relative the S&P 500® Index.
In our portion of the Fund that invests in global equities, we increased absolute weightings in the financials and consumer
discretionary sectors, while decreasing absolute weightings in the industrials and materials sectors.
How was the Fund positioned at the end of the reporting period?
Markston International
As of October 31, 2013, our portion of the Fund held overweight positions relative to the Russell 3000® Index in the energy and financials sectors. As of the same date, our portion of the Fund held underweight positions relative to the Russell 3000® Index in the health care and information technology sectors.
ICAP
As of October 31, 2013, the most significantly overweight sectors relative to the S&P 500® Index in our portion of the Fund that invests in U.S. equities were consumer discretionary and energy. On the same date, the most significantly underweight sectors were information technology and consumer staples.
As of October 31, 2013, the largest sector weightings in our global equity portion of the Fund were in financials and healthcare, and the smallest sector weightings were in utilities and consumer staples.
In our domestic and global equity portions of the Fund, these positions reflected our view on the prospects for economic growth and the relative attractiveness of individual holdings in these sectors.
The opinions expressed are those of the portfolio managers as of the date of this report and are subject to change. There is no guarantee that any forecast made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.
mainstayinvestments.com | 11 |
Portfolio of Investments October 31, 2013
Shares | Value | |||||||
Common Stocks 97.7%† | ||||||||
Aerospace & Defense 4.9% |
| |||||||
¨Boeing Co. (The) | 438,970 | $ | 57,285,585 | |||||
GenCorp, Inc. (a) | 166,100 | 2,790,480 | ||||||
Honeywell International, Inc. | 354,002 | 30,702,593 | ||||||
Northrop Grumman Corp. | 43,488 | 4,675,395 | ||||||
Orbital Sciences Corp. (a) | 144,350 | 3,330,155 | ||||||
Raytheon Co. | 52,150 | 4,295,595 | ||||||
United Technologies Corp. | 23,650 | 2,512,813 | ||||||
|
| |||||||
105,592,616 | ||||||||
|
| |||||||
Auto Components 1.7% |
| |||||||
Bridgestone Corp. | 174,400 | 5,950,493 | ||||||
Johnson Controls, Inc. | 675,390 | 31,169,249 | ||||||
|
| |||||||
37,119,742 | ||||||||
|
| |||||||
Automobiles 1.4% |
| |||||||
Bayerische Motoren Werke A.G. | 46,050 | 5,223,285 | ||||||
Ford Motor Co. | 1,018,600 | 17,428,246 | ||||||
Nissan Motor Co., Ltd. | 854,000 | 8,528,709 | ||||||
|
| |||||||
31,180,240 | ||||||||
|
| |||||||
Beverages 1.6% |
| |||||||
Coca-Cola Co. (The) | 430,190 | 17,022,618 | ||||||
PepsiCo., Inc. | 199,922 | 16,811,441 | ||||||
|
| |||||||
33,834,059 | ||||||||
|
| |||||||
Biotechnology 0.7% |
| |||||||
Alkermes PLC (a) | 72,400 | 2,547,756 | ||||||
Celgene Corp. (a) | 85,500 | 12,695,895 | ||||||
|
| |||||||
15,243,651 | ||||||||
|
| |||||||
Capital Markets 2.1% |
| |||||||
Ameriprise Financial, Inc. | 46,820 | 4,707,283 | ||||||
Bank of New York Mellon Corp. | 112,125 | 3,565,575 | ||||||
Goldman Sachs Group, Inc. (The) | 48,569 | 7,812,809 | ||||||
Julius Baer Group, Ltd. (a) | 191,900 | 9,430,563 | ||||||
State Street Corp. | 290,509 | 20,355,965 | ||||||
|
| |||||||
45,872,195 | ||||||||
|
| |||||||
Chemicals 4.2% |
| |||||||
Akzo Nobel N.V. | 89,083 | 6,478,209 | ||||||
E.I. du Pont de Nemours & Co. | 365,050 | 22,341,060 | ||||||
¨Monsanto Co. | 465,994 | 48,873,451 | ||||||
Mosaic Co. (The) | 291,430 | 13,362,066 | ||||||
|
| |||||||
91,054,786 | ||||||||
|
| |||||||
Commercial Banks 4.0% |
| |||||||
BB&T Corp. | 316,200 | 10,741,314 | ||||||
DBS Group Holdings, Ltd. | 640,600 | 8,632,784 | ||||||
Lloyds Banking Group PLC (a) | 7,021,750 | 8,728,846 | ||||||
PNC Financial Services Group, Inc. | 325,050 | 23,900,926 |
Shares | Value | |||||||
Commercial Banks (continued) |
| |||||||
Popular, Inc. (a) | 46,237 | $ | 1,167,484 | |||||
U.S. Bancorp | 310,100 | 11,585,336 | ||||||
UniCredit S.p.A. | 1,046,300 | 7,870,196 | ||||||
Wells Fargo & Co. | 325,624 | 13,900,889 | ||||||
|
| |||||||
86,527,775 | ||||||||
|
| |||||||
Commercial Services & Supplies 0.8% |
| |||||||
ADT Corp. (The) | 86,594 | 3,755,582 | ||||||
Covanta Holding Corp. | 260,403 | 4,471,119 | ||||||
Tyco International, Ltd. | 169,189 | 6,183,858 | ||||||
Waste Management, Inc. | 53,500 | 2,329,390 | ||||||
|
| |||||||
16,739,949 | ||||||||
|
| |||||||
Communications Equipment 0.9% |
| |||||||
Cisco Systems, Inc. | 831,300 | 18,704,250 | ||||||
Infinera Corp. (a) | 121,700 | 1,242,557 | ||||||
|
| |||||||
19,946,807 | ||||||||
|
| |||||||
Computers & Peripherals 2.0% |
| |||||||
Apple, Inc. | 70,715 | 36,937,980 | ||||||
SanDisk Corp. | 95,601 | 6,644,270 | ||||||
|
| |||||||
43,582,250 | ||||||||
|
| |||||||
Construction & Engineering 0.3% |
| |||||||
Jacobs Engineering Group, Inc. (a) | 121,676 | 7,400,334 | ||||||
|
| |||||||
Consumer Finance 3.3% |
| |||||||
American Express Co. | 366,935 | 30,015,283 | ||||||
Capital One Financial Corp. | 404,700 | 27,790,749 | ||||||
Discover Financial Services | 254,305 | 13,193,343 | ||||||
|
| |||||||
70,999,375 | ||||||||
|
| |||||||
Containers & Packaging 0.1% |
| |||||||
MeadWestvaco Corp. | 80,405 | 2,802,114 | ||||||
|
| |||||||
Diversified Consumer Services 0.3% |
| |||||||
Outerwall, Inc. (a) | 88,500 | 5,750,730 | ||||||
|
| |||||||
Diversified Financial Services 4.5% |
| |||||||
Bank of America Corp. | 2,121,154 | 29,611,310 | ||||||
Berkshire Hathaway, Inc. Class B (a) | 24,249 | 2,790,575 | ||||||
Citigroup, Inc. | 624,655 | 30,470,671 | ||||||
JPMorgan Chase & Co. | 598,047 | 30,823,342 | ||||||
Leucadia National Corp. | 182,059 | 5,159,552 | ||||||
|
| |||||||
98,855,450 | ||||||||
|
| |||||||
Diversified Telecommunication Services 1.4% |
| |||||||
AT&T, Inc. | 258,895 | 9,371,999 | ||||||
BCE, Inc. | 141,950 | 6,179,083 | ||||||
Nippon Telegraph & Telephone Corp. | 230,350 | 11,923,945 |
† | Percentages indicated are based on Fund net assets. |
¨ | Among the Fund’s 10 largest holdings, as of October 31, 2013, excluding short-term investment. May be subject to change daily. |
12 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Diversified Telecommunication Services (continued) |
| |||||||
Verizon Communications, Inc. | 38,900 | $ | 1,964,839 | |||||
|
| |||||||
29,439,866 | ||||||||
|
| |||||||
Electric Utilities 1.6% |
| |||||||
Duke Energy Corp. | 192,381 | 13,799,489 | ||||||
Exelon Corp. | 713,700 | 20,368,998 | ||||||
|
| |||||||
34,168,487 | ||||||||
|
| |||||||
Electrical Equipment 0.9% |
| |||||||
ABB, Ltd. (a) | 340,950 | 8,706,466 | ||||||
Rockwell Automation, Inc. | 95,757 | 10,572,530 | ||||||
|
| |||||||
19,278,996 | ||||||||
|
| |||||||
Electronic Equipment & Instruments 0.8% |
| |||||||
Corning, Inc. | 193,800 | 3,312,042 | ||||||
TE Connectivity, Ltd. | 255,541 | 13,157,806 | ||||||
|
| |||||||
16,469,848 | ||||||||
|
| |||||||
Energy Equipment & Services 1.7% |
| |||||||
Baker Hughes, Inc. | 48,822 | 2,836,070 | ||||||
Exterran Holdings, Inc. (a) | 63,100 | 1,801,505 | ||||||
Halliburton Co. | 387,550 | 20,551,776 | ||||||
Schlumberger, Ltd. | 106,144 | 9,947,816 | ||||||
Weatherford International, Ltd. (a) | 79,000 | 1,298,760 | ||||||
|
| |||||||
36,435,927 | ||||||||
|
| |||||||
Food & Staples Retailing 2.8% |
| |||||||
¨CVS Caremark Corp. | 615,726 | 38,335,101 | ||||||
Wal-Mart Stores, Inc. | 176,000 | 13,508,000 | ||||||
Walgreen Co. | 168,765 | 9,997,638 | ||||||
|
| |||||||
61,840,739 | ||||||||
|
| |||||||
Food Products 0.3% |
| |||||||
Bunge, Ltd. | 26,400 | 2,168,232 | ||||||
China Huishan Dairy Holdings Co., Ltd. (a) | 5,778,700 | 2,288,225 | ||||||
Mondelez International, Inc. Class A | 65,000 | 2,186,600 | ||||||
|
| |||||||
6,643,057 | ||||||||
|
| |||||||
Gas Utilities 0.3% |
| |||||||
National Fuel Gas Co. | 77,735 | 5,561,939 | ||||||
|
| |||||||
Health Care Equipment & Supplies 3.9% |
| |||||||
Abbott Laboratories | 133,827 | 4,891,377 | ||||||
Baxter International, Inc. | 565,993 | 37,281,959 | ||||||
Covidien PLC | 503,519 | 32,280,603 | ||||||
Medtronic, Inc. | 163,296 | 9,373,190 | ||||||
|
| |||||||
83,827,129 | ||||||||
|
| |||||||
Health Care Providers & Services 1.6% |
| |||||||
Aetna, Inc. | 386,480 | 24,232,296 | ||||||
Fresenius SE & Co. KGaA | 72,450 | 9,416,858 | ||||||
SunLink Health Systems, Inc. (a) | 48,768 | 39,259 | ||||||
|
| |||||||
33,688,413 | ||||||||
|
|
Shares | Value | |||||||
Hotels, Restaurants & Leisure 2.2% |
| |||||||
¨McDonald’s Corp. | 389,530 | $ | 37,597,436 | |||||
Starwood Hotels & Resorts Worldwide, Inc. | 142,191 | 10,468,101 | ||||||
Yum! Brands, Inc. | 6,615 | 447,306 | ||||||
|
| |||||||
48,512,843 | ||||||||
|
| |||||||
Household Products 0.5% |
| |||||||
Colgate-Palmolive Co. | 53,500 | 3,463,055 | ||||||
Procter & Gamble Co. (The) | 103,850 | 8,385,888 | ||||||
|
| |||||||
11,848,943 | ||||||||
|
| |||||||
Industrial Conglomerates 3.8% |
| |||||||
3M Co. | 67,964 | 8,553,269 | ||||||
¨General Electric Co. | 2,523,233 | 65,957,311 | ||||||
Siemens A.G. | 59,400 | 7,595,646 | ||||||
|
| |||||||
82,106,226 | ||||||||
|
| |||||||
Insurance 3.4% |
| |||||||
Allstate Corp. (The) | 151,309 | 8,028,456 | ||||||
American International Group, Inc. | 85,945 | 4,439,059 | ||||||
Aon PLC | 77,440 | 6,124,730 | ||||||
Chubb Corp. (The) | 78,156 | 7,196,604 | ||||||
Marsh & McLennan Cos., Inc. | 54,194 | 2,482,085 | ||||||
MetLife, Inc. | 196,751 | 9,308,290 | ||||||
Tokio Marine Holdings, Inc. | 179,700 | 5,857,200 | ||||||
Travelers Companies, Inc. (The) | 272,012 | 23,474,636 | ||||||
W.R. Berkley Corp. | 173,333 | 7,611,052 | ||||||
|
| |||||||
74,522,112 | ||||||||
|
| |||||||
Internet & Catalog Retail 0.8% |
| |||||||
Liberty Interactive Corp. Class A (a) | 550,690 | 14,846,602 | ||||||
Liberty Ventures (a) | 24,997 | 2,683,928 | ||||||
|
| |||||||
17,530,530 | ||||||||
|
| |||||||
Internet Software & Services 2.8% |
| |||||||
eBay, Inc. (a) | 392,290 | 20,677,606 | ||||||
Google, Inc. Class A (a) | 24,710 | 25,465,632 | ||||||
VeriSign, Inc. (a) | 244,120 | 13,250,833 | ||||||
Yahoo!, Inc. (a) | 61,000 | 2,008,730 | ||||||
|
| |||||||
61,402,801 | ||||||||
|
| |||||||
IT Services 1.2% |
| |||||||
Automatic Data Processing, Inc. | 133,927 | 10,040,507 | ||||||
International Business Machines Corp. | 90,349 | 16,191,445 | ||||||
|
| |||||||
26,231,952 | ||||||||
|
| |||||||
Machinery 0.4% |
| |||||||
Caterpillar, Inc. | 115,225 | 9,605,156 | ||||||
|
| |||||||
Media 7.7% | ||||||||
Cablevision Systems Corp. Class A | 252,512 | 3,926,561 | ||||||
Comcast Corp. Class A | 190,960 | 9,085,877 | ||||||
DIRECTV (a) | 55,965 | 3,497,253 | ||||||
¨Liberty Media Corp. Class A (a) | 326,959 | 49,995,301 | ||||||
Madison Square Garden Co. Class A (a) | 135,809 | 8,219,161 |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 13 |
Portfolio of Investments October 31, 2013 (continued)
Shares | Value | |||||||
Common Stocks (continued) | ||||||||
Media (continued) | ||||||||
Sirius XM Radio, Inc. | 556,700 | $ | 2,098,759 | |||||
Starz Class A (a) | 177,528 | 5,352,469 | ||||||
Time Warner Cable, Inc. | 15,445 | 1,855,717 | ||||||
¨Time Warner, Inc. | 607,332 | 41,748,002 | ||||||
Viacom, Inc., Class B | 361,600 | 30,117,664 | ||||||
Walt Disney Co. (The) | 40,743 | 2,794,562 | ||||||
Wolters Kluwer N.V. | 323,250 | 8,769,071 | ||||||
|
| |||||||
167,460,397 | ||||||||
|
| |||||||
Metals & Mining 0.2% |
| |||||||
ThyssenKrupp A.G. (a) | 161,400 | 4,125,324 | ||||||
|
| |||||||
Multi-Utilities 0.1% |
| |||||||
Dominion Resources, Inc. | 31,200 | 1,989,000 | ||||||
|
| |||||||
Multiline Retail 0.2% |
| |||||||
J.C. Penney Co., Inc. (a) | 110,297 | 827,228 | ||||||
Target Corp. | 62,650 | 4,059,093 | ||||||
|
| |||||||
4,886,321 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels 10.8% |
| |||||||
Anadarko Petroleum Corp. | 139,734 | 13,315,253 | ||||||
Apache Corp. | 128,709 | 11,429,359 | ||||||
Chesapeake Energy Corp. | 194,124 | 5,427,707 | ||||||
Chevron Corp. | 77,819 | 9,335,167 | ||||||
ConocoPhillips | 146,626 | 10,747,686 | ||||||
Devon Energy Corp. | 160,696 | 10,159,201 | ||||||
Encana Corp. | 738,150 | 13,227,648 | ||||||
ENI S.p.A. | 481,500 | 12,192,555 | ||||||
EOG Resources, Inc. | 72,629 | 12,957,014 | ||||||
¨Exxon Mobil Corp. | 442,500 | 39,656,850 | ||||||
Hess Corp. | 110,361 | 8,961,313 | ||||||
Marathon Oil Corp. | 628,174 | 22,149,415 | ||||||
Marathon Petroleum Corp. | 215,768 | 15,461,935 | ||||||
Phillips 66 | 69,153 | 4,455,528 | ||||||
Southwestern Energy Co. (a) | 443,750 | 16,516,375 | ||||||
Spectra Energy Corp. | 392,650 | 13,966,560 | ||||||
Total S.A. | 164,950 | 10,137,583 | ||||||
Williams Cos., Inc. (The) | 125,681 | 4,488,069 | ||||||
|
| |||||||
234,585,218 | ||||||||
|
| |||||||
Pharmaceuticals 5.2% |
| |||||||
AbbVie, Inc. | 133,827 | 6,483,918 | ||||||
Bayer A.G. | 82,900 | 10,303,506 | ||||||
Hospira, Inc. (a) | 128,024 | 5,187,532 | ||||||
Johnson & Johnson | 93,100 | 8,621,991 | ||||||
Mallinckrodt PLC (a) | 15,827 | 664,892 | ||||||
Merck & Co., Inc. | 130,726 | 5,894,435 | ||||||
Novartis A.G. | 148,100 | 11,499,030 | ||||||
¨Pfizer, Inc. | 1,860,250 | 57,072,470 | ||||||
Sanofi | 50,750 | 5,411,860 |
Shares | Value | |||||||
Pharmaceuticals (continued) |
| |||||||
Teva Pharmaceutical Industries, Ltd., Sponsored ADR | 76,950 | $ | 2,854,076 | |||||
|
| |||||||
113,993,710 | ||||||||
|
| |||||||
Real Estate Investment Trusts 1.2% |
| |||||||
HCP, Inc. | 250,611 | 10,400,357 | ||||||
UDR, Inc. | 497,719 | 12,348,408 | ||||||
Weyerhaeuser Co. | 81,845 | 2,488,088 | ||||||
|
| |||||||
25,236,853 | ||||||||
|
| |||||||
Real Estate Management & Development 0.5% |
| |||||||
Mitsubishi Estate Co., Ltd. | 361,200 | 10,274,346 | ||||||
|
| |||||||
Road & Rail 0.9% |
| |||||||
Celadon Group, Inc. | 109,074 | 2,022,232 | ||||||
CSX Corp. | 210,426 | 5,483,702 | ||||||
Union Pacific Corp. | 79,250 | 11,998,450 | ||||||
|
| |||||||
19,504,384 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment 1.7% |
| |||||||
Intel Corp. | 274,570 | 6,707,745 | ||||||
Texas Instruments, Inc. | 735,350 | 30,943,528 | ||||||
|
| |||||||
37,651,273 | ||||||||
|
| |||||||
Software 2.3% |
| |||||||
Microsoft Corp. | 518,913 | 18,343,575 | ||||||
Oracle Corp. | 144,473 | 4,839,846 | ||||||
SAP A.G. | 123,900 | 9,733,506 | ||||||
Symantec Corp. | 737,800 | 16,777,572 | ||||||
|
| |||||||
49,694,499 | ||||||||
|
| |||||||
Specialty Retail 1.2% |
| |||||||
Home Depot, Inc. (The) | 128,723 | 10,026,235 | ||||||
Lowe’s Companies, Inc. | 309,022 | 15,383,115 | ||||||
|
| |||||||
25,409,350 | ||||||||
|
| |||||||
Tobacco 0.1% |
| |||||||
Philip Morris International, Inc. | 19,410 | 1,729,819 | ||||||
|
| |||||||
Trading Companies & Distributors 0.3% |
| |||||||
Mitsubishi Corp. | 355,550 | 7,166,685 | ||||||
|
| |||||||
Wireless Telecommunication Services 2.1% |
| |||||||
Shin Corp. PCL | 881,500 | 2,386,068 | ||||||
¨Vodafone Group PLC, Sponsored ADR | 1,199,000 | 44,147,180 | ||||||
|
| |||||||
46,533,248 | ||||||||
|
| |||||||
Total Common Stocks | 2,121,857,464 | |||||||
|
| |||||||
14 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Principal Amount | Value | |||||||
Long-Term Bonds 0.1% Convertible Bonds 0.1% | ||||||||
Diversified Consumer Services 0.1% |
| |||||||
Outerwall, Inc. | $ | 900,000 | $ | 1,464,750 | ||||
|
| |||||||
Oil, Gas & Consumable Fuels 0.0%‡ |
| |||||||
Bill Barrett Corp. | 300 | 301 | ||||||
|
| |||||||
Total Convertible Bonds | 1,465,051 | |||||||
|
| |||||||
Total Long-Term Bonds | 1,465,051 | |||||||
|
|
Principal Amount | Value | |||||||
Short-Term Investment 1.4% | ||||||||
Repurchase Agreement 1.4% |
| |||||||
State Street Bank and Trust Co. | $ | 31,791,300 | $ | 31,791,300 | ||||
|
| |||||||
Total Short-Term Investment | 31,791,300 | |||||||
|
| |||||||
Total Investments | 99.2 | % | 2,155,113,815 | |||||
Other Assets, Less Liabilities | 0.8 | 17,144,047 | ||||||
Net Assets | 100.0 | % | $ | 2,172,257,862 |
‡ | Less than one-tenth of a percent. |
(a) | Non-income producing security. |
(b) | As of October 31, 2013, cost is $1,546,229,902 for federal income tax purposes and net unrealized appreciation is as follows: |
Gross unrealized appreciation | $ | 633,378,465 | ||
Gross unrealized depreciation | (24,494,552 | ) | ||
|
| |||
Net unrealized appreciation | $ | 608,883,913 | ||
|
|
The following abbreviation is used in the above portfolio:
ADR—American | Depositary Receipt |
The following is a summary of the fair valuations according to the inputs used as of October 31, 2013, for valuing the Fund’s assets.
Asset Valuation Inputs
Description | Quoted (Level 1) | Significant (Level 2) | Significant (Level 3) | Total | ||||||||||||
Investments in Securities (a) | ||||||||||||||||
Common Stocks | $ | 2,121,857,464 | $ | — | $ | — | $ | 2,121,857,464 | ||||||||
Long-Term Bonds | ||||||||||||||||
Convertible Bonds | — | 1,465,051 | — | 1,465,051 | ||||||||||||
Short-Term Investment | ||||||||||||||||
Repurchase Agreement | — | 31,791,300 | — | 31,791,300 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | $ | 2,121,857,464 | $ | 33,256,351 | $ | — | $ | 2,155,113,815 | ||||||||
|
|
|
|
|
|
|
|
(a) | For a complete listing of investments and their industries, see the Portfolio of Investments. |
The Fund recognizes transfers between the levels as of the beginning of the period.
As of October 31, 2013, foreign equity securities were not fair valued, as a result there were no transfers between Level 1 and Level 2 fair value measurements. (See Note 2)
As of October 31, 2013, the Fund did not hold any investments with significant unobservable inputs (Level 3). (See Note 2)
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 15 |
Statement of Assets and Liabilities as of October 31, 2013
Assets | ||||
Investment in securities, at value (identified cost $1,538,155,402) | $ | 2,155,113,815 | ||
Cash denominated in foreign currencies (identified cost $104) | 103 | |||
Receivables: | ||||
Investment securities sold | 15,798,919 | |||
Fund shares sold | 4,886,778 | |||
Dividends and interest | 2,410,150 | |||
Other assets | 33,471 | |||
|
| |||
Total assets | 2,178,243,236 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investment securities purchased | 2,932,256 | |||
Manager (See Note 3) | 1,338,606 | |||
Fund shares redeemed | 794,682 | |||
Transfer agent (See Note 3) | 468,272 | |||
NYLIFE Distributors (See Note 3) | 297,250 | |||
Shareholder communication | 79,530 | |||
Professional fees | 21,809 | |||
Custodian | 11,897 | |||
Foreign capital gains tax (See Note 2(C)) | 6,013 | |||
Trustees | 4,854 | |||
Accrued expenses | 30,205 | |||
|
| |||
Total liabilities | 5,985,374 | |||
|
| |||
Net assets | $ | 2,172,257,862 | ||
|
| |||
Composition of Net Assets | ||||
Shares of beneficial interest outstanding (par value of $.01 per share) unlimited number of shares authorized | $ | 499,373 | ||
Additional paid-in capital | 1,499,546,597 | |||
|
| |||
1,500,045,970 | ||||
Undistributed net investment income | 19,940,343 | |||
Accumulated net realized gain (loss) on investments and foreign currency transactions | 35,310,882 | |||
Net unrealized appreciation (depreciation) on investments (a) | 616,952,400 | |||
Net unrealized appreciation (depreciation) on translation of other assets and liabilities in foreign currencies | 8,267 | |||
|
| |||
Net assets | $ | 2,172,257,862 | ||
|
|
Investor Class | ||||
Net assets applicable to outstanding shares | $ | 144,891,933 | ||
|
| |||
Shares of beneficial interest outstanding | 3,350,920 | |||
|
| |||
Net asset value per share outstanding | $ | 43.24 | ||
Maximum sales charge (5.50% of offering price) | 2.52 | |||
|
| |||
Maximum offering price per share outstanding | $ | 45.76 | ||
|
| |||
Class A | ||||
Net assets applicable to outstanding shares | $ | 356,657,011 | ||
|
| |||
Shares of beneficial interest outstanding | 8,240,451 | |||
|
| |||
Net asset value per share outstanding | $ | 43.28 | ||
Maximum sales charge (5.50% of offering price) | 2.52 | |||
|
| |||
Maximum offering price per share outstanding | $ | 45.80 | ||
|
| |||
Class B | ||||
Net assets applicable to outstanding shares | $ | 82,694,594 | ||
|
| |||
Shares of beneficial interest outstanding | 2,063,320 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 40.08 | ||
|
| |||
Class C | ||||
Net assets applicable to outstanding shares | $ | 141,627,681 | ||
|
| |||
Shares of beneficial interest outstanding | 3,533,268 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 40.08 | ||
|
| |||
Class I | ||||
Net assets applicable to outstanding shares | $ | 1,417,813,860 | ||
|
| |||
Shares of beneficial interest outstanding | 32,090,846 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 44.18 | ||
|
| |||
Class R1 | ||||
Net assets applicable to outstanding shares | $ | 6,736,892 | ||
|
| |||
Shares of beneficial interest outstanding | 154,897 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 43.49 | ||
|
| |||
Class R2 | ||||
Net assets applicable to outstanding shares | $ | 20,139,865 | ||
|
| |||
Shares of beneficial interest outstanding | 464,294 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 43.38 | ||
|
| |||
Class R3 | ||||
Net assets applicable to outstanding shares | $ | 1,696,026 | ||
|
| |||
Shares of beneficial interest outstanding | 39,292 | |||
|
| |||
Net asset value and offering price per share outstanding | $ | 43.16 | ||
|
|
(a) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax of $6,013. |
16 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Statement of Operations for the year ended October 31, 2013
Investment Income (Loss) | ||||
Income | ||||
Dividends (a) | $ | 46,835,999 | ||
Interest | 65,107 | |||
|
| |||
Total income | 46,901,106 | |||
|
| |||
Expenses | ||||
Manager (See Note 3) | 15,723,412 | |||
Distribution/Service—Investor Class (See Note 3) | 337,807 | |||
Distribution/Service—Class A (See Note 3) | 813,716 | |||
Distribution/Service—Class B (See Note 3) | 847,431 | |||
Distribution/Service—Class C (See Note 3) | 1,326,244 | |||
Distribution/Service—Class R2 (See Note 3) | 50,105 | |||
Distribution/Service—Class R3 (See Note 3) | 8,628 | |||
Transfer agent (See Note 3) | 2,785,352 | |||
Shareholder communication | 179,074 | |||
Professional fees | 130,032 | |||
Registration | 106,074 | |||
Custodian | 68,717 | |||
Trustees | 44,053 | |||
Shareholder service (See Note 3) | 29,555 | |||
Miscellaneous | 97,300 | |||
|
| |||
Total expenses | 22,547,500 | |||
|
| |||
Net investment income (loss) | 24,353,606 | |||
|
| |||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions | ||||
Net realized gain (loss) on: | ||||
Security transactions | 177,879,987 | |||
Foreign currency transactions | (278,458 | ) | ||
|
| |||
Net realized gain (loss) on investments and foreign currency transactions | 177,601,529 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments (b) | 335,277,942 | |||
Translation of other assets and liabilities in foreign currencies | 32,014 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 335,309,956 | |||
|
| |||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 512,911,485 | |||
|
| |||
Net increase (decrease) in net assets resulting from operations | $ | 537,265,091 | ||
|
|
(a) | Dividends recorded net of foreign withholding taxes in the amount of $853,207. |
(b) | Unrealized appreciation (depreciation) on investments recorded net of foreign capital gains tax in the amount of $6,013. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 17 |
Statements of Changes in Net Assets
for the years ended October 31, 2013 and October 31, 2012
2013 | 2012 | |||||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 24,353,606 | $ | 24,656,600 | ||||
Net realized gain (loss) on investments and foreign currency transactions | 177,601,529 | 16,886,683 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | 335,309,956 | 199,585,099 | ||||||
|
| |||||||
Net increase (decrease) in net assets resulting from operations | 537,265,091 | 241,128,382 | ||||||
|
| |||||||
Dividends to shareholders: | ||||||||
From net investment income: | ||||||||
Investor Class | (1,125,412 | ) | (1,095,797 | ) | ||||
Class A | (3,306,456 | ) | (3,428,788 | ) | ||||
Class B | (177,081 | ) | (195,661 | ) | ||||
Class C | (255,810 | ) | (237,900 | ) | ||||
Class I | (18,508,015 | ) | (17,003,986 | ) | ||||
Class R1 | (63,811 | ) | (272,411 | ) | ||||
Class R2 | (183,045 | ) | (244,869 | ) | ||||
Class R3 | (10,894 | ) | (20,629 | ) | ||||
|
| |||||||
Total dividends to shareholders | (23,630,524 | ) | (22,500,041 | ) | ||||
|
| |||||||
Capital share transactions: | ||||||||
Net proceeds from sale of shares | 320,171,647 | 335,367,832 | ||||||
Net asset value of shares issued to shareholders in reinvestment of dividends | 23,021,367 | 21,744,554 | ||||||
Cost of shares redeemed | (713,542,943 | ) | (436,709,049 | ) | ||||
|
| |||||||
Increase (decrease) in net assets derived from capital share transactions | (370,349,929 | ) | (79,596,663 | ) | ||||
|
| |||||||
Net increase (decrease) in net assets | 143,284,638 | 139,031,678 | ||||||
Net Assets | ||||||||
Beginning of year | 2,028,973,224 | 1,889,941,546 | ||||||
|
| |||||||
End of year | $ | 2,172,257,862 | $ | 2,028,973,224 | ||||
|
| |||||||
Undistributed net investment income at end of year | $ | 19,940,343 | $ | 20,005,478 | ||||
|
|
18 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Investor Class | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 34.04 | $ | 30.44 | $ | 29.76 | $ | 25.71 | $ | 23.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.34 | 0.34 | 0.31 | 0.19 | 0.22 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.18 | 3.55 | 0.63 | 3.86 | 2.90 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.52 | 3.89 | 0.88 | 4.05 | 3.12 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.32 | ) | (0.29 | ) | (0.20 | ) | — | (0.45 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 43.24 | $ | 34.04 | $ | 30.44 | $ | 29.76 | $ | 25.71 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.26 | % | 12.88 | % | 2.96 | % | 15.75 | % | 13.83 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.88 | % | 1.04 | % | 0.98 | % | 0.69 | % | 0.98 | % | ||||||||||
Net expenses | 1.30 | % | 1.34 | % | 1.34 | % | 1.41 | % | 1.44 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.30 | % | 1.34 | % | 1.34 | % | 1.41 | % | 1.50 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 144,892 | $ | 120,771 | $ | 114,786 | $ | 113,557 | $ | 99,663 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class A | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 34.07 | $ | 30.47 | $ | 29.79 | $ | 25.68 | $ | 23.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.41 | 0.40 | 0.37 | 0.25 | 0.28 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.19 | 3.56 | 0.63 | 3.86 | 2.90 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.60 | 3.96 | 0.94 | 4.11 | 3.18 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.39 | ) | (0.36 | ) | (0.26 | ) | — | (0.54 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 43.28 | $ | 34.07 | $ | 30.47 | $ | 29.79 | $ | 25.68 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.47 | % | 13.14 | % | 3.16 | % | 16.00 | % | 14.12 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.07 | % | 1.24 | % | 1.18 | % | 0.90 | % | 1.25 | % | ||||||||||
Net expenses | 1.11 | % | 1.14 | % | 1.14 | % | 1.21 | % | 1.20 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.11 | % | 1.14 | % | 1.14 | % | 1.21 | % | 1.29 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 356,657 | $ | 294,247 | $ | 296,453 | $ | 345,067 | $ | 324,421 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 19 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class B | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 31.55 | $ | 28.21 | $ | 27.63 | $ | 24.04 | $ | 21.36 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.06 | 0.10 | 0.07 | (0.01 | ) | 0.06 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 8.54 | 3.29 | 0.58 | 3.60 | 2.70 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 8.60 | 3.39 | 0.60 | 3.59 | 2.76 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 40.08 | $ | 31.55 | $ | 28.21 | $ | 27.63 | $ | 24.04 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 27.30 | % | 12.04 | % | 2.18 | % | 14.93 | % | 12.97 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.16 | % | 0.33 | % | 0.24 | % | (0.04 | %) | 0.31 | % | ||||||||||
Net expenses | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.19 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.26 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 82,695 | $ | 86,613 | $ | 110,794 | $ | 140,674 | $ | 169,606 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
Year ended October 31, | ||||||||||||||||||||
Class C | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 31.56 | $ | 28.21 | $ | 27.63 | $ | 24.05 | $ | 21.37 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.05 | 0.09 | 0.07 | (0.01 | ) | 0.06 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | 8.54 | 3.31 | 0.58 | 3.59 | 2.70 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.05 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 8.59 | 3.40 | 0.60 | 3.58 | 2.76 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.07 | ) | (0.05 | ) | (0.02 | ) | — | (0.08 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 40.08 | $ | 31.56 | $ | 28.21 | $ | 27.63 | $ | 24.05 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 27.26 | % | 12.07 | % | 2.18 | % | 14.89 | % | 12.96 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.14 | % | 0.31 | % | 0.23 | % | (0.05 | %) | 0.29 | % | ||||||||||
Net expenses | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.19 | % | ||||||||||
Expenses (before waiver/reimbursement) | 2.05 | % | 2.09 | % | 2.09 | % | 2.16 | % | 2.25 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 141,628 | $ | 125,700 | $ | 136,274 | $ | 160,098 | $ | 167,652 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. |
20 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class I | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 34.77 | $ | 31.10 | $ | 30.39 | $ | 26.15 | $ | 23.51 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.52 | 0.49 | 0.45 | 0.32 | 0.33 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.37 | 3.62 | 0.66 | 3.93 | 2.95 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.89 | 4.11 | 1.05 | 4.25 | 3.28 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.48 | ) | (0.44 | ) | (0.34 | ) | (0.01 | ) | (0.64 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 44.18 | $ | 34.77 | $ | 31.10 | $ | 30.39 | $ | 26.15 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.79 | % | 13.40 | % | 3.43 | % | �� | 16.26 | % | 14.38 | % | |||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.33 | % | 1.48 | % | 1.42 | % | 1.12 | % | 1.45 | % | ||||||||||
Net expenses | 0.86 | % | 0.89 | % | 0.89 | % | 0.95 | % | 0.98 | % | ||||||||||
Expenses (before waiver/reimbursement) | 0.86 | % | 0.89 | % | 0.89 | % | 0.95 | % | 1.04 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 1,417,814 | $ | 1,358,999 | $ | 1,188,911 | $ | 759,317 | $ | 567,720 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class I shares are not subject to sales charges. |
Year ended October 31, | ||||||||||||||||||||
Class R1 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 34.23 | $ | 30.63 | $ | 29.93 | $ | 25.84 | $ | 23.23 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.54 | 0.44 | 0.31 | 0.30 | 0.27 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.14 | 3.58 | 0.77 | 3.87 | 2.94 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.07 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.68 | 4.02 | 1.01 | 4.17 | 3.21 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.42 | ) | (0.42 | ) | (0.31 | ) | (0.08 | ) | (0.60 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 43.49 | $ | 34.23 | $ | 30.63 | $ | 29.93 | $ | 25.84 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.63 | % | 13.26 | % | 3.35 | % | 16.12 | % | 14.20 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 1.43 | % | 1.37 | % | 1.02 | % | 1.07 | % | 1.21 | % | ||||||||||
Net expenses | 0.96 | % | 0.99 | % | 0.99 | % | 1.06 | % | 1.08 | % | ||||||||||
Expenses (before reimbursement/waiver) | 0.96 | % | 0.99 | % | 0.99 | % | 1.06 | % | 1.14 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 6,737 | $ | 21,761 | $ | 17,611 | $ | 325 | $ | 626 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R1 shares are not subject to sales charges. |
The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. | mainstayinvestments.com | 21 |
Financial Highlights selected per share data and ratios
Year ended October 31, | ||||||||||||||||||||
Class R2 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 34.12 | $ | 30.53 | $ | 29.85 | $ | 25.76 | $ | 23.06 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.38 | 0.38 | 0.34 | 0.22 | 0.23 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.21 | 3.54 | 0.63 | 3.87 | 2.93 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.59 | 3.92 | 0.91 | 4.09 | 3.16 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.33 | ) | (0.33 | ) | (0.23 | ) | — | (0.46 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 43.38 | $ | 34.12 | $ | 30.53 | $ | 29.85 | $ | 25.76 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.36 | % | 12.99 | % | 3.05 | % | 15.88 | % | 13.96 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.98 | % | 1.16 | % | 1.08 | % | 0.80 | % | 1.01 | % | ||||||||||
Net expenses | 1.21 | % | 1.24 | % | 1.24 | % | 1.31 | % | 1.33 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.21 | % | 1.24 | % | 1.24 | % | 1.31 | % | 1.38 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 20,140 | $ | 19,072 | $ | 22,733 | $ | 26,735 | $ | 14,006 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R2 shares are not subject to sales charges. |
Year ended October 31, | ||||||||||||||||||||
Class R3 | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Net asset value at beginning of year | $ | 33.94 | $ | 30.38 | $ | 29.71 | $ | 25.70 | $ | 22.97 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net investment income (loss) (a) | 0.29 | 0.30 | 0.25 | 0.15 | 0.16 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | 9.16 | 3.53 | 0.64 | 3.86 | 2.93 | |||||||||||||||
Net realized and unrealized gain (loss) on foreign currency transactions | (0.00 | )‡ | (0.00 | )‡ | (0.06 | ) | (0.00 | )‡ | 0.00 | ‡ | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 9.45 | 3.83 | 0.83 | 4.01 | 3.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less dividends: | ||||||||||||||||||||
From net investment income | (0.23 | ) | (0.27 | ) | (0.16 | ) | — | (0.36 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value at end of year | $ | 43.16 | $ | 33.94 | $ | 30.38 | $ | 29.71 | $ | 25.70 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investment return (b) | 28.03 | % | 12.72 | % | 2.79 | % | 15.60 | % | 13.65 | % | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Net investment income (loss) | 0.74 | % | 0.94 | % | 0.80 | % | 0.54 | % | 0.72 | % | ||||||||||
Net expenses | 1.46 | % | 1.49 | % | 1.49 | % | 1.56 | % | 1.58 | % | ||||||||||
Expenses (before waiver/reimbursement) | 1.46 | % | 1.49 | % | 1.49 | % | 1.56 | % | 1.63 | % | ||||||||||
Portfolio turnover rate | 29 | % | 40 | % | 44 | % | 49 | % | 60 | % | ||||||||||
Net assets at end of year (in 000’s) | $ | 1,696 | $ | 1,809 | $ | 2,380 | $ | 1,850 | $ | 1,484 |
‡ | Less than one cent per share. |
(a) | Per share data based on average shares outstanding during the year. |
(b) | Total investment return is calculated exclusive of sales charges and assumes the reinvestment of dividends and distributions. Class R3 shares are not subject to sales charges. |
22 | MainStay MAP Fund | The notes to the financial statements are an integral part of, and should be read in conjunction with, the financial statements. |
Note 1–Organization and Business
The MainStay Funds (the “Trust”) was organized on January 9, 1986, as a Massachusetts business trust. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company, and is comprised of twelve funds (collectively referred to as the “Funds”). These financial statements and notes relate only to the MainStay MAP Fund (the “Fund”), a diversified fund.
The Fund currently offers eight classes of shares. Class A, Class B and Class C shares commenced operations on June 9, 1999. Class I shares commenced operations in 1970 (under a former class designation) and were redesignated as Class I shares on June 9, 1999. Class R1 and Class R2 shares commenced operations on January 2, 2004. Class R3 shares commenced operations on April 28, 2006. Investor Class shares commenced operations on February 28, 2008. Investor Class and Class A shares are offered at net asset value (“NAV”) per share plus an initial sales charge. No sales charge applies to investments of $1 million or more (and certain other qualified purchases) in Investor Class and Class A shares, but a contingent deferred sales charge (“CDSC”) is imposed on certain redemptions made within one year of the date of purchase. Class B and Class C shares are offered at NAV without an initial sales charge, although a declining CDSC may be imposed on redemptions made within six years of the date of purchase of Class B shares and a 1.00% CDSC may be imposed on redemptions made within one year of the date of purchase of Class C shares. Class I, Class R1, Class R2 and Class R3 shares are offered at NAV and are not subject to a sales charge. Depending upon eligibility, Class B shares convert to either Investor Class or Class A shares at the end of the calendar quarter eight years after the date they were purchased. Additionally, depending upon eligibility, Investor Class shares may convert to Class A shares and Class A shares may convert to Investor Class shares. The eight classes of shares have the same voting (except for issues that relate solely to one class), dividend, liquidation and other rights, and the same terms and conditions, except that Class B and Class C shares are subject to higher distribution and/or service fee rates than Investor Class, Class A, Class R2 and Class R3 shares under a distribution plan pursuant to Rule 12b-1 under the 1940 Act. Class I and Class R1 shares are not subject to a distribution and/or service fee. Class R1, Class R2 and Class R3 shares are subject to a shareholder service fee. This is in addition to any fees paid under a distribution plan, where applicable.
The Fund’s investment objective is to seek long-term appreciation of capital.
Note 2–Significant Accounting Policies
The Fund prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and follows the significant accounting policies described below.
(A) Securities Valuation. Investments are valued as of the close of regular trading on the New York Stock Exchange (“Exchange”) (generally 4:00 p.m. Eastern time) on each day the Fund is open for business (“valuation date”).
The Board of Trustees (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has delegated the responsibility
for valuation measurements under those procedures to the Valuation Committee of the Fund (the “Valuation Committee”). The Board has authorized the Valuation Committee to appoint a Valuation Sub-Committee (the “Sub-Committee”) to deal in the first instance with questions that arise or cannot be resolved under these procedures. The Sub-Committee meets (in person, via electronic mail or via teleconference) on an as-needed basis. The Valuation Committee meets at a later time, as necessary, to ensure that actions taken by the Sub-Committee were appropriate. The procedures recognize that, subject to the oversight of the Board and unless otherwise noted, the responsibility for day-to-day valuation of portfolio assets (including securities for which market prices are not readily available) rests with New York Life Investment Management LLC (“New York Life Investments” or the “Manager”), aided to whatever extent necessary by the Subadvisors (as defined in Note 3(A)) to the Fund.
To assess the appropriateness of security valuations, the Manager or the Fund’s third party service provider, who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities and the sale prices to the prior and current day prices and challenges prices exceeding certain tolerance levels with third party pricing services or broker sources. For those securities valued through either a standardized fair valuation methodology or a fair valuation measurement, the Valuation Committee reviews and affirms the reasonableness of the valuation based on such methodologies and measurements on a regular basis after considering all relevant information that is reasonably available.
“Fair value” is defined as the price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. Fair value measurements are estimated within a framework that has established a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. “Inputs” refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the information available in the circumstances. The inputs or methodology used for valuing securities may not be an indication of the risks associated with investing in those securities. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments in active markets, interest rates and yield curves, prepayment speeds, credit risks, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions about the assumptions that market participants would use in measuring the fair value of investments) |
mainstayinvestments.com | 23 |
Notes to Financial Statements (continued)
The aggregate value by input level, as of October 31, 2013, for the Fund’s investments is included at the end of the Fund’s Portfolio of Investments.
The valuation techniques used by the Fund to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Fund may use third party vendor evaluations, whose prices may be derived from one or more of the following standard inputs:
• Benchmark Yields | • Reported Trades | |
• Broker Dealer Quotes | • Issuer Spreads | |
• Two-sided markets | • Benchmark securities | |
• Bids/Offers | • Reference Data (corporate actions or material event notices) | |
• Industry and economic events | • Comparable bonds | |
• Equity and credit default swap curves | • Monthly payment information |
Securities for which market values cannot be measured using the methodologies described above are valued by methods deemed in good faith by the Valuation Committee, following the procedures established by the Board, to represent fair value. Under these procedures, the Fund primarily uses a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. For the year ended October 31, 2013, there have been no changes to the fair value methodologies.
Equity and non-equity securities which may be valued in this manner include, but are not limited to: (i) a security for which trading has been halted or suspended; (ii) a debt security that has recently gone into default and for which there is not a current market quotation; (iii) a security of an issuer that has entered into a restructuring; (iv) a security that has been de-listed from a national exchange; (v) a security for which the market price is not available from a third party pricing source or, if so provided, does not, in the opinion of the Fund’s Manager or Subadvisors reflect the security’s market value; and (vi) a security whose principal market has been temporarily closed at a time when, under normal conditions, it would be open. Securities for which market quotations or observable inputs are not readily available are generally categorized as Level 3 in the hierarchy. As of October 31, 2013, the Fund did not hold any securities that were fair valued in such a manner.
Certain events may occur between the time that foreign markets close, on which securities held by the Fund principally trade, and the time at which the Fund’s NAV is calculated. These events may include, but are not limited to, situations relating to a single issuer in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Should the Manager or Subadvisors conclude that such events may have affected the accuracy of the last price of such securities reported on the local foreign market, the Sub-
Committee may, pursuant to procedures adopted by the Board, adjust the value of the local price to reflect the estimated impact on the price of such securities as a result of such events. In this instance, securities are generally categorized as Level 3 in the hierarchy. Additionally, certain foreign equity securities are also fair valued whenever the movement of a particular index exceeds an established threshold. In such cases, the securities are fair valued by applying factors provided by a third party vendor in accordance with the Fund’s policies and procedures and are generally categorized as Level 2 in the hierarchy. As of October 31, 2013, foreign equity securities held by the Fund were not fair valued in such a manner.
Equity securities and Exchange Traded Funds are valued at the latest quoted sales prices as of the close of regular trading on the Exchange on each valuation date. Securities that are not traded on the valuation date are valued at the mean of the latest quoted bid and ask prices. Prices normally are taken from the principal market in which each security trades. Investments in other mutual funds are valued at their respective NAVs as of the close of the Exchange on the valuation date. These securities are generally categorized as Level 1 in the hierarchy.
Debt securities (other than convertible and municipal bonds) are valued at the evaluated bid prices (evaluated mean prices in the case of convertible and municipal bonds) supplied by a pricing agent or broker selected by the Fund’s Manager, in consultation with the Fund’s Subadvisor, whose prices reflect broker/dealer supplied valuations and electronic data processing techniques, if such prices are deemed by the Fund’s Manager, in consultation with the Fund’s Subadvisor, to be representative of market values, at the regular close of trading of the Exchange on each valuation date. Debt securities purchased on delayed delivery basis are marked to market daily until settlement at the forward settlement date. Debt securities, including corporate bonds, U.S. government & federal agency bonds, municipal bonds, foreign bonds, Yankee bonds, convertible bonds, asset-backed securities and mortgage-backed securities, are generally categorized as Level 2 in the hierarchy.
Temporary cash investments acquired in excess of 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments which mature in 60 days or less (“Short-Term Investments”) are valued at amortized cost. 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. Amortized cost approximates the current fair value of a security. Securities valued at amortized cost are not valued using a quoted price in an active market. These securities are generally categorized as Level 2 in the hierarchy.
Foreign currency forward contracts are valued at their fair market values measured on the basis of the mean between the last current bid and ask prices based on dealer or exchange quotations and are generally categorized as Level 2 in the hierarchy.
(B) Income Taxes. The Fund’s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), applicable to regulated investment companies and to
24 | MainStay MAP Fund |
distribute all of the taxable income to the shareholders of the Fund within the allowable time limits. Therefore, no federal, state and local income tax provisions are required.
Management evaluates the Fund’s tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. Management has analyzed the Fund’s tax positions taken on federal, state and local income tax returns for all open tax years (for up to three tax years), and has concluded that no provisions for federal, state and local income tax are required in the Fund’s financial statements. The Fund’s federal, state and local income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state and local departments of revenue.
(C) Foreign Taxes. Investment income received by the Fund from foreign sources may be subject to foreign income taxes. These foreign income taxes are generally withheld at the source, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
The Fund may be subject to taxation on realized capital gains, repatriation proceeds and other transaction-based taxes imposed by certain countries in which it invests. The Fund will accrue such taxes as applicable based upon its current interpretation of tax rules and regulations that exist in the market in which it invests. Capital gains taxes relating to positions still held are reflected as a liability on the Statement of Assets and Liabilities, as well as an adjustment to the Fund’s net unrealized appreciation (depreciation). Taxes related to capital gains realized during the year ended October 31, 2013, if any, are reflected as part of net realized gain (loss) in the Statement of Operations. Changes in tax liabilities related to capital gains taxes on unrealized investment gains, if any, are reflected as part of the change in net unrealized appreciation (depreciation) on investments in the Statement of Operations. Transaction-based charges are generally assessed as a percentage of the transaction amount.
(D) Dividends and Distributions to Shareholders. Dividends and distributions are recorded on the ex-dividend date. The Fund intends to declare and pay dividends of net investment income and distributions of net realized capital and currency gains, if any, at least annually. Unless the shareholder elects otherwise, all dividends and distributions are reinvested in the same class of shares of the Fund, at NAV. Dividends and distributions to shareholders are determined in accordance with federal income tax regulations and may differ from GAAP.
(E) Security Transactions and Investment Income. The Fund records security transactions on the trade date. Realized gains and losses on security transactions are determined using the identified cost method. Dividend income is recognized on the ex-dividend date and interest income is accrued as earned using the effective interest rate method. Discounts and premiums on securities purchased, other than
Short-Term Investments, for the Fund are accreted and amortized, respectively, on the effective interest rate 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. Discounts and premiums on Short-Term Investments are accreted and amortized, respectively, on the straight-line method. Income from payment-in-kind securities is recorded daily based on the effective interest method of accrual.
Investment income and realized and unrealized gains and losses on investments of the Fund are allocated to separate classes of shares pro rata based upon their relative net assets on the date the income is earned or realized and unrealized gains and losses are incurred.
(F) Expenses. Expenses of the Trust are allocated to the individual Funds in proportion to the net assets of the respective Funds when the expenses are incurred, except where direct allocations of expenses can be made. Expenses (other than transfer agent expenses and fees incurred under the shareholder services plans and the distribution plans further discussed in Note 3(B)) are allocated to separate classes of shares pro rata based upon their relative net assets on the date the expenses are incurred. The expenses borne by the Fund, including those of related parties to the Fund, are shown in the Statement of Operations.
(G) Use of Estimates. In preparing financial statements in conformity with GAAP, management makes estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
(H) Repurchase Agreements. The Fund may enter into repurchase agreements to earn income. The Fund may enter into repurchase agreements only with financial institutions that are deemed by the Manager or Subadvisors to be creditworthy, pursuant to guidelines established by the Fund’s Board. During the term of any repurchase agreement, the Manager or Subadvisors will continue to monitor the creditworthiness of the seller. Under the 1940 Act, repurchase agreements are considered to be collateralized loans by a Fund to the seller secured by the securities transferred to the Fund.
When the Fund invests in repurchase agreements, the Fund’s custodian takes possession of the collateral pledged for investments in the repurchase agreement. The underlying collateral is valued daily on a mark-to-market basis to determine that the value, including accrued interest, exceeds the repurchase price. In the event of the seller’s default on the obligation to repurchase, the Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, such as in the event of default or bankruptcy by the counterparty to the agreement, realization and/or retention of the collateral may be subject to legal proceedings and possible realized loss to the Fund.
(I) Rights and Warrants. Rights are certificates that permit the holder to purchase a certain number of shares, or a fractional share, of a new stock from the issuer at a specific price. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. The Fund may enter into rights and warrants when securities are acquired through a corporate action. These investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. Prices of these investments do not necessarily move in tandem with the prices of the underlying securities.
mainstayinvestments.com | 25 |
Notes to Financial Statements (continued)
There is risk involved in the purchase of rights and warrants in that these investments are speculative investments. The Fund could also lose the entire value of its investment in warrants if such warrants are not exercised by the date of its expiration. The Fund is exposed to risk until the sale or exercise of each right or warrant is completed. As of October 31, 2013, the Fund did not hold any rights or warrants.
(J) Securities Lending. In order to realize additional income, the Fund may engage in securities lending, subject to the limitations set forth in the 1940 Act and relevant guidance by the staff of the Securities and Exchange Commission. In the event the Fund does engage in securities lending, the Fund will lend through its custodian, State Street Bank and Trust Company (“State Street”). State Street will manage the Fund’s cash collateral in accordance with the lending agreement between the Fund and State Street, and indemnify the Fund’s portfolio against counterparty risk. The loans will be collateralized by cash or securities at least equal at all times to the market value of the securities loaned. Collateral will consist of U.S. government securities, cash equivalents or irrevocable letters of credit. 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 may also record realized gain or loss on securities deemed sold due to a borrower’s inability to return securities on loan. The Fund will receive compensation for lending its securities in the form of fees or the retention of a portion of the interest on the investment of any cash received as collateral. The Fund also will continue 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.
Although the Fund and New York Life Investments have temporarily suspended securities lending, the Fund and New York Life Investments reserve the right to reinstitute lending when deemed appropriate. The Fund did not have any portfolio securities on loan as of October 31, 2013.
(K) Foreign Currency Forward Contracts. The Fund may enter into foreign currency forward contracts, which are agreements to buy or sell currencies of different countries on a specified future date at a specified rate. The Fund is subject to foreign currency exchange rate risk in the normal course of investing in these transactions. During the period the forward contract is open, changes in the value of the contract are recognized as unrealized appreciation or depreciation 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. Cash movement occurs on settlement date. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract. The Fund may enter into foreign currency forward contracts to reduce currency risk versus the benchmark or for trade settlement.
The use of foreign currency forward contracts involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The contract amount reflects the extent of the Fund’s involvement in these financial instruments. Risks arise from the possible movements in the foreign exchange rates underlying these instruments. While the Fund may enter into forward con-
tracts to reduce currency exchange risks, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. Exchange rate movements can be large, depending on the currency, and can last for extended periods of time, affecting the value of the Fund’s assets. Moreover, there may be an imperfect correlation between the Fund’s holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. The unrealized appreciation (depreciation) on forward contracts reflects the Fund’s exposure at valuation date to credit loss in the event of a counterparty’s failure to perform its obligations.
(L) Foreign Currency Transactions. The books and records of the Fund are kept in U.S. dollars. Prices of securities denominated in 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, and |
(ii) | purchases and sales of investment securities, income and expenses—at the date of such transactions. |
The assets and liabilities that are denominated in foreign currency amounts are presented at the exchange rates and market values at the close of the period. The realized and unrealized changes in net assets arising from fluctuations in exchange rates and market prices of securities are not separately presented.
Net realized gain (loss) on foreign currency transactions represents net gains and losses on foreign currency forward contracts, net currency gains or losses realized as a result of differences between the amounts of securities sale proceeds or purchase cost, dividends, interest and withholding taxes as recorded on the Fund’s books, and the U.S. dollar equivalent amount actually received or paid. Net currency gains or losses from valuing such foreign currency denominated assets and liabilities, other than investments at valuation date exchange rates, are reflected in unrealized foreign exchange gains or losses.
(M) Concentration of Risk. The Fund may invest in foreign securities, which carry certain risks that are in addition to the usual risks inherent in domestic instruments. These risks include those resulting from currency fluctuations, future adverse political and economic developments and possible imposition of currency exchange blockages or other foreign governmental laws or restrictions. These risks are likely to be greater in emerging markets than in developed markets. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific country, industry or region.
(N) Indemnifications. Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Fund enters into contracts with third-party service providers that contain a variety of representations and warranties and which may provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that
26 | MainStay MAP Fund |
have not yet occurred. Based on experience, management is of the view that the risk of loss in connection with these potential indemnification obligations is remote. However, there can be no assurance that material liabilities related to such obligations will not arise in the future, which could adversely impact the Fund.
(O) Quantitative Disclosure of Derivative Holdings. The following tables show additional disclosures about the Fund’s derivative and hedging activities, including how such activities are accounted for and their effect on the Fund’s financial positions, performance and cash flows. These derivatives are not accounted for as hedging instruments.
The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2013:
Realized Gain (Loss)
Statement of Operations Location | Equity Contracts Risk | Total | ||||||||
Rights | Net realized gain (loss) on security transactions | $ | 71 | $ | 71 | |||||
|
|
|
| |||||||
Total Realized Gain (Loss) | $ | 71 | $ | 71 | ||||||
|
|
|
|
Note 3–Fees and Related Party Transactions
(A) Manager and Subadvisors. New York Life Investments, a registered investment adviser and an indirect, wholly-owned subsidiary of New York Life Insurance Company (“New York Life”), serves as the Fund’s Manager, pursuant to an Amended and Restated Management Agreement (“Management Agreement”). The Manager provides offices, conducts clerical, recordkeeping and bookkeeping services, and keeps most of the financial and accounting records required to be maintained by the Fund. Except for the portion of salaries and expenses that are the responsibility of the Fund, the Manager pays the salaries and expenses of all personnel affiliated with the Fund and certain operational expenses of the Fund. The Fund reimburses New York Life Investments in an amount equal to a portion of the salary of the Chief Compliance Officer (“CCO”) of the Fund. Markston International LLC (“Markston” or “Subadvisor”) and Institutional Capital LLC (“ICAP”or “Subadvisor”), each registered investment advisers, serve as Subadvisors to the Fund and manage a portion of the Fund’s assets, as designated by New York Life Investments from time to time, subject to the oversight of New York Life Investments. ICAP is a wholly-owned subsidiary of New York Life. Each Subadvisor is responsible for the day-to-day portfolio management of the Fund with respect to its allocated portion of the Fund’s assets. Pursuant to the terms of an Amended and Restated Subadvisory Agreement between New York Life Investments and ICAP, and pursuant to the terms of a Subadvisory Agreement between New York Life Investments and Markston (“Subadvisory Agreements”), New York Life Investments pays for the services of the Subadvisors.
The Fund pays the Manager a monthly fee for services performed and facilities furnished at an annual rate of the Fund’s average daily net assets as follows: 0.75% up to $1 billion; 0.70% from $1 billion to $3 billion; and 0.675% in excess of $3 billion, plus a fee for fund accounting services previously provided by New York Life Investments under a separate fund accounting agreement furnished at an annual rate of the Fund’s average daily net assets as follows: 0.05% up to
$20 million; 0.0333% from $20 million to $100 million; and 0.01% in excess of $100 million.
The effective management fee rate (exclusive of any applicable waivers/reimbursements) was 0.73% for the year ended October 31, 2013, inclusive of a fee for fund accounting services of 0.01% of the Fund’s average daily net assets.
For the year ended October 31, 2013, New York Life Investments earned fees from the Fund in the amount of $15,723,412.
State Street, 1 Lincoln Street, Boston, Massachusetts 02111, provides sub-administration and sub-accounting services to the Fund pursuant to an agreement with New York Life Investments. These services include calculating the daily NAVs of the Fund, maintaining the general ledger and sub-ledger accounts for the calculation of the Fund’s respective NAVs, and assisting New York Life Investments in conducting various aspects of the Fund’s administrative operations. For providing these services to the Fund, State Street is compensated by New York Life Investments.
(B) Distribution, Service and Shareholder Service Fees. The Trust, on behalf of the Fund, has entered into a distribution agreement with NYLIFE Distributors LLC (the “Distributor”), an indirect, wholly-owned subsidiary of New York Life. The Fund has adopted distribution plans (the “Plans”) in accordance with the provisions of Rule 12b-1 under the 1940 Act.
Pursuant to the Investor Class, Class A and Class R2 Plans, the Distributor receives a monthly distribution fee from the Investor Class, Class A and Class R2 shares, at an annual rate of 0.25% of the average daily net assets of the Investor Class, Class A and Class R2 shares for distribution and/or service activities as designated by the Distributor. Pursuant to the Class B and Class C Plans, Class B and Class C shares pay the Distributor a monthly distribution fee at an annual rate of 0.75% of the average daily net assets of the Class B and Class C shares, along with a service fee at an annual rate of 0.25% of the average daily net assets of the Class B and Class C shares, for a total 12b-1 fee of 1.00%. Pursuant to the Class R3 Plan, the Distributor receives a monthly distribution and/or service fee from the Class R3 shares at an annual rate of 0.50% of the average daily net assets of the Class R3 shares. Class I and Class R1 shares are not subject to a distribution and/or service fee.
The Plans provide that the distribution and service fees are payable to the Distributor regardless of the amounts actually expended by the Distributor for distribution of the Fund’s shares and service activities.
In accordance with the Shareholder Services Plans for the Class R1, Class R2 and Class R3 shares, the Manager has agreed to provide, through its affiliates or independent third parties, various shareholder and administrative support services to shareholders of the Class R1, Class R2 and Class R3 shares. For its services, the Manager, its affiliates or independent third party service providers are entitled to a shareholder service fee accrued daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Class R1, Class R2 and Class R3 shares. This is in addition to any fees paid under a distribution plan, where applicable.
mainstayinvestments.com | 27 |
Notes to Financial Statements (continued)
Shareholder Service Fees incurred by the Fund for the year ended October 31, 2013, were as follows:
Class R1 | $ | 7,787 | ||
Class R2 | 20,042 | |||
Class R3 | 1,726 |
(C) Sales Charges. The Fund was advised by the Distributor that the amount of sales charges retained on sales of Investor Class and Class A shares were $46,629 and $52,825, respectively, for the year ended October 31, 2013. The Fund was also advised that the Distributor retained CDSCs on redemptions of Investor Class, Class A, Class B and Class C shares of $13, $1,822, $71,064 and $4,896, respectively, for the year ended October 31, 2013.
(D) Transfer, Dividend Disbursing and Shareholder Servicing Agent. NYLIM Service Company LLC, an affiliate of New York Life Investments, is the Fund’s transfer, dividend disbursing and shareholder servicing agent pursuant to an agreement between NYLIM Service Company LLC and the Trust. NYLIM Service Company LLC has entered into an agreement with Boston Financial Data Services, Inc. (“BFDS”) pursuant to which BFDS performs certain transfer agent services on behalf of NYLIM Service Company LLC. Transfer agent expenses incurred by the Fund for the year ended October 31, 2013, were as follows:
Investor Class | $ | 386,407 | ||
Class A | 323,058 | |||
Class B | 242,919 | |||
Class C | 379,470 | |||
Class I | 1,424,091 | |||
Class R1 | 7,787 | |||
Class R2 | 19,906 | |||
Class R3 | 1,714 |
(E) Small Account Fee. Shareholders with small accounts adversely impact the cost of providing transfer agency services. In an effort to reduce total transfer agency expenses, the Fund has implemented a small account fee on certain types of accounts. Certain shareholders with an account balance of less than $1,000 are charged an annual per account fee of $20 (assessed semi-annually), the proceeds from which offset transfer agent fees as reflected in the Statement of Operations.
(F) Capital. As of October 31, 2013, New York Life and its affiliates beneficially held shares of the Fund with values and percentages of net assets as follows:
Class A | $ | 4,168 | 0.0 | %‡ | ||||
Class I | 126,537,405 | 8.9 |
‡ | Less than one-tenth of a percent. |
Note 4–Federal Income Tax
As of October 31, 2013, the components of accumulated gain (loss) on a tax basis were as follows:
Ordinary Income | Accumulated Other Gain (Loss) | Capital Loss Carry Forward | Unrealized Appreciation (Depreciation) | Total Gain (Loss) | ||||||||||||||
$19,940,343 | $ | 45,601,013 | $ | (2,215,631 | ) | $ | 608,886,167 | $ | 672,211,892 |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is primarily due to wash sale adjustments, return of capital distributions received on investments other than Real Estate Investment Trusts (REITs) and REITs.
The following table discloses the current year reclassifications between undistributed net investment income (loss), accumulated net realized gain (loss) on investments, and additional paid-in capital arising from permanent differences; net assets as of October 31, 2013 were not affected.
Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments | Additional Paid-In Capital | ||||||
$(788,217) | $ | 788,217 | $ | 0 |
The reclassifications for the Fund are primarily due to foreign currency gain (loss), return of capital distributions from REITs and investments other than REITs, and capital gain distributions from REITs.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of October 31, 2013, for federal income tax purposes, capital loss carryforwards of $2,215,631 were available as shown in the table below, to the extent provided by the regulations to offset future realized gains of the Fund through the years indicated. To the extent that these capital loss carryforwards are used to offset future capital gains, it is probable that the capital gains so offset will not be distributed to shareholders. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired.
Capital Loss Available Through | Short-Term Capital Loss Amounts (000’s) | Long-Term Capital Loss Amounts (000’s) | ||||||
2015 | $ | 2,216 | $ | — |
The Fund utilized $128,179,555 of capital loss carryforwards during the year ended October 31, 2013.
28 | MainStay MAP Fund |
The tax character of distributions paid during the years ended October 31, 2013 and October 31, 2012 shown in the Statements of Changes in Net Assets was as follows:
2013 | 2012 | |||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 23,630,524 | $ | 22,500,041 | ||||
|
Note 5–Custodian
State Street is the custodian of the cash and the securities of the Fund. Custodial fees are charged to the Fund based on the Fund’s net assets and/or the market value of securities in the Fund and the number of certain cash transactions incurred by the Fund.
Note 6–Line of Credit
The Fund and certain affiliated funds maintain a line of credit with a syndicate of banks in order to secure a source of funds for temporary purposes to meet unanticipated or excessive redemption requests.
Effective August 28, 2013, under a second amended and restated credit agreement (the “Credit Agreement”), the aggregate commitment amount is $300,000,000 with an optional maximum amount of $400,000,000. The commitment fee is an annual rate of 0.08% of the average commitment amount payable quarterly, regardless of usage, to Bank of New York Mellon and State Street, who serve as the agents to the syndicate. The commitment fee is allocated among the Fund and certain affiliated funds based upon net assets and other factors. Interest on any revolving credit loan is charged based upon the Federal Funds Advances rate or the one month London InterBank Offered Rate, whichever is higher. The Credit Agreement expires on August 27, 2014, although the Fund, certain affiliated funds and the syndicate of banks may renew the Credit Agreement for an additional year on the same or different terms. Prior to August 28, 2013, the aggregate commitment amount was $200,000,000 with an optional maximum amount of $250,000,000. There were no borrowings made or outstanding with respect to the Fund under the Credit Agreement during the year ended October 31, 2013.
Note 7–Purchases and Sales of Securities (in 000’s)
During the year ended October 31, 2013, purchases and sales of securities, other than short-term securities, were $603,703 and $957,668, respectively.
Note 8–Capital Share Transactions
Investor Class | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 252,224 | $ | 9,750,331 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 32,727 | 1,121,243 | ||||||
Shares redeemed | (461,896 | ) | (17,660,467 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (176,945 | ) | (6,788,893 | ) | ||||
Shares converted into Investor Class (See Note 1) | 327,104 | 12,571,419 | ||||||
Shares converted from Investor Class (See Note 1) | (347,678 | ) | (13,877,792 | ) | ||||
|
| |||||||
Net increase (decrease) | (197,519 | ) | $ | (8,095,266 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 244,302 | $ | 7,912,675 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 35,955 | 1,090,857 | ||||||
Shares redeemed | (589,239 | ) | (19,079,790 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (308,982 | ) | (10,076,258 | ) | ||||
Shares converted into Investor Class (See Note 1) | 446,562 | 14,347,291 | ||||||
Shares converted from Investor Class (See Note 1) | (359,912 | ) | (11,878,827 | ) | ||||
|
| |||||||
Net increase (decrease) | (222,332 | ) | $ | (7,607,794 | ) | |||
|
| |||||||
Class A | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 1,074,871 | $ | 40,847,667 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 86,511 | 2,962,125 | ||||||
Shares redeemed | (1,982,422 | ) | (76,665,047 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (821,040 | ) | (32,855,255 | ) | ||||
Shares converted into Class A (See Note 1) | 454,375 | 17,940,725 | ||||||
Shares converted from Class A (See Note 1) | (29,409 | ) | (1,175,780 | ) | ||||
|
| |||||||
Net increase (decrease) | (396,074 | ) | $ | (16,090,310 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 596,933 | $ | 19,366,654 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 97,531 | 2,956,499 | ||||||
Shares redeemed | (2,377,806 | ) | (77,188,057 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (1,683,342 | ) | (54,864,904 | ) | ||||
Shares converted into Class A (See Note 1) | 615,901 | 20,108,065 | ||||||
Shares converted from Class A (See Note 1) | (23,886 | ) | (822,053 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,091,327 | ) | $ | (35,578,892 | ) | |||
|
| |||||||
mainstayinvestments.com | 29 |
Notes to Financial Statements (continued)
Class B | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 213,136 | $ | 7,628,224 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 5,244 | 167,643 | ||||||
Shares redeemed | (465,480 | ) | (16,570,529 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (247,100 | ) | (8,774,662 | ) | ||||
Shares converted from Class B (See Note 1) | (434,564 | ) | (15,458,572 | ) | ||||
|
| |||||||
Net increase (decrease) | (681,664 | ) | $ | (24,233,234 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 213,487 | $ | 6,423,390 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 6,439 | 182,293 | ||||||
Shares redeemed | (673,595 | ) | (20,259,640 | ) | ||||
|
| |||||||
Net increase (decrease) in shares outstanding before conversion | (453,669 | ) | (13,653,957 | ) | ||||
Shares converted from Class B (See Note 1) | (729,019 | ) | (21,754,476 | ) | ||||
|
| |||||||
Net increase (decrease) | (1,182,688 | ) | $ | (35,408,433 | ) | |||
|
| |||||||
Class C | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 245,648 | $ | 8,729,002 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 6,294 | 201,279 | ||||||
Shares redeemed | (701,835 | ) | (24,595,714 | ) | ||||
|
| |||||||
Net increase (decrease) | (449,893 | ) | $ | (15,665,433 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 187,726 | $ | 5,614,520 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 6,452 | 182,715 | ||||||
Shares redeemed | (1,041,053 | ) | (31,171,633 | ) | ||||
|
| |||||||
Net increase (decrease) | (846,875 | ) | $ | (25,374,398 | ) | |||
|
| |||||||
Class I | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,259,552 | $ | 246,128,596 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 525,727 | 18,332,087 | ||||||
Shares redeemed | (13,779,074 | ) | (549,858,964 | ) | ||||
|
| |||||||
Net increase (decrease) | (6,993,795 | ) | $ | (285,398,281 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 8,582,918 | $ | 286,653,962 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 544,655 | 16,813,162 | ||||||
Shares redeemed | (8,270,927 | ) | (274,064,591 | ) | ||||
|
| |||||||
Net increase (decrease) | 856,646 | $ | 29,402,533 | |||||
|
| |||||||
Class R1 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 36,997 | $ | 1,421,756 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 1,856 | 63,811 | ||||||
Shares redeemed | (519,773 | ) | (18,144,842 | ) | ||||
|
| |||||||
Net increase (decrease) | (480,920 | ) | $ | (16,659,275 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 163,523 | $ | 5,157,490 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 8,918 | 271,181 | ||||||
Shares redeemed | (111,653 | ) | (3,635,065 | ) | ||||
|
| |||||||
Net increase (decrease) | 60,788 | $ | 1,793,606 | |||||
|
| |||||||
Class R2 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 141,151 | $ | 5,413,156 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 4,724 | 162,285 | ||||||
Shares redeemed | (240,517 | ) | (9,260,544 | ) | ||||
|
| |||||||
Net increase (decrease) | (94,642 | ) | $ | (3,685,103 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 113,272 | $ | 3,679,467 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 7,477 | 227,218 | ||||||
Shares redeemed | (306,479 | ) | (9,969,993 | ) | ||||
|
| |||||||
Net increase (decrease) | (185,730 | ) | $ | (6,063,308 | ) | |||
|
| |||||||
Class R3 | Shares | Amount | ||||||
Year ended October 31, 2013: | ||||||||
Shares sold | 6,666 | $ | 252,915 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 318 | 10,894 | ||||||
Shares redeemed | (20,982 | ) | (786,836 | ) | ||||
|
| |||||||
Net increase (decrease) | (13,998 | ) | $ | (523,027 | ) | |||
|
| |||||||
Year ended October 31, 2012: | ||||||||
Shares sold | 17,183 | $ | 559,674 | |||||
Shares issued to shareholders in reinvestment of dividends and distributions | 681 | 20,629 | ||||||
Shares redeemed | (42,901 | ) | (1,340,280 | ) | ||||
|
| |||||||
Net increase (decrease) | (25,037 | ) | $ | (759,977 | ) | |||
|
|
Note 9–Subsequent Events
In connection with the preparation of the financial statements of the Fund as of and for the year ended October 31, 2013, events and transactions subsequent to October 31, 2013, through the date the financial statements were issued have been evaluated by the Fund’s management for possible adjustment and/or disclosure. No subsequent events requiring financial statement adjustment or disclosure have been identified.
30 | MainStay MAP Fund |
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
The MainStay Funds:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the MainStay MAP Fund (the “Fund”), one of the funds constituting The MainStay Funds, as of October 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the MainStay MAP Fund of The MainStay Funds as of October 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 20, 2013
mainstayinvestments.com | 31 |
Federal Income Tax Information
(Unaudited)
The Fund is required under the Internal Revenue Code to advise shareholders in a written statement as to the federal tax status of dividends paid by the Fund during such fiscal years.
For the fiscal year ended October 31, 2013, the Fund designated approximately $23,630,524 under the Internal Revenue Code as qualified dividend income eligible for reduced tax rates.
The dividends paid by the Fund during the fiscal year ended October 31, 2013, should be multiplied by 100.0% to arrive at the amount eligible for the corporate dividends received deduction.
In February 2014, shareholders will receive an IRS Form 1099-DIV or substitute Form 1099 which will show the federal tax status of the distributions received by shareholders in calendar year 2013. The amounts that will be reported on such 1099-DIV or substitute Form 1099 will be the amounts you are to use on your federal income tax return and will differ from the amounts which we must report for the Fund’s fiscal year ended October 31, 2013.
Proxy Voting Policies and Procedures and Proxy Voting Record
A description of the policies and procedures that New York Life Investments uses to vote proxies related to the Fund’s securities is available without charge, upon request, (i) by visiting the Fund’s website at mainstayinvestments.com; or (ii) on the SEC’s website at www.sec.gov.
The Fund is required to file with the SEC its proxy voting record for the 12-month period ending June 30 on Form N-PX. The Fund’s most recent Form N-PX is available free of charge upon request (i) by calling 800-MAINSTAY (624-6782); (ii) by visiting the Fund’s website at mainstayinvestments.com; or (iii) on the SEC’s website at www.sec.gov.
Shareholder Reports and Quarterly Portfolio Disclosure
The Fund is required to file its complete schedule of portfolio holdings with the SEC for its first and third fiscal quarters on Form N-Q. The Fund’s Form N-Q is available without charge on the SEC’s website at www.sec.gov or by calling MainStay Investments at 800-MAINSTAY (624-6782). You also can obtain and review copies of Form N-Q by visiting the SEC’s Public Reference Room in Washington, DC (information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330).
32 | MainStay MAP Fund |
Board Members and Officers (Unaudited)
The Board Members oversee the MainStay Group of Funds (which is comprised of Funds that are series of The MainStay Funds, MainStay Funds Trust, MainStay VP Funds Trust, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund, and MainStay DefinedTerm Municipal Opportunities Fund) (collectively, the “Fund Complex”), the Manager and, when applicable, the Subadvisor(s) and other service providers to the Fund Complex. Each Board Member serves until his or her successor is elected and qualified or until his or her resignation, death or removal. The Retirement Policy provides that a Board Member shall tender his or her resignation by the end of the calendar year during which he or she reaches the age of 75.
Officers serve a term of one year and are elected annually by the Board Members. The business address of each Board Member and officer listed below is 51 Madison Avenue, New York, New York 10010.
The Statement of Additional Information applicable to the Fund includes additional information about the Board Members and is available without charge, upon request, by calling 800-MAINSTAY (624-6782) or by going online to mainstayinvestments.com.
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Interested Board Members | John Y. Kim* 9/24/60 | Indefinite; MainStay Funds: Trustee since 2008; MainStay Funds Trust: Trustee since 2008***. | Chief Investment Officer, New York Life Insurance Company (since 2011); President, Investments Group—New York Life Insurance Company (since 2012); Chairman of the Board of Managers and Chief Executive Officer, New York Life Investment Management LLC and New York Life Investment Management Holdings LLC (since 2008); Member of the Board, MacKay Shields LLC, Institutional Capital LLC, Madison Capital Funding LLC, and Cornerstone Capital Management Holdings LLC (fka Madison Square Investors LLC) (since 2008); Member of the Board of Managers, McMorgan and Company LLC and GoldPoint Partners (fka NYLCAP Manager LLC) (2008-2012); Member of the Board of Private Advisors, L.L.C.(since 2010); Member of the Board of MCF Capital Management LLC (since 2012); and President, Prudential Retirement, a business unit of Prudential Financial, Inc. (2002 to 2007) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
* | This Board Member is considered to be an “interested person” of the MainStay Group of Funds within the meaning of the 1940 Act because of his affiliation with New York Life Insurance Company, New York Life Investment Management LLC, Cornerstone Capital Management Holdings LLC, MacKay Shields LLC, Institutional Capital LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail above in the column entitled “Principal Occupation(s) During the Past Five Years.” |
mainstayinvestments.com | 33 |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held By Board Member | ||||||||
Non-Interested Board Members | Susan B. Kerley 8/12/51 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: | President; Strategic Management Advisors LLC (since 1990) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; and Legg Mason Partners Funds: Trustee since 1991 (50 portfolios). | |||||||
Alan R. Latshaw 3/27/51 | Indefinite; MainStay Funds: Trustee and Audit Committee Financial Expert since 2006; MainStay Funds Trust: | Retired; Partner, Ernst & Young LLP (2002 to 2003); Partner, Arthur Andersen LLP (1989 to 2002); Consultant to the MainStay Funds Audit and Compliance Committee (2004 to 2006) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011; State Farm Associates Funds Trusts: Trustee since 2005 (4 portfolios); State Farm Mutual Fund Trust: Trustee since 2005 (15 portfolios); and State Farm Variable Product Trust: Trustee since 2005 (9 portfolios). | ||||||||
Peter Meenan 12/5/41 | Indefinite; MainStay Funds: Chairman since 2013 and Trustee since 2007; MainStay Funds Trust: | Retired; Independent Consultant (2004 to 2013); President and Chief Executive Officer, Babson—United, Inc. (financial services firm) (2000 to 2004); Independent Consultant (1999 to 2000); Head of Global Funds, Citicorp (1995 to 1999) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Chairman since 2013 and Trustee since 2011; Private Advisors Alternative Strategies Fund: Chairman since 2013 and Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Chairman since 2013 and Trustee since 2011. | ||||||||
Richard H. Nolan, Jr. 11/16/46 | Indefinite; MainStay Funds: Trustee since 2007; MainStay Funds Trust: Trustee since 2007***. | Managing Director, ICC Capital Management; President—Shields/ Alliance, Alliance Capital Management (1994 to 2004) | 79 | MainStay VP Funds Trust: Trustee Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. | ||||||||
Richard S. Trutanic 2/13/52 | Indefinite; MainStay Funds: MainStay Funds Trust: | Chairman and Chief Executive Officer, Somerset & Company (financial advisory firm) (since 2004); Managing Director, The Carlyle Group (private investment firm) (2002 to 2004); Senior Managing Director, Partner and Board Member, Groupe Arnault S.A. (private investment firm) (1999 to 2002) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011. |
34 | MainStay MAP Fund |
Name and Date of Birth | Term of Office, Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Board Member | Other Directorships Held by Board Member | ||||||||
Non-Interested Board Members | Roman L. Weil 5/22/40 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee and Audit Committee Financial Expert since 2009. | Visiting Professor, University of California—San Diego (since 2012); President, Roman L. Weil Associates, Inc. (consulting firm) (since 1981); Visiting Professor, Johns Hopkins University (2013); Visiting Professor, Southern Methodist University (2011); Visiting Professor, NYU Stern School of Business, New York University (2011); V. Duane Rath Professor Emeritus of Accounting, Chicago Booth School Business, University of Chicago (since 2008) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee and Audit Committee Financial Expert since 2011; Private Advisors Alternative Strategies Fund: Trustee and Audit Committee Financial Expert since 2011; and MainStay DefinedTerm Municipal Opportunities Fund: Trustee and Audit Committee Financial Expert since 2011. | |||||||
John A. Weisser 10/22/41 | Indefinite; MainStay Funds: MainStay Funds Trust: Trustee since 2007***. | Retired; Managing Director of Salomon Brothers, Inc. (1971 to 1995) | 79 | MainStay VP Funds Trust: Private Advisors Alternative Strategies Master Fund: Trustee since 2011; Private Advisors Alternative Strategies Fund: Trustee since 2011; MainStay DefinedTerm Municipal Opportunities Fund: Trustee since 2011; Direxion Insurance Trust: Trustee since 2007 (1 portfolio); Direxion Funds: Trustee since 2007 (25 portfolios); and Direxion Shares ETF Trust: Trustee since 2008 (52 portfolios). |
** | Includes prior service as a Director of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
*** | Includes prior service as a Director/Trustee of certain predecessor entities to MainStay Funds Trust. |
mainstayinvestments.com | 35 |
The following individuals have been appointed by the Board Members to serve as Officers of the MainStay Group of Funds.*
Name and Date of Birth | Position(s) Held and Length of Service | Principal Occupation(s) During Past Five Years | ||||||
Officers | Stephen P. Fisher 2/22/59 | President, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Manager, President and Chief Operating Officer, NYLIFE Distributors LLC (since 2008); Chairman of the Board, NYLIM Service Company LLC (since 2008); Senior Managing Director and Chief Marketing Officer, New York Life Investment Management LLC (since 2005); President, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | |||||
Jack R. Benintende 5/12/64 | Treasurer and Principal Financial and Accounting Officer, MainStay Funds (since 2007), MainStay Funds Trust (since 2009) | Assistant Treasurer, New York Life Investment Management Holdings LLC (since 2008); Managing Director, New York Life Investment Management LLC (since 2007); Treasurer and Principal Financial and Accounting Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2007)** | ||||||
Jeffrey A. Engelsman 9/28/67 | Vice President and Chief Compliance Officer, MainStay Funds and MainStay Funds Trust (since 2009) | Managing Director, Compliance, New York Life Investment Management LLC (since 2009); Director and Associate General Counsel, New York Life Investment Management LLC (2005 to 2008); Assistant Secretary, NYLIFE Distributors LLC (2006 to 2008); Vice President and Chief Compliance Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2009)**; Assistant Secretary, MainStay Funds (2006 to 2008) and MainStay VP Series Fund, Inc. (2005 to 2008)** | ||||||
J. Kevin Gao 10/13/67 | Secretary and Chief Legal Officer, MainStay Funds and MainStay Funds Trust (since 2010) | Managing Director and Associate General Counsel, New York Life Investment Management LLC (since 2010); Secretary and Chief Legal Officer, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2010)**; Director and Counsel, Credit Suisse; Chief Legal Officer and Secretary, Credit Suisse Asset Management LLC and Credit Suisse Funds (2003 to 2010) | ||||||
Scott T. Harrington 2/8/59 | Vice President—Administration, MainStay Funds (since 2005), MainStay Funds Trust (since 2009) | Director, New York Life Investment Management LLC (including predecessor advisory organizations) (since 2000); Executive Vice President, New York Life Trust Company and New York Life Trust Company, FSB (2006 to 2012); Vice President—Administration, Private Advisors Alternative Strategies Master Fund, Private Advisors Alternative Strategies Fund and MainStay DefinedTerm Municipal Opportunities Fund (since 2011) and MainStay VP Funds Trust (since 2005)** |
* | The Officers listed above are considered to be “interested persons” of the MainStay Group of Funds within the meaning of the 1940 Act because of their affiliation with the MainStay Group of Funds, New York Life Insurance Company, New York Life Investment Management LLC, New York Life Insurance Company, New York Life Investment Management LLC, NYLIFE Securities LLC and/or NYLIFE Distributors LLC, as described in detail in the column captioned “Principal Occupation(s) During Past Five Years.” Officers are elected annually by the Board to serve a one year term. |
** | Includes prior service as an Officer of MainStay VP Series Fund, Inc., the predecessor to MainStay VP Funds Trust. |
36 | MainStay MAP Fund |
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MainStay Funds
MainStay offers a wide range of Funds for virtually any investment need. The full array of MainStay open-end offerings is listed here, with information about the manager, subadvisors, legal counsel and independent registered public accounting firms.
Equity
U.S. Equity Funds
MainStay Common Stock Fund
MainStay Cornerstone Growth Fund
MainStay Epoch U.S. All Cap Fund
MainStay Epoch U.S. Equity Yield Fund
MainStay ICAP Equity Fund
MainStay ICAP Select Equity Fund
MainStay Large Cap Growth Fund1
MainStay MAP Fund
MainStay S&P 500 Index Fund
MainStay U.S. Equity Opportunities Fund
MainStay U.S. Small Cap Fund
International/Global Equity Funds
MainStay Emerging Markets Opportunities Fund
MainStay Epoch Global Choice Fund
MainStay Epoch Global Equity Yield Fund
MainStay Epoch International Small Cap Fund
MainStay ICAP Global Fund
MainStay ICAP International Fund
MainStay International Equity Fund
MainStay International Opportunities Fund
Income
Taxable Bond Funds
MainStay Floating Rate Fund
MainStay Global High Income Fund
MainStay Government Fund
MainStay High Yield Corporate Bond Fund
MainStay High Yield Opportunities Fund
MainStay Indexed Bond Fund
MainStay Intermediate Term Bond Fund
MainStay Short Duration High Yield Fund
MainStay Short Term Bond Fund
MainStay Unconstrained Bond Fund
Municipal Bond Funds
MainStay California Tax Free Opportunities Fund2
MainStay High Yield Municipal Bond Fund
MainStay New York Tax Free Opportunities Fund3
MainStay Tax Free Bond Fund
Money Market Fund
MainStay Money Market Fund
Mixed Asset
MainStay Balanced Fund
MainStay Convertible Fund
MainStay Income Builder Fund
MainStay Marketfield Fund
Asset Allocation/Target Date
MainStay Conservative Allocation Fund
MainStay Growth Allocation Fund
MainStay Moderate Allocation Fund
MainStay Moderate Growth Allocation Fund
MainStay Retirement 2010 Fund
MainStay Retirement 2020 Fund
MainStay Retirement 2030 Fund
MainStay Retirement 2040 Fund
MainStay Retirement 2050 Fund
Manager
New York Life Investment Management LLC
New York, New York
Subadvisors
Cornerstone Capital Management Holdings LLC4
New York, New York
Cornerstone Capital Management LLC4
Bloomington, Minnesota
Epoch Investment Partners, Inc.
New York, New York
Institutional Capital LLC4
Chicago, Illinois
MacKay Shields LLC4
New York, New York
Marketfield Asset Management LLC
New York, New York
Markston International LLC
White Plains, New York
Winslow Capital Management LLC
Minneapolis, Minnesota
Legal Counsel
Dechert LLP
Independent Registered Public Accounting Firms
KPMG LLP
PricewaterhouseCoopers LLP
1. Effective January 13, 2012, the Fund was closed to new investors with certain exceptions.
2. This Fund is only registered for sale in AZ, CA, NV, OR, UT, and WA.
3. This Fund is only registered for sale in CT, DE, FL, MA, NJ, NY, and VT.
4. An affiliate of New York Life Investment Management LLC.
Not part of the Annual Report
For more information
800-MAINSTAY (624-6782)
mainstayinvestments.com
The MainStay Funds® are managed by New York Life Investment Management LLC and distributed through NYLIFE Distributors LLC, 169 Lackawanna Avenue, Parsippany, NJ 07054, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.
This report may be distributed only when preceded or accompanied by a current Fund prospectus.
©2013 NYLIFE Distributors LLC. All rights reserved.
Not FDIC/NCUA Insured | Not a Deposit | May Lose Value | No Bank Guarantee | Not Insured by Any Government Agency |
NYLIM-32050 MS322-13 | MSMP11-12/13 NL030 |
Item 2. | Code of Ethics. |
As of the end of the period covered by this report, the Registrant has adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer (“PEO”) and principal financial officer (“PFO”). A copy of the Code is filed herewith. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report.
Item 3. | Audit Committee Financial Expert. |
The Board of Trustees has determined that the Registrant has two audit committee financial experts serving on its Audit Committee. The Audit Committee financial experts are Alan R. Latshaw and Roman L. Weil. Messrs. Latshaw and Weil are “independent” within the meaning of that term under the Investment Company Act of 1940.
Item 4. | Principal Accountant Fees and Services. |
(a) Audit Fees
The aggregate fees billed for the fiscal year ended October 31, 2013 for professional services rendered by KPMG for the audit of the Registrant’s annual financial statements or services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements for that fiscal year were $575,160.
The aggregate fees billed for the fiscal year ended October 31, 2012 for professional services rendered by KPMG LLP (“KPMG”) for the audit of the Registrant’s annual financial statements or services that are normally provided by KPMG in connection with statutory and regulatory filings or engagements for that fiscal year were $600,700.
(b) Audit-Related Fees
The aggregate fees billed for assurance and related services by KPMG that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item were: (i) $2,500 for the fiscal year ended October 31, 2013, and (ii) $2,500 for the fiscal year ended October 31, 2012. These audit-related services include review of financial highlights for Registrant’s registration statements and issuance of consents to use the auditor’s reports.
(c) Tax Fees
The aggregate fees billed for professional services rendered by KPMG for tax compliance, tax advice, and tax planning were: (i) $66,570 during the fiscal year ended October 31, 2013, and (ii) $63,395 during the fiscal year ended October 31, 2012. These services primarily included preparation of federal, state and local income tax returns and excise tax returns, as well as services relating to excise tax distribution requirements.
(d) All Other Fees
The aggregate fees billed for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item were: (i) $0 during the fiscal year ended October 31, 2013, and (ii) $0 during the fiscal year ended October 31, 2012.
(e) Pre-Approval Policies and Procedures
(1) | The Registrant’s Audit and Compliance Committee has adopted pre-approval policies and procedures (the “Procedures”) to govern the Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided to the Registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the Registrant’s investment adviser and to any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (collectively, the “Service Affiliates”) if the services directly relate to the Registrant’s operations and financial reporting. In accordance with the Procedures, the Audit and Compliance Committee is responsible for the engagement of the independent accountant to certify the Registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the Registrant and its Service Affiliates, the Procedures provide that the Audit and Compliance Committee may annually pre-approve a list of the types of services that may be provided to the Registrant or its Service Affiliates, or the Audit and Compliance Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit and Compliance Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit and Compliance Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Audit and Compliance Committee, subject to the ratification by the full Audit and Compliance Committee no later than its next scheduled meeting. To date, the Audit and Compliance Committee has not delegated such authority. |
(2) | With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was approved by the Audit and Compliance Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) There were no hours expended on KPMG’s engagement to audit the Registrant’s financial statements for the most recent fiscal year attributable to work performed by persons other than KPMG’s full-time, permanent employees.
(g) All non-audit fees billed by KPMG for services rendered to the Registrant for the fiscal years ended October 31, 2013 and October 31, 2012 are disclosed in 4(b)-(d) above.
The aggregate non-audit fees billed by KPMG for services rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant were approximately: (i) $0 for the fiscal year ended October 31, 2013, and (ii) $0 for the fiscal year ended October 31, 2012.
(h) The Registrant’s Audit and Compliance Committee has determined that the non-audit services rendered by KPMG for the fiscal year ended October 31, 2013 to the Registrant’s investment adviser and any entity controlling, controlled by, or under common control with the Registrant’s investment adviser that provides ongoing services to the Registrant that were not required to be pre-approved by the Audit and Compliance Committee because they did not relate directly to the operations and financial reporting of the registrant were compatible with maintaining the respective independence of KPMG during the relevant time period.
Item 5. | Audit Committee of Listed Registrants |
Not applicable.
Item 6. | Schedule of Investments |
The Schedule of Investments is included as part of Item 1 of this report.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not Applicable.
Item 10. | Submission of Matters to a Vote of Security Holders. |
Since the Registrant’s last response to this Item, there have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees.
Item 11. | Controls and Procedures. |
(a) Based on an evaluation of the Registrant’s Disclosure Controls and Procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) (the “Disclosure Controls”), as of a date within 90 days prior to the filing date (the “Filing Date”) of this Form N-CSR (the “Report”), the Registrant’s principal executive officer and principal financial officer have concluded that the Disclosure Controls are reasonably designed to ensure that information required to be disclosed by the Registrant in the Report is recorded, processed, summarized and reported by the Filing Date, including ensuring that information required to be disclosed in the Report is accumulated and communicated to the Registrant’s management, including the Registrant’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d)) under the Investment Company Act of 1940 that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. | Exhibits. |
(a)(1) | Code of Ethics | |
(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940. | |
(b) | Certifications of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE MAINSTAY FUNDS
By: | /s/ Stephen P. Fisher | |
Stephen P. Fisher | ||
President and Principal Executive Officer |
Date: January 8, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Stephen P. Fisher | |
Stephen P. Fisher | ||
President and Principal Executive Officer |
Date: January 8, 2014
By: | /s/ Jack R. Benintende | |
Jack R. Benintende | ||
Treasurer and Principal Financial | ||
and Accounting Officer |
Date: January 8, 2014
EXHIBIT INDEX
(a)(1) | Code of Ethics | |
(a)(2) | Certifications of principal executive officer and principal financial officer as required by Rule 30a-2 under the Investment Company Act of 1940. | |
(b) | Certification of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. |